## Facts

- A Lake Tahoe commercial property was encumbered by a senior deed of trust securing a Bank of America note with a stated maximum amount, and a later deed of trust securing a Chase Bank note that was expressly subordinate to Bank of America’s lien.
- Bank of America and Chase modified their respective loan terms in a manner that preserved Bank of America’s senior priority over Chase.
- In 1993, after the junior lien was in place, Bank of America modified the senior loan by extending maturity, increasing the interest rate, and increasing the principal amount.
- Bank of America assigned the senior note and deed of trust to the Buice Revocable Living Trust (the Trust); Chase’s junior note and deed of trust were sold to Lennar Northeast Partners (Lennar).
- Lennar sued to foreclose its deed of trust and claimed the 1993 senior-loan modifications were substantial and caused the senior lien to lose priority, making Lennar’s lien first.
- On summary adjudication, the trial court ruled the modifications were substantial and subordinated the Trust’s entire deed of trust to Lennar’s lien, entering a foreclosure judgment for Lennar.
- The Trust appealed, arguing that any priority loss should apply only to the modified portion of the senior obligation and that equitable subrogation should preserve its senior priority.

## Issues

1. Whether post-junior modifications to a senior secured obligation (increasing principal and changing interest and maturity) were sufficiently substantial to alter lien priorities.
2. If so, whether the priority loss subordinates the entire senior deed of trust or only the portion reflecting the prejudicial modification.
3. Whether equitable subrogation can restore the Trust’s senior priority despite modifications that increased the junior lienholder’s risk.

## Decision

- The court held the 1993 changes were substantial enough to affect priorities as against the intervening junior lien.
- The court reversed the judgment to the extent it subordinated the Trust’s entire lien, holding that only the modified portion becomes junior to Lennar’s deed of trust.
- The court rejected equitable subrogation as a basis to reinstate full senior priority where the Trust’s own modifications caused the prejudice to the junior lienholder.
- The matter was remanded for proceedings consistent with partial subordination.

## Legal Principles

- A senior lienholder who materially modifies the underlying obligation after a junior lien is recorded may lose priority to the extent the modification increases the junior lienholder’s risk without consent.
- The proper remedy is partial subordination: the original senior obligation retains priority, while only the incremental, prejudicial modification (such as increased principal and other materially adverse term changes) is subordinated to the junior lien.
- The priority-adjustment doctrine is intended to prevent prejudice to junior lienholders, not to grant a windfall by entirely displacing the senior lien’s original priority.
- Equitable subrogation does not apply to avoid partial subordination when the senior lienholder (or successor) created the increased risk to the junior lienholder through substantial post-junior modifications.

## Conclusion

The court ruled that substantial, risk-increasing modifications to a senior deed of trust can alter priorities, but only the modified portion of the senior obligation is subordinated to an intervening junior lien; the original senior lien retains its priority, and equitable subrogation cannot be used to restore full senior status in these circumstances.


Lennar Ne. Partners v. Buice, 49 Cal. App. 4th 1576 (Cal. Ct. App. 1996)