Talbott

Defendants William and Janyce Hustwit challenge a judgment entered against them on a guaranty agreement after the lender foreclosed on real property securing a loan made to the Hustwits’ trust. The Hustwits contend the trial court erred in refusing to apply Code of Civil Procedure section 580a, 1 which requires an appraisal of the real property security before the court may issue a deficiency judgment. The Hustwits assert that the general policy against excess recovery by creditors following the foreclosure of real property requires applying section 580a to guarantors as well as principal debtors. Alternatively, the Hustwits argue they were not true guarantors because they were closely related to the debtor as settlors and beneficiaries of the trust.

We conclude the trial court did not err. Case law uniformly holds that section 580a does not apply to guarantors. Moreover, the Hustwits structured the trust to separate themselves from the trust’s debts. They are therefore not principal obligors to the loan, but true guarantors. Accordingly, we affirm.

I

Factual and Procedural Background

The Hustwits are guarantors of a loan plaintiff Cynthia D. Talbott, trustee of the…

I agree with the reasoning and result of the majority opinion, because both are compelled by Supreme Court authority. However, I write separately to voice concerns about the potential danger for the easy circumvention of the protections offered consumers under California’s statutory antideficiency legislation by the use of loan guarantees. (See Code Civ. Proc., §§ 580a, 580b, 580d, 726.) 1 The current “subprime mortgage crisis” at a time of generally declining real estate prices illustrates the public importance of the issue.

Just three years after the 1933 enactment of antideficiency legislation, the California Supreme Court had occasion to confront the issue of deficiency judgments against guarantors in Loeb v. Christie (1936) 6 Cal.2d 416 [ 57 P.2d 1303 ] (Loeb) in the specific context of whether a statute (Civ. Code, § 2809) that provides that guarantors do not assume any obligation “more burdensome” than that assumed by the principal debtor, would apply to deficiency judgments. The court reasoned that the answer was no, because the principal still “remains liable at all times for the full amount of the obligation and may be compelled to pay it, first out of the security,…

Defendants William and Janyce Hustwit challenge a judgment entered against them on a guaranty agreement after the lender foreclosed on real property securing a loan made to the Hustwits' trust. The Hustwits contend the trial court erred in refusing to apply Code of Civil Procedure section 580a, [1] which requires an appraisal of the real property security before the court may issue a deficiency judgment. The Hustwits assert that the general policy against excess recovery by creditors following the foreclosure of real property requires applying section 580a to guarantors as well as principal debtors. Alternatively, the Hustwits argue they were not true guarantors because they were closely related to the debtor as settlors and beneficiaries of the trust.

We conclude the trial court did not err. Case law uniformly holds that section 580a does not apply to guarantors. Moreover, the Hustwits structured the trust to separate themselves from the trust's debts. They are therefore not principal obligors to the loan, but true guarantors. Accordingly, we affirm.

The Hustwits are guarantors of a loan plaintiff Cynthia D. Talbott, trustee of the Cynthia D. Talbott Separate…