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Gramercy Investment Trust v. Lakemont Homes Nevada

August 24, 2011

GRAMERCY INVESTMENT TRUST, PLAINTIFF AND RESPONDENT,
v.
LAKEMONT HOMES NEVADA, INC. ET AL., DEFENDANTS AND APPELLANTS.



APPEAL from the Superior Court of Riverside County. John G. Evans, Judge. (Super.Ct.No. INC086601)

The opinion of the court was delivered by: Ramirez P.J.

CERTIFIED FOR PUBLICATION

OPINION

Affirmed.

Following a foreclosure proceeding which resulted in a deficiency, plaintiff Gramercy Investment Trust (Gramercy) sued to recover the unpaid balance of a real estate mortgage loan, naming as defendants Lakemont Homes Nevada, Inc. and Lakemont Communities Nevada, LLC (collectively referred to as Lakemont), who were the guarantors of the loan. Gramercy made a motion for summary judgment for the full balance of the unpaid loan, approximately $31 million, without adjusting for the fair market value of the property following the collapse of the real estate market. The trial court granted the motion for summary judgment and Lakemont appeals.

On appeal, Lakemont argues that the trial court failed to adhere to the choice of law provision contained in the guaranty agreement in applying California law. We affirm.

BACKGROUND

Fiesta de Vida, LLC, owned real property located in Riverside County which was to be developed by FDV Investment LLC. In order to obtain financing for the project, title to the property was transferred to FDV Investment LLC (the borrower). The borrower was an entity managed by Lakemont Homes, Inc., a California corporation. On March 30, 2007, Gramercy lent $35 million to the borrower, and the loan was secured by a deed of trust. The loan agreement provided that it would be governed by the laws of the State of New York.

On the same date, and in connection with this financial transaction, defendants Lakemont Homes Incorporated, Lakemont Homes Nevada, Inc., Lakemont Communities, LLC, and Lakemont Communities Nevada, LLC, executed a payment guarantee in favor of Gramercy. The terms of the guaranty included a choice of law provision whereby the guaranty, like the loan documents themselves, would be governed by and construed in accordance with the substantive laws of New York. However, the guaranty included certain waivers: the guarantors agreed to waive any rights they might have pursuant to California Code of Civil Procedure sections 580a*fn1 and 726, subdivision (b),*fn2 and Civil Code section 2856.*fn3

Additionally, the guaranty agreement specifically provided that the amount of the guaranteed obligation may be reduced only by the price for which the collateral is sold at foreclosure sale, even if the collateral is worth more than the sale price.

The borrower failed to pay the debt on the maturity date, so notices of default were served by Gramercy on the borrower and the various Lakemont defendants. Subsequently, Gramercy filed a complaint for judicial foreclosure against the borrower (first cause of action) and the Lakemont defendants (guarantors--second cause of action). After notifying the borrower and the Lakemont defendants of the default, Gramercy exercised its right to foreclose on the property by means of a trustee sale. At the trustee's sale, the property was sold for $5,750,000, by credit bid to GKK Fiesta de Vida Owner LP, Gramercy's assignee to the deed of trust, on November 18, 2009.

On February 3, 2010, Gramercy made a motion for summary adjudication of issues as to the second cause of action against two of the Lakemont defendants.*fn4 On May 20, 2010, the court granted the motion. Judgment in favor of Gramercy was entitled in the amount of $33,537,994.65, plus costs. On July 22, 2010, Lakemont appealed.

DISCUSSION

On appeal, Lakemont argues that the trial court erred by failing to apply New York substantive law in the calculation of the judgment, as provided in the loan agreements and the guaranty, asserting that under New York's antideficiency law the judgment would be limited to the difference between the sale price and the fair market value of the property at the time of the trustee's sale. While we agree, in principle, with the notion that New York law governs, we disagree with the premise that ...


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