Homestead Savings v. Darmiento

In Homestead Savings v. Darmiento (1991) 230 Cal. App. 3d 424, a junior lienholder argued that the conclusive presumption in favor of a bona fide purchase as to a trustee's compliance with statutory notice requirements under section 2924 violated its due process rights under the federal and state Constitutions. The junior lienholder recorded its secured $ 86,000 debt against the subject property some nine months prior to notice of default of the senior lien being recorded, and some 19 months prior to the trustee's sale of the subject property. The junior lienholder nonetheless never received any kind of notice of the trustee's sale. The junior lienholder argued that the conclusive presumption was valid against a trustor, but unconstitutional as applied to junior lienholders because "(1) the state through the presumption encourages senior lienholders to act to a junior lienholders' detriment and (2) it creates a new right by permitting private conduct which was prohibited under the common law (i.e., binding junior lienholders)." As to the first argument, the court found that "the fact that California has chosen to regulate the manner in which the trustee may proceed to protect the debtor from forfeiture does not convert the creditor's decision to exercise a contractual right into state action." As to the second argument, the junior lienholder claimed that it was not bound, nor would it have been bound under common law, "by the conclusive presumption in the trustee's deed because, as a junior lienholder, it was not bound by the contractual provisions in the foreclosing deed." The court rejected this argument. First, it noted that the junior lienholder "has not cited any authority that the junior lienholder is entitled to greater protections under the power of sale than a trustor is entitled to receive." Second, the court noted that "it is well established in California that a successor in interest to the trustor or a junior lienholder takes an interest in the property subject to the prior deed, which in this case involves a power of sale. Accordingly, no new right has been created by the presumption."