Daily Development for Thursday, October 7, 1999

By: Patrick A. Randolph, Jr.
Professor of Law
UMKC School of Law
Of Counsel: Blackwell Sanders Peper Martin
Kansas City, Missouri
randolphp@umkc.edu

Thanks to Jack Murray at First American Title for the tip on this case. The report is by the editor.

MORTGAGES; DEFICIENCIES; ANTIDEFICIENCY STATUTES; PURCHASE MONEY MORTGAGE: Mortgage securing purchase money obligation but not secured by property acquired with such purchase money is not a "purchase money mortgage" barred from collecting a deficiency under California CCC 580b.

Kurz v. Calvo, 1999 WL 756988 (Cal. App. 9/27/99)

Broker took a note for part of his commission for the sale of an apartment complex, and the maker of the note gave a deed of trust securing the note on property that the maker had acquired several years before. Later, when the property securing the note was sold under a senior lien, thus wiping out the deed of trust given to the broker, the holder of the note secured by that deed of trust sued on the note.

The borrower argued that under California's antideficiency statutes a "sold out junior" under a purchase money mortgage note has no right to sue on the note because that would amount to awarding the mortgagee a deficiency judgment. The borrower stressed the various policies supporting antideficiency legislation affecting purchase money mortgages in support of its position. The trial court agreed, and denied the mortgagee's claim.

On appeal: held: Reversed. The mortgagee may sue on the note.

Here is the language of the statute.

"No deficiency judgment shall lie in any event after a sale of real property or an estate for years therein for failure of the purchaser to complete his or her contract of sale, or under a deed of trust or mortgage given to the vendor to secure payment of the balance of the purchase price of that real property or estate for years therein, or under a deed of trust or mortgage on a dwelling for not more than four families given to a lender to secure repayment of a loan which was in fact used to pay all or part of the purchase price of that dwelling occupied, entirely or in part, by the purchaser. . . "

The appeals court states, in a very brief opinion, that the California statute was amended in 1989 to insert the term "that property" in order to demonstrate that only a deed of trust on the property that was acquired with the purchase money obligation is affected by the statute. If this was the legislative intent, it is not manifest in the language of the statute (not the first time for that). The term "that property" refers back to the property sold, but does not grammatically refer to the property made subject to mortgage.

The court cites no authority for this proposition. The West Annotated Code indicates that the historical note for the 1989 amendment to CCP Section 580b can be found in the notes to CCP 726 (the "one form of action rule"). The editor's review of that historical note from 1989 does not support the court's description. Perhaps California antideficiency specialists can demonstrate the precise historical support for the court's view.

It is true, however, that the famous antideficiency case of Roseleaf v. Chierighino, 27 Cal. Rptr. 873, 378 P.2d 97 (Cal. 1963), holds that a deficiency judgment will be allowed on a deed of trust securing purchase money where the deed of trust relates to property other than that purchased. Even if the court's contention that the legislature confirmed Roseleaf in its 1989 amendments is not correct, the borrower would still have to contend with the holding of that case.

In a more recent decision, Conley v. Matthes, 66 Cal. Rptr. 2d 518 (Cal. App. 1997), a California appeals court concluded that the policies of Section 580b would reach far enough to require an exception to Roseleaf and prohibit a deficiency on a deed of trust on property other than the property sold when the property sold and the security property were both transferred to the borrower as part of the same overall transaction.

The court distinguishes Conley here simply by stating that the facts of Conley are distinct from this case, where the security property had been acquired earlier. But it does not go on to analyze any other arguments made by the mortgagor as to whether the instance deal was a "nonstandard" transaction to which Roseleaf ought not apply. The court seems convinced by the stautory language and history, which the editor has not been able to confirm and which are not discussed in Conley, decided after 1989. Comment 1: California courts have had a lengthy romance with the antideficiency legislation that is unique to that state. They have squeezed, twisted and manipulated the language of the statute in many ways to fulfill obscrue and uncertain policy objectives. It would be nice if we could chalk this case up as one that refused to play this game, but the problem is that it perhaps had a duty at least to entertain the borrower's policy arguments. The statute remains elusive on the point in question.

Comment 2: The above having been said, the editor sees no intrinsic reason why this case differs materially from Roseleaf, but, come on a California court denying a party the right to advance policy arguments in support of an antideficiency statute interpretation? Why it's just plain unAmerican!!!

Readers are urged to respond, comment, and argue with the daily development or the editor's comments about it.

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