Deeds Of Trust/Section 1717: Junior Lienholders Stepping Into Shoes Of Primary Residential Obligors Had Fee Exposure To Winning Senior Lienholders

 

Nonsignatory Junior Lienholders Effectively “Stepped Into Shoes” of Primary Obligors.

     Skordoulis v. Fidelity Nat’l Title Co., Case No. D065947 (4^th Dist., Div. 1 Sept. 9, 2014) (unpublished) is a nice example of “be careful of what you ask for/what you lose” when an attorney fee battle happens after you as a litigant do not prevail.

     In this one, residential property owner unsuccessfully attempted to stop a nonjudicial foreclosure of a Palm Springs residence based on later fractionalized sales to successor lenders (the senior lienholders). However, the junior lienholders also got involved in the suit, arguing that they needed to enjoin the foreclosure on similar grounds or else their liens were worthless. These parties did obtain injunctive relief all the way through a trial at which both primary obligors and junior lienholders did not prevail against senior lienholders.

     The lower court granted defense motion for fees against primary obligors to the tune of $130,662 based on note/trust deed fee clauses, but denied the fee motion as against the junior lienholders.

     The senior lienholders won a reversal of the junior lienholder fee denial on appeal.

     Even though junior lienholders were not signatories to the germane instruments, they fell within an exception allowing for fee recovery under Civil Code section 1717: they, in essence, “stepped into the shoes” of the primary obligors and obtained injunctive relief usually only allowed to those primary obligors. No California authority was located by the appellate court allowing a junior lienholder to enjoin a senior lienholder foreclosure, with the applicable remedies being a redemption of the senior debt or a deficiency judgment against the primary obligors. So, the matter was reversed so that senior lienholders could recoup some fees from junior lienholders.