A creditor who is awarded a money judgment in California must still collect the money that they are owed. The two most common steps they take are to garnish wages (if possible) and to record an ‘abstract of judgment’ in any county where the debtor owns real estate. The abstract then creates a lien against the property. If the owner seeks to sell, or refinance, the judgment must be paid off to clear title. The judgment creditor could also foreclose the judgment lien, if there is sufficient equity in the property.
However, what if a senior lien forecloses? In a decision out of Costa Mesa, the judgment creditor was disappointed to learn that recording the abstract was not enough. As explained below, the foreclosing trustee was not required to search the record for abstracts. The creditor is required to also record a request for notice under Civil Code section 2924b(a). However, that does not work if a notice of default had been already recorded – in that case the creditor must monitor the foreclosure, and make a demand on the trustee immediately after the sale, before surplus funds have been distributed. Unsure creditors should consult with a Yolo and Sacramento real estate attorney.
In Banc of America Leasing & Capital, LLC v. 3 Arch Trustee Services, the creditor obtained a judgment against the real property owner. It recorded an abstract of judgment. Unfortunately for the creditor, the notice of default and notice of sale had already been recorded. The sale occurred, and, the borrower having equity in the property, there was a surplus of almost $115,000 left after paying the senior lien. The trustee paid this money to former owner, who also had the judgment against him. He made out ok.
The creditor sued the trustee, claiming that they had notice of the creditor’s interest due to the abstract, and the judgment should have been paid. The court said no. A trustee owes no duty to provide notices to any person unless the trust deed or the statute specifically provides for such notice. Civil Code section 2924b governs notices of default in nonjudicial foreclosure proceedings. The trustee must mail a default notice as follows:
First, section 2924b, subdivision (b) requires a trustee to give notice to:
(1) the trustor or mortgagor at his or her last known address if different than the address specified in the deed of trust, and
(2) to those persons who had recorded a statutory request for notice.
Second, section 2924b, subdivision (c), requires a trustee to give notice to other categories of parties, including ‘the successor in interest, as of the recording date of the notice of default, of the interest being foreclosed.’ Section 2924b, subdivision (c)(1) requires this additional notice, however, only if the party acquired the interest ‘by an instrument sufficient to impart constructive notice of the … interest in the land … and provided the instrument is recorded in the office of the county recorder so as to impart that constructive notice prior to the recording date of the notice of default and provided the instrument as so recorded sets forth a mailing address which the county recorder shall use, as instructed within the instrument, for the return of the instrument after recording.
This creditor did not record prior to recording of the notice of default. It was out of luck. Anyone who is interested in a specific property or creditor may record a request for notice of the notice of default and notice of sale. BUT, this must be recorded after the recording of the deed of trust or mortgage and prior to the recording of the notice of default.