Wednesday, April 11, 2012
C.A. Upholds Ruling Against Bank Under Anti-Deficiency Statutes
Assignment After Trustee’s Sale Did Not Give Assignee Rights of a ‘Sold-Out Junior Lienor,’ Panel Says
By KENNETH OFGANG, Staff Writer
A bank’s attempt to sue a former homeowner after it obtained an assignment of a second trust deed from the original lender, who held both the first and second trust deeds before foreclosing, violated the anti-deficiency statute, the Court of Appeal for this district ruled yesterday.
Div. Four affirmed Los Angeles Superior Court Judge Randolph Rogers’ orders dismissing Bank of America’s suit against Michael Mitchell and awarding Mitchell attorney fees.
Bank of America sued Mitchell in 2010, alleging that he failed to pay what he owed on a second trust deed assigned to the bank by GreenPoint Mortgage Funding, Inc.
According to the complaint, Mitchell borrowed $315,000 from GreenPoint in 2006 in order to purchase a Lancaster home, the loan being secured by two deeds of trust; one was for $252,000 and the second for $63,000. Mitchell defaulted in 2008, and the property was sold at trustee sale for nearly $54,000 in November 2009; the assignment to Bank of America occurred a year later.
Rogers took judicial notice of the foreclosure documents, sustained Mitchell’s demurrer, and subsequently awarded fees of more than $8,400 under Civil Code Sec. 1717.
Justice Steven Suzukawa, writing yesterday for the Court of Appeal, said the trial judge was correct.
The jurist cited Code of Civil Procedure Sec. 580d, which bars a creditor from seeking a deficiency following nonjudicial foreclosure on notes “secured by a deed of trust or mortgage upon real property.”
Suzukawa acknowledged that under the case law, the statute does not bar a “sold-out junior lienor”—the holder of a second or subsequent trust deed who loses all interest in the property because a senior lienor has foreclosed—from suing for deficiency. But that exception does not apply when the first and second trust deeds belong to the same party.
Simon v. Superior Court (1992) 4 Cal.App.4th 63, which held that a lender holding both the first and second trust deeds on the same property could not seek a deficiency on the second after foreclosing on the first, is dispositive of the case, the justice said. Emphasizing the post-sale nature of the assignment, the justice said Bank of America stood in no better position than GreenPoint would have been had there been no assignment.
That the property in this case was purchased at trustee’s sale by a third party, rather than by the foreclosing lender as in Simon, does not make the cases distinguishable, the justice said.
“Although Simon noted the lender’s purchase at the foreclosure sale, that purchase was not material to its holding,” the justice wrote. “Instead, the court’s focus was on the lender’s dual position as holder of the first and second deeds of trust, and its consequent ability to protect its own interest.”
The bank’s argument that third-party sales should be treated differently as a matter of public policy “has no support in the statute, and the Bank suggests none,” Suzukawa explained.
The jurist went on to reject the bank’s argument that it could not be held liable for attorney fees because it filed a request for dismissal two days after the demurrer was sustained, and before judgment was entered. “To allow the Bank to dismiss at that late stage would permit procedural gamesmanship inconsistent with the trial court’s authority to provide for the orderly conduct of proceedings before it,” the justice wrote.
Attorneys on appeal were Bruce Dannemeyer of The Dreyfuss Firm for the bank, and Ulric E. J. Usher and Richard Kavonian for Mitchell.
The case is Bank of America v. Mitchell, B233924.
Copyright 2012, Metropolitan News Company