Century Cmty. Lending Co. v. Saleh

• Decision Date: 14 December 2015
• Docket Number: B255576
• Court: California Court of Appeals
• Parties: CENTURY COMMUNITY LENDING COMPANY, LLC, Cross-complainant and Appellant, v. JACKIE SALEH, Cross-defendant and Respondent.

CENTURY COMMUNITY LENDING COMPANY, LLC, Cross-complainant and Appellant, v. JACKIE SALEH, Cross-defendant and Respondent.

B255576

COURT OF APPEAL OF THE STATE OF CALIFORNIA SECOND APPELLATE DISTRICT DIVISION SEVEN

December 14, 2015

NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS

California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions not certified for publication or ordered published, except as specified by rule 8.1115(b). This opinion has not been certified for publication or ordered published for purposes of rule 8.1115.

(Los Angeles County Super. Ct. No. EC051593)

APPEAL from a judgment and order of the Superior Court of Los Angeles County, Laura A. Matz, Judge. Judgment and order affirmed.

Bergman Dacy Goldsmith, Gregory M. Bergman, Richard A. Fond and Mark W. Waterman for Cross-complainant and Appellant.

Alexander & Yong, Jeffrey S. Yong and John J. Aumer for Cross-defendant and Respondent.

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INTRODUCTION

A lender forecloses on real property and makes a full credit bid at the nonjudicial foreclosure sale. The lender subsequently sells the property to a third party at a lower price, and sues the guarantor for the difference. The guarantor files a motion for summary judgment arguing that the lender's full credit bid extinguished the debt and precludes the lender from proceeding against the guarantor. The trial court grants the motion, and the guarantor subsequently recovers her attorneys' fees pursuant to an attorneys' fees provision in the guaranty. The lender appeals, arguing that the trial court misapplied the full credit bid rule and that the guarantor cannot recover attorneys' fees without submitting or disclosing the terms of her contingency fee agreement with her attorney. We affirm.

FACTUAL AND PROCEDURAL BACKGROUND

A. The Loan

Jackie Saleh (Saleh) and her husband Salah Saleh (Salah) owned property in North Hollywood.¹ The Salehs decided to build a 10-unit apartment building on the property and formed Samax Development, LLC (Samax) to be the developer for the project. On February 11, 2009 the Salehs executed and recorded a grant deed transferring their interests in the property to Samax.

On April 8, 2009 Samax executed a construction loan agreement with Century Community Lending Company (CCLC), in which CCLC agreed to lend Samax $1,782,500 to finance the apartment project. Although Saleh was not a member ofSamax, she along with Salah signed the loan agreement, the promissory note, and the deed of trust.²

The Salehs also personally guaranteed the construction loan. The guaranty stated: "Guarantor hereby absolutely, unconditionally and irrevocably guarantees to [CCLC] the full and prompt payment when due, . . . of all of the following: [¶] (a) The entire Indebtedness. [¶¶] (c) All costs and expenses, including reasonable fees and out of pocket expenses of attorneys and expert witnesses, incurred by Lender in enforcing its rights under this Guaranty."

On October 27, 2009 CCLC declared the loan in default and recorded a notice of default. On February 19, 2010 CCLC foreclosed on the deed of trust by a nonjudicial foreclosure sale, at which CCLC purchased the property with a full credit bid. The trustee's deed upon sale stated that the "Grantee herein was the foreclosing Beneficiary," the "amount of the unpaid debt together with costs was $535,174.54," and the "amount paid by the Grantee at the Trustee's Sale was $535,174.54." CCLC subsequently sold the property to a third party buyer for less than its full credit bid.

B. The Motions for Summary Judgment and for Attorneys' Fees

The litigation began on November 24, 2009, when the general contractor for the apartment project sued Samax, Salah, CCLC, and the Century Housing Corporation for breach of contract and other claims. (Saleh I, at p. 1.) On July 29, 2010, after CCLC had foreclosed on the property, CCLC filed a cross-complaint for breach of contract against the Salehs seeking to enforce the guaranty. (Saleh I, at p. 2.)

Saleh ultimately³ moved for summary judgment on CCLC's cross-complaint arguing that, as a matter of law, she had no liability under the guaranty because CCLC paid the debt in full when it purchased the property at a nonjudicial foreclosure sale with a full credit bid, and therefore there was no longer any debt for her to guaranty. In opposition to the motion, CCLC argued that its sale to a third party buyer for less than the Salehs' outstanding debt resulted in a deficiency that Saleh was obligated to pay under the guaranty. CCLC further contended that, by agreeing to the terms of the guaranty, Saleh had waived her right to argue she was not responsible for such a deficiency. The trial court granted the motion, ruling that CCLC's full credit bid extinguished the debt, leaving no deficiency for CCLC to recover under the guaranty. The trial court ruled that Saleh was entitled to judgment as a matter of law because CCLC had not suffered any damages as a result of Saleh's alleged breach of the guaranty.

Saleh filed a motion for attorneys' fees pursuant to the attorneys' fees provision of the guaranty and Civil Code section 1717. Saleh argued that she was entitled to recover her attorneys' fees because she was the prevailing party. CCLC argued in response that Saleh could only recover her attorneys' fees if she actually incurred them, which could only occur if the contingency in the contingency fee agreement with her attorney had been satisfied. CCLC contended that Saleh had not provided sufficient evidence that the contingency had in fact been satisfied. The trial court granted Saleh's motion and awarded her $61,907.50 in fees. CCLC appealed.

DISCUSSION

A. The Trial Court Properly Granted Saleh's Motion for Summary Judgment

Summary judgment is appropriate where there is no triable issue of material fact and the moving party is entitled to judgment as a matter of law. (Conroy v. Regents of University of California (2009) 45 Cal.4th 1244, 1250.) Here, there are no disputed factual issues. There is only a legal dispute about the effect of CCLC's full credit bid at the foreclosure sale on CCLC's ability to enforce the guaranty against Saleh. We review the trial court's ruling on this legal issue de novo. (See Biancalana v. T.D. Service Co. (2013) 56 Cal.4th 807, 813; Rhea v. General Atomics (2014) 227 Cal.App.4th 1560, 1566; Munoz v. MacMillan (2011) 195 Cal.App.4th 648, 653.)

CCLC purchased the property at a nonjudicial foreclosure sale by bidding the full credit value of the outstanding indebtedness on the note, plus accrued interest and fees. The "full credit bid rule" provides that any such bid "releas[es] the borrower from further obligations under the defaulted note." (Alliance Mortgage Co. v. Rothwell (1995) 10 Cal.4th 1226, 1238 (Alliance Mortgage); see Civ. Code § 2910 ["[t]he sale of any property on which there is a lien, in satisfaction of the claim secured thereby, or in case of personal property, its wrongful conversion by the person holding the lien, extinguishes the lien thereon"].) After a full credit bid there is no difference between the amount owed on the note and the amount the lender received in foreclosure; the amount bid is the total indebtedness on the note. Thus, a sale for the full amount of the principal, interest, and fees at a nonjudicial foreclosure extinguishes the debt and nothing remains on which a guaranty can operate. (White v. Seitzman (1964) 230 Cal.App.2d 756, 765; see Passanisi v. Merit-McBride Realtors, Inc. (1987) 190 Cal.App.3d 1496, 1503 (Passanisi) ["[i]f the creditor-beneficiary makes a 'full credit bid' for the property and is the successful bidder, then the proceeds from the trustee's sale are exactly sufficient to satisfy the debt [fn. omitted]," and "[i]n that case, there is no deficiency and no surplus"].) In the absence of any amount due on the note, there is no remaining balance to which Saleh's guaranty can apply.

The full credit bid rule also precludes a lender from later claiming that the property was actually worth less than the bid, as CCLC argues it was entitled to do because it sold the property to a third party for less than the amount of the full credit bid. (Alliance Mortgage, supra, 10 Cal.4th at pp. 1238, 1247; see Cornelison v. Kornbluth (1975) 15 Cal.3d 590, 606-607 (Cornelison ) [full credit bid precludes lender from subsequently recovering on an action for waste because "a nonjudicial foreclosure sale, if regularly held, finally fixes the value of the property therein sold"]; Passanisi, supra, 190 Cal.App.3d at pp. 1503-1504 ["'the full credit bid establishes the value of the property and the amount of the debt, the debt is fully satisfied, the lien is extinguished, and the beneficiary cannot pursue any other remedy regardless of the actual value of the property on the date of the sale'"].) Therefore, the full credit bid rule precludes CCLC from arguing that its sale to a third party for less than the amount of its full credit bid at the foreclosure sale created a deficiency that would allow CCLC to look to a guarantor to make CCLC whole. (See 5 Miller & Starr, Cal. Real Estate (4th ed. 2015) § 13:265, pp. 1132-1145; 4 Witkin, Summary of Cal. Law (10th ed. 2010) Security Transactions in Real Property, § 175, pp. 976-978.)

Of course, CCLC did not have to make a full credit bid. CCLC could have bid less than the full amount of the debt at the foreclosure sale and then sought to recover the difference from the guarantors. As the court in Cornelison explained, "the mortgagee is not required to open the bidding with a full credit bid, but may bid whatever amount he thinks the property worth. Indeed 'many creditors continually enter low credit bids . . . to provide access to additional security or additional funds.' [Citation.] It has been said that this is what the creditor should do." (Cornelison, supra, 15 Cal.3d at p. 607.) Similarly, the court in Pacific Inland Bank v. Ainsworth (1995) 41 Cal.App.4th 277 noted: "Like...