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R.E. Loans, LLC v. Investors Warranty of America

January 23, 2013

R.E. LOANS, LLC, PLAINTIFF, CROSS-DEFENDANT AND RESPONDENT,
v.
INVESTORS WARRANTY OF AMERICA, INC., ET AL., DEFENDANTS, CROSS-COMPLAINANTS AND APPELLANTS.



Dodie A. Harmon, Judge Superior Court County of San Luis Obispo (Super. Ct. No. CV090732)

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

CERTIFIED FOR PUBLICATION

(San Luis Obispo County)

Several loans on real property may be secured by a single deed of trust and cross-defaulted, that is, a default on one will be a default on all. Here we conclude that unless the parties otherwise agree, the priority of the loans does not change.

Plaintiff agreed to subordinate its existing trust deed to a new trust deed in favor of defendants securing a note in the amount of $4,006,600. Defendant's new trust deed, however, secured that note plus two other notes for a total of $21 million. The notes were "cross-defaulted."

Plaintiff claimed that defendants breached the subordination agreement because the loan secured by the defendants' trust deed exceeded $4,006,600. The trial court agreed and granted plaintiff summary judgment in its action for declaratory relief. We reverse.

Defendants did not breach the subordination agreement. The notes secured by defendants' trust deed are treated as separate loans. Plaintiff's trust deed is subordinate only to the $4,006,600 loan. The agreement to cross-default the loans is between defendants and their borrower. It does not affect plaintiff's right to protect its interest by curing the default under the $4,006,6000 note.

FACTS

Martin Weyrich Winery, LLC and related entities (collectively Weyrich) owned a parcel of real property in San Luis Obispo County known as "Jack's Ranch." The ranch was encumbered by a number of loans including a third trust deed held by R.E. Loans LLC (RE), securing a loan of $6.5 million.

In 2006, Weyrich refinanced the loans secured by Jack's Ranch. Weyrich paid the first two loans and paid RE $3.5 million on its existing loan. In return, RE subordinated its existing deed of trust to a new loan from Transamerica Financial Life Insurance Company (Transamerica) in the amount of $4,006,600.

The subordination agreement provides that RE will subordinate its trust deed to "a new loan in the principal sum of $4,006,600[] secured by new first deed of trust . . . in favor of [Transamerica]."

Paragraph 1 of the subordination agreement provides that RE's trust deed will be subordinate in all respects, "including all renewals, modifications, and extensions thereof that do not increase the rate of interest that is charged on the new loan, and that do not increase the principal amount of the new loan other than by the accrual of interest or other charges that may become due under the terms of the new loan."

Similarly, paragraph 8 of the subordination agreement provides in part: "New Lender may extend the time for payment, surrender any security, collateral or claims related to the indebtedness of Borrower to New Lender and may make any settlements and compromise thereof; all without notice to or consent of the Existing Lender and without affecting New Lender's rights hereunder provided that the same do not increase the rate of interest that is charged on the new loan, and do not increase the principal amount of the new loan other than by the accrual of interest or other charges that may become due under the terms of the new loan."

The agreement also contains an integration clause as follows: "This Subordination Agreement, when executed, shall constitute the one and only agreement or set of rights and obligations as between New Lender and the Existing Lender. The Existing lender expressly agrees that the Existing Lender shall not be entitled to rely upon any fact, circumstance, assumption, ...


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