Spurred by the harsh economics of the Great Depression, California enacted several statutes designed to protect pledgors of real property from unfair and often ruinous deficiency judgments. This legislation includes Code of Civil Procedure sections 580a,the fair value section, 580b,the purchase-money anti-deficiency statute, 580d; the nonjudicial foreclosure anti-deficiency statute, and 726, the "one-action" rule. Three decades of judicial interpretation, however, have created a body of case law which fails to advance the legislative purposes upon which the courts purportedly base their decisions.
The time has come for California to substantially revise its Depression-era anti-deficiency legislation in order to express and effectuate purposes consistent with the expectations of both debtor and creditor in today's society. Current sections 580a, 580b and 726 have generated much controversy in their application. The results obtained in the everyday application of the statutes as interpreted by the courts, are irreconcilable with the court-declared principles that underlie this legislation. Therefore, the author proposes a revision of sections 580a, 580b and 726 to bring those statutes in line with the needs of real estate borrowers and creditors today.
The author proposes an amendment of section 580a which, while leaving section 580d intact, would breathe new vitality into the dormant statute by applying its principle of fair valuation to certain foreclosure situations in which the value should, in equity, be considered by the courts.
A growing trend in both case law and in legislation has been to provide increasing protection for homeowners, while exercising a hands-off policy in commercial transactions. The author's proposed amendments would codify this trend by incorporating the protection forwarded homeowners, while allowing deficiency judgments in commercial transactions subject to the fair value provisions of the amended section 580a.
The two aspects of section 726 - affirmative defense and sanction effect - must be clarified so that the courts will apply the statute as the Legislature intended.
Section II of this article reviews the present statutes and case law interpreting them in order to illustrate the problems with the anti-deficiency statutes and the contexts in which they have arisen. Section III highlights the current legislative policy to give special protection to residential real estate purchasers. In section IV, the proposed statutory revisions are set out and analyzed.
California's Foreclosure Statutes: Some Proposals for Reform
, 26 Santa Clara L. Rev. 533
Available at: http://digitalcommons.law.scu.edu/facpubs/49