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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 This opinion has not been certified for publication or ordered published for purposes of rule 8.1115.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 ...

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