A Trustee of an Inter Vivos Trust Can be a Partner of a Partnership

The manner of holding title to real property is arguably the most important issue of ownership in California, as is an estate plan in the inevitable death of the owner.

Because an inter vivos trust (i.e., living trust) is essential for persons desiring to avoid probate of an estate and the related time and expense, the question arises: What ownership interests in real property can be owned by trustees of trusts?

It is commonly known that individuals and spouses can hold title to real property as trustees of a trust. Upon death, the terms of the trust become irrevocable and dictate the ownership and management of the real property as an asset of the trust. The real property should always be deeded to the trust owner as the trustee of the trust, in order to confirm the real property is an asset of the trust.

The trustee of a trust can be a shareholder of a corporation, thereby allowing the successor trustee of the trust to own the shares under the terms of the trust.  Most close corporations should elect "S" Corp status so all profits "flow through" to the individual trustee, and are only taxed once on the individual's tax returns. The corporation would be on title as the owner of the real property.

A member of a limited liability company can be a "person" who is an individual, partnership, or trust. (Cal. Corp. Code § 17701.02(v).)  The LLC can be the owner of the real property, and upon death of the member, the successor trustee of the trust would control ownership of the LLC and the real property.  Having an LLC or corporation as the owner of the real property also provides some privacy from creditors searching for assets in the name of the individual who is the trustee.

Even the ownership rights of a professional corporation can be transferred to a trust if the trustee and beneficiaries are all licensed, and to a non-licensed spouse if certain conditions are met, including that the shares must be sold and proceeds distributed within six months of the death of the licensed trustee. (Cal. Corp. Code § 13407)

In all of these situations, multiple owners (other than spouses) should have a written co-ownership agreement among the individuals, trustees, shareholders, members, or partners regarding how the ownership of the real property will be managed, and issues resolved upon any deaths or disagreements.

In the recent case of Han v. Hallberg, the California Court of Appeal resolved the question of whether a trustee of a trust can be partner of a general partnership.  In other words, who was a partner of the general partnership when he died, Dr. Richard Hallberg individually, or his trust or the trustee of his trust?

The trial court concluded the trust was not a separate legal entity, and that Dr. Hallberg individually was a partner at the time of his death. The court stated it was required to follow the decision in Presta v. Tepper that held when a trustee of an ordinary express trust enters into a partnership relationship in his capacity as trustee, it is the individual, and not ‘the trust’ that is the party to that agreement. 

The Court of Appeal disagreed and reversed the trial court, concluding Dr. Hallberg individually was not a partner when he died. Instead, his trust, or Dr. Hallberg's son as trustee of his trust, was the partner. 

In 1975, four dentists, including Dr. Hallburg, formed a partnership to acquire and maintain a dental office building, and the partnership agreement required the partners to be practicing dentists. In 1994, the partners amended their agreement to allow one of the partners, Dr. Hallberg, to assign his partnership interest to his living trust, and to substitute the trustee (then Dr. Hallberg) as a general partner in place of Dr. Hallberg individually. 

On September 12, 1994, the four partners amended the partnership agreement, whereby the parties agreed to the assignment of Dr. Hallberg’s partnership interest to Dr. Hallberg as trustee of The Richard W. Hallberg Trust (the Hallberg Trust).

In 2003, Dr. Hallberg appointed his son, Richard Hallberg Jr. (Hallberg Jr.) to serve as a co-trustee of the Hallberg Trust. In 2009, Hallberg Jr. became the sole trustee of the Hallberg Trust. 

On March 16, 2010, Dr. Hallberg died, and litigation ensued between the partners and Hallberg Jr. over whether, despite the substitution, Dr. Hallberg as an individual was still a partner at the time of his death, triggering certain buyout provisions that applied in the event of a partner’s death. 

If Dr. Hallberg was still a partner when he died, then the partnership agreement would give his estate 90 days to notify the surviving partners of the election of the estate to retain the deceased partner’s interest and to continue operation of the partnership on behalf of the estate or its distributees. No such notification was ever given. 

If Dr. Hallberg was still a partner when he died, and his estate failed to exercise its option to continue the partnership, then the partnership agreement would give the surviving partners the option, within 60 additional days, to continue the partnership business and purchase Dr. Hallberg’s interest.

On September 6, 2011, Drs. Loberg and Schrillo filed a complaint against Hallberg Jr. as successor trustee of the Hallberg Trust. The complaint recited that, after exhaustive discussions, the parties were unable to agree on terms, including the price, to buy-out the interest of the Hallberg Trust.

After a bench trial, the trial court held that the Hallberg Trust was not a separate legal entity that continued to own a partnership interest, and the partner was Dr. Hallberg. The trial court observed that defendant’s effort to distinguish the Presta case was "valiant but unavailing," and that the court was required to follow Presta.

Litigation then continued over the appointment of a referee and the appraisal of the Hallberg 26% Interest in the partnership. In a second phase of the trial, the court found the buyout amount owed to the Trust was $723,366.The buyout amount consisted of 26 percent of the referee’s property valuation of $3.7 million, reduced by 7 percent as required by the partnership agreement, and further reduced by $171,294 in debts (for the mortgage, loans from partners, and certain disputed expenses for improvements to the building). 

The Appellate Court found it incontrovertible that Dr. Hallberg individually was not a partner when he died because of the express terms of the 1994 amendment to the partnership agreement. The four partners expressly consented to the substitution of Dr. Hallberg as Trustee of the Hallberg Trust as general partner in place of Dr. Hallberg individually.

And Dr. Hallberg, as trustee of the Hallberg Trust, agreed to be bound by the terms of the partnership agreement, and as trustee, he assumed the rights, benefits, responsibilities, and liabilities of Dr. Hallberg individually as a general partner. 

The express substitution of Dr. Hallberg as trustee in place of Dr. Hallberg individually could not be ignored. The holder of the partnership interest, for the 15 years before and at the time of Dr. Hallberg’s death, was the trustee of the Hallberg Trust – not Dr. Hallberg individually. That did not change when Dr. Hallberg died. 

The whole point of the assignment of Dr. Hallberg’s partnership interest to the trust was to avoid having the partnership interest pass to Dr. Hallberg’s estate when he died.

A trust is not a person but rather "a fiduciary relationship with respect to property,” and an ordinary express trust is not an entity separate from its trustees. 

While a trust cannot act in its own name and must always act through its trustee, a trust is a “person” that may associate in a partnership under the Uniform Partnership Act of 1994 (UPA; Corp. Code,§ 16100 et seq.), based on the plain language of the UPA’s definition of “person.” 

Thus, for example, a trust cannot sue or be sued or otherwise act in its own name; instead the trustee acts on behalf of the trust.  Similarly, an estate is not considered a traditional legal entity. An "estate" is not a legal entity and is neither a natural nor artificial person.

But the fact that a trust is a “relationship” and not an entity separate from its trustees does not mean that a trust cannot act – as always, through its trustee – as a partner under general partnership law. California’s UPA expressly provides that a trust may associate in a partnership. Under the UPA, a partnership is “an association of two or more persons,” and the term “person” is defined to include a “trust.” (Corp. Code, § 16101, subds. (9) & (13).) 

The trustee has all the powers needed for effective transaction of business on behalf of the trust. In other words, it does not matter whether the Court identifies the partner as the trust or as the trustee that transacts business for the trust. The result is the same. 

To the Appellate Court, it was quite clear from the language of the 1994 amendment that Dr. Hallberg individually was not a partner when he died. 

It was also quite clear from the language of the UPA that a trust, as well as a business trust and an estate, is a person that may associate with other persons in a partnership. And it was quite clear from the UPA that the appointment of a successor trustee does not dissociate a partner that is a trust (or is acting as a partner by virtue of being a trustee of a trust) from the partnership. 

As a consequence of these points, the Appellate Court held that Dr. Hallberg individually was not a partner when he died, his death did not require his estate to make an election to retain his interest, as that interest had long ago been assigned to the trustee of the Hallberg Trust, and it did not pass to Dr. Hallberg’s estate. 

The Hallberg Trust, or its trustee acting as a partner by virtue of being the trustee, continued to be a partner in the SM-Ensley Dental Group.

LESSONS:

1.         How title is held to real property can have significant consequences in any litigation regarding ownership of the real property.  This is especially possible upon the death of one of the owners.

2.         For estate planning purposes, the trustee of a trust may be a partner in a general or limited partnership in California, as well as a shareholder of a corporation, or member of a limited liability company.

3.         Written agreements among business partners, individuals, shareholders, and members, are always beneficial to determine the relationship between the parties, and their rights and duties upon death or disagreement.

CC&Rs Are An Enforceable Contract

In the recent case of Sands v. Walnut Gardens Condominium Association, the California Appellate Court considered whether condominium owners can make their homeowners association pay for a water leak. Sands sued and went to trial against the Walnut Gardens Condominium Association, Inc. and its property manager for breach of contract and negligence. The trial court granted a nonsuit (motion under Code of Civil Procedure section 581c where, disregarding conflicting evidence and indulging in every legitimate inference from the plaintiff’s evidence, there is no substantial evidence to support a verdict for the plaintiff).

The Sandses appealed, arguing the trial court erred by granting the nonsuit, by excluding certain evidence, and by denying their motion for a new trial. The Appellate Court reversed and remand the contract nonsuit, and affirmed the tort nonsuit. 

The Sandses owned a unit in the Walnut Gardens development. A pipe on the roof broke and water entered the Sandses’ bedroom. The association’s agent hired people to repair the pipe and roof. 

The association had responsibility to maintain its common areas, including the piping and roof. The Sandses sued the association for breach of contract and negligence. The trial court selected a jury, heard the Sandses’ two witnesses in their case in chief, and granted a nonsuit. 

The Sandses claimed a breach of contract of the association’s covenants, conditions, and restrictions ("CC&Rs"), one part of which required the association to keep the project in “a first class condition.” 

The Sandses’ first witness, however, testified the association was performing no preventive maintenance at all, even though preventive maintenance was desirable. The roof and pipes over the Sandses’ unit had not been inspected or maintained in years. 

The association’s oral motion for nonsuit was concise to a fault. It first argued there was “a complete absence of evidence” to show a breach of contract. This first argument was incorrect. Reasonable jurors could have concluded a total failure to maintain common areas breached a promise to keep these areas in first class condition. 

The association next argued no evidence showed the association was “on notice that it needed to make repairs or do something to the roof or the pipes.” This argument was also incorrect. The property manager testified “[m]aintenance wasn’t happening. It was a very sad situation for the homeowners.” A jury could find buildings need maintenance to remain in first class condition. The association knew “[m]aintenance wasn’t happening.” As a prima faciematter (Latin for "at first look" or "on its face", meaning evidence is sufficient to prove case unless there is substantial contradictory evidence), no more was needed. 

In the course of granting the motion, the trial court added oral reasoning beyond the contents of the nonsuit motion. The court said the Sandses’ lack of expert testimony would force the jury to “speculate” about how a pipe broke and the roof leaked. By suggesting expert testimony was essential, this contract analysis erred. A complete lack of preventive maintenance is evidence the association did not keep the roof or pipes in first class condition. The jury would not need experts to grasp this. 

Neither the motion nor the court’s rationale challenged the idea that CC&Rs comprise a contract between the association and individual owners. 

Nor did the motion or rationale hint at the rule of deference governing owner suits against homeowner associations.  The nonsuit argument did not consider these points. Therefore, neither did the Appellate Court, and it reversed and remanded the nonsuit judgment about the contract. 

However, it affirmed the nonsuit tort judgment. 

The association argued there was no evidence “as far as negligence [was] concerned” showing the association “was on notice of any condition that required repair.” The trial court rightly decried this effort to “tortify” a creature of private ordering. If every negligent breach of a contract gives rise to tort damages, the limitation that "breach of contract is tortious only when some independent duty arising from tort law is violated" would be meaningless, as would the statutory distinction between tort and contract remedies.

Outside the CC&Rs, the association had no independent duty as to the pipes and roof arising from tort law. The Sandses’ trial counsel conceded the evidence for their negligence claim was “pretty much the same, under the same thing as a contract . . . .” The Sandses presented no authority for a cause of action in tort. They state: “As with the cause of action for contract, the duties and obligations for which the HOA, Walnut Gardens, was responsible, are found in the [CC&R's] ” 

Even had the association omitted this issue in its nonsuit motion, nothing the Sandses could have done at trial would have summoned into existence a tort claim barred by law. 

LESSONS:

1.         CC&Rs are an enforceable contract, and analysis of the incident and contract language is essential to determine if a breach of contract claim has merit.

2.         Do not assume that if there is a breach of contract claim, there is also a negligence claim.

3.         A tort claim, in addition to a breach of contract claim, requires an independent duty arising from tort law that is violated.

California Supreme Court Allows Deficiency Judgment on Junior Lien

In the recent decision in Black Sky Capital v. Cobb, the California Supreme Court held that Code of Civil Procedure, section 580d does not preclude a creditor holding two deeds of trust on the same property from recovering a deficiency judgment on the junior lien that was extinguished by a nonjudicial foreclosure sale on the senior lien. 

Under California law, a creditor can recover a debt secured by a deed of trust on real property through a nonjudicial foreclosure action to sell the property at a public auction. 

Code of Civil Procedure section 580d provides that a creditor cannot collect a deficiency judgment — that is, the difference between the amount of indebtedness and the fair market value of the property — if the property is sold for less than the amount of the outstanding debt. 

The question the Supreme Court considered was: Where a creditor holds two deeds of trust on the same property, can the creditor recover a deficiency judgment on a junior lien extinguished by a nonjudicial foreclosure on the senior lien? 

The trial court applied section 580d to bar such a recovery, and the Court of Appeal disagreed and held such deficiency judgment could be recovered. 

The Supreme Court affirmed the ruling of the Court of Appeal, and held that under the circumstances in Black Sky Capital, section 580d does not preclude a creditor holding two deeds of trust on the same property from recovering a deficiency judgment on the junior lien extinguished by a nonjudicial foreclosure sale on the senior lien. 

In 2005, defendants Michael and Kathleen Cobb borrowed approximately $10 million from Citizens Business Bank by executing a promissory note secured by a deed of trust, on a parcel of commercial property in Rancho Cucamonga. In 2007, the Cobbs borrowed an additional $1.5 million from Citizens Business Bank by executing a second promissory note secured by a separate deed of trust on the same property. 

The second deed of trust said the lien “may be secondary and inferior to the lien securing payment of an existing obligation . . . to Citizens Business Bank described as: First Deed of Trust dated August 18, 2005.” 

In 2014, Citizens Business Bank sold both loans to plaintiff Black Sky Capital, LLC (Black Sky), and after Cobbs defaulted on the first trust deed, Black Sky sent the Cobbs a notice of default and election to sell the property under the first deed of trust. 

Black Sky acquired the property at a public auction for $7.5 million, and then filed a lawsuit to recover the amount still owed on the second deed of trust extinguished by the foreclosure sale. 

Applying the decision in Simon v. Superior Court, which held that section 580d precludes a deficiency judgment for a junior lienholder who was also the foreclosing senior lienholder, the trial court concluded that section 580d bars the monetary judgment sought by Black Sky and granted the Cobbs’ motion for summary judgment. 

On appeal, the Court of Appeal declined to follow Simon in light of the Supreme Court's decision in Roseleaf Corp. v. Chierighino, which held that section 580d does not preclude a deficiency judgment for a non-selling junior lienholder.  

The Court of Appeal observed that although the senior and junior lienholder are the same, any debt owed on the junior note in this case had no relationship to the debt owed on the senior note, and by no contortion of the definition of a deficiency judgment can the unpaid balance on that note be deemed a deficiency with respect to the senior note, within the meaning of section 580d.   Rather, the unambiguous language in section 580d indicates that section 580d applies to a single deed of trust, and it does not apply to preclude Black Sky from suing for the balance due on the junior note.

California has an elaborate and interrelated set of foreclosure and anti-deficiency statutes relating to the enforcement of obligations secured by interests in real property.  Most of these statutes were enacted as the result of the Great Depression and the corresponding legislative abhorrence of the all too common foreclosures and forfeitures which occurred during that era for reasons beyond the control of the debtors.

Under Code of Civil Procedure section 726, there is only ‘one form of action’ for the recovery of any debt or the enforcement of any right secured by a mortgage or deed of trust; that action is foreclosure, which may be either judicial or nonjudicial.

In a judicial foreclosure, a creditor may seek a deficiency judgment to recover the difference between the amount of the indebtedness and the fair market value of the property if the property is sold for less than the amount of the outstanding debt. But the debtor has a statutory right of redemption, which provides an opportunity to regain ownership of the property by paying the foreclosure sale price, for a period of time after the foreclosure.  

In a nonjudicial foreclosure, also known as a trustee’s sale, the creditor exercises the power of sale given by the deed of trust, and the debtor has no statutory right to redemption.  But under section 580d, the creditor may not seek a deficiency judgment after a nonjudicial foreclosure.  

Section 580d, subdivision (a) provides that no deficiency shall be owed or collected, and no deficiency judgment shall be rendered for a deficiency on a note secured by a deed of trust or mortgage on real property or an estate for years therein executed in any case in which the real property or estate for years therein has been sold by the mortgagee or trustee under power of sale contained in the mortgage or deed of trust.

Black Sky contended that section 580d does not apply because it is seeking a deficiency on the note secured by the second deed of trust and no sale occurred under power of sale contained in that deed of trust. 

The plain language of section 580d, subdivision (a) bars a deficiency judgment on a note secured by a deed of trust on real property when the trustee has sold the property under power of sale contained in "the . . . deed of trust.”  The definite article in the phrase “the . . . deed of trust” makes clear that the statute applies where sale of the property has occurred under the deed of trust securing the note sued upon, and not under some other deed of trust. The phrase refers to the instrument securing the note sued upon. Nothing in the text of section 580d indicates that the statute applies where no sale has occurred under the trust deed securing a junior lien, even if the lien is held by a creditor who has foreclosed on a senior lien on the same property. 

Where there is evidence of gamesmanship by the holder of senior and junior liens on the same property, a substantial question would arise whether the two liens held by the same creditor should — in substance, if not in form — be treated as a single lien within the meaning of section 580d.  It is unclear that the Legislature, in enacting section 580d, intended to permit such gamesmanship to affect the amount of recovery under a junior lien. 

But the Cobbs did not allege, and there was no evidence to suggest, that the two notes in that case arose from intentional loan splitting; they were executed in separate transactions more than two years apart. The bare assertion by the Cobbs that Black Sky’s purchase of the property for $7.5 million at a public auction in October 2014 was substantially less than the appraised value of the Subject Property as of August 1, 2013 — with no evidence of irregularity at the public auction or price stability between the appraisal and auction — is not enough to suggest that $7.5 million was a lowball bid designed to effect an excessive recovery by obtaining a deficiency judgment on the junior lien. 

Where, as in Black Sky, there is no allegation of evasive loan splitting or recovery in excess of what any junior lienholder would be able to recover, the Supreme Court saw no reason to depart from a straightforward reading of section 580d. Because no sale occurred under the deed of trust securing the junior note in the case, section 580d did not bar a deficiency judgment on the junior note.

LESSONS:

1.         Remain aware of Code of Civil Procedure section 580d as its prohibition on deficiency judgments on certain loans is a powerful defense.

2.         Having two liens on the same property may allow a deficiency judgment on the junior lien after a foreclosure on the senior lien, unless there is gamesmanship by the lender of evasive loan splitting or recovery in excess of what any junior lienholder would be able to recover.

3.         If a deficiency judgment is desired, a judicial foreclosure resulting from a filed legal action is necessary, instead of a nonjudicial foreclosure.

Avoid Foreclosure in California - Right to Reinstate Loan

In the recent decision in Taniguchi v. Restoration Homes, LLC, a case of first impression, the California Court of Appeal held that if all or part of the principal secured by a mortgage or deed of trust becomes due as the result of the borrower’s default in paying interest or installments of principal, Civil Code § 2924callows the borrower to pay the amount in default, plus specified fees and expenses, and thereby cure the default, reinstate the mortgage loan, and avoid foreclosure. 

The borrowers in Taniguchimissed four monthly payments on a mortgage loan that had been modified after an earlier default. The modification deferred certain amounts due on the original loan, including principal, and provided that any default would allow the lender to void the modification and enforce the original loan terms. 

The question before the Appellate Court: Must the borrowers pay the amount of the earlier default on the original loan, which had been deferred under the modification to the end of the loan term, as well as paying the missed modified monthly payments that caused the default on the modified loan, in order to cure the default and reinstate the loan under section 2924c? 

The Court of Appeal answered the question "No", and reversed the decision by the trial judge.

In 2006, the Taniguchis obtained a home loan of $510,500, secured by a deed of trust. In 2009, they agreed to a loan modification that adjusted the principal amount, reduced the interest rate and monthly payments, and deferred until the maturity of the loan approximately $116,000 of indebtedness, including accrued and unpaid interest and principal, fees, and foreclosure expenses. 

The modification provided that failure to make modified payments as scheduled would be an event of default, and that in the event of a default the modification would be null and void at the lender’s option, and the lender would have the right to enforce the loan and associated agreements according to the original terms. 

The modification left unchanged certain provisions of the original loan documents, including acceleration clauses authorizing the lender to require a defaulting borrower to immediately pay the full amount of principal not yet paid and all interest owed on that amount, and to invoke the power of sale. 

The Taniguchis defaulted on the modified loan, which was eventually assigned to Restoration Homes, LLC. Restoration Homes caused a notice of default to be recorded in 2013. 

The Taniguchis were informed that to reinstate their loan and avoid foreclosure, they would be required to pay their four missed monthly payments and the associated late charges specified in the modified loan (totaling about $11,000) and $4,500 in foreclosure fees and costs, plus all the sums that had previously been deferred under the loan modification. By then, the deferred amount was over $120,000 in principal, interest and charges (deferred amounts). 

The Taniguchis took exception to the amount Restoration Homes required for reinstatement of the loan and filed suit in superior court. Shortly after that, Restoration Homes caused a notice of trustee’s sale to be recorded, which led the Taniguchis to file a second suit and seek a temporary restraining order to prevent the foreclosure sale. 

The temporary restraining order was granted; the two lawsuits were consolidated; and the consolidated matter was stayed for approximately a year as a result of Charles Taniguchi filing for bankruptcy. Eventually, the Taniguchis filed a third lawsuit, and all three superior court cases were consolidated. 

The Taniguchis alleged four causes of action against Restoration Homes: 

1.  violation of section 2924c by demanding excessive amounts to reinstate the loan, 

2.   unfair competition, 

3.  breach of contract, and 

4.  breach of the covenant of good faith and fair dealing. 

The unfair competition cause of action alleged that Restoration Homes’ violation of section 2924c constitutes a violation Business and Professions Code section 17200 et seq. (the UCL). 

Like the Taniguchis’ loan documents, the typical form promissory note and deed of trust provide that upon any default in the trustor’s obligations, the beneficiary may elect to accelerate the payment of all sums of principal and interest and commence foreclosure proceedings. The statutory right of reinstatement, set forth in section 2924c, effectively modifies the contract provision which permits acceleration upon default. 

Section 2924c, subdivision (a)(1) provides that when a mortgage loan is accelerated as a result of a borrower’s default, the borrower can reinstate the loan by paying all amounts due, “other than the portion of principal as would not then be due had no default occurred.”   That is, the borrower can cure the default and reinstate his or her loan by paying the amount of the default, including fees and costs resulting from the default, rather than the entire accelerated balance. The mortgage lender must inform the borrower of the correct amount due to reinstate the loan. 

Once a notice of default is recorded, the borrower can reinstate the loan until five business days before the date of sale set forth in the notice of sale. (§ 2924c, subd. (e).)  

The right to reinstate a loan under section 2924c cannot be waived.  Any express agreement made or entered into by a borrower at the time of or in connection with the making of or renewing of any loan secured by a deed of trust, mortgage or other instrument creating a lien on real property, whereby the borrower agrees to waive the rights, or privilege conferred upon him by Sections 2924, 2924b, 2924c of the Civil Code shall be void and of no effect. (Section 2953)

The Taniguchis contended that under section 2924c, Restoration Homes could not lawfully condition reinstatement of their loan on the payment of amounts that were deferred in the loan modification. They argued that requiring them to pay the deferred amounts, instead of just the missed modified payments plus costs, essentially required them to waive their right of reinstatement with respect to the modified loan, in contravention of section 2953. 

Restoration Homes argued that the loan modification gave it the option to enforce the original loan terms if the Taniguchis defaulted on the modified loan, and since under the original loan—pre-modification—the deferred amounts were due and owing, they could properly be required as a condition of reinstatement under section 2924c. 

The Appellate Court concluded that the Taniguchis had the better argument. When principal comes due as the result of a default, section 2924c allows a borrower to cure that precipitating default and reinstate his or her loan by paying the amount of the default, plus fees and expenses. 

In the Taniguchi case, the default was the failure to make payments on the modified loan. Accordingly, section 2924c gave the Taniguchis the opportunity to cure their precipitating default (that is, the missed modified payments) by making up those missed payments and paying the associated late charges and fees, and in that way to avoid the consequences of the default on the defaulted loan. 

Those consequences, of course, would include the demand for immediate payment of the deferred amounts. Restoration Homes’ position had the effect of depriving the Taniguchis of any opportunity to cure the precipitating default and reinstate the modified loan. Restoration Homes points to nothing in the loan modification documents to suggest that the Taniguchis had forfeited such an opportunity, nor to anything in section 2924c to suggest that such a forfeiture would be enforceable even if it were reflected in the loan documents. 

In sum, on the undisputed facts, Restoration Homes failed to demonstrate that the Taniguchis could not prevail on their claim that Restoration Homes violated section 2924c, and the trial court erred in granting summary adjudication to Restoration Homes. 

LESSONS:

1.   Loan agreements, including modification agreements, should be carefully reviewed because the lender may assert a legal position that is not supported by the applicable statute.

2.  Timely assistance of legal counsel can often provide the legal expertise necessary to avoid significant adverse events and results that may have been avoided.