Antideficiency Protections Under 580b, 580d, and 580e Amended and Clarified

  Antideficiency protections have been clarified by July 2013 legislation amending Code of Civil Procedure sections 580b and 580d. SB 426 amends those sections and clearly provides that the prohibitions contained in sections 580b and 580d include collecting or even owing a deficiency. The amendment further clarifies that the prohibition extends only to the borrower and the borrower’s non-encumbered assets — not to 1) guarantors, pledgors, or other sureties; or, 2) that might be satisfied from other collateral pledged to secure the obligation. Continue reading

580b Purchase Money Antideficiency Protection Applies to Short Sales

  In a case of first impression, the Fourth Appellate District in Coker v. JP Morgan Chase Bank, holds that the antideficiency protections of Code of Civil Procedure section 580b apply to any loan used to purchase residential real property, commonly referred to as a “purchase money loan,” regardless of the mode of sale. Continue reading

580e Short Sale Antideficiency Protections Not Retroactive

  Code of Civil Procedure section 580e provides protection to homeowners from a deficiency judgment when a short sale has been approved by the lender. Originally the section provided protection only from lenders whose notes were secured by a first deed of trust. In July 2011, section 580e was amended to expand antideficiency protection in the event of a short sale to any deed of trust, including junior lienholders, if the holder of said deed of trust consented to the short sale and received proceeds from the sale as agreed. Continue reading

Modification of Note Does Not Change Its Nature

  Code of Civil Procedure section 580b provides that no deficiency judgment shall lie after a sale of real property under a deed of trust given to the vendor to secure payment of the balance of the purchase price of that real property. Section 580b was drafted in contemplation of the standard purchase money transaction, in which the vendor of real property retains an interest in the land sold to secure payment of part of the purchase price.

  In Weinstein v. Rocha the court confirmed the breadth of section 580b. It held that a written settlement agreement, wherein the parties intended to modify the terms of a promissory note given to the seller to secure payment of part of the purchase price, was simply a modification of the note, not a separate obligation. The settlement agreement did not change the nature of the note — a seller financed note secured by a deed of trust.

  Seller’s remedy, therefore, was limited to foreclosure of the security. If that security is valueless by virtue of the foreclosure of a senior lien, section 580b applies and prevents any deficiency judgment on the note.

Anti-deficiency Statutes Summarized

  The increase in foreclosure and short sales in recent years has sparked some new legislation which expands California’s anti-deficiency laws. California’s present and impending anti-deficiency statutes, all contained in the Code of Civil Procedure, are summarized below. Continue reading

Demolition of a Building, Which Impairs Security, May Constitute Waste

  The owner of a parcel of real property with a building on it demolishes the building to make way for new development.  Unfortunately, the owner is unable to complete the development and ends up defaulting on a purchase money promissory note secured by a deed of trust on the property.  The holder of the note and DOT exercises the power of sale under the DOT and buys the property back at a foreclosure sale for less than the amount due under the note.  The note holder then sues the former owner and others for waste and impairment of security based on their demolition of the building, seeking as damages the loss of value in the property that resulted from the destruction of the building.  Is such an action barred by the antideficiency statutes? Continue reading

Immediate Assignee of Junior Single Lender Piggyback Loan Not Subject to Section 580d

   Sold-out, nonpurchase money junior lienholders are generally able to sue the borrower on their note once their security has been rendered valueless by a senior lienholder’s nonjudicial foreclosure sale. A judicially created exception to this rule is when the same lender is both the senior lienholder and the junior lienholder. In that circumstance, it has generally been held that Code of Civil Procedure section 580d precludes a deficiency judgment and, therefore, the lender cannot sue the borrower on the junior note. Moreover, a single lender cannot avoid the application of section 580d by assigning the junior loan to a different entity after the trustee’s sale on the senior lien.

   But, what about the circumstance 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 nonjudicial foreclosure sale, pursue the borrower for a money judgment in the amount of the debt owed? Continue reading