Weinstein v. Rocha

Opinion

CROSKEY, J. Appellants Alan and Dorina Weinstein (the Weinsteins), purchasers of real property, appeal from an order enforcing a settlement agreement between them and the seller, respondent Juan Rocha.

The property’s purchase was partially financed by a promissory note in favor of Rocha, secured by a second trust deed. The primary financing was supplied by the holder of the senior first trust deed. Rocha and the Weinsteins later entered into a settlement agreement to dismiss the Weinsteins’ action against Rocha for alleged failed disclosures concerning the sale. The agreement altered the provisions of the promissory note by, inter alia, lowering the amount of the debt.

The Weinsteins later stopped paying on Rocha’s note, and he obtained a judgment against them for the note’s entire balance. The Weinsteins assert that the antideficiency statute (Code Civ. Proc., § 580b) should have limited Rocha’s relief to foreclosing the promissory note’s security.

We hold that, as the settlement agreement effected a modification of the promissory note, Rocha’s right to recover on the secondary lien was limited by the antideficiency statute. We therefore reverse the trial court’s judgment.

FACTUAL AND PROCEDURAL BACKGROUND

On June 30, 2006, Alan and Dorina Weinstein purchased a multiunit property from Juan Rocha for a total of $1,265,000. The Weinsteins financed the purchase through a cash paymént of $200,000, a note of $820,000 secured by a first deed of trust in favor of En Financial, and a note for $245,000 secured by a second deed of trust in favor of Rocha (the Promissory Note). This last amount was altered before closing to $209,418.

On August 20, 2008, the Weinsteins sued Rocha for allegedly not disclosing that the property violated certain provisions of the Los Angeles Municipal [95]Code (housing code) at the time of sale.1 Rocha resolved the Weinsteins’ action by means of a settlement agreement (the Settlement Agreement) executed on February 18, 2009.

Instead of Rocha paying the Weinsteins an amount to compensate them for the undisclosed housing code violations, the parties agreed to reduce the Weinsteins’ obligation to Rocha. However, if the Weinsteins did not timely make payments on the reduced Promissory Note amount, the amount due would be increased to nearly the original amount and Rocha could foreclose on the property. The Settlement Agreement provided that (1) “the principal amount on the Promissory Note effective as of the date of this Agreement shall be amended to be $150,000,” (2) the “term of the Promissory Note” would be extended from July 3, 2009, to July 3, 2012, (3) the monthly payments would be interest-only payments of $1,000, and (4) upon the Weinsteins’ failure to make timely payments, Rocha reserved “the right to accelerate payment of the amount of $200,000 plus accrued but unpaid interest due on the Promissory Note and foreclose on the Property.” The Settlement Agreement provided that the trial court had jurisdiction to enforce its terms.