## Facts

- The Clarkes owned real property and executed a mortgage to Los Angeles Trust & Savings Bank securing a $6,000 note.
- The Clarkes later conveyed the mortgaged property, along with an adjoining ten-foot strip, to Herman Bortenstein, subject to the mortgage.
- A flood severely damaged the land and carried away buildings and improvements.
- Bortenstein sued the City of Los Angeles for flood-related damage to (1) the mortgaged property and improvements, (2) the adjoining strip, and (3) personal property, and obtained a $12,500 judgment itemized as $1,500 (land), $10,000 (buildings/improvements), and $1,000 (personal property).
- The bank was not a party to the tort action.
- In the bank’s foreclosure action, the trial court apportioned the tort recovery, attributing 2271/2500 to damage to the mortgaged property and 229/2500 to damage to non-mortgaged property (personalty and the ten-foot strip).
- After Bortenstein’s demurrer was overruled, he failed to answer and default was entered; the city answered and admitted the complaint’s allegations.
- The foreclosure decree ordered sale of the mortgaged premises and provided that any deficiency could be satisfied from 2271/2500 of the city’s judgment debt to Bortenstein.
- Bortenstein appealed only the portion of the decree subjecting that apportioned share of the tort judgment to payment of any deficiency.

## Issues

1. Whether a mortgagee has a legal or equitable lien on a mortgagor’s tort judgment to the extent the award compensates for injury to the mortgaged property, permitting the fund to be applied to any foreclosure deficiency.

## Decision

- The court affirmed the challenged portion of the foreclosure decree.
- The mortgagee was entitled in equity to reach the portion of the tort judgment representing compensation for injury to the mortgaged property, up to the amount necessary to satisfy the mortgage debt.
- The trial court’s apportionment limiting the bank’s reach to 2271/2500 of the judgment properly excluded amounts attributable to non-mortgaged property.

## Legal Principles

- A mortgagee’s security interest may not be defeated or impaired by payment of compensation solely to the mortgagor when the compensation represents injury to, or taking of, the mortgaged property.
- When compensation is awarded for damage to mortgaged property, equity may treat the recovery as a substitute for the impaired security and impose an equitable lien in favor of the mortgagee on the portion attributable to the collateral.
- A court may apportion a mixed recovery to protect the mortgagor’s interest in damages for non-mortgaged property while allowing the mortgagee to claim only the share tied to the mortgaged premises.

## Conclusion

The court held that the mortgagee could satisfy any foreclosure deficiency from the apportioned share of the mortgagor’s tort judgment corresponding to damage to the mortgaged property, recognizing an equitable lien on that portion of the recovery and affirming the foreclosure decree to that extent.


Los Angeles Tr. & Sav. Bank v. Bortenstein, 47 Cal. App. 421 (Ct. App. 1920)