*1 Dist., Dec. E015010.Fourth Div. Two. 1996.] [No. SAVINGS
BANK OF AMERICA NATIONAL TRUST AND ASSOCIATION, Plaintiff and Respondent, al.,
CHARLES GRAVES et Defendants and Appellants.
Counsel C. Steams for Defendants and
Jeffrey Appellants. Saxon, Brewer, Kincannon, Solomon, Grindle, Solomon & Silverman & Roethe, Solomon, Richard A. R. Jan Ullar Vitsut Spinella, Lynn Reavely, and Linda Reed for Plaintiff and Respondent.
Opinion WARD, J. trial court Bank of America National granted plaintiff Tmst and and awarded Association’s motion for Savings summary judgment $61,530.32. Defendants, Graveses), (the and We Mr. Mrs. Graves appeal. affirm the judgment.
Facts Statement the Case 1991, the Graveses a CustomLine account opened equity (Bank). Trust Association Loans America National and Savings trust home in deed of the debtors’ account were secured second against $49,500 The Bank lent Graveses. Lake Arrowhead. 15, 1992, defaulted on the loan make by failing
On Graveses July date, made on that no further On they payments. due payment 1992, notice of and election to sell the Bank recorded a default October trust. set its trustee’s sale for March 1993. the deed of The Bank under Home Bank learned that Federal Loan Mortgage Corporation *4 had (FHLMC), holder of deed of trust on the also the the first property, The Bank trust- foreclosure therefore postponed instituted proceedings. 17, sale on FHLMC its trustee’s ee’s sale until May completed April 1993. 15, 1993, the sale was the and it was the bidder at sale. The price highest was FHLMC. trustee’s deed sale recorded amount FHLMC’s owing upon and the the FHLMC became owner of property. on account stated. thеn sued the for amounts due
The Bank Graveses failed to exhaust its defended on the the had ground Graveses (the “one form of action” under Code of Civil Procedure section 726 security rule).1 Bank, whose interest is
The trial court found for the “A lender stating: is not barred a deed of trust real against secured by junior priority property of the rule’ of Code Civil the of ‘one action California by provisions 726 from on the directly underlying obliga- Procedure its borrowers suing § tion, the was foreclо- where the lienholder’s security extinguished lien. It not that the lienholder commences its sure of a senior matters a the senior lienholder’s prior by recording foreclosure proceedings Sale, then continues its of Trustee’s and Notice of Default Notice first, sale foreclosure sale to allow the senior to complete the lien.” extinguishing in this conclu- on is the trial court was correct
The issue whether appeal We hold that sion of law. it was.2 of unless otherwise statutory are to the Code Civil Procedure
1All further references indicated. separate opposition to the argues to file a statement 2The Bank that Graveses’ failure opposition papers, summary filing Graveses’ late of the judgment, Bank’s motion for and the
Discussion
Debt.
Underlying
May
A
Junior Lienholder
I.
Sold-out
Enforce
must
California,
a
deed on real
secured
trust
a creditor
580a, 725a,
debt. (§§
before enforcing
underlying
on the
rely
security
580a,
insufficient,
(§§
is
statutes
аntideficiency
if
security
Even the
580b,
for
580d)
deficiency.
the debtor
a
against
limit or bar a judgment
may
35, 38-39
(1963)
Cal.Rptr.
59 Cal.2d
(Roseleaf
Chierighino
[27
Corp.
3.)
Here, the Bank contends it was entitled to directly against proceed because, own, a the debtors no fault of its it was sold-out through junior debtors, the based lienor. that the defenses raised Accordingly, argues the ‘onе of action statutes (§726) on form rule’ and the antideficiency 580a, 580b, not 580d) do not contend the Bank was (§§ The Graveses apply. sale a sold-out lienor own action in trustee’s junior because its postponing it of that status. deprived in which a
The term “sold-out lienor” refers to the situation junior lien, security the lienor’s senior lienholder forecloses its eliminating junior “A free all junior interest. senior foreclosure sale conveys property true, 437c, (b).) (§ While is provide sepаrate granting a basis for the motion. subd. this grounds. grant procedural did to trial court not exercise its discretion motion legislative liberally are to effectuate antideficiency 3The statutes to be construed “ actions, (2) them, ‘(1) including multiplicity purposes underlying policies prevent to a (3) economic security, prevent aggravation an to of an prevent to overvaluation with if were burdened property which result lost their also recession creditors (4) unrеasonably bid at prevent making low personal liability, and to the creditor value, sale, personal judgment a recover acquire the asset below its and also 308, (1991) (Torrey Bank v. Cal.App.3d 231 Pines against the debtor.’ [Citations.]” Hoffinan Court, Inc. 354]; 28 see also Evans v. Trailer Cal.Rptr. 318 [282 California 646].) Cal.Rptr.2d Cal.App.4th 551 [33 612 Thus, lien .... no has a junior longer property,
liens has A sold-out thus holds entirely destroyed. junior been on the note.” has ‘become valueless’ and is sue permitted directly that (Cont.Ed.Bаr 2d ed. (Bernhardt, and Deed of Trust Practice Mortgage Cal. 4.8, 193-194.) 1990) pp. § v. Cal.2d Corp. Chierighino, supra, In the case of leading held, “The ‘one form of action’ rule of section 726
Chief Justice Traynor [citations], lienor nor does the three- does not to a sold-out junior apply months limitation of section 580a. There is no reason compel [Citations.] is left lienor to foreclosure and sale when there nothing junior go through likewise to sell. The fair-value limitations of sections 580а and 726 ...[<][] lienor, has been rendered do not to a . . . whose security apply junior . . of the fair-value limitations valueless a senior sale. . purpose [^D (Id. at not extend to sold-out lienors.” in sections 580a and does junior of a 38-40.) Justice further “The pp. Traynor explained: position from that of a whose is lost a senior sale is different lienor through A senior can make certain that the security senior lienor. selling selling the debtor or the fair market an amount to his claim against brings equal value, less, not in for that amount. He need whichever is simply by bidding lienor, however, better funds. The no invest additional any than the debtor. Either would have invest himself position considerations additional funds to redeem or sale. buy Equitable debtor, his default that favor this burden on the not because it is only placing sale, but also because he has the benefit of his bargain senior provokes who, senior, lienor otherwise end selling might up with the unlike Cal.2d at nothing.” (Roseleaf Corp. Chierighinо, supra, “The texts on real set forth the same principles. leading not to the beneficiary does against deficiency judgment prohibition *6 valueless a of a deed of trust whose has been rendered by junior security After the foreclosure sale of the under a senior encumbrance. property lien, the junior has been lost the foreclosure sale of the senior security by note, then which is lienor can sue the debtor on directly promissory Starr, 1989) (2d ed. (4 considerеd unsecured.” Miller & Cal. Real Estate 9:156, 531; Witkin, 1987) (9th Law ed. see also 3 of Cal. p. Summary § 658-659.) Transactions Real Security Property, pp. § “A commentator stated the as follows: nonselling Another has principles is forecloses creditor whose is when senior destroyed junior trustor, because an action on the note directly against permitted bring in this situa- the one-action rule does not apply of security-first aspect a nonselling The Court held that tion. ... California has Supreme [^0 thе note from an action on directly creditor not barred bringing is junior under the senior power because senior foreclosure was conducted merely selling senior is barred rather court action. by of sale than [Citation.] 580d, but nonselling CCP obtaining deficiency judgment by a § The rationale stated in is that the junior is not. junior [Citation.] foreclosure) choice of not be for a method penalized (concerning should ['] n ... ... The California Court not make. Supreme that the did [H a is not bound thе fair-value has held that creditor nonselling junior by treat- of and 726 The court’s CCP 580a provisions [citation]. [Citation.] §§ of CCP to its treatment of the fair-value thus analogous ment provisions i.e., 580d, deeds trust following restriction of that neither applies § Practice, (Bernhardt, Cal. and Deed of Trust foreclosures.” Mortgage senior 4.33, 213-214.) 4.31 to supra, pp. §§ non- the rule: sold-out
Professor John R. Hetland summarizes “[T]he without is free the note pursue any remedy purchase-money junior value (CCP §726), market to the one-form-of-action limitation fair regard (CCP §§726, 580a), deficiency sale deficiency nonjudicial limitation (CCP (Hetland, Real Transactions §580d).” Secured Estate prohibitions 9.29, 219.)4 (Cont.Ed.Bar 1974) p. § It
II. No Action or the Bank the Status Negligence Deprived of Sold-out Lienholder. Junior Graveses, Thornton, Hibernia S. & L. Soc. citing supra, is not its own
Cal. 427 contend that the Bank a sold-out lienor because action in its trustee’s it of that status. sale postponing deprived Hibernia, that, be land court said: “It if the title to the may mortgagor’s title subsequent by has become to the extinguished making mortgage, or ceased to if the has been or has mortgaged destroyed, paramount, [citation], idle bringing need form of mortgagee through exist not go note; but for he an action foreclosure before can have a judgment the right when the his own act or himself of by neglect, deprives mortgagee, right foreclose the he at the time himself of the deprives same mortgage, . . . ‘He to waive the upon to an aсtion the note. is not authorized [citation]; and whether he release action on the indebtedness’ bring (Id. act his immaterial.” neglect some affirmative referred to added.) italics The act or which court neglect claim estate of in Hibernia was the creditor’s failure to file a with the *7 (Ibid.) legally There is no failure to some perform deceased debtor. such act facts of this under the case. required edition, volume, Bank, superseded principles but the by early, perhaps is an 4This cited in
remain force. 614 rule, looked to whether the courts have the Hibernia
In cases applying led to the on the of the creditor part action or affirmative some negligence (1987) Bank v. Schwenke Valley For in of the security. example, loss Pacific 298], held the comaker of a the court 134 Cal.Rptr. Cal.App.3d [234 189 even he to on a section 726 defense though note was entitled rely promissory creditor, without the consent the deеd of trust. was not a party the debtor’s debtor, a transaction with through separate released court in Valley explained, “Although exception partner. Pacific would be an in cases where foreclosure to the rule has developed one-action or has become worthless idle has been destroyed act because the security himself is [citations], does not if the beneficiary respon the exception is not allowed to circumvеnt for the loss Thus a creditor security. sible of of the debtor. of his without the consent statute himself by divesting (189 note.” his on the right proceed If he does so he has waived [Citation.] 140.) at p. Cal.App.3d 428], 63 Court Cal.App.4th Cal.Rptr.2d
In Simon v. Superior [5 Having second trust deeds property. bank held both the first and a first, sold-out lienor on bank contended it was a junior foreclosed on the the bank was not The court held that and could thus sue directly. the second its it was able to fully protect lienholder because a third sold-out party junior on the first the bank in foreclosing Because the action of secured position. deed, court held that trust eliminated the of the second trust deed noted, 580d. The Simon court was barred section a deficiency in was the case lienholder as was not a third sold-out party “Bank liens, second Bank was fully the first and As the holder of both protect It was not required its secured position. able lien the investment of the senior lien from its own foreclosure any lienholder eliminated possibility funds. Its of dual position additional Bank, its first the liened under and sale of that after foreclosure lien, in the secured property, principal end with no interest might up Court, (Simon in v. Superior of the court’s decision rationale Roseleaf.” supra, Cal.App.4th
Here, transaction release security through separate the Bank did not Schwenke, second liens as of both first and nor was it the holder as which the Hibernia rule to no cаses applying Simon. The Graveses cite us when a lienholder a senior lienholder involved the foreclosure by commenced, Mere com- its own foreclosure action. but not complete, did election of was not an nonjudicial proceedings mencement 593, 596 (1945) Cal.App.2d v. Title Ins. & Trust Co. remedy. (Carpenter 246, 247 (1952) 114 73].) Cal.App.2d [250 Compere P.2d [163 Griffin instance, had 1], brought for the court held that the fact a creditor P.2d *8 an election it did not constitute then dismissed action and foreclosure prior defi- and suit for the sale a later private that would preclude of remedies do not simply the Hibernia principle the cases applying We conclude ciency. at hand. to the facts apply Pursue Be Allowed to That a Junior Lienor Policy Requires
III. Public When the Borrowers Its Options Default. Bank, the obvious promise from the giving borrowed money
The Graveses Bank, accepted asked for to secure position, to repay. so, It not risks: the Bank took significant deed In doing second trust position. it subjected encumbrance but also behind the senior secured its loan only in the of default in the event afforded debtors to the itself protections payments. loan, two the Bank had only options: defaulted on their
After the Graveses the Graveses’ deed of trust 1) against foreclose on its junior priority it could current the senior lien funds to bring thereafter additional investing property, current; sale and allow 2) its foreclosure it or it could postpone keep be lienholder mandates that itself to be foreclosed out. Public policy either of these options. make a business decision to pursue allowed to however, that the Bank’s “nonjudicial The Graveses argue, foreclosure of nonjudicial would not have been extinguished by and not completed FHLMC had Respondent the first deed trust by Bank that, contend once its trustee’s sale . . . .” The Graveses postponеd action, it. The obliged complete commenced its foreclosure it was Bank, Graveses, except no in that situation to the had alternative according off, its junior in order to assume the senior obligation, pay lien. further. If much goes of the Graveses’ position
But the extension logical the junior would why lienholder must complete proceedings, immediately to commence the lienholder not also be proceedings required Otherwise, be acсused the lienholder could default of its debtor? upon lien- the senior its lien by allowing and “losing” sleeping upon rights Thus, Graveses’ under the position, to commence its foreclosure. holder lienholders, they whether or not to all second Hibernia principle commenced foreclosure had proceedings. of banks limit the ability would also the Graveses
The rule proposed by rule, Graveses’ proposed customers. Under the negotiate equity-loan defaultеd pay- when the debtors no room banks would have bargaining and, interruption, without would be to start The Bank’s recourse only ment. *9 616 foreclosure, lose them to their secured hesitancy lest their cause
complete debtor, they If the to work out the process things they delayed position. their and therefore to have lost rights be found to have on their slept could security.
And, cases, be holder the second lien would worse in all the yet, the to the lien A that position. requirement or assume first obliged pay (See be the senior lien would money inequitable. lienholder put up 41 57 that a [stating Cal.2d Corp. Chierighino, supra, himself, in that both in no the debtor to lienor is better than position in at a senior lienor’s have to additional funds to redeem buy would invest sale].) a lender to assume the first position
The of a practical requiring effect rule in extending equity be to alter the of banks practices would significantly would, believe, in line credit Banks we refuse to extend equity except loans. A lien rule which would require the most favorable of circumstances. rates would lead to take over the first lien always higher bank presumably of credit the risk. a rule would lead to tightening of interest cover Such in recent Borrowers years. which has in banking grown acceptance area us, instead, which, forced, tells be to look for unsecured loans logic would be less available. create double standard the Graveses would Finally, rule sought with funds to finance line those Only for lenders business. equity not, lien run the risk. Others could of the senior could simply assumption such loans. make prudently, us to conclude that rule proposed
These considerations lead practical be Graveses would both unworkable inequitable.
Disposition summary case. The The trial the law in this court properly applied was affirmed. judgment appropriate. judgment J.,* McDaniel concurred. states dissent.
HOLLENHORST, Acting majority correctly P. J. I 427 Cal. & L. Soc. v. Thornton test Hibernia S. dispositive 447], it. P. but fails to inexplicably [42 District, assigned by Chief Appeal, Fourth *Retired Associate Justice Court of VI, pursuant article section of the California Constitution. Justice Thornton, his own mortgagee, by Court said: Supreme our “[W]hen he at the mortgage, neglect, deprives right act or foreclose himself of *10 the note” to an action right upon the same time deprives himself of 429, added.) Thornton, 427, Cal. italics (Hibernia supra, S. & L. Soc. v. 109 in statement of the rule The also cites the more recent majority Pacific (1987) 134 Bank v. Schwenke 189 Valley Cal.App.3d Cal.Rptr. 298]: [234 rule Code of Civil Procedure an to the one-action “Although exception [of idle act has in cases where foreclosure would be an section developed 726] [citations], because the has been or has become worthless security destroyed does not is exception apply beneficiary responsible if himself for Thus, by loss a crеditor is not allowed to circumvent the statute security. of consent the debtor.” divesting security (Pacific his without the himself of of Bank, added.) at italics Valley supra, p. words, In other action rule of Code of Civil Procedure section 726 one secured creditor prevents suing underlying nonpurchase note when the secured creditor is not a bona fide sold-out money promissory lienor. rule,1 The one action rule is thus the and the is a case in general exception which “foreclosure be an idle act because the has been Schwenke, or has become worthless . . . destroyed (Pacific Valley .” Bank v. 134, 140.) supra, 189 The if the Cal.App.3d exception inapplicable “beneficiary (Ibid.) himself for the loss of responsible security.” lessens the afforded consumers the one action majority protection by rule that Bank of America National Trust and Associa- by holding Savings tion is a bona fide sold out lienor. the bank was a sold-out Although liеnor, it did not achieve that status without because the bank fault clearly took action which the loss security: resulted in affirmative of intentionally sale so that the senior lienor could postponed This action the bank rendered its valueless. The by foreclose first. to the one action rule was therefore and the one- exception inapplicable action rule bars the bank from the debtors pursuing individually. Valley succinctly states the one action rulе: “The law of this state is that 1Pacific recovery by mortgage any can be but one form of action for the of debt. . . secured *[t]here Proc., .’; (Code upon security. real . . that form of action is foreclosure of the Civ. 726.) judgment security, beneficiary deficiency If the seeks a in excess of the value § by judicial process by operation power he is further limited to a foreclosure rather than Proc., (Code 580b.) thus of sale under the deed of trust. Civ. The existence § bring independent underlying right denies the secured creditor the of action on the cause Schwenke, 134, 140.) (Pacific Valley supra, promissory Cal.App.3d note.” Bank v. 189 nevertheless refuses to one action rule on majority “public While it is to further stating not what grounds. public policy trying policy” decision, considerations practical the court concludes that lead by its “[t]hese would be both us conclude that rule Graveses proposed by ante, (Maj. unworkable and inequitаble.” opn., fully clearly has been stated The applicable public policy one rule our its enactment of the Court Legislature Supreme (1963) v. Cal.2d 35 Corp. Chierighino Cal.Rptr. [27 41 Cal.2d For P.2d and Brown Jensen P.2d 425]. 193 [259 97] *11 that, the in Justice as between bona Roseleaf, Traynor example, explained debtor, favor fide lienor considerations sold-out junior equitable lienor, however, in to “The no better position lienor: junior funds to Either would have to invest additional himself than the debtor. this or in at the sale. considerations favor buy Equitable placing redeem debtor, not it is his default that burden on because only provokes sale, the junior but he has benefit his bargain senior also because senior, who, end with up nothing.” unlike the otherwise might lienor selling 41.) unspecified its Corp., basing (Roseleaf supra, By opinion considerations,” statements of both the disregards “equitable majority Court, course of and the and embarks on a rudderless Legislature Supreme to unknown own destinations. cited consist of a majority parade The considerations” “practical would holding require horribles that are based on the that contrary premise and, foreclosure, lest their complete lenders “to start without interruption, ante, at opn., their hesitancy (Maj. pp. cause them lose secured position.” 615-616.)
I follow the well-established merely A would disagree. contrary holding take affirmative action lose intentionally that the lender not may principle in fide sold-out order to assert that has become a bona Schwenke, Bank v. (Pacific Valley supra, Cal.App.3d lienor. foreclose, or the bank in a would contrary holding require Nothing in a nothing so. began, it from Once the foreclosure doing process prevent or continuing it from postponing contrary prevent holding require foreclosure, the bank to require nor would a contrary holding anything only thing contrary or not the foreclosure prоcess. complete complete action taking bank would would be to holding prevent do affirmative words, a contrary one rule. In other intent to circumvent the with the and avoid manipulate who only attempted would limit lenders holding lienor. fide one It would not affect a bona sold-out action rule. is that proper “public policy” stated the statutes. The majority should it rather than on its own embarking nebulous interpretation which of the one I ignores purposes action rule. would reverse the judgment.
Appellants’ for review the Court petition was denied Supreme March Baxter, J., Chin, J., 1997. did not therein. participate