Enloe v. Kelso , 217 Cal. App. 4th 877 ( 2013 )

Filed 7/3/13
CERTIFIED FOR PUBLICATION
IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA
SECOND APPELLATE DISTRICT
DIVISION SIX
JAMES ENLOE et al., 2d Civil No. B241201
(Super. Ct. No. 118183)
Plaintiffs and Appellants, (San Luis Obispo County)
v.
CASEY LEE KELSO et al.,
Defendants and Respondents.
When sellers of real estate accept a deed of trust from the purchasers
to secure the purchase price, Code of Civil Procedure section 580b prohibits the
sellers from obtaining a deficiency judgment in the event the purchasers default. 1 It
matters not that such a trust deed is given to sellers after the close of escrow.
Timing does not change its character. We affirm the trial court's summary
judgment in favor of purchasers and against the sellers.
FACTS
James and Margaret Enloe owned a single family residence in
Templeton. They agreed to sell it to Casey Lee Kelso and Joseph R. Jaeger
(hereafter collectively Kelso) for $1.9 million. The Enloes agreed to carry back a
second deed of trust in the amount of $93,750. For reasons not disclosed, Kelso's
lender, Washington Mutual, decided to fund its portion of the purchase price with
1
All statutory references are to the Code of Civil Procedure.
two loans secured by two deeds of trust. This would make the sellers' proposed
second deed of trust, a third deed of trust.
Washington Mutual refused, however, to fund its loans if there would
be a third deed of trust in favor of the sellers. In response to Washington Mutual's
refusal, the Enloes and Kelso agreed that the Enloes would carry back a third deed
of trust to record ''[i]mmediately [a]fter" the close of escrow. They amended
escrow instructions to delete reference to the sellers' carry-back loan.
Prior to close of escrow, Kelso executed a note in favor of the Enloes
secured by a deed of trust on the subject property in the amount of $93,750.
Margaret Enloe tendered to escrow a personal check to Kelso in the amount of
$93,750. The check contained the notation, "for 3rd Deed of Trust of Santa Rita."
Because escrow would not accept a personal check, the check was cancelled and
marked void.
Escrow then closed. On the same day, escrow issued a cashier's check
to the Enloes in the amount of $1,530,044.66. The escrow closing statement also
showed a debit in the amount of $372,779.70 for a payoff of an existing loan,
commissions and fees, amounting to a total payout of $1,902,824.36. The
additional $2,824.36 over the $1.9 million purchase price represented a credit to the
Enloes for a pro-rata portion of the property taxes.
On the same day escrow closed, the Enloes issued a cashier's check to
Kelso in the amount of $93,750. The deed of trust was recorded a few days later.
Five years later, Kelso entered into a "short sale" agreement with a
third party; that is, an agreement in which the sales price is insufficient to pay off
the entire balance of all loans secured by the property. The Enloes consented to the
sale. They received $22,500 in exchange for the release of their trust deed. They
brought this action to recover the balance of the $93,700 loaned to Kelso.
2
DISCUSSION
I.
Summary judgment is properly granted only if all papers submitted
show there is no triable issue as to any material fact and the moving party is entitled
to a judgment as a matter of law. (§ 437c, subd. (c).) The court must draw all
reasonable inferences from the evidence set forth in the papers except where such
inferences are contradicted by other inferences or evidence that raise a triable issue
of fact. (Ibid.) In examining the supporting and opposing papers, the moving
party's affidavits or declarations are strictly construed and those of his opponent
liberally construed, and doubts as to the propriety of granting the motion should be
resolved in favor of the party opposing the motion. (Szadolci v. Hollywood Park
Operating Co. (1993) 14 Cal. App. 4th 16, 19.)
The moving party has the initial burden of showing that one or
more elements of a cause of action cannot be established. (Saelzler v. Advanced
Group 400 (2001) 25 Cal. 4th 763, 768.) Where the moving party has carried that
burden, the burden shifts to the opposing party to show a triable issue of material
fact. (Ibid.) Our review of the trial court's grant of the motion is de novo. (Id. at
p. 767.)
II.
Section 580b, subdivision (a)(2) provides that no deficiency
judgment shall lie "'[u]nder a deed of trust or mortgage given to the vendor to
secure payment of the balance of the purchase price of that real property . . . ."
The purpose of the subdivision is to discourage the vendor from overvaluing the
property, and to prevent "the aggravation of a downturn" that may result from an
economic depression. (Crookhall v. Davis, Punelli, Keathley & Willard (1998) 65
Cal. App. 4th 1048, 1057-1058.) The subdivision is liberally construed to effect its
purpose. (Budget Realty, Inc. v. Hunter (1984) 157 Cal. App. 3d 511, 513.) In
determining whether section 580b applies, courts look to the substance of the
3
transaction, not its form. (See Ziegler v. Barnes (1988) 200 Cal. App. 3d 224, 230
[use of a "'straw man'" transfer did not deprive debtor of the protection of § 580b].)
The question here is whether the trust deed given to the Enloes was to
secure payment of a portion of the purchase price.
The undisputed facts are that the parties agreed the Enloes would
finance part of the purchase by taking Kelso's note secured by a deed of trust on the
property in the amount of $93,750. In response to Washington Mutual's refusal to
fund its senior loans if the Enloes' third trust deed encumbered the property, the
parties agreed the Enloes' trust deed would be recorded "[i]mmediately [a]fter"
close of escrow. The escrow's check to the Enloes and the Enloes' check to Kelso
were drawn the same day. The Enloes even concede the $93,750 check to Kelso
was paid out of the purchase money. If there could be any doubt that the trust deed
secured a purchase money loan, it was resolved when two days prior to close of
escrow the Enloes unsuccessfully attempted to fill in the gap in the purchase price
by placing their personal check in the amount of $93,750 into escrow. The only
reasonable conclusion is that the $93,750 trust deed secured part of the purchase
price.
The Enloes argue that there are triable issues of material facts. They
point out that the $93,750 cashier's check was not paid to the Enloes until after
escrow closed. But there is nothing in the language or purpose of section 580b that
requires a purchase money transaction to be completed simultaneously with the
close of escrow.
The Enloes argue that there is also a triable issue of fact whether the
transaction could have been completed without a purchase money loan. Kelso
declared that without the $93,750, Kelso could not have paid the purchase price.
The Enloes point out, however, that the escrow closing statement shows the escrow
was fully funded prior to closing. They claim they did not fund any portion of the
escrow.
4
The question of fact the Enloes raise is not material. The parties may
agree that the vendor will take back a purchase money trust deed even if the
purchaser has the financial ability to complete the transaction without it. Here,
even if the Enloes did not fund any portion of the escrow, the facts are still so
overwhelming they allow only one reasonable conclusion: The Enloes' trust deed
secured a portion of the purchase price. Section 580b bars their action.
The judgment is affirmed. Costs are awarded to respondents.
CERTIFIED FOR PUBLICATION.
GILBERT, P. J.
We concur:
YEGAN, J.
PERREN, J.
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Dodie A. Harman, Judge
Superior Court County of San Luis Obispo
______________________________
Christian E. Iversen for Plaintiffs and Appellants
Duggan Smith & Heath LLP, Jane E. Heath, Janet L. Wallace for
Defendant and Respondents.