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 →