## Facts

- A corporation sold a hotel to an individual purchaser and his family.
- The purchase consideration included: (1) a note secured by a first deed of trust and chattel mortgage on the hotel and furnishings (not at issue), and (2) three promissory notes, each secured by a second deed of trust on separate parcels owned by the purchaser.
- Each of the three parcels already had a senior (first) deed of trust held by third parties.
- The senior deed of trust holders later foreclosed nonjudicially under powers of sale, extinguishing the seller’s junior liens and leaving the second deeds of trust valueless.
- The seller sued on the three promissory notes for the full unpaid balances and obtained judgment.
- Evidence supported findings that certain escrow conveyances of the three parcels to the seller and back to the purchaser were not bona fide sales, but devices used to satisfy the seller’s cash condition for the hotel sale.

## Issues

1. Whether a “sold-out” junior lienor whose security is extinguished by a senior nonjudicial foreclosure is subject to the fair-value and time-limit restrictions of Code of Civil Procedure § 580a or the one-action/security-first rule of § 726.
2. Whether Code of Civil Procedure § 580b (purchase-money anti-deficiency) bars a personal judgment on notes secured by junior deeds of trust on property other than the property being purchased.
3. Whether Code of Civil Procedure § 580d bars a nonselling junior lienor from suing on the note after a senior beneficiary conducts a nonjudicial foreclosure sale.

## Decision

- The Supreme Court of California affirmed the judgment for the seller.
- Section 726’s one-action rule and § 580a’s limitations did not apply to a sold-out junior lienor whose security had been eliminated by senior foreclosure.
- Section 580b did not bar the action because the junior liens were not purchase-money security on the property being acquired.
- Section 580d did not bar the action because the junior creditor did not conduct a power-of-sale foreclosure; the senior creditors did.

## Legal Principles

- A sold-out junior lienholder (junior security extinguished by senior foreclosure) may sue directly on the promissory note without first foreclosing on worthless security.
- Code of Civil Procedure § 726 (security-first/one-action rule) does not apply to a sold-out junior lienor in these circumstances.
- Code of Civil Procedure § 580a’s fair-value and timing limits on deficiency judgments do not restrict a sold-out junior lienor’s action on the note after the senior sale.
- Code of Civil Procedure § 580b applies to purchase-money obligations secured by the property purchased; it does not bar recovery where the security is other property and the obligation is not purchase-money as to that property.
- Code of Civil Procedure § 580d bars deficiencies only against the creditor who forecloses nonjudicially under a power of sale; it does not bar a nonselling junior lienor’s suit on the note after a senior’s sale.

## Conclusion

A junior lienholder whose security is wiped out by a senior nonjudicial foreclosure may recover the unpaid debt by suing on the note, and that remedy is not barred by California’s fair-value, purchase-money, nonjudicial foreclosure, or one-action limitations when the junior did not conduct the foreclosure and the junior security is not purchase-money.


Roseleaf Corp. v. Chierighino, 59 Cal. 2d 35 (Cal. 1963)