Saucedo v. Mercury Savings and Loan Assn

In Saucedo v. Mercury Savings and Loan Assn. (1980) 111 Cal.App.3d 309, nonsignatory plaintiffs, "nonassuming grantees" of property encumbered by a deed of trust, were held entitled to fees after they successfully brought suit to enjoin enforcement of the underlying promissory note's due on sale clause. (Saucedo, supra, 111 Cal.App.3d at pp. 310-312.) The deed of trust provided inter alia that to protect the security of the deed of trust, the borrowers agreed "'to appear in and defend any action or proceeding purporting to affect the security hereof or the rights or powers of the Beneficiary or Trustee, and to pay all costs and expenses, including . . . attorney's fees in a reasonable sum, in any such action or proceeding in which Beneficiary or Trustee may appear.'" (Id. at p. 311.) The plaintiffs purchased the property from the borrowers, taking it "subject to" the existing loan represented by the deed of trust, and began negotiations with the lender for assumption of the loan. (Ibid.) Instead, the lender elected to enforce the due on sale clause and filed a notice of default and election to sell under the deed of trust. (Ibid.) The plaintiffs successfully sued the lender to stop the foreclosure, obtaining summary judgment on their cause of action for declaratory relief. (Saucedo, supra, 111 Cal.App.3d at p. 312.) They sought attorney fees, which the lender opposed. (Ibid.) The Court of Appeal agreed that while plaintiffs were not parties to the note or deed of trust, and were not personally liable for the performance of those obligations, the plaintiffs as a "practical matter" would have had to pay the lender's fees as a condition of redemption upon foreclosure, and held "in every case in which the nonassuming grantee has a sufficient interest in the property to warrant his resisting foreclosure, he would as a real and practical matter be required to pay reasonable attorney fees incurred by trustee and/or beneficiary should they prevail in the action to prevent foreclosure." (Id. at p. 315.) According to the court, "This practical 'liability' of the nonassuming grantee is sufficient to call into play the remedial reciprocity established by Civil Code section 1717." (Ibid.)