Zieve, Broadnax, & Steele, LLP v. Dhindsa
Facts: A property encumbered by a trust deed is co-owned by two owners. One owner holds a 75% fee interest and the co-owner holds a 25% fee interest. The 75% owner signs and records a second trust deed against their interest in the property. The 25% co-owner does not sign the trust deed. The holder of the first trust deed initiates foreclosure and a trustee’s sale takes place. The proceeds exceed the amount of the first trust deed note and foreclosure expenses, creating surplus funds to be distributed between the co-owners. The trustee receives conflicting demands on the excess funds.
Claim: The second trust deed holder claims all the surplus funds are to be distributed to them since they held the second trust deed on the property
Counterclaim: The 25% co-owner claims they are entitled to 25% the surplus funds since they own a 25% interest in the property unencumbered by the second trust deed.
Holding: A California appeals court held the 25% co-owner is entitled to their share of surplus proceeds since the holder of the second trust deed only held a security interest on a 75% fee interest in the property. [Zieve, Broadnax, & Steele, LLP v. Dhindsa (May 13, 2020)_CA6th_]
