Procedural Posture
Appellant title company and appellant lenders sought review of a judgment from the Superior Court of Fresno County (California), which in effect declared void a recorded subordination agreement stating that appellant lenders’ lien had priority over respondent’s security interest.
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Overview
Respondent purchased land with a first deed of trust on the property assigned to appellant bank. After an intervening transaction, an individual purchased a parcel of the land with a third deed of trust on the property in favor of appellant lenders. Appellant title company handled the escrows for both sales. Although respondent refused to subordinate its security interest to appellant lenders’ lien, appellant title company prepared a subordination agreement that was executed only by appellant bank. The individual defaulted on the loan. Respondent satisfied its debt to appellant bank and then filed an action seeking a declaratory judgment that its lien was superior to appellant lender’s lien. The trial court issued a decision in favor of respondent. On appeal, appellant title company and appellant lenders argued that they were entitled to rely on the subordination agreement because appellant bank was the owner of the beneficial interest under the first deed of trust. The court concluded that appellants had sufficient information to impose upon them a duty of inquiry concerning appellant bank’s power to unilaterally subordinate the deed of trust.
Outcome
Judgment that in effect declared void a recorded subordination agreement was affirmed because appellant bank had no right to unilaterally subordinate the deed of trust. The court additionally found that appellant title company and appellant lenders had a duty to inquire as to the exact nature of the security interest held by appellant bank.