LIU, J.—
Under California law, a creditor can recover a debt secured by a deed of trust on real property through a nonjudicial foreclosure action to sell the property at a public auction. Code of Civil Procedure section 580d provides that a creditor cannot collect a deficiency judgment—that is, the difference between the amount of indebtedness and the fair market value of the property—if the property is sold for less than the amount of the outstanding debt. (All undesignated statutory citations are to the Code of Civil Procedure.) Here we consider this question: Where a creditor holds two deeds of trust on the same property, can the creditor recover a deficiency judgment on a junior lien extinguished by a nonjudicial foreclosure on the senior lien? The trial court applied section 580d to bar such a recovery; the Court of Appeal disagreed. We affirm and hold that under the circumstances here, section 580d does not preclude a creditor holding two deeds of trust on the same property from recovering a deficiency judgment on the junior lien extinguished by a nonjudicial foreclosure sale on the senior.
On August 18, 2005, defendants Michael A. and Kathleen Cobb borrowed $10,299,250 from Citizens Business Bank by executing a promissory note
Applying Simon v. Superior Court (1992) 4 Cal.App.4th 63, 66 [5 Cal.Rptr.2d 428] (Simon), which held that section 580d precludes a deficiency judgment for a junior lienholder who was also the foreclosing senior lienholder, the trial court concluded that section 580d bars the monetary judgment sought by Black Sky and granted the Cobbs' motion for summary judgment. On appeal, the Court of Appeal declined to follow Simon in light of our decision in Roseleaf Corp. v. Chierighino (1963) 59 Cal.2d 35, 43 [27 Cal.Rptr. 873, 378 P.2d 97] (Roseleaf), which held that section 580d does not preclude a deficiency judgment for a nonselling junior lienholder. (Black Sky Capital, LLC v. Cobb (2017) 12 Cal.App.5th 887, 897 [219 Cal.Rptr.3d 793], review granted Sept. 27, 2017, S243294 (Black Sky).) The Court of Appeal observed that although the senior and junior lienholder are the same, "[a]ny debt owed on the junior note in this case has no relationship to the debt owed on the senior note, and by no contortion of the ... definition [of a deficiency judgment] can the unpaid balance on that note be deemed a deficiency with respect to the senior note, within the meaning of section 580d." (Black Sky, at p. 897.) Rather, "[t]he unambiguous language in section 580d ... indicate[s] that section 580d applies to a single deed of trust" and "does not apply to preclude Black Sky from suing for the balance due on the junior note in this case." (Ibid.) The Court of Appeal reversed the trial court's judgment and remanded for further proceedings. (Ibid.) We granted review.
In Roseleaf, we considered whether this provision bars recovery on a junior lien in a circumstance where that lien was held by a creditor different from the one holding a senior lien on the same property. The senior lienholder in Roseleaf initiated a nonjudicial foreclosure sale without any involvement of the junior lienholder. After the sale, the junior lienholder sued the debtor to recover the full amount unpaid on the second deed. (Roseleaf, supra, 59 Cal.2d at p. 38.) We observed that the antideficiency statutes' fair value provisions "are designed to prevent creditors from buying in at their own sales at deflated prices and realizing double recoveries by holding debtors for large deficiencies." (Id. at p. 40.) We also observed that under these provisions, and even in their absence, "[s]ome courts have limited deficiency judgments to prevent double recoveries," but "they have not limited such judgments when sought by nonselling junior lienors." (Ibid.) The reason is that "[t]he position of a junior lienor whose security is lost through a senior sale is different from that of a selling senior lienor. A selling senior can make certain that the security brings an amount equal to his claim against the debtor or the fair market value, whichever is less, simply by bidding in for that amount. He need not invest any additional funds. The junior lienor, however, is in no better position to protect himself than is the debtor. Either would have to invest additional funds to redeem or buy in at the sale. Equitable considerations favor placing this burden on the debtor, not only because it is his default that provokes the senior sale, but also because he has the benefit of his bargain with the junior lienor who, unlike the selling senior, might otherwise end up with nothing." (Id. at p. 41.)
Section 580d, we held, "does not bar [the junior lienholder's] action." (Roseleaf, supra, 59 Cal.2d at p. 43.) At the time, the text of the statute
We further explained: "The purpose of achieving a parity of remedies would not be served by applying section 580d against a nonselling junior lienor. Even without the section the junior has fewer rights after a senior private sale than after a senior judicial sale. He may redeem from a senior judicial sale (Code Civ. Proc., § 701), or he may obtain a deficiency judgment. [Citations.] After a senior private sale, the junior has no right to redeem. This disparity of rights would be aggravated were he also denied a right to a deficiency judgment by section 580d. There is no purpose in denying the junior his single remedy after a senior private sale while leaving him with two alternative remedies after a senior judicial sale. The junior's right to recover should not be controlled by the whim of the senior, and there is no reason to extend the language of section 580d to reach that result." (Roseleaf, supra, 59 Cal.2d at p. 44; see Bargioni v. Hill (1963) 59 Cal.2d 121, 122 [28 Cal.Rptr. 321, 378 P.2d 593] [citing Roseleaf's holding that § 580d "bars recovery only on a note secured by a trust deed or mortgage that has been rendered valueless by a sale under a power of sale contained in the trust deed or mortgage securing the note sued upon" (italics added)].)
Does our construction of section 580d in Roseleaf limit the application of section 580d where, as here, the senior and junior lienholders are the same entity? For two decades, the leading decision on this issue was Simon, supra, 4 Cal.App.4th 63. The court there held that "where a creditor makes two successive loans secured by separate deeds of trust on the same real property
Over the next 20 years, several Courts of Appeal cited Simon's reasoning with approval. (See Bank of America, N.A. v. Mitchell (2012) 204 Cal.App.4th 1199, 1207 [139 Cal.Rptr.3d 562]; Ostayan v. Serrano Reconveyance Co. (2000) 77 Cal.App.4th 1411, 1422 [92 Cal.Rptr.2d 577]; Evans v. California Trailer Court, Inc. (1994) 28 Cal.App.4th 540, 552 [33 Cal.Rptr.2d 646].) However, the Court of Appeal in Cadlerock Joint Venture, L.P. v. Lobel (2012) 206 Cal.App.4th 1531 [143 Cal.Rptr.3d 96] (Cadlerock) questioned this line of cases, observing that "[c]onspicuously absent from Simon ... is a close examination of the text of section 580d." (Cadlerock, at p. 1548.) According to Cadlerock, "Simon ... and its progeny ... created an equitable exception to the text of section 580d" by misreading Roseleaf's equitable considerations into section 580d. (Cadlerock, at p. 1549.) The court observed that although "[p]erhaps Simon and its progeny have come to the right result under the one form of action rule, assuming that it is a proper sanction for a violation of section 726 under these circumstances to bar the junior lienor from obtaining any recovery," the one form of action rule should not be "conflated [with] the analysis of section 580d." (Cadlerock, at p. 1549.) But unlike Simon, Cadlerock involved a creditor that issued two deeds of trust on the same real property and then assigned the junior lien to a different creditor before foreclosing on the senior lien. Cadlerock's criticism of Simon was therefore dicta, and the court acknowledged that Simon and its progeny were distinguishable because "the junior lienor and senior lienor [in Cadlerock] were different entities at the time of the senior trustee's sale." (Cadlerock, at p. 1546.)
The question here is whether section 580d bars a deficiency judgment on a junior lien held by a senior lienholder that sold the property comprising the security for both liens. We do not consider whether section 726 or any other statute bars or limits such a deficiency judgment; the question before us concerns only section 580d.
Section 580d, subdivision (a) provides that "no deficiency shall be owed or collected, and no deficiency judgment shall be rendered for a deficiency on a note secured by a deed of trust or mortgage on real property or an estate for years therein executed in any case in which the real property or estate for years therein has been sold by the mortgagee or trustee under power of sale contained in the mortgage or deed of trust." Black Sky contends that section 580d does not apply because it is seeking a deficiency on the note secured by the September 7, 2007 deed of trust and no sale occurred under power of sale contained in that deed of trust.
We have "consistently looked to the purposes of the statute and to the substance rather than the form of loan transactions in deciding the ... applicability" of antideficiency statutes. (Coker v. JPMorgan Chase Bank, N.A. (2016) 62 Cal.4th 667, 676 [197 Cal.Rptr.3d 131, 364 P.3d 176]; id. at pp. 676-681 [discussing our case law applying this approach].) The Cobbs contend that allowing a junior lienholder to collect a deficiency judgment in this scenario would be at odds with the purpose of section 580d insofar as a creditor could structure what is functionally a single loan as two separate notes in order to recover under the junior note what it could not recover if it had issued a single note on the same property. In Simon, the junior and senior loans were issued just four days apart, and the deeds of trust securing the loans were recorded on the same date. (Simon, supra, 4 Cal.App.4th at p. 66.) Simon treated the two loans as one, distinguishing the lender from "a true third party sold-out junior." (Id. at p. 77.) It was in that context that Simon said courts "will not sanction the creation of multiple trust deeds on the same property, securing loans represented by successive promissory notes from the same debtor, as a means of circumventing the provisions of section 580d." (Ibid.)
Where there is evidence of gamesmanship by the holder of senior and junior liens on the same property, a substantial question would arise whether the two liens held by the same creditor should—in substance, if not in form—be treated as a single lien within the meaning of section 580d. (Cf. Freedland v. Greco (1955) 45 Cal.2d 462, 467 [289 P.2d 463] ["It is unreasonable to say the Legislature intended that section 580d could be circumvented by such a manifestly evasive device [where the creditor issued two notes, one secured by a deed of trust and another by a chattel mortgage, for the same obligation of $7,000]. In such a situation the legislative intent must have been that the two notes are, in legal contemplation and under section 580d, one, secured by a trust deed."]; Simon, supra, 4 Cal.App.4th at p. 66.) It is unclear that the Legislature, in enacting section 580d, intended to permit such gamesmanship to affect the amount of recovery under a junior lien.
But we have no occasion here to decide the applicability of section 580d in these or other gamesmanship scenarios. The Cobbs do not allege, and there is no evidence to suggest, that the two notes in this case arose from intentional
We affirm the judgment of the Court of Appeal.
Cantil-Sakauye, J., Chin, J., Corrigan, J., Cuéllar, J., Kruger, J., and Groban, J., concurred.