UTA Requests Publication of Case Clarifying Modification Agreements

Patric J. Kelly Esq.

UTA requested publication of a case (Uridias). The case was handled by Patric Kelly, Esq., of Adleson, Hess & Kelly at the trial level and was appealed by Harry Price, Esq., of Price Law Firm.

Phil Adleson, Esq., Adleson, Hess & Kelly, UTA’s Corporate Counsel notes that the case is significant for trustees and lenders: 

“The Uridias opinion addresses a number of issues that come up particularly in commercial loans and for which there is no good published authority. Those issues include:

• It discussed the difference between redemption of a senior lien (and subrogation) under CC sec. 2903 et seq. and a protective advance (usually partial) pursuant to the terms of the deed of trust.  These days, as in the Uridias case, many junior lienholders are making protective advances to obtain
  forbearance or modification agreements relating to senior liens.  This opinion clarifies the
  difference between redemption and a protective advance and the consequences of selecting one over the other.
  
  
• The Uridias opinion presents a necessary distinction between the situation in South Bay Building Enterprises, Inc., v. Riviera Lend Lease, Inc., et al. (1999) 72 Cal.App.4th 1111, where the beneficiary of a foreclosing deed of trust wrongfully added additional amounts to the secured obligation (to chill the bidding and to foreclose out the junior lienholder through phantom bidding) and the situation where there is a legitimate, post-notice of default (“NOD”) protective advance being made to protect the interest of the foreclosing lender.
  
  
• In addition, plaintiffs in the Uridias case made the claim that post-NOD protective advances made by a foreclosing lienholder to obtain a forbearance of the senior loan which had matured and which bore interest at the default interest at 18% were invalid because they were not stated in the NOD as part of the statement of breach (as allegedly required by the holding in Little v. Harbor Pacific Mortgage Investors (1985) 175 Cal.App.3d 717.) In fact, the Little case merely prohibited conditional breaches (“if any”) in the NOD.  The court of appeal noted that the statement of breach is for the protection of the trustor to allow the trustor to cure.   The Uridias case involved an accounting to determine the amount of the foreclosed obligation and, therefore, the proper amount of surplus proceeds that may have to be distributed.  The plaintiff never attempted to tender reinstatement or to take other actions to protect is secured position.  As such, a post-NOD protective advance to obtain a forbearance agreement from the senior lender is not prohibited; the protective advance may be collected as part of the foreclosing obligation and it must be considered before distributing surplus proceeds to those otherwise entitled to them.
  
  
• The opinion seems to state that a junior lienholder may enter into a forbearance agreement requiring discretionary protective advances to protect its (and junior lienholders’) security without the express written consent of the junior lienholders or borrower.
  
  
• The opinion, in dicta, appears to tacitly approve the charging by the senior lender of a 10% advance fee pursuant to the note and deed of trust and the addition of such a fee to the foreclosing junior lienholders obligation when such a fee was part of the protective advance made by it. While important to lenders, we would not recommend including this point in the request for publication."

Ultimately, the court declined to publish the opinion.

Read Uridias Court of Appeal Decision