Heritage Pacific and others....

[Yahoo Bot]

This should put HERITAGE PACIFIC out of business for good with respect to
collection activity on 2nd mortgages on foreclosed properties. BUT
provided they can still get a valid assignment of the tort claim, they may
continue to pursue non-dischargeability based upon fraud and try to collect.
See BELOW:
Dear constituency list members of the Insolvency Law Committee, the
following is a legislative update that may be of interest to insolvency
professionals: ****
** **
*SUMMARY*
* *
*On July 11, 2013 Governor Brown signed into law SB 426 which expands the
anti-deficiency language in Code of Civil Procedure (C.C.P.) sections
580b and 580d by expressly prohibiting not only: (i) a deficiency
judgment against
the borrower in connection with either a purchase money deed of trust
covered under C.C.P. 580b or following a non-judicial foreclosure of a
deed of trust covered under C.C.P. 580d, but now also (ii) any liability
for any deficiency in the foregoing situations. However, SB 426 expressly
recognizes the right of a lender to collect any such deficiency from any
additional collateral held or from any third-party guarantor.*
*
*As discussed herein, the new statute could be viewed as clarifying
rather than amending existing California law so that when it becomes
effective, it will apply to deficiency obligations then existing and held
by any lender or its assignee.****
** **
***A. ****New Legislation (C.C.P. 580b and 580d)*
Prior to the enactment of SB 426, C.C.P. 580b prohibited a deficiency
judgment in connection with the following: (1) any sale of real property
for failure of the purchaser to complete the contract of sale;(2) under a
deed of trust given to the vendor to secure repayment of the purchase price
of the encumbered property; (3) under a deed of trust on residential
property given to a lender to secure repayment of a loan (purchase money
loan) used in whole or in part to pay for the purchase price of a
residence to be occupied, in whole or in part, by the purchaser; or (4) a
loan used to refinance a purchase money loan except to the extent that the
lender advanced new principal to the borrower which was not used to repay
existing principal or interest or loan fees and costs.****
Similarly, prior to the enactment of SB 426, C.C.P. 580d prohibited a
deficiency judgment on a note secured by a deed of trust on real property
in any case in which the property had been sold under a power of sale (i.e.
a non-judicial foreclosure).****
SB 426 clearly provides that not only is a deficiency judgment prohibited,
but that no deficiency shall be collected or even owed in such situations.
However, such protections apply only to the borrower and to its
non-encumbered assets. The statute expressly provides that although a
deficiency may not be collected from the borrower, the new provisions do
not affect the liability: (i) of any guarantor, pledgor or any other surety
might have with respect to the deficiency; or (ii) that might be satisfied
in whole, or in part, from other collateral pledged to secure the
obligation that is the subject of the deficiency.****
***B. **** C.C.P. 580e*
Although SB 426 does not expressly address C.C.P. 580e, any deficiency
subject to C.C.P. 580e will be similarly affected.****
C.C.P. 580e (a)(1) provides that *no deficiency* may be collected and no
deficiency judgment may be requested for a loan secured solely by a
residence in any case where the lender agrees to a short sale and receives
any agreed portion of the sale proceeds. However, C.C.P. 580e(a)(2)
simply prohibits a *deficiency judgment*, and does not prohibit collection
of any deficiency in those situations where the lender has other collateral
securing its loan in addition to the residence.****
Although SB 426 does not address C.C.P. 580e(a)(2), its prohibition of the
collection of any deficiency will apply to a short sale covered under
ights,
remedies, and obligations of any holder, beneficiary, trustor, mortgagor,
obligor, obligee or guarantor of the note shall be treated and determined
as if the dwelling had been sold through foreclosure under a power of sale
contained in deed of trust in the manner contemplated by Section 580d*
In other words, the lenders right to collect a deficiency under C.C.P.
conducted a foreclosure under C.C.P. 580d.****
***C. ****Extent of Application of SB 426*
If a statute is merely declaratory of or clarifies existing law, it will be
applicable to all existing covered transactions that exist as of the date
that the statute goes into effect. From the present case law, it could be
concluded that under existing case law a lender would be precluded not only
from obtaining a deficiency judgment under C.C.P. 580b and 580d, but also
would be prohibited from collecting any deficiency owed under the subject
obligation.****
First, case law is clear that C.C.P. 580b and 580d do not prevent a
secured creditor from collecting the deficiency from additional
collateral.*Freedland
v. Greco* (1995) 45 Cal.2d 462, 466; *Hatch v. Security-First Nat. Bank*
(1942) 19 Cal.2d 254, 260-61; *Mortgage Guarantee Co. v. Sampsell* (1942)
51 Cal.App.2d 180, 183-86; see also *Paradise Land and Cattle Co. v.
McWilliams Enterprises, Inc.*, 959 F.2d 1463 (9th Cir. 1992) (permitting a
secured creditor to collect against a third party guarantor or surety).****
Second, a number of California decisions have expressly acknowledged that
the purpose of C.C.P. 580b and 580d was to prevent a borrower from being
obligated to repay the unpaid balance of a loan (i.e. the deficiency)
following any foreclosure on the real property collateral. The oft-repeated
explanation is stated in *Cadlerock Joint Venture L.P. v. Lobel* (2012) 206
Cal. App.4th 1531:****
The anti-deficiency statutes are to be construed liberally to effectuate
the legislative purposes underlying them, including the policies (2)
to prevent an overvaluation of the security, (3) to prevent the aggravation
of an economic recession which would result if [debtors] lost their
property and *were also burdened with personal liability*, and (4) to
prevent the creditor from making an unreasonably low bid at the foreclosure
sale, acquire the asset below its value, and also recover a personal
judgment against the debtor. (*emphasis added*)(internal citations
omitted)****
Similarly there is other oft-repeated language from the California Supreme
Court in *Alliance Mortgage Co. v. Rothwell* (1995) 10 Cal.4th 1226:****
Thus, the anti-deficiency statutes in part serve to prevent creditors in
private sales from buying in at deflated prices and realizing double
recoveries *by holding debtors for large deficiencies*. (Commonwealth
Mortgage Assurance Co. v. Superior Court (1989) 211 Cal.App.3d 508,
514 (*emphasis
added*)****
Further, it has regularly been held in cases such as *Walters v. Marler* (1978)
83 Cal.App.3d 1147 that C.C.P. 580b has the additional public policy of
putting the risk of loss from a shortfall in the value of the collateral on
the lender. Therefore, it would be illogical to permit recovery of the
deficiency from the borrower:****
Section 580b of the Code of Civil Procedure prohibits a foreclosing
mortgagee from proceeding personally against a mortgagor to recover a
deficiency after the security is exhausted, and places the full risk of
inadequate security on the purchase money lender. (internal citations
omitted)****
Case law is clear that the anti-deficiency laws under C.C.P. 580b and
580d are to be interpreted broadly to accomplish the purposes of the
statutes. Thus, the conclusion could be drawn that the chief purpose of
C.C.P. 580d and one of the chief purposes of C.C.P. 580b is to prevent
the borrower from being liable for any deficiency. As a result, it is
likely that SB 426 could be held to be declaratory of existing law. A
credible argument therefore could be made that immediately upon SB 426
becoming effective, it will apply to all outstanding deficiency
obligations, regardless whether the deficiency was created before or after
the enactment of SB 426. This conclusion remains to be confirmed by the
case law interpreting this new statute.****
***D. **** Applicability to Assignees of Deficiency Obligations*
Finally, it is currently not uncommon for certain lenders which hold notes
or loans subject to C.C.P. 580b and 580d to sell such notes/loans
following the foreclosure on the underlying residences to debt collection
agencies at a discount. Usually this is done without representation or
warranty as to collectability of such assets.. It is also not uncommon for
the assignees to press the borrowers for payment on the deficiency.****
However, California case law makes it clear that if a loan is subject to
C.C.P. 580b or 580d, the prohibition against deficiency judgments will
apply to any third-party assignee of the note/loan. *Costanzo v.
Ganguly* (1993)
12 Cal.App.4th 1085. It would be prudent for lenders and their assignees to
take account of this prohibition in their actions.****
These materials were prepared by Peter S. Muoz *(pmunoz@reedsmith.com)* of
Reed Smith LLP, in San Francisco, California. Editorial contributions were
provided by ILC member Monique Jewett-Brewster of Bryan Cave LLP, in San
Francisco, California.****
*
*Thank you for your continued support of the Committee.
Best regards,
Insolvency Law Committee****
* *
*The Insolvency Law Committee of the Business Law Section of the California
State Bar provides a forum for interested bankruptcy practitioners to act
for the benefit of all lawyers in the areas of legislation, education and
promoting efficiency of practice. For more information about the Business
Law Standing Committees, please see the **standing committees web

The post was migrated from Yahoo.