In re Salamon
Facts: A buyer purchases income property encumbered by multiple mortgages including a seller carryback junior mortgage. The buyer and seller both file for Chapter 11 bankruptcy. As part of the bankruptcy plan, the bankruptcy court lifts the automatic stay allowing the senior mortgage holder to begin foreclosure. The proceeds from the foreclosure satisfy all but the seller carryback junior mortgage.
Claim: The seller seeks the unpaid balance of the mortgage from the buyer, claiming they may collect on the nonrecourse debt since it became a recourse debt once the property was sold.
Counter claim: The buyer claims the seller cannot collect on the recourse debt since the property was sold in a nonjudicial foreclosure sale, and thus all liens on the property were extinguished.
Holding: A California court of appeals holds the seller may not collect a recourse debt since the property was sold in a nonjudicial foreclosure, extinguishing the liens. [In re Salamon (April 20, 2017) _CA4th_]
