Court Of Appeal Finds Lender Is Not Entitled To Recover Portion Of Developer's Future Judgment In Connection With Property Damage From Wildfires

In Thoryk v. San Diego Gas & Electric Co. (2014) 225 Cal.App.4th 386, Thoryk owned a large piece of land ("Land") in San Diego County.  Encumbering the Land was a first deed of trust in favor of PFI Realty ("PFI") and a second deed of trust in favor of Highland Valley Investors ("Highland").  In 2007, Thoryk's land was damaged by a wildfire purportedly caused by San Diego Gas & Electric and other alleged third party tortfeasors ("Wildfire Defendants").  After the fire, Thoryk defaulted on his loan with Highland and Highland nonjudicially foreclosed on the Land.  Highland held title to the Land for a short period of time, then PFI nonjudicially foreclosed its first deed of trust and took title to the Land.

Thoryk sued the Wildfire Defendants for damages for inverse condemnation, negligence, trespass, nuisance, and violation of the Public Utilities Code.  Highland intervened in Thoryk's lawsuit against the Wildfire Defendants seeking declaratory relief that it was entitled to the imposition of a judicial lien on any damages recovery that Thoryk might eventually obtain from the Wildfire Defendants.  The trial court granted Highland a judicial lien on the basis that the language of the Highland deed of trust granted Highland a lien on the damages claim and on a theory of equitable conversion.  On appeal, the Appellate Court reversed holding that a judicial lien was prohibited by California's anti-deficiency laws.


The Appellate Court interpreted the language of Highland's standard form deed of trust and found that the language was too general to grant Highland a security interest in the damages claims.  Therefore, Highland could not resort to this personal property under a theory that the damages claims were part of its mixed collateral.  The Appellate Court considered Highland's argument that it was entitled to receive any award of damages Thoryk might receive under a theory of equitable conversion.  The Court reasoned that this remedy was not available to Highland because it opted to nonjudicially foreclose on the Land and the Land was no longer at issue.

Finally, the Court determined that a judicial lien would amount to a deficiency judgment against Thoryk for the difference between what Highland credit bid at its foreclosure sale and the balance of its unpaid debt, a deficiency judgment that is prohibited by California's anti-deficiency legislation.

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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