Key Decisions

May 2012 – Does Not Eliminate A Junior Lienholder’s Right To Sue

(filed under: | May 16, 2012)

A Senior Lienholder’s Foreclosure On Real Property Does Not Eliminate A Junior Lienholder’s Right To Sue — Unless They Are One And The Same

Bank of America, N.A. v. Mitchell
(Cal. Ct. of App., 2d Dist.), filed April 10, 2012 

GreenPoint Mortgage Funding, Inc. loaned Michael Mitchell $315,000 to purchase a home. The loan was secured by two promissory notes and a first and second deeds of trust.

When Mitchell defaulted on the loan, GreenPoint foreclosed on the promissory note that was secured by the first deed of trust and sold the property. GreenPoint then assigned the second deed of trust to Bank of America. Bank of America sued Mitchell to recover the indebtedness evidenced by the promissory note that was secured by the second deed of trust.

Mitchell demurred to the complaint based on his assertion that the action was barred by California’s antideficiency law.

The trial court sustained the demurrer without leave to amend. It then awarded attorney fees to Mitchell.

The Court of Appeal affirmed.

Under California law, when a lender forecloses nonjudicially, it is barred from recovering the difference between the amount of the loan and the selling price of the foreclosed property. However, when a senior lienholder forecloses, a junior lienholder may still sue the borrower. An exception to this is if the senior and junior lienholders are one and the same.

As GreenPoint’s assignee, Bank of America stood in the same position as GreenPoint. It had no rights greater than GreenPoint. Since GreenPoint could not sue on the second promissory note as a result of its having foreclosed, neither could Bank of America.