Turner v. Lytton Savings & Loan Ass'n

California Court of Appeal May 25, 1966 No. Civ. 22636Published

Before: Agee

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Holding. Under Code of Civil Procedure section 1188.1, optional advances made by a senior lienholder for the costs of property improvements retain the priority of the original deed of trust, even if made after a default.

Issues

Whether optional advances made by a senior lienholder after a default lose their priority over a junior lienholder.
Whether Code of Civil Procedure section 1188.1 grants priority to optional advances used for construction costs over junior deeds of trust.

Disposition. affirmed

Quotations verified verbatim against the opinion

“The net effect of this bill would be to amend existing law to provide that where the deed of trust contains provision for optional advances and the said optional advances are in fact made and money received therefrom is used for payment of services or material which go into a construction project, then the priority of the deed of trust for all moneys advanced thereunder including optional advances will be as of the date the deed of trust is recorded”

AGEE, J.

In this declaratory relief action plaintiffs appeal from a judgment holding that their second deed of trust is junior to the

entire

amount of defendant Lytton’s first deed of trust. The judgment was rendered upon completion by plaintiffs of their case in chief. (Code Civ. Proc., § 631.8.) The facts follow.

Plaintiffs sold an unimproved parcel of real property to defendants Caton and wife, doing business as F. & R. Builders, for $12,000, taking back said defendants’ note and second deed of trust thereon for $8,000 as part payment of the purchase price.

The Catons then obtained a construction loan of $39,000 from defendant Lytton Savings and Loan Association for the purpose of constructing a dwelling house on said real property. This loan was secured by a first deed of trust thereon, executed by the Catons as trustors and naming Lytton as beneficiary.

All parties consented that Lytton’s deed of trust was to be a first lien upon the property and plaintiffs ’ deed of trust was to be a second lien thereon. These instruments were recorded in that order on February 4, 1963. Construction work commenced thereafter.

The disbursement of the Lytton loan was governed by the terms of a lending agreement executed between Lytton and the Catons. Progress payments were to be made from the $39,000 loan fund in accordance therewith. If at any time the work did not progress in a satisfactory manner or if at any time the Catons breached any of the other conditions contained in such lending agreement, Lytton had the right to declare a default under its deed of trust and to discontinue further payments from said loan fund.

Lytton executed such a declaration of default on March 18, 1963, and caused it to be recorded on March 27, 1963. At that time there remained some $27,919 in the loan fund.

However, Lytton thereafter withdrew said default declaration and resumed payments from the loan fund until the full amount thereof was exhausted. It made no further advances.

[459]

The building not having been completed, Lytton recorded a new notice of default on September 30,1963.

Turner v. Lytton Savings & Loan Ass'n

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AGEE, J.

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