Court Whacks Lender for Failing to Get Consent from All Borrowers

Mortgage & Lending Law by Peter N. Brewer, Esq.

In March, 2009, Sally DaVincenzo (“Sally”) and John DeVincenzo (“John”) were borrowers on a promissory note (“Note”) secured against a property in Wasco, California (“Wasco Property”) and a property in Shafter, California (“Shafter Property”).  The Wasco Property was community property while the Shafter Property was the sole and separate property of Sally.  At some point in time, Sally sold the Shafter Property with First California’s (the beneficiary of the Note) permission.  First California’s approval was based on its understanding that it would receive the net proceeds from the sale and the borrowers would remain liable on the Note.

Later that year, John passed away and the Note went into default.  Eventually, First California moved for a judicial foreclosure on the Note.  In that lawsuit, the trial court ruled in favor of First California by requiring the sale of the Wasco Property and finding that Sally and John were responsible for any deficiency.  John’s estate appealed the decision on the theory that a deficiency judgment was barred.


The Fifth Appellate District overturned the trial court’s judgment and remanded the case back to the trial court.  In First California Bank v. Mary McDonald, the appellate court reaffirmed earlier case law finding that a lender must get consent from all borrowers for any private sale or it will lose its claim for a deficiency.  The Appellate Court notes that California has a strong policy in favor of lenders pursuing any claims against the security and against a deficiency.  Accordingly, any requirements under the statute are strictly construed.  Here, Section 726 essentially requires that a lender must judicially foreclose on all of the secured property before it can get a personal judgment against a borrower.  The exception to this is if all borrowers waive the protections under Section 726 or consent to the lender’s action.  Here, First California only got the consent of Sally and did not get the consent of John.


The Court reaffirmed the holding in a previous case, Pacific Valley Bank v. Schwenke.  On appeal, the lender explicitly contended that Schwenke was bad law and should have been overturned.  However, the Court went out of its way to reaffirm Schwenke’s holding – that a lender must get the consent of all borrowers even if one of the borrowers was not a party to the deed of trust.  Even though John had no interest in the Shafter Property, the fact that the Shafter Property was additional collateral was sufficient to protect John from a deficiency judgment.


It is interesting to note that the Court found against the lender in this case even though it appeared that the lender’s actions most likely benefited John.  Presumably, the private sale of the property netted more funds than any foreclosure sale would have and would have reduced the amount owed on the loan.  In its decision, the Court did not address this issue and instead strictly interpreted the statute.

Latest Posts

Real Estate Contracts & Transactions

Out of Contract? Not So Fast…

by Adam Pedersen, Esq. on August 28, 2018

In the highly-competitive real estate market in California, agents are being more aggressive in enforcing contract terms. So before you tell your client that you are “out of contract”, you might want to be sure the contract is actually cancelled! [Read More]

Landlord & Tenant Law

What a Three-Day Notice to Pay Rent or Quit Really Means

by Brewer Firm Team on September 20, 2018

It is after Labor Day weekend and that means school supplies, summer vacation credit card bills, and preparing for the holidays. With all these added costs, the tenant may not have enough money to pay rent and the landlord serves [Read More]

Real Estate Contracts & Transactions

Can A Buyer Back Out of a Non-Contingent Offer?

by Simon Offord, Esq. on October 2, 2018

In my last article, we discussed liquidated damages in the context of a residential real estate purchase contract.  This article will examine whether a buyer may have a right to back out of a contract and receive their full deposit [Read More]