California Court of Appeal Holds Lender Waived Right to Deficiency Judgment

In First California Bank v. McDonald, a California court of appeal recently held that a lender waived its right to a deficiency judgment where it permitted the sale of real property outside of the judicial foreclosure without the borrower’s consent.

CA laws and Real EstateIn this case – First California Bank v. McDonald – a husband and wife signed a promissory note secured by a deed of trust against certain real property in California. They also provided additional security in the form of a deed of trust against a different property.  The wife subsequently sold the second property with the bank’s agreement that it would receive the proceeds from that property. There was no release as to the borrowers.  The bank’s note went into default after the husband died.  The bank subsequently filed a complaint for judicial foreclosure and sought a deficiency judgment against the wife and children.

gavelThe trial court granted summary adjudication as to the bank’s claim for judicial foreclosure ordering the sale of the property. The court found that the wife and estate representatives were subject to a deficiency judgment for the unpaid amount.

The wife and estate appealed, contending that their arrangement with the bank released its deed of trust as to the second property and therefore, the bank had waived any right to a deficiency judgment under Code of Civil Procedure §726(a).

The court of appeals agreed and reversed. The appellate court found that the bank failed to follow the requirements of §726 and did not obtain the wife’s nor children’s consent or waiver that the property was being sold outside of judicial foreclosure. There was no evidence that the bank obtained their consent to the release of the secured interest in the property and there was no evidence as to how the proceeds of the sale were actually applied. As such, the bank waived its right to a judicial foreclosure.

Source of information is article by Shannon B. Jones, California real estate attorney  –  See court of appeal decision – http://www.courts.ca.gov/opinions/documents/F067812.PDF

By Harrison K. Long, real estate broker, Realtor, professional real estate representative and attorney at Orange County CA.

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We provide professional real estate agent and broker representation – help for property owners, home sellers, private trust estate representatives, estate administrators, executors and heirs, probate and trust attorneys, estate planners, income tax professionals, public guardians, fiduciaries, investor group managers, bankers, and individuals, with listing and sale of properties at Orange County, CA.  Contact us at 949-854-7747 with your questions about home prices and values at Orange County CA cities and areas with Home Selling and Real Estate market updates.  

This post about California law is for information only and is not the providing of legal services.  If you have questions about legal issues with your real estate situation or transaction, you should contact an experienced real estate attorney. 

About Harrison K. Long

Professional real estate representative, Realtor, Broker associate, Evergreen Realty HomeSmart, Irvine and Orange County, CA.
Real estate broker, CALBRE #01410855.
Providing value and helping property owners, real estate investors, trustees, executors and administrators, fiduciaries, bankers, investor group managers, with listing and sale of properties and best decisions about homes and real estate – Orange County Association of REALTORs, member and prior service on board of directors from 2012-2014; California Association of Realtors, member and now serving on its board of directors; National Association of Realtors – Also an attorney member of the California State Bar Association #69137 – Contact by telephone or text at 949-701-2515.

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