Title Priority of Trust Deeds
- Simultaneously Recorded Trust Deeds Order of Recording Do Not Determine Their Priority.
In the case of MTC Fin., Inc. vs. Nationstar Mortage,  19 Cal App 5th 811. The appellate court determined that the order in which two simultaneously recorded Deeds of Trust are indexed by the recorders office does not determine their priority. The larger loan was reasonably deemed to be senior to the smaller home equity line of credit recorded at the same time.
In this case, Sparrow obtained two loans from Countrywide each secured by a Deed of Trust on her home. A loan for $205,000.00 and a home equity line of credit (HELOC) of $15,000.00. Nothing on either one of the Trust Deeds stated that one was supposed to be a First Trust Deed and the other a Second Trust Deed. Both Trust Deeds were recorded on the same day. The HELOC was recorded as Instrument No. 3057 and the $205,000.00 Trust Deed was recorded as Instrument No. 3058. The HELOC was assigned to Mellon Bank and the $205,000.00 loan was assigned to Nationstar.
After the borrower defaulted on the HELOC the trustee conducted a non-judicial sale and received $105,000.00. After paying back the bank and the costs of sale a surplus of $73,000.00 remained which was claimed by (1) borrower; (2) her Homeowners Association; (3) Nationstar. Having multiple demands for the same amount of money the trustee interpleaded the money with the court.
The Superior Court ruled that Nationstar was the senior lien holder despite being indexed one Instrument after the HELOC and thus was not entitled to any of the proceeds of the sale. Under Civil Code 2942(k) when a junior lien holder forecloses on a Second Deed of Trust at a non-judicial trustees sale the senior lien holder is not entitled to any proceeds from the sale because the property is purchased at the sale subject to the First Trust Deed. The court ordered the $13,500.00 distributed to the Homeowners Association and the balance to the borrower.
The Court of Appeal affirmed. Absent evidence of timing that was determinative of the priority of the two liens, the trial court reasonably relied on the “apparent intent of the parties” to determine the priority. Because Countrywide was the original lender on both loans the reasonable expectation is that it would secure the much larger mortgage loan in the primary first position.
About the Author
Scott Souders is a real estate attorney who has practiced real estate law in excess of 42 years in Southern California. The Real Estate Law Update cites cases or statutes which are summarized and should not be relied upon without fully reading the cases or statute in the advance sheets and shepardizing the same and consulting with your own attorney.