Estate of Farris

Filed 7/27/07 Estate of Farris CA3

NOT TO BE PUBLISHED

California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions not certified for publication or ordered published, except as specified by rule 8.1115(b). This opinion has not been certified for publication or ordered published for purposes of rule 8.1115.

IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA

THIRD APPELLATE DISTRICT

(Butte)

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Before she died, Leone Farris encumbered her property with loans secured by deeds of trust. She then transferred to her grandson, Joshua Cornelison, a one-half interest in the property. Following Farriss death, Cornelison asked the probate court to rule that the then-outstanding loan balance secured by the property should be charged first against the estates 50 percent interest, so his interest might remain wholly unencumbered if the estates interest is adequate to pay the balance of the secured debt. The court declined, ruling that Cornelisons property interest is encumbered by the trust deed in proportion to his ownership interest, i.e., fifty percent of the amount secured.

Cornelison appeals but fails to establish error. Therefore, we shall affirm the judgment (order).

BACKGROUND

The facts in this case, as disclosed by the limited record on appeal, are undisputed.

Before she died, Farris executed a grant deed conveying to Cornelison a one-half undivided interest in a parcel of property that was already encumbered by a deed of trust securing a loan to Farris, whose proceeds of which she used to acquire and improve the property with two mobile homes.^[1]

The parties agree that, at the time of Farriss death, there was an outstanding balance of the secured loan that may (depending on the propertys appreciation) exceed her one-half interest in the property.

Cornelison brought this petition, seeking an order of the probate court declaring that he owns a one-half undivided interest in the property, which he takes free and clear of any encumbrance incurred by Farris. In the alternative, he sought a determination that the existing indebtedness be satisfied first from Farriss half of the property, so that his half would be subject to the encumbrance only to the extent that Farriss interest was insufficient to satisfy the loan balance.

The personal representative of Farriss estate responded, arguing that both tenants in common have an equal obligation to satisfy liens and encumbrances on the property and that because Cornelisons interest as a tenant in common is subject to all encumbrances and liens upon the property, his interest is liable for a pro-rata share of the debt against the property.

Following a trial of the issue, the probate court denied Cornelisons petition, ruling that because Cornelison failed to prove Farris conveyed a one-half interest in the property to him before she encumbered it, his interest is encumbered by the trust deed in proportion to his ownership interest, i.e., fifty percent of the amount secured. The court rejected Cornelisons argument that his interest is encumbered only to the extent that the estates 50 percent interest is inadequate to pay the secured debt. In the courts words, [t]his novel argument is unsupported by relevant authority or evidence . . . .

DISCUSSION

Cornelison renews on appeal the argument that his 50% interest is impaired by the deed of trust ONLY to the extent that the 50% undivided interest the decedents estate has in the subject property doesnt cover the loan balance. (Emphasis in original.)

In his view, the law compels this conclusion because, although he took the property subject to all existing deeds of trust, (1) only the estate -- as Farriss successor -- is personally liable to pay the debt; and (2) Farriss unilateral encumbrance [of the property] only binds the encumberers interest.

These assertions misunderstand the law concerning the rights and obligations of tenants in common.

First, Cornelison glosses over the fact that, at the time Farris signed the deed of trust against the property, she alone owned 100 percent of the property. When she signed the deed, Farris encumbered the entire property, as the deed of trust reflects. Because Farris was not yet a cotenant on the day she signed the deed of trust, the rules limiting the effect of one cotenants unilateral action on the property interest of her cotenant do not apply. (See, e.g., 5 Miller & Starr, Cal. Real Estate (3d ed. 2000) 12:11, pp. 12-24 to 12-25, and cases cited therein.) Accordingly, the case law Cornelison cites for the proposition that a mortgage or other encumbrance given by only one cotenant affects only his interest in the property is correct but irrelevant to our analysis. (Cf. King v. Oakmore Homes Assn. (1987) 195 Cal.App.3d 779, 783-784; Code Civ. Proc.,  873.260.)

Because the entire property was burdened when Farris deeded Cornelison a one-half interest in it, she transferred half of what she then owned -- Cornelison got a one-half interest in a piece of property burdened by a deed of trust securing a $112,000 loan. Real property is transferable even though the title is subject to a mortgage or deed of trust, but the transfer will not eliminate the existence of that encumbrance. Thus, the grantee takes title to the property subject to all deeds of trust and other encumbrances, whether or not the deed so provides. This means that the property may be sold on foreclosure of that deed of trust if the debt is not paid, even though the property is no longer owned by the original debtor. (2 Bernhardt, Cal. Mortgage and Deed of Trust Practice (Cont.Ed.Bar 3d ed. 2002) 9.119, p. 667; see also 4 Miller & Starr, Cal. Real Estate (3d ed. 2000) Deeds of Trust and Mortgages, 10:208, p. 635.) (Nguyen v. Calhoun (2003) 105 Cal.App.4th 428, 438-439, italics added.)

While purporting to embrace the notion that he received the property subject to the existing deed of trust, Cornelison nonetheless insists that the burden of the encumbrance should affect only the estates half interest because he has no personal duty to pay [the] encumbrance. Again, this assertion is true but irrelevant. When a person takes real property covered by a mortgage or deed of trust as security for an indebtedness, the property remains subject to the secured indebtedness but the grantee is not personally liable for the indebtedness or to perform any of the obligations of the mortgage or trust . . . . (Cornelison v. Kornbluth (1975) 15 Cal.3d 590, 596.) However, nothing in the record suggests that the lender or the estate are attempting to hold Cornelison personally liable for the debt by, for example, suing him personally to recover the loan amount or other damages. Rather, the property in which he has an interest serves as security for the loan and can be sold to satisfy the obligation.

This usually is how real estate financing works. A real property loan generally involves two documents, a promissory note and a security instrument. The security instrument secures the promissory note. This instrument entitles the lender to reach some asset of the debtor if the note is not paid. In California, the security instrument is most commonly a deed of trust . . . . (Nguyen v. Calhoun, supra, 105 Cal.App.4th at p. 438.)

And that is how it worked here. Farriss deed of trust gave the lender a right to sell the property to satisfy her obligations under the underlying loan. The fact that Cornelison did not expressly assume the loan, or otherwise obligate himself personally to repay the loan, does not change the fact that the entire property remains subject to the secured indebtedness . . . . (Cf. Cornelison v. Kornbluth, supra, 15 Cal.3d at p. 596.) His lack of personal liability is completely unrelated to the question posed here, i.e., whether his share of the property can be sold to satisfy the loan obligation secured by the deed of trust. His argument to the contrary is wrong.

Cornelison has provided no authority for his core argument that the trial court erred in rejecting his assertion that his interest in the property should be encumbered only to the extent the value of the estates undivided interest is inadequate to satisfy the underlying encumbrances. A judgment or order of the trial court is presumed to be correct . . . . [Citation.] It is the appellants burden to affirmatively demonstrate error. (In re Marriage of Gray (2002) 103 Cal.App.4th 974, 977-978; see also Denham v. Superior Court (1970) 2 Cal.3d 557, 564.) Although we review de novo the probate courts determination of questions of law (see Villa v. McFerren (1995) 35 Cal.App.4th 733, 741), it remains the appellants burden to affirmatively demonstrate error. (Denham v. Superior Court, supra, 2 Cal.3d at p. 564; Marina County Water Dist. v. State Water Resources Control Bd. (1984) 163 Cal.App.3d 132, 139.)

For the first time on appeal, Cornelison claims Probate Code section 11420 supports [his] contention the court erred. We disagree. Subdivision (a)(2) of this section states that [o]bligations secured by a mortgage, deed of trust, or other lien, . . . [shall be paid] in the order of their priority, so far as they may be paid out of the proceeds of the property subject to the lien. If the proceeds are insufficient, the part of the obligation remaining unsatisfied shall be classed with general debts.^[2] As we have explained, the probate court correctly found as a predicate that Farris encumbered the entire property when she executed the deed of trust. This statute merely provides that the lender may look first for repayment to the proceeds of the property subject to the lien. It does not support Cornelisons claim that his property should not be encumbered.

In sum, Cornelison has failed to sustain his burden on appeal of demonstrating error.^[3]

DISPOSITION

The judgment (order) is affirmed.

SCOTLAND , P.J.

We concur:

NICHOLSON , J.

RAYE , J.

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^[1] Although the parties stipulate that the property was then encumbered by two deeds of trust, only one deed of trust, securing a note in the face amount of $112,000, appears in the record. According to the estates personal representative, when Farris executed this document, she was in the process of refinancing the debt, and a prior deed of trust had not yet been reconveyed.

^[2] Probate Code section 11420 states in its entirety:
(a) Debts shall be paid in the following order of priority among classes of debts, except that debts owed to the United States or to this state that have preference under the laws of the United States or of this state shall be given the preference required by such laws:
(1) Expenses of administration. With respect to obligations secured by mortgage, deed of trust, or other lien, including, but not limited to, a judgment lien, only those expenses of administration incurred that are reasonably related to the administration of that property by which obligations are secured shall be given priority over these obligations.
(2) Obligations secured by a mortgage, deed of trust, or other lien, including, but not limited to, a judgment lien, in the order of their priority, so far as they may be paid out of the proceeds of the property subject to the lien. If the proceeds are insufficient, the part of the obligation remaining unsatisfied shall be classed with general debts.
(3) Funeral expenses.
(4) Expenses of last illness.
(5) Family allowance.
(6) Wage claims.
(7) General debts, including judgments not secured by a lien and all other debts not included in a prior class.
(b) Except as otherwise provided by statute, the debts of each class are without preference or priority one over another. No debt of any class may be paid until all those of prior classes are paid in full. If property in the estate is insufficient to pay all debts of any class in full, each debt in that class shall be paid a proportionate share.

^[3] Moreover, we note that the probate courts action is consistent with the statute governing the disposition of the sale proceeds of real property held in cotenancy. Code of Civil Procedure section 873.820 governs disposition of such proceeds when the property had been divided in a partition action. It provides the proceeds of sale for any property sold shall be applied in the following order: (a) Payment of the expenses of sale. (b) Payment of the other costs of partition . . . . (c) Payment of any liens on the property in their order of priority . . . . (d) Distribution of the residue among the parties in proportion to their shares as determined by the court. Here, the court determined that Cornelison holds an undivided one-half interest and, accordingly, his interest bears half the burden of the indebtedness. If the property is sold, and the proceeds applied consistent with this statute, whatever proceeds remaining after the deed of trust and sale expenses are paid will be split equally between Cornelison and the estate. The practical effect will be that Cornelisons interest will bear half the burden of the deed of trust, just as the probate court indicated.