Appellant Margaret R. Roberts (Roberts) obtained a home equity line of credit from respondent Bank of America, N.A. (B of A), which provided a credit line to Roberts in the principal amount of $250,000 (the home equity loan), secured by a second deed of trust on certain real property in Three Rivers, California (the real property). Later, when the holder of the first deed of trust commenced nonjudicial foreclosure proceedings, Roberts sought to avoid foreclosure by requesting that B of A consent to a short sale of the real property to a third party. The short sale would pay off the entire obligation secured by the first deed of trust and about $27,000 of the amount owed to B of A under the home equity loan. In seeking B of A's consent to the short sale, Roberts agreed that she would remain obligated to repay the balance of her home equity loan to B of A. B of A consented to the short sale and released its secured interest in the real property under the second deed of trust. When Roberts later defaulted on the home equity loan, B of A filed the present action seeking a money judgment against Roberts for the balance due under the loan. B of A then moved for summary judgment on its complaint. Roberts opposed the motion on the ground that certain statutes barred B of A from seeking a deficiency judgment against her. The trial court rejected Roberts's arguments, granted the motion and entered judgment against Roberts in the sum of $235,402.47. Roberts appeals from that judgment, raising many of the same arguments that she did in the trial court. We agree with the trial court that none of the statutes referred to by Roberts precluded a deficiency judgment against her and that B of A was entitled to judgment as a matter of law. Accordingly, we affirm the judgment of the trial court.
FACTS AND PROCEDURAL HISTORY
In December 2010, B of A filed a complaint against Roberts for breach of contract and common counts, based on Roberts's alleged default on her contractual obligation to repay the home equity loan. The complaint included an allegation that on or about June 2, 2009, B of A "accepted the short sale proceeds in the sum of $27,090.11, for the release of its lien on the [r]eal [p]roperty only." Attached to the complaint, and incorporated therein, was a copy of (i) the home equity loan agreement, (ii) the deed of trust, and (iii) the short sale agreement. In the short sale agreement, Roberts expressly acknowledged and agreed that she was responsible for repaying the unpaid balance of the home equity loan.
In May 2011, B of A moved for summary judgment on its complaint. The supporting declaration by Jason Dunn, an assistant vice-president of B of A,
In August 2011, Roberts filed her opposition to the motion for summary judgment. Roberts admitted to entering the home equity loan and defaulting on same, but she asserted that in light of the short sale in which B of A received a portion of the delinquent amount, B of A was barred from seeking a deficiency judgment against her based on Code of Civil Procedure
The trial court granted B of A's motion for summary judgment. The trial court's written order noted that B of A had set forth sufficient evidence to establish its breach of contract cause of action and that Roberts had failed to show any triable issue of material fact. Further, as to Roberts's assertion of statutory defenses, the trial court explained: "[Roberts] has not shown that [B of A's] cause of action [is] barred by [sections] 580e and/or 726, or prohibited by any other law. [B of A's] participation in a short sale of its collateral in which [B of A] held a junior position and which resulted in payment to [B of A] of less than the amount due under [Roberts's] loan agreement does not bar [B of A] from pursuing this action to recover the deficiency. [Roberts] has not provided evidence to show that [B of A] waived its right to recover a deficiency judgment by releasing its lien on the subject real property as part of the short sale." The formal order granting the summary judgment motion was filed October 5, 2011, including the amount
I. Standard of Review
Summary judgment is appropriate when all of the papers submitted show there is no triable issue of material fact and the moving party is entitled to a judgment as a matter of law. (§ 437c, subd. (c).) "The purpose of the law of summary judgment is to provide courts with a mechanism to cut through the parties' pleadings in order to determine whether, despite their allegations, trial is in fact necessary to resolve their dispute." (Aguilar v. Atlantic Richfield Co. (2001) 25 Cal.4th 826, 843 [107 Cal.Rptr.2d 841, 24 P.3d 493].)
A plaintiff is entitled to move for summary judgment on the ground that there is no defense to the action. (§ 437c, subd. (a).) A plaintiff satisfies its burden of showing there is no defense to the action by presenting evidence sufficient to establish each element of the cause of action entitling the plaintiff to judgment. (Id., subd. (p)(1).) Once the plaintiff has met that initial burden, the burden then shifts to the defendant to show that a triable issue of material facts exists as to that cause of action or a defense thereto. (Ibid.)
On appeal following a trial court's grant of a summary judgment motion, we determine de novo whether an issue of material fact exists and whether the moving party is entitled to summary judgment as a matter of law. (Brantley v. Pisaro (1996) 42 Cal.App.4th 1591, 1601 [50 Cal.Rptr.2d 431].) In addition, we review de novo the interpretation or application of a statute. (Upland Police Officers Assn. v. City of Upland (2003) 111 Cal.App.4th 1294, 1301 [4 Cal.Rptr.3d 629]; County of Sonoma v. Superior Court (2010) 190 Cal.App.4th 1312, 1322-1323 [118 Cal.Rptr.3d 915.].)
II. Summary Judgment Was Properly Granted
Roberts primarily argued below, as she does on appeal, that certain statutes precluded B of A from obtaining a deficiency judgment against her. In particular, she argued that a deficiency judgment was impermissible based on sections 580e and 726. We now examine her claims that these statutes barred B of A from seeking a deficiency judgment in this case. We also briefly consider other defenses asserted by Roberts.
A. Section 580e
Roberts argues that the recent amendment of section 580e, which took effect in July 2011 — over two years after the short sale occurred in this case — should be applied retroactively to cover her short sale. We disagree.
The original version of section 580e provided that no deficiency judgment may be rendered against a homeowner "under a note secured by a first deed of trust" (italics added) if the holder of the first deed of trust consented in writing to a short sale and received the proceeds thereof. In that event, the short sale proceeds received by the holder of the first deed of trust would result in a discharge of the remaining indebtedness. (Stats. 2010, ch. 701, § 1.) In July 2011, section 580e was amended to expand the antideficiency protection in the event of a short sale to any deed of trust, including junior lienholders, if the holder of said deed of trust consented to the short sale and received the proceeds of the sale as agreed. (Stats. 2011, ch. 82, § 1, eff. July 15, 2011.) The amendment was enacted as urgent legislation, taking effect immediately, because the protection was deemed necessary "to mitigate the impact of the ongoing foreclosure crisis and to encourage the approval of short sales as an alternative to foreclosure...." (Id., § 2.)
As amended, section 580e, subdivision (a)(1), now provides as follows: "No deficiency shall be owed or collected, and no deficiency judgment shall be requested or rendered for any deficiency upon a note secured solely by a deed of trust or mortgage for a dwelling of not more than four units, in any case in which the trustor or mortgagor sells the dwelling for a sale price less than the remaining amount of the indebtedness outstanding at the time of sale, in accordance with the written consent of the holder of the deed of trust or mortgage, provided that both of the following have occurred: [¶] (A) Title has been voluntarily transferred to a buyer by grant deed or by other
The issue in the present appeal is whether the amendment to section 580e was intended by the Legislature to apply retroactively to short sales that were completed prior to the effective date of the amendment. As explained below, we conclude the Legislature did not intend a retroactive application.
We see nothing in the language of section 580e to overcome the strong presumption against retroactive application. If anything, the wording of the statute indicates that its protections are directed toward future conduct, since it makes reference to transactions in which "the trustor or mortgagor sells the dwelling for a sale price less than the remaining amount of the indebtedness...." (§ 580e, subd. (a)(1), italics added.) Additionally, in explaining the urgent need for the amendment, the Legislature stated it was seeking "to encourage the approval of short sales as an alternative to foreclosure," thereby indicating the amendment was directed toward future decision making by lenders and homeowners. (Stats. 2011, ch. 82, § 2.) This interpretation is further confirmed by the legislative history. In its analysis of the proposed amendment (Sen. Bill No. 458 (2011-2012 Reg. Sess.)), the Assembly
B. Section 726
Roberts contends that B of A was barred from pursuing a deficiency judgment against her based on section 726, the one form of action rule. She argues that under section 726, judicial foreclosure was the only form of action allowable for collecting on a debt secured by real estate, and inasmuch as B of A chose not to pursue a foreclosure action, it is barred from obtaining
We begin by reviewing the broader context and purpose of section 726. "`[D]uring the [G]reat [D]epression with its dearth of money and declining property values, a mortgagee was able to purchase the subject real property at [a] foreclosure sale at a depressed price far below its normal fair market value and thereafter to obtain a double recovery by holding the debtor for a large deficiency.' [Citation.] Accordingly, California enacted an interrelated set of foreclosure and antideficiency statutes to protect debtors. [Citation.]" (National Enterprises, Inc. v. Woods (2001) 94 Cal.App.4th 1217, 1225 [115 Cal.Rptr.2d 37].) Section 726 is part of that statutory framework and it operates alongside antideficiency statutes such as section 580d. (Walker v. Community Bank (1974) 10 Cal.3d 729, 733 [111 Cal.Rptr. 897, 518 P.2d 329].) Section 726 provides, in part, as follows: "There can be but one form of action for the recovery of any debt or the enforcement of any right secured by mortgage upon real property or an estate for years therein, which action shall be in accordance with the provisions of this chapter." (§ 726, subd. (a).) The one form of action is a foreclosure action (Shin v. Superior Court (1994) 26 Cal.App.4th 542, 545 [31 Cal.Rptr.2d 587]), in which the creditor must first exhaust the security before seeking any monetary judgment for the deficiency (Security Pacific National Bank v. Wozab (1990) 51 Cal.3d 991, 997 [275 Cal.Rptr. 201, 800 P.2d 557] (Security Pacific)).
Our Supreme Court has explained that "the operation of section 726 is in large part within the control of the debtor." (Security Pacific, supra, 51 Cal.3d at p. 1004.) "If a secured creditor brings an action on the debt before foreclosing the security, the debtor can interpose section 726 as an affirmative defense, thereby requiring the creditor to exhaust the security before he may obtain a money judgment against the debtor. If the debtor does not raise the statute as an affirmative defense, the creditor's action on the debt is allowed to proceed to judgment. The creditor, however, is precluded from thereafter foreclosing on the security. He is deemed to have elected his remedy. [Citations.]" (Id. at pp. 1004-1005.) A debtor also may waive the protections afforded by section 726. (Security Pacific, supra, at p. 1005.)
There are a number of contexts in which section 726 is not applicable. For example, where nonjudicial foreclosure is pursued, there is no court "action" and therefore section 726 does not apply, but in that case antideficiency legislation would preclude an action for a deficiency. (Walker v. Community Bank, supra, 10 Cal.3d at p. 736; National Enterprises, Inc. v. Woods, supra, 94 Cal.App.4th at p. 1232, fn. 9.) Another instance in which section 726 is not applicable is with respect to a sold-out junior lienor: "`The prohibition against a deficiency judgment does not apply to the beneficiary of a junior deed of trust whose security has been rendered valueless by a foreclosure sale of the property under a senior encumbrance. After the security has been lost by the foreclosure sale of the senior lien, the junior lienor can sue the debtor directly on the promissory note, which is then considered unsecured.'" (Bank of America v. Graves (1996) 51 Cal.App.4th 607, 612 [59 Cal.Rptr.2d 288].) Similarly, section 726 does not apply where bringing a foreclosure action would be an idle act because the security has become worthless. (Pacific Valley Bank v. Schwenke (1987) 189 Cal.App.3d 134, 140 [234 Cal.Rptr. 298].) Finally, we note that a debtor can waive the protection of section 726 by failing to insist that the creditor first proceed against the security (Security
Here, B of A could have withheld consent to the short sale requested by Roberts. In that event, presumably the holder of the first deed of trust would have completed foreclosure, leaving B of A (as a sold-out junior lienor) entitled to sue for the balance due on the home equity loan. (See Bank of America v. Graves, supra, 51 Cal.App.4th at p. 612 [§ 726 inapplicable to sold-out junior lienor].) Instead, B of A granted Roberts's short sale request on the condition that Roberts would continue to be responsible for repaying the home equity loan to B of A. Roberts agreed to that condition. B of A then released its lien so the sale of the real property could take place. Under these circumstances, section 726 did not apply because Roberts asked for and consented to the short sale arrangement and thereby waived any rights she may have had under that statute. (See Security Pacific, supra, 51 Cal.3d at p. 1005; Pacific Valley Bank v. Schwenke, supra, 189 Cal.App.3d at pp. 141-142.) Since Roberts sought and obtained B of A's consent for a short sale that required the release of B of A's second deed of trust, she may not be heard to complain that B of A did not bring a foreclosure action against her. In so holding, we note that the primary purposes of section 726 were not thwarted by the short sale arrangement in this case. The sale of the security (the real property) was used to pay off the amount secured by the first deed of trust and a small portion of the amount due to B of A under the home equity loan. Thus, the security was in fact exhausted. Additionally, the short sale arrangement did not subject Roberts to a multiplicity of lawsuits, since a short sale is not itself an "action" (see § 22 [defining "action"]), and no action was filed against Roberts until she subsequently defaulted on the home equity loan. In conclusion, we agree with B of A that section 726 did not preclude its action to recover amounts due under the home equity loan.
C. The Federal Troubled Asset Relief Program
Roberts next presents the following theory: "In its 2008 contract with the United States Department of the Treasury, under the Troubled Asset Relief Program (`TARP' ...), [B of A] contractually obligated [itself] to modify mortgages `as appropriate to strengthen the health of the U.S. housing market,' in exchange for receiving $45 billion in taxpayer bailout loans. Roberts asserts that she is a third-party beneficiary of [B of A's] TARP contract with the United States of America Department of the Treasury...."
D. No Unclean Hands
Roberts argues that the trial court should have applied the doctrine of unclean hands as a complete defense to B of A's action on the home equity loan. We disagree.
Here, the sole ground for Roberts's claim of unclean hands was that B of A had become aware of Roberts's financial hardship during the negotiation of the short sale and, as a result, B of A allegedly must have unfairly coerced Roberts to enter the short sale arrangement. The record does not support such a conclusion. There was no evidence of a coercive or unconscionable transaction in this case. Moreover, there was nothing inequitable or prejudicial to Roberts regarding the terms of the short sale arrangement. B of A consented to the short sale, as requested by Roberts, subject to the understanding that Roberts would remain responsible for repaying the home equity loan. No adequate basis for the unclean hands defense has been shown.
E. No Triable Issues of Fact
Finally, Roberts argues there was a triable issue of fact that precluded the granting of summary judgment. In support of this contention, she relies on a word processing error in B of A's separate statement indicating that the holder of the first deed of trust had foreclosed. It is evident to this court that neither party relied on that error, and that both parties clearly understood the real property was sold via a short sale. The error was promptly corrected in B of A's reply. Roberts has failed to show a triable issue of fact. (See § 475.)
The judgment of the trial court is affirmed. Costs on appeal are awarded to B of A.
Wiseman, Acting P. J., and Franson, J., concurred.