R.E. Loans, LLC v. Investors Warranty of America, Inc.

Several loans on real property may be secured by a single deed of trust and cross-defaulted, that is, a default on one will be a default on all. Here we conclude that unless the parties otherwise agree, the priority of the loans does not change.

Plaintiff agreed to subordinate its existing trust deed to a new trust deed in favor of defendants securing a note in the amount of $4,006,600. Defendants’ *1434 new trust deed, however, secured that note plus two other notes for a total of $21 million. The notes were “cross-defaulted.”

Plaintiff claimed that defendants breached the subordination agreement because the loan secured by defendants’ trust deed exceeded $4,006,600. The trial court agreed and granted plaintiff summary judgment in its action for declaratory relief. We reverse.

Defendants did not breach the subordination agreement. The notes secured by defendants’ trust deed are treated as separate loans. Plaintiff’s trust deed is subordinate only to the $4,006,600 loan. The agreement to cross-default the loans is between defendants and their borrower. It does not affect plaintiff’s right to protect its interest by curing the default under the $4,006,6000…