May a second trust deed note holder on a call of a recourse note now unsecured due to foreclosure by the senior note holder, judicially collect the payment due on the call when monthly note payments are more than four years delinquent?

Piedmont Capital Management, LLC. v. McElfish

Facts: A borrower encumbers their property with two mortgages, the second securing a recourse debt. The borrower defaults on the payments of both mortgages and the first mortgage holder sells the property at a foreclose sale leaving the second trust deed note unpaid and unsecured. More than four years after defaulting on the second trust deed note payments, the note holder calls the remaining principal balance and four years of accrued unpaid interest due on the note, which payment the borrower does not make. The note holder seeks a money judgment award for the amount of principal remaining and accrued interest as payment demanded on the call.

Claim: The borrower claims the note holder may not collect any principal or interest since the first default on note payments triggers the running of the four-year statute of limitations barring judicial enforcement of the note and more than four years passed after the first default.

Counterclaim: The note holder claims they may collect the remaining principal balance and accrued unpaid interest for four years prior to the date of the call since a default in a monthly payment does not trigger the statute of limitation barring recovery of a later payment due based on a call for final payoff of the remaining principal and four years of accrued interest.

Holding: A California appeals court holds the trust deed note holder of a recourse debt is entitled to a judicial award for the remaining principal balance plus accrued unpaid interest for four years prior to the date of the call since the statute of limitation for recover begins to run from the date a payment is due, not triggered by prior defaults in other payment. [Piedmont Capital Management v. McElfish (2023) 94 CA5th 961]

Piedmont Capital Management, LLC. v. McElfish

Related Reading:

Real Estate Finance, Chapter 4: Basic provisions in trust deed notes

California Mortgage Lending, Chapter 38: Judicial foreclosure

Real Estate Principles, Chapter 61: The promissory note