Court Opinion

ID: 9731312
Source: CourtListenerOpinion
Date Created: 2023-08-26 15:41:57.117348+00
Date Added: 2024-06-11T15:09:14.813092
License: Public Domain

COLOGNE, Acting P. J.
I must respectfully dissent.
The courts and commentators who have addressed the issue have been consistent in stating California’s antideficiency statutes do not bar an action for fraud because the remedy is one in tort and not an action on the note and deed of trust.
Hetland, California Real Estate Secured Transactions (Cont.Ed.Bar 1970) section 6.41 at page 300, states “[n]either CCP 580b nor any other deficiency section offers the trustor any defense to an action by the mortgagee or beneficiary for fraud.”
In Glendale Fed. Sav. & Loan Assn. v. Marina View Heights Dev. Co. (1977) 66 Cal.App.3d 101, at pages 138 to 140 [135 Cal.Rptr. 802], the court faced with an action by Glendale for fraud after a nonjudicial foreclosure, held: “The defense of sections 580b and 580d proscribing deficiency judgments is not available to the trustor as a defense to an action by the beneficiary for fraud. [Citations.] The statutes only proscribe deficiency judgments; an action for damages for fraud is not one for a deficiency judgment.
*544“The statutory provisions barring deficiency judgments were not intended to immunize a trustor or a third person who tortiously injures the mortgagee’s security interest. A mortgagee whose secured interest has been impaired by tortious conduct of a third person is not barred by the antideficiency statutes from recovering damages for such impairment of security. [Citations.]” (Id.., at p. 139.)
Kass v. Weber (1968) 261 Cal.App.2d 417, at page 422 [67 Cal.Rptr. 876], reached the same legal conclusion, holding the vendor could rescind the promissory note secured by a deed of trust and recover in fraud. The court said: “It is clear that the purposes of sections 580a, 580d and 725a et seq., are in no way frustrated by allowing the creditor to rescind for fraud and to recover his damages resulting from that fraud. Plaintiff in the case at bench did not receive a double recovery since she was required to tender and did tender a quitclaim deed to the property. Further, the words of section 725a specifically refer to recovery on a debt and the words of section 580d specifically refer to judgments on a deficiency on a note; therefore there is nothing in the express language of those sections to preclude recovery for rescission which is not a recovery on a debt nor a deficiency judgment on a note.
“One or more of the above code sections has been held not a bar to various actions that were not for deficiency judgments. An unlawful detainer action was not barred by sections 726 or 580d. [Citation.] In Freedland v. Greco (1955) 45 Cal.2d 462 . . ., held that Code of Civil Procedure sections 580b and 580d only refer to deficiency judgments on a principal obligation after sale under trust deed as distinguished from an endorser’s liability.” The court reached the same result in Baumrucker v. American Mortgage Exchange, Inc. (1967) 250 Cal.App.2d 451, at page 460 [58 Cal.Rptr. 677].
I cannot conceive the Legislature intended to immunize a party from fraudulent acts by the relief afforded in sections 580b, 580d and 726. We have long recognized these statutes were enacted during the depression years when foreclosures occurred and the property was marketed at a depressed price leaving the mortgagor liable to his vendor or lender for the deficiency. (See Brown v. Critchfield (1980) 100 Cal.App.3d 858, 869-870 [161 Cal.Rptr. 342]; Glendale Fed. Sav. & Loan Assn. v. Marina View Heights Dev. Co., supra, 66 Cal.App.3d 101, 139; Kass v. Weber, supra, 261 Cal.App.2d 417, 422.)
The action here is for damages resulting from the fraudulent acts in securing the loan, not the result of a depressed market price. The misrepresentations made to obtain a loan can have far-reaching effects not relating in the contract undertaking. The majority would turn its back on the fraud*545ulent representations used to secure a loan contract not otherwise acceptable to the lender. Company policy and government regulation requiring the loan be for habitation by the purchaser and that the buyer have a substantial amount of his own money in the venture are important considerations. These are terms designed to avoid the likelihood of default. No lender likes to be going through foreclosure sales even if it comes out whole. Such defaults impose burdens and ill will contrary to good business practice. Government requirements in its guaranteed loans in this area are intended as a protection to assure the buyer has the ability to complete his undertaking, thus avoiding default. I can foresee many kinds of damages to the lender flowing from the fraudulent avoidance of these requirements. The damages have been pleaded in general terms and, if anything more is desired, the plaintiff should be allowed to amend.
If we were to hold borrowers may lie with impunity to the lender to secure a loan secured by a deed of trust and avoid liability under the antideficiency statutes, we would undermine the effectiveness of the banking regulation practices which seek to protect depositors and the banking industry without consequent benefit to the public. The effect on the bank and its officers can have devastating effect on its reputation if the number of foreclosures mounts. Investors, depositors and the guarantors of notes will not view lightly the prospect of management’s loan practices if defaults are not avoided.
Finally, I must respectfully point out, too, if the bank is bound by its “election of remedies,” i.e., trustee’s sale, there is no showing here it was aware of the existence of the fraudulent representation at the time of the “election.” How can there be a proper election where one is not in possession of all the facts?
I would reverse and remand.
A petition for a rehearing was denied September 17, 1984, and the opinion was modified to read as printed above. Appellant’s petition for a hearing by the Supreme Court was denied November 21, 1984. Mosk, J., and Grodin, J., were of the opinion that the petition should be granted.