Deficiency Judgment After Nonjudicial Foreclosure In California

In Union Bank v. Wendland (1976), a husband and wife had refinanced their home with a new loan from Union Bank secured by a first trust deed which contained dragnet clauses. Subsequently, they made a second unsecured loan from the same creditor. Later still, they made a third loan which was used to pay off the second loan completely and partially pay down the first trust deed loan. This loan was also obtained from Union Bank and was secured by a second trust deed on the same property. After the debtors became delinquent on both obligations, Union Bank nonjudicially foreclosed on its first trust deed. Later, it filed suit to recover the unpaid sums due under the third note, thus attempting to obtain the benefits of a "sold out" junior where a senior lien has been nonjudicially foreclosed. The lead opinion in Union Bank held that the debtors were entitled to be protected by Code of Civil Procedure section 580d, which precludes recovery of a deficiency judgment after a nonjudicial foreclosure. That opinion reasoned that the two notes had merged into a single obligation that was secured by the first deed of trust. ( Union Bank v. Wendland, supra, 54 Cal. App. 3d at p. 405.) It explained, however, that such a merger, based on the application of the dragnet clause, really must depend more on the actual expectations of the parties rather than the literal wording of the boilerplate clause. (Id. at p. 404.)