When there are multiple liens on real property and the senior lien or deed of trust is foreclosed, the junior liens are wiped out, and the junior lienholders have lost their security for the debt. All they have left is the underlying debt, which they can then seek to collect directly from the debtor. These latter parties are termed “sold-out juniors.” Generally, when a debt is secured by real property, the creditor must seek to be paid from the property first (by foreclosure). If the senior lienholder conducts a trustee sale, and the property does not raise enough cash to pay them off, it’s too bad- they cannot go after the debtor personally. However, if they are a junior, once they lose the security, they may go after the debtor for a monetary judgment. But sometimes Sacramento real estate attorneys are confronted by senior and junior loans that are made by, or acquired by, the same individual lender. If the lender forecloses on the first, does it become a sold-out junior as to the second?
In Black Sky Capital, LLC v. Michael Cobb, plaintiff Black Sky held both the first and second loans (totaling over $11.7 million dollars) on a property in Rancho Cucamonga. Black Sky foreclosed on the first, holding a trustee’s sale. It then filed suit to recover the balance owed on the 2nd junior note, and this appeal was the result.
Section 580d Applies only to the Deed of Trust Foreclosed, and does not apply to a Junior Lien after a Trustee’s Sale on the first – Regardless of whether it is the same lender