Deficiency Judgments Are Prohibited

Enloe v. Kelso
(Cal. Ct. of App., 2d Dist.), filed July 3, 2013, published July 3, 2013

James and Margaret Enloe owned a single-family residence. They agreed to sell it to Casey Lee Kelso and Joseph R. Jaeger for $1.9 million. The Enloes agreed to carry back a second deed of trust in the amount of $93,750. However, due to some oddities in connection with the financing, the carry-back was in the form of a third deed of trust and was not executed until immediately after the close of escrow.

Sometime after the close of escrow and the execution of the third deed of trust, Kelso and Jaeger sold the property as a “short sale.” They paid a portion of the note secured by the third deed of trust. However, they did not pay the whole thing. As a result, the Enloes sued.

The trial court granted a summary judgment in favor of Kelso and Jaeger based on the fact that the promissory note secured by the third deed of trust amounted to a purchase money loan.

The Court of Appeal affirmed. It held, “When sellers of real estate accept a deed of trust from the purchasers to secure the purchase price, Code of Civil Procedure section 580b prohibits the sellers from obtaining a deficiency judgment in the event the purchasers default. It matters not that such a trust deed is given to sellers after the close of escrow. Timing does not change its character.”