## Facts

- A trustee-lender made a loan to a borrowing investment trust, secured by a deed of trust on Newport Beach real property.
- The individual defendants, who created the borrowing trust and were its settlors and beneficiaries, executed guaranty agreements guaranteeing the trust’s loan obligations.
- The borrowing trust defaulted on the loan.
- The lender completed a nonjudicial foreclosure under the deed of trust and acquired the property at the trustee’s sale with a $900,000 credit bid, subject to a senior loan.
- The unpaid loan balance at the time of sale was about $1,288,042.36 plus interest.
- After applying the credit bid, the lender sued the individual defendants on their guaranties for the remaining deficiency.
- Following a bench trial on stipulated facts, the trial court entered judgment for the lender for $432,628.40 plus interest.
- The guarantors appealed, arguing that Code of Civil Procedure § 580a limited the deficiency recoverable from them and that they should be treated as principal obligors rather than true guarantors.

## Issues

1. Whether Code of Civil Procedure § 580a’s fair-value limitation applies to an action against guarantors after a nonjudicial foreclosure sale.
2. Whether guarantors who are closely connected to the borrower (as settlors and beneficiaries of the borrowing trust) should be treated as principal obligors, thereby receiving § 580a protection.

## Decision

- The Court of Appeal affirmed the judgment for the lender.
- Section 580a does not apply to actions against true guarantors.
- The defendants were true guarantors rather than principal obligors because the borrower was the separate trust entity they chose to employ, and they executed guaranties in that capacity.
- Because § 580a was inapplicable, the lender was not required to obtain a judicial fair-value determination before recovering the deficiency from the guarantors.

## Legal Principles

- Code of Civil Procedure § 580a limits deficiency judgments against principal debtors by requiring a fair-value determination and restricting recovery to the difference between the debt and the property’s fair value at sale.
- As a matter of established California precedent, § 580a’s protection does not extend to true guarantors absent a basis to recharacterize the guaranty as a sham.
- Courts generally respect a transaction’s chosen structure where the borrower is a distinct legal entity and individuals separately undertake secondary liability as guarantors, even if those individuals have a close relationship to the borrowing entity.
- Policy arguments against “excess recovery” cannot expand antideficiency statutes beyond their text and the settled borrower-guarantor distinction recognized in case law.

## Conclusion

The court upheld a post-foreclosure deficiency judgment against guarantors, holding that CCP § 580a’s fair-value limitation applies to principal debtors, not true guarantors, and that individuals who intentionally structured a separate borrowing trust and signed guaranties could not later claim borrower protections based on their relationship to the trust.


Talbott v. Hustwit, 164 Cal. App. 4th 148, 78 Cal. Rptr. 3d 703 (Cal. Ct. App. 2008)