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Naresh P. Singh, et al v. California Mortgage and Realty


December 23, 2010


(Santa Clara County Super. Ct. No. 1-08-CV-116748)

The opinion of the court was delivered by: Elia, J.

Singh v. Cal. Mortgage and Realty



California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions not certified for publication or ordered published, except as specified by rule 8.1115(b). This opinion has not been certified for publication or ordered published for purposes of rule 8.1115.

Plaintiffs, the trustees of two living trusts, were junior lienholders in leasehold interests in a San Jose hotel. In this appeal they seek review of a summary judgment granted to 2720 Uridias Ranch, LLC (Uridias) and California Mortgage and Realty, Inc. (California Mortgage) following the foreclosure sale of the leasehold interests by a senior lienor. Plaintiffs contend that Uridias improperly added the amount attributable to an advance it had previously made to the foreclosing lienor; consequently, they were deprived of the "surplus proceeds" they should have received when the foreclosure sale occurred. Plaintiffs further argue that the notice of default and notice of trustee's sale were defective for failing to identify Uridias's advance. We find no merit in either contention and therefore must affirm the judgment.


In 2005 the Clarion Hotel, located in San Jose, was operated by the Delta Hotel Group, LP (Delta), which was a sublessee of Rosemary Land Company, LLC (Rosemary), also a sublessee. In February 2004 plaintiffs loaned $1.5 million to Rosemary, Delta, and Liberty Properties, LLC,*fn1 secured by a deed of trust in the leaseholds. In subsequent years the amount was increased to $2 million.

Plaintiffs' lien was originally in third position. First in line among the secured lenders was True North Management Group (True North), while the second position was occupied by Redwood Mortgage Investors VIII (Redwood). In October 2005 CMR Mortgage Fund II, LLC (CMR II) made a $6 million loan, also secured by deeds of trust in the leasehold interests held by Rosemary and Delta. That transaction was facilitated by respondent California Mortgage, which was the trustee and loan servicing agent. Plaintiffs agreed to subordinate their position to CMR II, leaving them in fourth position. The successor in interest to CMR Fund II was respondent Uridias, which thus became the third lienholder.

On January 29, 2007, CMR Fund II recorded the default of the borrowers on the $6 million note of October 2005. On October 22, 2007 Rosemary and Delta declared bankruptcy under Chapter 11 of the United States Bankruptcy Code, listing California Mortgage as a creditor. As to both debtors, California Mortgage obtained relief from the automatic stay in bankruptcy court.

California Mortgage recorded a Notice of Trustee's Sale on June 12 and 13, 2008. By this time the notes payable to True North and Redwood were fully due and payable, and default interest on second-place Redwood's loan was accumulating at a rate of 18 percent. The payoff figure for True North was approximately $9.85 million as of May 31, 2008. Redwood's payoff amount was approximately $5.2 million as of June 6, 2008.

On July 2, 2008, Uridias and Redwood entered into a Workout/Forbearance Agreement, under which Redwood agreed to postpone the foreclosure sale, in consideration of Uridias's payment on the existing debt of "no less than" $1.5 million. The next day Uridias advanced $3,527,460 to Redwood. Ajay Shingal, the Uridias partner who authorized the payment, testified that Uridias wanted to pay as much as it could under the forbearance agreement in order to reduce the amount of interest, given the applicable 18 percent rate, as well as other expenses. Relying on the terms of its note and deed of trust, Uridias added the advance to the principal balance of its note, along with a 10 percent "advance fee" of $352,746. An accounting by Uridias listed $9,980,280.67 as the total amount owed on its note.

Plaintiffs initiated this action on July 7, 2008 to enjoin the foreclosure sale. They obtained an emergency temporary restraining order the same day, but their application for a preliminary injunction was denied two weeks later, on July 21, 2008. The foreclosure sale took place the following week, on July 28, 2008. Uridias made a successful credit bid of $3,600,500 for the Delta lease. The Rosemary leasehold was sold to the Etessam Family Trust for $6,330,350. The sale thus yielded $9,930,850, creating a shortfall of about $50,000. The Etessam proceeds were paid to Uridias, and, as no surplus emerged from the sale, plaintiffs as junior lienors received nothing.

Having been unsuccessful in their pursuit of injunctive relief, plaintiffs filed a first amended complaint on August 14, 2008, naming Uridias and California Mortgage as defendants and seeking declaratory relief, restitution, disgorgement, and damages. On April 3, 2009, the trial court denied plaintiffs' application for a writ of attachment, finding that they had "not met their burden of establishing the probable validity of their claim(s)."

In July 2009 Uridias, California Mortgage, and plaintiffs each filed a motion for summary judgment. None of the material facts asserted by any party was disputed. On October 30, 2009, the superior court denied plaintiffs' motion and granted the motions of California Mortgage and Uridias. The court determined that Uridias, having made the advance to protect its security, had priority over the junior lien of plaintiffs. From the ensuing judgment on November 17, 2009, plaintiffs brought this timely appeal.

Discussion 1. Standard and Scope of Review

When reviewing a trial court summary judgment ruling, we " 'independently determine the construction and effect of the facts presented to the trial court as a matter of law.' " (Washington Mut. Bank v. Jacoby (2009) 180 Cal.App.4th 639, 643, quoting Kolodge v. Boyd (2001) 88 Cal.App.4th 349, 356.) If the facts are undisputed, as in this case, the motion may be resolved as a matter of law in accordance with the general principles governing summary judgment. (Adams v. Paul (1995) 11 Cal.4th 583, 592; Jordache Enterprises, Inc. v. Brobeck, Phleger & Harrison (1998) 18 Cal.4th 739, 751.) Accordingly, the motion must demonstrate that the material facts are undisputed and that the moving party is entitled to judgment as a matter of law. (Code Civ. Proc., § 437c, subds. (b)(1) & (c).) When the moving party is the defendant, the motion will be granted if one or more of the elements of the cause of action cannot be separately established or the defendant establishes a complete defense to that cause of action. (Code Civ. Proc., § 437c, subds. (o), (p)(2); Aguilar v. Atlantic Richfield Co. (2001) 25 Cal.4th 826, 850 (Aguilar); Truong v. Glasser (2009) 181 Cal.App.4th 102, 109.) Conversely, a plaintiff who moves for summary judgment must establish that there is no defense to the causes of action asserted. (Code Civ. Proc., § 437c, subds. (a), (p)(1).) The moving party, whether plaintiff or defendant, bears the burden of persuasion that there are no triable issues of material fact and that the moving party is entitled to judgment as a matter of law. (Aguilar, supra, 25 Cal.4th at p. 850; Padilla v. Rodas (2008) 160 Cal.App.4th 742, 746-747.)

2. Priority of Liens

Plaintiffs' first amended complaint contained one substantive claim, that plaintiffs were entitled to a declaration that Civil Code section 2924k, subdivision (a),*fn2 [2] "governs the priority of the distribution of [the] proceeds" of the foreclosure sale. Consequently, plaintiffs asserted, there was a surplus of the proceeds that should have been distributed to the junior lienors pursuant to the statute.

In their summary judgment motion plaintiffs invoked sections 2903, 2904, and 2876, for the proposition that Uridias was not permitted to be subrogated to the rights of Redwood because Uridias had not "satisfied or paid off or remedied or cured the entire debt to Redwood." Uridias responded that section 2876, the primary statute on which plaintiffs relied, was "a subrogation rule, and where necessary, a priority reversal statute. It is not a statute limiting the right of junior lienholders to make optional advances to senior lienholders." Uridias was not seeking priority reversal, but was only adding an advance to a senior lienor to its junior position. "It did not take a subrogated position to Redwood's second position and did not need to. There was no intervening lien." Subrogation concepts and the statutes cited by plaintiffs were therefore irrelevant. Uridias maintained that it had the right to add the advance to its note and deed of trust, not only under common law but under the terms of its note and deed of trust.

On appeal, these two parties resume their respective arguments. Plaintiffs again cite sections 2903 through 2905, and they assert section 2876 as a specific limitation on Uridias's ability to add the advance to its lien--that is, Uridias could not do so because it had not satisfied the Redwood lien. Addressing the note and deeds of trust, plaintiffs continue to assert that the advances had to cure or remedy the default on the senior (Redwood) lien. Plaintiffs claim entitlement to $3,074,406.70, the amount they represented to be the outstanding debt to them as of the foreclosure sale on July 28, 2008.

The cited statutes do not help plaintiffs. Sections 2903 through 2904*fn3 confer upon the junior lienor the right, but do not impose a duty, to redeem the lienor's interest, and they accord to that party subrogation rights in the superior lien. (See United States Cold Storage v. Great Western Savings & Loan Assn. (1985) 165 Cal.App.3d 1214, 1224.) Subrogation is not at issue in this case. Section 2876 provides: "Where the holder of a special lien is compelled to satisfy a prior lien for his own protection, he may enforce payment of the amount so paid by him, as a part of the claim for which his own lien exists." This provision permits the junior lienor to add the amount of the senior lien he or she has satisfied to the amount of his or her own lien. It does not foreclose such addition when circumstances have not "compelled" full satisfaction of the senior lien. No other authority cited by plaintiffs precludes the making of advances short of full satisfaction of the senior lien or limits the parties' ability to do so by contract.

Here the note and deed of trust authorized Uridias to make such advances in order to avert the senior lienor's foreclosure and to reduce the rapidly accumulating interest debt, which indisputably would have eliminated the interests of both junior lienors, Uridias and plaintiffs. Paragraph 9 of the note stated: "9. Additional Advances: The Holder shall be entitled to advance such further sums as necessary, in the Holder's sole discretion, to cure any default(s) on any senior lien(s) including property tax liens. Any sum or sums so advanced shall be considered additional advances under this Note and the Deed of Trust by which this Note is secured and shall bear interest at the Default Rate set forth above from the date of the advance(s) until paid by the Borrower. Further, Maker shall pay to Holder as liquidated damages an additional fee equal to ten percent (10.00%) of any sum(s) advanced hereon for services rendered in connection with such advance(s)."

Paragraph 20 of the corresponding deed of trust provided, "Right to Cure Defaults. If an Event of Default occurs, Beneficiary may, but is not required to, and without notice to or demand on Trustor and without releasing Trustor from any obligation, make or do the same in such manner and to such extent as Beneficiary may deem necessary or advisable to protect the security hereof. Beneficiary is authorized to enter upon the Trust Property for such purposes, or appear in, defend, or bring any action or proceeding to protect its interest in the Trust Property or to foreclose this Deed of Trust or collect the Debt, and the cost and expense thereof (including attorneys' fees and expenses) with interest as provided in this Paragraph, shall be due upon demand from Beneficiary to Trustor. All such costs and expenses incurred by Beneficiary in remedying such Event of Default or in appearing in, defending, or bringing any such action or proceeding shall be paid at the Default Rate as stated and defined in the Note and secured by this Deed of Trust."

These provisions entitled Uridias to cure the borrower's default "to such extent" as Uridias deemed "necessary or advisable" to protect its security interest. Nothing in the language of either the promissory note or the deed of trust required the advanced funds to cure the borrower's default completely before Uridias could recapture the advance by adding it (plus the advance fee) to the balance. Neither statutory nor common law invalidated Uridias's action. (See, e.g., Manning v. Queen (1968) 263 Cal.App.2d 672, 674.) If such partial cures were restricted in the manner that plaintiffs envision, few creditors in Uridias's position would step forward to prevent the loss of security interests and many more foreclosure sales would take place. Such a result would benefit neither the borrower nor any of the lienors junior to the foreclosing lender, including those in plaintiffs' position.

Plaintiffs simply cannot avoid the consequences of being fourth in priority. (See 5 Miller & Starr, Cal. Real Est. §§ 11: 1, 11:100.) They did not act to protect their own interests, as did Uridias, and they are not now permitted to enrich themselves with $3 million of the money Uridias advanced to protect both itself and plaintiffs from losing their entire interests through foreclosure.

3. Adequacy of Notice

Plaintiffs further contend that "defendants are estopped" from collecting the proceeds attributable to the Uridias advance because neither Uridias nor California Mortgage provided notice of the advance, "either in the Notice of Default or the Notice of Trustee's Sale, or even directly to those present at the July 28, 2008 foreclosure sales." They again rely on section 2876, and in their reply brief they invoke section 2924, misquoting that statute for the proposition that the notice of default "must 'set forth the nature of such breach.' "*fn4 Neither that statute nor the case authority they cite, Little v. Harbor Pacific Mortgage Investors (1985) 175 Cal.App.3d 717, enhances their position. As the court stated in Little, " 'A purpose of the required statement in the notice of default is to afford the debtor an opportunity to cure the default and obtain reinstatement of the obligation within three months after the notice of default as provided in section 2924c of the Civil Code. [Citation.]' [Citation.] The debtor is to be given enough information so the default can be cured. '[T]he statute is sufficiently complied with if the notice of default contains a correct statement of some breach or breaches sufficiently substantial in their nature to authorize the trustee or beneficiary to declare a default and proceed with a foreclosure.' [Citation.]" (Id. at p. 720, italics added.)

As respondents point out, inadequate notice was not pleaded in plaintiffs' complaint as a ground for invalidating the foreclosure sale. In their initial complaint they alleged that they were "now 'sold-out' juniors," who had no recourse to recoup their debt unless they had enough time to secure the cash and financing to purchase the leasehold estates. Plaintiffs wanted a declaration that the CMR II note had been reinstated and was not currently in default. In their first amended complaint, they contested Uridias's accounting and claimed that out of the proceeds of the foreclosure sales, they were entitled to $3,074,406.70, which was the "outstanding balance of obligations" to them as "first-in-line junior lienors." Plaintiffs did not complain of lack of notice.

But even if this issue is cognizable for purposes of summary judgment analysis, and even if plaintiffs were able to show that the notice was legally insufficient for failing to include the advance,*fn5 they nevertheless cannot obtain the relief they seek. The chief flaw in plaintiffs' claim is the absence of any nexus between the insufficient notice and the distribution of the sale proceeds. In other words, even if a detailed statement of the breach had been given to them, plaintiffs still would not have been entitled to $3 million from the foreclosure sale. As discussed earlier, this did not constitute "surplus proceeds" but was part of the amount properly advanced by Uridias. Furthermore, there is no indication in the record that plaintiffs took the initiative to discover the basis for the representation in the Notice of Trustee's Sale that the unpaid balance was $5.88 million, nor evidence that they attempted to cure the default of the senior liens. Instead, they relied on the premise that any default had been cured and simply opposed the foreclosure sale on that ground. There is no ground for overturning the sale, nor any remedy available to plaintiffs for the assertedly inadequate notice. The trial court did not err in granting summary judgment.


The judgment is affirmed.



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