APPEAL from a judgment of the Superior Court of Los Angeles County, Deidre H. Hill, Judge. Reversed. (Los Angeles County Super. Ct. No. BC396676)
The opinion of the court was delivered by: Croskey, J.
CERTIFIED FOR PUBLICATION
Appellants Alan and Dorina Weinstein (the Weinsteins), purchasers of real property, appeal from an order enforcing a settlement agreement between them and the seller, respondent Juan Rocha.
The property's purchase was partially financed by a promissory note in favor of Rocha, secured by a second trust deed. The primary financing was supplied by the holder of the senior first trust deed. Rocha and the Weinsteins later entered into a settlement agreement to dismiss the Weinsteins' action against Rocha for alleged failed disclosures concerning the sale. The agreement altered the provisions of the promissory note by, inter alia, lowering the amount of the debt.
The Weinsteins later stopped paying on Rocha's note, and he obtained a judgment against them for the note's entire balance. The Weinsteins assert that the anti-deficiency statute (Code Civ. Proc., § 580b) should have limited Rocha's relief to foreclosing the promissory note's security.
We hold that, as the settlement agreement effected a modification of the promissory note, Rocha's right to recover on secondary lien was limited by the anti-deficiency statute. We therefore reverse the trial court's judgment.
FACTUAL AND PROCEDURAL BACKGROUND
On June 30, 2006, Alan and Dorina Weinstein purchased a multi-unit property from Juan Rocha for a total of $1,265,000. The Weinsteins financed the purchase through a cash payment of $200,000, a note of $820,000 secured by a first deed of trust in favor of En Financial, and a note for $245,000 secured by a second deed of trust in favor of Rocha (the Promissory Note). This last amount was altered before closing to $209,418.
On August 20, 2008, the Weinsteins sued Rocha for allegedly not disclosing that the property violated certain provisions of the Los Angeles Municipal Code (Housing Code) at the time of sale.*fn1 Rocha resolved the Weinsteins' action by means of a settlement agreement (the Settlement Agreement) executed on February 18, 2009.
Instead of Rocha paying the Weinsteins an amount to compensate them for the undisclosed housing code violations, the parties agreed to reduce the Weinsteins' obligation to Rocha. However, if the Weinsteins did not timely make payments on the reduced Promissory Note amount, the amount due would be increased to nearly the original amount and Rocha could foreclose on the property. The Settlement Agreement provided that: (1) "the principal amount on the Promissory Note effective as of the date of this Agreement shall be amended to be $150,000," (2) the "term of the Promissory Note" would be extended from July 3, 2009 to July 3, 2012, (3) the monthly payments would be interest-only payments of $1000, and (4) upon the Weinsteins' failure to make timely payments, Rocha reserved "the right to accelerate payment of the amount of $200,000 plus accrued but unpaid interest due on the Promissory Note and foreclose on the Property." The Settlement Agreement provided that the trial court had jurisdiction to enforce its terms.
The Weinsteins ultimately defaulted on both notes. In October 2010, En Financial sold the property in a foreclosure sale due to the Weinsteins' default. The Weinsteins had also ceased payments on Rocha's note in November 2009, and on December 16, 2010, Rocha gave the Weinsteins 10-day notice that he was accelerating payment as per the Settlement Agreement. The Weinsteins did not pay Rocha any of the outstanding amount, and on April 8, 2011, Rocha moved to enforce the Settlement Agreement under Code of Civil Procedure section 664.6.*fn2 Rocha sought the full amount of the principal under the acceleration provision ($200,000), the unpaid interest payments ($14,000), and attorney fees. The Weinsteins opposed the motion, asserting that section 580b precluded Rocha from recovering a deficiency judgment against them and limited his remedy to the Promissory Note's security (which had already been exhausted by the foreclosure by the holder of the first trust deed, En Financial). The Weinsteins further argued that Rocha could not enforce the Settlement Agreement as a way of circumventing section 580b, because the Agreement only altered the Promissory Note and did not create a new avenue of recovery.
The trial court, however, held that the Settlement Agreement was equivalent to a judgment providing for payment of $200,000 to Rocha in the event the Weinsteins defaulted on the Promissory Note, and entered a judgment in favor of Rocha for $215,615 (principal amount, unpaid interest, and attorney fees). The Weinsteins appealed from this judgment.
Rocha contends that the Settlement Agreement is an independently enforceable contract that does not fall within the proscription of section 580b. The Weinsteins contend that the Settlement Agreement merely modified the already existing obligations owed under the Promissory Note and is not independently enforceable. They also contend that section 580b bars Rocha from any relief other than a foreclosure on the Promissory Note's security. We conclude that the Settlement Agreement is inextricably tied to the Promissory Note, and was a ...