Loan Servicer May Pursue Judicial Foreclosure in Own Name

   In California a secured lender has two foreclosure options if a note is secured by a deed of trust or mortgage: 1) non-judicial foreclosure and 2) judicial foreclosure. The great majority of lenders proceed by non-judicial foreclosure because it is less expensive and relatively quick. However, there are circumstances where a lender might proceed by way of judicial foreclosure such as when the deed of trust does not contain a power of sale, the lender seeks a deficiency judgment, or the lender has been sued by the borrower. Judicial foreclosures are governed by Code of Civil Procedure section 725a et seq. 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.

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