Trial Judge Held That Lender Lost Any Right to Deficiency So That There Was No Obligation In Existence for Offsetting Purposes.
For several years culminating in a trial in late 2002, Mike Hensley represented borrowers in a judicial foreclosure action brought by an out-of-state lender seeking to obtain the collateral real estate and a substantial deficiency when values plummeted in the late 1990s. Mike’s clients successfully defensed the deficiency claim after a protracted bench trial, even though the property was ordered sold at a future sheriff’s sale. (For those of you that are interested, the case is Beal Bank, S.S.B. v. Lot 9 Industrial, Ltd., 2003 WL 22390286 (4th Dist., Div. 2 Oct. 21, 2003, affirmed on appeal in a nonpublished decision).) The loan documents had a fee clause. Borrowers sought to recover a little shy of $346,000 in fees in a law and motion proceeding before the trial judge.
Lender primarily opposed on the basis that nothing should be awarded because any possible fee award was eclipsed by the deficiency between the value of the collateral to be foreclosed and the loan balance. In response, Borrowers countered that the trial judge found there was no deficiency, meaning that Borrowers owed no obligation to Lender that could be the subject of an offset by the fee award. Borrowers relied on Birman v. Loeb, 64 Cal.App.4th 502 (1998), an analogous case arising in a nonjudicial foreclosure context. Ruling? The trial judge found Birman instructive and rejected Lender’s argument.
However, the trial judge did reject Borrowers’ claim to recoup about $30,000 in overhead costs as fees. The lower court found that Bussey v. Affleck, 225 Cal.App.3d 1162, 1166 (1990), reviewed in our June 4, 2008 post, had been discredited—a prescient ruling in light of the fact that the Bussey court itself abrogated its own holding in 2005.
That left Borrowers with a fee award of approximately $315,000, which was increased some more after the appellate court also awarded them fees for prevailing in the appeal of the underlying “no deficiency” judgment.
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