Is a carryback note modified by a settlement agreement still controlled by anti-deficiency law?

Facts: A buyer purchased property financed by a loan secured by a first trust deed and a seller carryback note secured by a second trust deed on the property. The seller failed to provide the buyer with all required property disclosures. As a result, the seller and the buyer entered into a settlement agreement to reduce the principal due under the carryback note. Later, the buyer defaulted on the first trust deed. The first trust deed lender foreclosed, wiping out the seller’s interest in the property. The seller demanded the buyer pay the principal remaining on the carryback note secured by the second trust deed, called a deficiency.

Claim: The buyer sought to avoid the seller’s demand, claiming the seller was prohibited from collecting the deficiency since the buyer was protected under state anti-deficiency law.

Counterclaim: The seller sought to collect the deficiency, claiming the buyer was not protected by state anti-deficiency law since the settlement agreement created a separately enforceable, independent obligation.

Holding: A California court of appeals held the seller was prohibited from collecting a deficiency on the carryback note from the buyer under state anti-deficiency laws since the settlement agreement did not create a separately enforceable independent obligation. [Weinstein v. Rocha (2012) 208 CA4th 92]

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