Laforgia v. Kolsky

• Decision Date: 08 December 1987
• Docket Number: No. D005590,D005590
• Citation: 242 Cal.Rptr. 282,196 Cal.App.3d 1103
• Court: California Court of Appeals Court of Appeals
• Parties: Anthony Barry LaFORGIA, etc., et al., Plaintiffs and Respondents, v. G.D. KOLSKY, etc., et al., Defendants and Appellants.

Page 282

242 Cal.Rptr. 282

196 Cal.App.3d 1103

Anthony Barry LaFORGIA, etc., et al., Plaintiffs and Respondents, v. G.D. KOLSKY, etc., et al., Defendants and Appellants.

No. D005590.

Court of Appeal, Fourth District, Division 1, California.

Dec. 8, 1987.

Review Denied March 17, 1988.

Jerry M. Leahy, San Diego, for defendants and appellants.

Kevin W. McTaggart, San Diego, for plaintiffs and respondents.

WORK, Associate Justice.

The trial court granted a motion for summary judgment in favor of respondents (hereafter LaForgia or the LaForgia group) after finding they were entitled to a deficiency judgment against appellants (hereafter Kolsky or the Kolsky group) for the balance due on a promissory note secured by a second deed of trust on real property sold to a senior lienholder at a private foreclosure sale. We reverse and direct the trial court to enter summary judgment for Kolsky. The property had been in bankruptcy, then had been removed from bankruptcy and sold to Kolsky, and then later foreclosed upon by the senior lienholder. During the sale to Kolsky, LaForgia became the equivalent of a vendor by executing new and different financing documents with the new purchaser, Kolsky. Had LaForgia not done so, the sale to Kolsky would not have occurred and the property would have remained in bankruptcy subject to foreclosure by the senior lienholder and LaForgia would have lost its investment. LaForgia, as a "vendor" under CODE OF CIVIL PROCEDURE SECTION 580B¹, is barred from obtaining a deficiency judgment. ²

I

The following facts are undisputed. In March 1980, mortgage broker William Graham contacted a group of investors, the LaForgia group, who loaned Attorney Alan Williams $35,000 to improve his residence. ³ The loan was evidenced by a promissory note and secured by a second trust deed on the property. The first trust deed was held by California First Bank. In November 1981, Graham arranged for a second group of investors, the Kolsky group, to loan another $35,000 to Williams secured by a third trust deed. On August 4, 1982, a notice of default was recorded by California First Bank on the first trust deed. On November 1, 1982, Williams filed a Chapter 11 petition in bankruptcy court.

In March 1983, a written stipulation was entered into following negotiations instituted and conducted by Graham on LaForgia's behalf resulting in the real property being removed from bankruptcy and sold to Kolsky. The first and third trust deed holders (the bank and Kolsky) had already noticed defaults and elections to sell. Graham signed the stipulation as agent for one of the investors in the LaForgia group, and also signed it as agent for one of the investors in the Kolsky group. ⁴ The terms of the sale were for Kolsky to give (1) Williams a $10,000 promissory note secured by a third trust deed on the property; (2) LaForgia a new promissory note for $44,360 (representing the unpaid balance plus interest on the note owed by Williams) secured by a new second trust deed; and (3) the bank $15,000 (representing unpaid interest) and a promissory note for the unpaid principal and interest under the terms of the original first trust deed. The bankruptcy court authorized the sale based on the consent of all the creditors, including LaForgia. The application to the bankruptcy court for the sale of the property recites the property was appraised at $400,000 and the total purchase price was $419,981.35. ⁵

Kolsky and LaForgia vigorously, but unsuccessfully, jointly attempted to sell the property up to the date of the eventual purchase by the bank at a private foreclosure sale.

Kolsky characterizes the transaction as one in which all investors tried to save their investments by agreeing to Kolsky's purchase to retrieve the property from bankruptcy for the purpose of resale with an opportunity to recoup their investments. LaForgia characterizes the transaction as one in which only Kolsky was trying to save its investment by buying the property, and that Kolsky merely assumed the debt due LaForgia.

In short, Kolsky asserts LaForgia was effectively part of the sales transaction and thus a vendor of real property barred from a deficiency judgment. In contrast, LaForgia contends it was essentially a bystander to the sales agreement who only agreed to accommodate the desires of the senior lienholder and Kolsky, and its original status as a nonpurchase money lender outside of the antideficiency statute was not changed. LaForgia's contention is undercut by the deposition testimony of its member Anthony LaForgia, a real estate broker who is trustee for one of the members of the LaForgia group. Mr. LaForgia states he discussed with mortgage broker Graham what steps should be taken to try to save the security interests from the bankruptcy, and that he participated on the LaForgia group's behalf in the unsuccessful attempt to resell the property after Kolsky's purchase. ⁶

II

To succeed in a motion for summary judgment, the moving party must present evidence in the form of affidavits, declarations, admissions, answers to interrogatories, depositions, or judicially noticeable matters which set forth facts sufficient to sustain a judgment in his favor. (§ 437c, subd. (b); Rincon v. Burbank Unified School Dist. (1986) 178 Cal.App.3d 949, 954, 224 Cal.Rptr. 88.) Because of the drastic nature of the summary judgment procedure and the importance of safeguarding the adverse party's right to a trial, the moving party must make a strong showing (Rincon v. Burbank Unified School Dist., supra, 178 Cal.App.3d at p. 955, 224 Cal.Rptr. 88), and doubts should be resolved in favor of the party opposing the motion (People ex rel. Riles v. Windsor University (1977) 71 Cal.App.3d 326, 331, 139 Cal.Rptr. 378).

Here, the evidence presented shows Kolsky's characterization of the sales transaction as a joint effort by LaForgia and Kolsky to save their investments is the accurate one. LaForgia was a named party to the stipulation which states the parties to the agreement desire to settle the adversary proceedings and sell the property to Kolsky. Moreover, the bankruptcy court's authorization of the sale was expressly premised on obtaining the consent of all creditors. The fact the property was in foreclosure, then in bankruptcy, and when sold to Kolsky was encumbered over its appraised value, shows the security interests of both Kolsky and LaForgia were threatened at the time of the sale to Kolsky. ⁷ The accuracy of Kolsky's characterization of the transaction is reinforced by the fact that Mr. LaForgia, as a member of the LaForgia group, was concerned with saving its security interest, wanted the property to be sold to Kolsky, and agreed to help out the deal by lowering the interest rate. (See fn. 6, ante.) Under these circumstances, LaForgia cannot be characterized as a nonparticipating bystander to the sale but, as explained below, is properly characterized as a vendor under section 580b.

III

Section 580b ⁸ bars deficiency judgments against a purchaser of real property whose property is sold at a foreclosure sale, even if the purchase money trust deed holder loses his security because of foreclosure by a senior encumbrancer. (Spangler v. Memel (1972) 7 Cal.3d 603, 610-611, 102 Cal.Rptr. 807, 498 P.2d 1055; Goodyear v. Mack (1984) 159 Cal.App.3d 654, 657, 205 Cal.Rptr. 702.) When a transaction involves a variation of the standard purchase money mortgage transaction, the antideficiency statute applies only if the factual circumstances come within the purposes of the statute. (Spangler v. Memel, supra, 7 Cal.3d at p. 611, 102 Cal.Rptr. 807, 498 P.2d 1055.) In the standard purchase money mortgage transaction, the vendor of real property retains an interest in the land sold to secure payment of part of the purchase price. (Roseleaf Corp. v. Chierighino (1963) 59 Cal.2d 35, 41, 27 Cal.Rptr. 873, 378 P.2d 97.) The transaction here is a variation of the standard purchase money mortgage transaction since LaForgia's original loan to Williams was not for the purchase of real property (Allstate Savings & Loan Assn. v. Murphy (1979) 98 Cal.App.3d 761, 764, 159 Cal.Rptr. 663), and since LaForgia was not the legal owner of the property sold to Kolsky. The issues are (1) whether LaForgia was a vendor of its interest in the property (rather than a third party lender) for purposes of the antideficiency statute, ⁹ and (2) whether LaForgia's nonpurchase money loan was transmuted into a purchase money loan when the loan was extended to Kolsky for Kolsky's purchase of the property.

One of the purposes of the antideficiency statute is to prevent overvaluation of land by placing the risk of inadequate security on the purchase money mortgagee. (Spangler v. Memel, supra, 7 Cal.3d at p. 612, 102 Cal.Rptr. 807, 498 P.2d 1055.) LaForgia and Kolsky were both junior encumbrancers. Since LaForgia's security interest was threatened by Williams' default and bankruptcy, LaForgia would have known Kolsky's assumption of ownership would not alone save its threatened security interest, but required a resell of the property. (See Roseleaf Corp. v. Chierighino, supra, 59 Cal.2d at pp. 42-43, 27 Cal.Rptr. 873, 378 P.2d 97 and Spangler v. Memel, supra, 7 Cal.3d at p. 612, 102 Cal.Rptr. 807, 498 P.2d 1055 [a vendor who knows the value of his security assumes the risk of its inadequacy ¹⁰.) Since the sales transaction to Kolsky was a mutual effort by the creditors to stop the bankruptcy and give them a chance to recoup their money by seeking a new buyer, Kolsky should not bear the entire loss arising from the inadequate security after the attempt to resell failed.

A "vendor" under the antideficiency statute has been liberally construed. (Shepherd v. Robinson (1981) 128 Cal.App.3d 615, 623, 180 Cal.Rptr. 342, citing Jackson v. Taylor (1969) 272 Cal.App.2d 1, 76 Cal.Rptr. 891.)

In Jackson v. Taylor, supra, 272 Cal.App.2d 1, 76 Cal.Rptr. 891, the plaintiffs were the original owners who sold to a...