(Super. Ct. No. 30-2110-00392867) Appeal from a judgment of the Superior Court of Orange County, Kirk H. Nakamura, Judge.
The opinion of the court was delivered by: Ikola, J.
CERTIFIED FOR PUBLICATION
The trial court granted summary judgment to defendant William Lobel, reasoning that plaintiff Cadlerock Joint Venture, L.P. (Cadlerock), the assignee of a loan that had previously been secured by a junior real property lien, was barred by Code of Civil Procedure section 580d from obtaining a deficiency judgment against Lobel.*fn1 The senior and junior liens at issue were created contemporaneously when the loan originator structured a "piggyback" refinancing transaction, whereby Lobel executed two separate promissory notes and two accompanying deeds of trust both referencing the same real property.*fn2 Soon thereafter the originator assigned the smaller loan (and accompanying junior lien) to a purchaser in the secondary mortgage market. When Lobel defaulted on both loans, an assignee of the senior lien conducted a non-judicial foreclosure, which extinguished the junior lien.
Section 580d "precludes a judgment for any loan balance left unpaid after the lender's non-judicial foreclosure under a power of sale in a deed of trust . . . on real property." (Western Security Bank v. Superior Court (1997) 15 Cal.4th 232, 237.) On its face, section 580d contemplates a single loan. Thus, when two separate loans are secured (via separate deeds of trust) by the same real property, section 580d does not prevent a junior creditor from obtaining a money judgment for the full amount due on the underlying junior debt obligation when the senior lienholder conducts a non-judicial foreclosure that extinguishes the junior lienholder's security interest. (Roseleaf Corp. v. Chierighino (1963) 59 Cal.2d 35, 43-44 (Roseleaf); Bank of America v. Graves (1996) 51 Cal.App.4th 607, 611-616 (Graves).) Several appellate courts have held, however, that section 580d does preclude a deficiency judgment when the same lender is both the senior lienholder and the junior lienholder. (See, e.g., Simon v. Superior Court (1992) 4 Cal.App.4th 63, 77 (Simon).) Moreover, a single lender cannot avoid the application of section 580d under Simon by assigning the junior loan to a different entity after the trustee's sale on the senior lien. (Bank of America, N.A. v. Mitchell (2012) 204 Cal.App.4th 1199 (Mitchell).)
We must decide a novel question of law: When a single lender contemporaneously makes two nonpurchase money loans secured by two deeds of trust referencing a single real property and soon thereafter assigns the junior loan to a different entity, can the assignee of the junior loan, who is subsequently "sold out" by the senior lienholder's non-judicial foreclosure sale, pursue the borrower for a money judgment in the amount of the debt owed?
Because we answer this question in the affirmative, we reverse the court's grant of summary judgment in favor of Lobel. By its plain terms, section 580d applies only to a lender seeking a "deficiency upon a note secured by a deed of trust . . . upon real property . . . in any case in which the real property . . . has been sold by the . . . trustee under power of sale contained in the . . . deed of trust." As interpreted by our Supreme Court in Roseleaf, supra, 59 Cal.2d at page 43, section 580d "does not appear to extend to a junior lienor whose security has been sold out in a senior sale." Certain cases have found room to maneuver around Roseleaf, supra, 59 Cal.2d 35, based on concerns that lenders could undermine the underlying purposes of section 580d by artificially structuring loans to allow themselves to both nonjudicially foreclose on the security and obtain a deficiency judgment. (E.g., Simon, supra, 4 Cal.App.4th 63; Mitchell, supra, 204 Cal.App.4th 1199.) But it would be improper to extend this line of cases to the factual circumstances in the instant case, where the junior loan was assigned soon after origination.
In 2004, Lobel acquired certain real property located at 71 Anjou, Newport Beach, California (the Property). In October 2006, Lobel borrowed $878,750 from lender Sea-Breeze Financial Services, Inc. (Sea-Breeze). The money was used in part to pay off outstanding debt (approximately $600,000) secured by the Property. Lobel's transaction with Sea-Breeze consisted of two loans evidenced by two separate promissory notes and secured by two separate deeds of trust: (1) a $740,000 loan evidenced by an October 5, 2006 promissory note (senior loan) with a first deed of trust on the Property (senior lien); and (2) a $138,750 loan evidenced by an October 6, 2006 promissory note (junior loan) with a second deed of trust on the Property (junior lien).*fn3 The senior loan featured an initial interest rate of 8.5 percent; the interest rate was adjustable based on a formula fixed to the London Inter-bank Offered Rate. The junior loan was a fixed rate loan with an interest rate of 16 percent, with interest only payments of $1,850 for the first 120 months of the loan.
On October 16, 2006, Sea-Breeze assigned the junior loan to Residential Funding Company, LLC. Subsequently, the junior loan was assigned to LaSalle Bank, N.A., as trustee. There is no intimation in the record that either of these assignees was affiliated with Sea-Breeze.
Lobel last made a payment on the junior loan in August 2007. Lobel has since refused to pay the overdue principal amount of $138,750 and applicable interest accruing thereon. Lobel also defaulted with regard to the senior loan (the record does not disclose when Lobel last made a payment on the senior loan).
In February 2008, Sea-Breeze assigned its interest in the senior loan/lien to Central Mortgage Company (Central). Central conducted a non-judicial foreclosure sale on April 23, 2008. No surplus proceeds over and above the amount secured by the senior lien resulted from the sale. The junior lien was therefore extinguished on April 23, 2008.
LaSalle Bank, N.A., as trustee, assigned the junior loan/lien to Cadlerock on September 22, 2008.*fn4 Cadlerock filed a complaint on July 26, 2010, asserting causes of action for breach of contract, account stated, book account, money lent, and money had and received. It is undisputed that Sea Breeze and the assignees of the junior loan, including Cadlerock, have fully performed under the terms of the junior loan. It is undisputed that Lobel is in default under the terms of the junior promissory note. It is undisputed that the outstanding balance on the junior loan as of April 12, 2011 was $220,828.33, consisting of principal ($138,750) and interest ($82,078.33).
The parties filed competing motions for summary judgment based on the undisputed facts recited above. The court denied Cadlerock's motion and granted Lobel's motion: "[Section] 580d bars an anti-deficiency recovery on [Cadlerock's] junior lien. The original lender structured the final loan with two notes. Based on the liberal construction of anti-deficiency statutes, it would be exalting form over substance to treat [Cadlerock's] loan as a 'sold out junior.'"
We review de novo the trial court's rulings on the parties' respective motions for summary judgment. The relevant facts are undisputed and relatively straightforward. Thus, we may turn our undivided attention to ...