Gloria J. LEZINE, Plaintiff and Respondent. v. SECURITY PACIFIC FINANCIAL SERVICES, INC., Defendant and Appellant,
This appeal concerns the ability of a creditor who has obtained a judgment against a husband to enforce its judgment lien against the community property of the husband and his former wife, when the property has subsequently been awarded to the wife as her separate property in a marital dissolution proceeding. We conclude that because the judgment lien attached to the community property before it was awarded to respondent wife as her separate property in the dissolution proceeding, the property is subject to the judgment lien.
The action below originated on June 5, 1990, when respondent Gloria Lezine filed a complaint for declaratory relief, quiet title and cancellation of instruments against her then husband 1 Henry Lezine. Respondent alleged that, during their marriage, Henry Lezine forged respondent's signature to a quitclaim deed to their home located at 6537 Halm Avenue in Los Angeles, and thereafter executed two deeds of trust as security for two separate loans which encumbered the couple's residence.2
The matter was tried to the court which, by judgment entered March 6, 1992, declared the trust deeds void pursuant to the authority of Civil Code section 5127 and Droeger v. Friedman, Sloan & Ross (1991) 54 Cal.3d 26, 283 Cal.Rptr. 584, 812 P.2d 931, which prohibit an encumbrance of community property without the consent of both spouses. The court also awarded the beneficiaries of the deeds of trust, Guardian Savings and Security Pacific, money judgments against Henry Lezine, in the amounts of $302,527.85 and $87,799.50, respectively.3
Abstracts of judgment reflecting the foregoing monetary awards were recorded in the Los Angeles County Recorder's office on April 2, 1992. Three months later, on July 1, 1992, the family law court ordered the division of the couple's community property. That court awarded respondent the Halm Avenue residence as her separate property, and assigned the debts owed to Guardian Savings (with the exception of the $106,000 equitable lien) and Security Pacific to Henry Lezine. Sometime after the family law court decree awarding her the residence, respondent sought to have the trial court in this case clarify its judgment to expressly prevent the lenders' abstracts of judgment from constituting liens against her home, urging that the recent Supreme Court opinion in Droeger v. Friedman, Sloan & Ross, supra, compelled that result.4 The trial court found respondent's argument persuasive, and on February 8, 1993, ordered that the abstracts of judgment recorded by Guardian Savings and Security Pacific “shall not constitute liens against the [subject] real property․” Appellant Security Pacific appeals this amended judgment.5
Our analysis involves the interpretation and interaction of the community property laws on the one hand, and the statutes concerning creation and satisfaction of liens on real property on the other. As to the former, we note that “the community estate is liable for a debt incurred by either spouse before or during marriage, regardless of which spouse has the management and control of the property and regardless of whether one or both spouses are parties to the debt or to a judgment for the debt.” (Civ.Code, former § 5120.110, subd. (a), now Fam.Code, § 910, subd. (a).) “During marriage” is defined to exclude “the period during which the spouses are living separate and apart before a judgment of dissolution of marriage or legal separation of the parties.” (Civ.Code, former § 5120.110, subd. (b), now Fam.Code, § 910, subd. (b).) 6 Moreover, pursuant to Civil Code former section 5120.160 (now Family Code section 916) (hereafter referred to as section 5120.160),7 that liability continues until the property is awarded to one spouse as his or her separate property in a dissolution proceeding. That section provides: “(a) Notwithstanding any other provision of this chapter, after division of community and quasi-community property pursuant to Division 7 (commencing with Section 2500): [¶] ․ (2) The separate property owned by a married person at the time of the division and the property received by the person in the division is not liable for a debt incurred by the person's spouse before or during marriage, and the person is not personally liable for the debt, unless the debt was assigned for payment by the person in the division of the property. Nothing in this paragraph affects the liability of property for the satisfaction of a lien on the property.”
As we read the foregoing provisions, all of the community property owned by Henry Lezine and respondent, his wife, was liable for the debt to appellant which Henry incurred during his marriage to respondent, even though incurred without respondent's knowledge or consent, and even if the proceeds were used for Henry's exclusive benefit. (See, e.g., Robertson v. Willis (1978) 77 Cal.App.3d 358, 362, 143 Cal.Rptr. 523.) Respondent concedes that the Halm Avenue residence was community property at the time Henry incurred the debt to appellant. Neither the execution of the deed of trust in favor of appellant, nor the voiding of that deed of trust by the trial court, affected the status of the residence as community property or the liability of the community for the debt.
Once the community had been severed and the community property divided, respondent was no longer liable for the debts of Henry Lezine. Moreover, the assets awarded respondent as her separate property were no longer liable for the debts incurred by her former husband. There is but one exception to this rule, found in the second sentence of subdivision (a)(2) of section 5120.160: “Nothing in this paragraph affects the liability of property for the satisfaction of a lien on the property.” The question thus remains whether Security Pacific had a valid lien on the property at the time that the property was awarded to respondent in the dissolution proceeding. We therefore turn to an examination of the statutory scheme for the creation of a judgment lien, and the satisfaction of a such a lien by foreclosure of community property.
Code of Civil Procedure, section 697.310, subdivision (a) provides: “Except as otherwise provided by statute, a judgment lien on real property is created under this section by recording an abstract of a money judgment with the county recorder.” Section 697.340, subdivision (a) of the Code of Civil Procedure further provides in pertinent part that “A judgment lien on real property attaches to all interests in real property in the county where the lien is created (whether present or future, vested or contingent, legal or equitable) that are subject to enforcement of the money judgment against the judgment debtor ․ at the time the lien was created, ․”
“Subject to specified exceptions, an abstract of judgment attaches to all interests (whether present or future, vested or contingent, legal or equitable) owned by the judgment debtor in real property in the county in which the abstract is recorded and creates a judgment lien on that property which continues until it expires ten years later or is satisfied or released. ( [Code Civ.Proc.,] §§ 674, 697.310, subds. (a), (b), 697.340; Casey v. Gray (1993) 13 Cal.App.4th 611, 614, 16 Cal.Rptr.2d 538; Kinney v. Vallentyne (1975) 15 Cal.3d 475, 479, 124 Cal.Rptr. 897, 541 P.2d 537.) When real property encumbered by a duly recorded abstract of judgment is transferred, the transferees are charged with constructive knowledge of the encumbrance and they take title to the property subject to the lien created by the abstract, not as bona fide purchasers.” (Federal Deposit Ins. Corp. v. Charlton (1993) 17 Cal.App.4th 1066, 1069, 21 Cal.Rptr.2d 686.)
Pursuant to the foregoing statutory provisions, a judgment lien attached to all real property owned by Henry Lezine and located in Los Angeles County when Security Pacific recorded its abstract of judgment on April 2, 1992, including the residence owned by respondent and Henry Lezine as their community property. Thus, unless the later award of the residence to respondent as her separate property affected the foregoing statutory scheme, the judgment lien had attached to the community real property before respondent acquired it as her sole and separate property, and she therefore took title to the property with constructive knowledge of the recorded encumbrance and subject to the lien created by the abstract of judgment. (Kinney v. Vallentyne, supra, 15 Cal.3d 475, 478–479, 124 Cal.Rptr. 897, 541 P.2d 537; Federal Deposit Ins. Corp. v. Charlton, supra, 17 Cal.App.4th at p. 1069, 21 Cal.Rptr.2d 686.)
Respondent argues that Droeger v. Friedman, Sloan & Ross (1991) 54 Cal.3d 26, 283 Cal.Rptr. 584 does indeed change the effect of the judgment lien statute. We disagree. In Droeger, the Supreme Court was faced with the question of whether one spouse's encumbrance of her one-half interest in community property without the consent of her husband was voidable because violative of Civil Code section 5127.8 That section, which applies to the management and control of community property, states in part: “either spouse has the management and control of the community real property ․, but both spouses either personally or by duly authorized agent, must join in executing any instrument by which such community real property or any interest therein is leased for a longer period than one year, or is sold, conveyed, or encumbered․”
The court held that Civil Code section 5127 precludes one spouse from unilaterally encumbering community property, and thus declared voidable a transfer of property (including an encumbrance) when one spouse does not consent to the transfer.9 In so ruling, the Droeger court confirmed that there are but three ways in which community property may be alienated: by the death of a spouse, the dissolution of the marriage, or the mutual agreement of the community. Consequently, the trial court properly relied on Droeger in voiding the deeds of trust in favor of Guardian Savings and appellant which purported to encumber the community property of Henry Lezine and respondent without the latter's consent.
The Droeger holding, however, has no bearing on the issue of whether a judgment lien against one spouse which attached to community property may be foreclosed on that property after it has been awarded to the other spouse as her separate property in a divorce. Kinney v. Vallentyne, supra, 15 Cal.3d 475, 124 Cal.Rptr. 897, 541 P.2d 537, however, is directly on point. There, the Supreme Court made clear that a judgment lien such as the one here at issue is not affected by the later award of the residence to respondent as her separate property.
In Kinney, the plaintiffs had sued Donald Vallentyne, a married man, for tort damages in 1965. In September of 1967, Donald's wife, Carmel, was granted an interlocutory decree of divorce. Three weeks later, the plaintiffs obtained a personal judgment for damages against Donald. In November, 1967, an abstract of judgment reflecting the money judgment entered against Donald was recorded in the Contra Costa County Recorder's Office. At the time, Donald and Carmel owned three parcels of improved real property in Contra Costa County.
On September 27, 1968, a year after entry of the interlocutory divorce decree, a final decree of divorce was entered awarding Carmel, inter alia, all three parcels of real property. In 1970, unable to satisfy the judgment out of Donald's personal assets, the plaintiffs sought a judicial declaration that they were entitled to enforce their judgment lien on the former community property of Donald and Carmel which had been awarded to Carmel in the dissolution proceeding. The Supreme Court held that the community property in the hands of Carmel was subject the plaintiffs' judgment lien.
In reaching this conclusion the court first noted that “ ‘A judgment lien has always been regarded as the highest form of security to a creditor.’ (Morton v. Adams (1899) 124 Cal. 229, 231, 56 P. 1038.)” (Kinney, supra, 15 Cal.3d at p. 478, 124 Cal.Rptr. 897, 541 P.2d 537.) The court went on to state that the creditor is entitled to enforce the lien even if the debtor has transferred his title to the property to another after the lien has attached: “Under section 674, there is no lien unless and until the abstract of judgment is recorded. But precisely because of that recordation, the transferee takes with constructive notice of both the original amount of the judgment and the remaining life of the lien.” (Id. at p. 479, 124 Cal.Rptr. 897, 541 P.2d 537.) Finally, the court concluded that the fact that the debtor and transferee were husband and wife was of no consequence: “Section 674 contemplates no special rule for domestic relations cases. (Cf. Code Civ.Proc., § 674.5 [lien of judgment for alimony or child support].) It is irrelevant for purposes of the judgment lien law that the property in question was once community realty and was awarded to Carmel as her separate property in the final decree of divorce, or that since that date she has made payments out of her separate funds to maintain or improve the premises, reduce the principal of the mortgage loans, and meet the tax obligations. For present purposes all that matters is that before title to the property vested in Carmel, plaintiffs recorded their abstract of judgment and the lien therefore attached. [10 ] Carmel thus took with constructive notice of that lien; indeed in view of her intimate relationship to the debtor it is to be expected that she had actual notice as well.” (Id. at pp. 479–480, 124 Cal.Rptr. 897, 541 P.2d 537.)
The Kinney court noted that both parties in that case argued that equitable considerations mandated a departure from the application of the rules articulated above. Justice Mosk answered that “An exception to the rule in the circumstances of this case is neither compelled by equitable considerations nor consonant with the strong public policy in favor of satisfaction of judgments expressed in [Civil Code] section 674.” Respondent interprets this latter statement as a basis for bypassing the statutory scheme in this case in the interests of equity.
We do not believe that Justice Mosk's comment is susceptible to the proffered interpretation. In Kinney, as in this case, the wife was an innocent spouse who gained no benefit from the debt incurred by her former husband. As also true in the instant case, had the property at issue been awarded to Carmel concurrently with the entry of judgment in the dissolution proceeding, the judgment debtor would have acquired no lien on the property, and thus would have no recourse against Carmel or her now separate property. Moreover, the facts in Kinney were even more compelling, since Carmel had invested her own funds to improve the property after having received sole title to the property in the dissolution action. The Supreme Court nevertheless recognized the superior rights of the judgment lienor. Respondent, though as innocent of wrongdoing as was Carmel, has no greater claim to equitable relief from the effect of the community property laws than did Carmel.
In sum, we conclude that here, as in Kinney, the subject property was the community property of Henry and Gloria Lezine, acquired during their marriage. Henry Lezine incurred a debt to Security Pacific during the Lezines' marriage. The residence, as community property, was liable for this debt. (Civ.Code, former § 5120.110.) Security Pacific obtained a judgment against Henry Lezine representing this debt. A judgment lien attached to the property when Security Pacific recorded its abstract of judgment against Henry Lezine. (Code Civ.Proc. §§ 697.310, 697.340.) Subsequently, as part of the property division of the marital dissolution proceeding, respondent was awarded the residence as her separate property. On and after the date of that award, the property was not subject to the debts of Henry Lezine, except to the extent of any pre-existing liens. (§ 5120.160, subd. (a)(2).) Appellant's judgment lien was a pre-existing lien, to which the property was subject. (Ibid.)
Respondent complains that the result of our holding is the same as would have obtained had appellant's deed of trust not been voided. While this is so, it is true simply because this is what the community property laws require. As explained above, those laws provide that the community is liable for the debts of each spouse, whether or not the debts were incurred with the knowledge of the other spouse, and regardless of the use to which the proceeds of the debt were put. It was the security for Henry Lezine's debt to appellant, and not the debt itself, which the trial court voided. Thus, though Security Pacific obtained a judgment against Henry Lezine alone, the community property laws of this state provide that all of the debtor's property, including the community property owned jointly with his spouse, is liable for the debt. At the time that appellant recorded its abstract of judgment, the subject residence was the community property of Henry Lezine and respondent, and liable for the debts of both spouses. When the residence was subsequently awarded to respondent as her sole property, respondent took title with constructive knowledge of appellant's judgment lien.
Of course, respondent is not without a remedy. Initially, we note that the family law court hearing the dissolution action had jurisdiction to void appellant's deed of trust and divide the couple's community property, taking into account any liens or other encumbrances thereon. Thus, there was no need for respondent to file a separate complaint, which set in motion the legal machinery which resulted in appellant obtaining “the highest form of security to a creditor,” a judgment lien. Moreover, if the dissolution court had determined, as it apparently did, that respondent was entitled to the full value of the residence encumbered only by a lien of approximately $106,000 in favor of Guardian Savings, it could have awarded her additional community property equal to the value of the liens encumbering the residence, or given her security for Henry Lezine's obligations to satisfy the remaining debt on the property. What it could not do was simply declare that the property was free and clear of appellant's judgment lien, in violation section 5120.160. Finally, if respondent is required to satisfy Security Pacific's lien, notwithstanding that the Security Pacific debt was assigned to Henry Lezine in the divorce action, respondent has a right of reimbursement against her former husband.11 (§ 5120.160, subd. (b).)
Respondent also suggests that our conclusion resurrects the holding of Bank of America Etc. Assn. v. Mantz (1935) 4 Cal.2d 322, 49 P.2d 279, a holding which, according to the Law Revision Commission Comments to section 5120.160, was overturned by enactment of that statute. In Mantz, Mrs. Gorman was awarded the residence of herself and her former husband as her share of the couple's community property in a divorce action. Thereafter, the plaintiff obtained a judgment against Mr. Gorman. When plaintiff was not able to satisfy the judgment against Mr. Gorman, it sought a declaration that it was entitled to recover Mr. Gorman's one-half interest in the residence awarded to Mrs. Gorman in the divorce, on the theory that the residence was the couple's community property and thus available for satisfaction of Mr. Gorman's debts. The Supreme Court agreed, reasoning that because the residence was community property when acquired during the marriage, it remained community property after the divorce. Thus, Mr. Gorman's one-half interest of the property was subject to plaintiff's judgment. (Bank of America Etc. Assn. v. Mantz, supra, 4 Cal.2d at p. 326, 49 P.2d 279.)
In the 1993 Law Revision Commission Comments to Family Code section 916, the commentators noted: “When enacted in 1984 (as former Civil Code Section 5120.160), subdivisions (a)(2)–(3) reversed the former case law rule that a creditor may seek enforcement of a money judgment against the former community property in the hands of a nondebtor spouse after dissolution of the marriage. See, e.g., Bank of America N.T. & S.A. v. Mantz, ․” (Deering's Ann. Fam.Code, § 916.) Respondent cites the foregoing comment in support of her argument that the statute does not permit Security Pacific to satisfy its judgment against her former husband by foreclosing a lien on her house, which is now her separate property. However, Mantz differs from the instant case in one crucial respect: There, the husband's judgment creditor did not record an abstract of judgment prior to award of the residence to the nondebtor wife, and thus no judgment lien attached to the property. Nevertheless, the Supreme Court permitted the judgment creditor to satisfy an after-acquired judgment against the husband by foreclosing on the now separate property of the wife. It was this inequitable result which the Legislature overturned by enacting section 5120.160. In so doing, the Legislature adopted the rule that, once the former community property of the couple has been divided and awarded to the respective spouses, the now separate property of one spouse (which was previously the community property of the couple) is not subject to the debts of the other spouse, unless those debts, prior to the property division, have been reduced to a judgment, and an abstract of that judgment has been recorded in the county recorder's office, thereby creating a lien on the debtor's property.
In sum, at the time that respondent acquired her former husband's interest in the residence, the judgment lien had already attached to the property. Consequently, section 5120.160 does not operate to shield the property from the effect of the judgment lien.12
Based upon the foregoing, we hold that the trial court erred in declaring that Security Pacific's judgment lien does not constitute a lien against respondent's residence. Accordingly, the clarification of judgment is reversed to the extent that it provides that Security Pacific's $87,799.50 judgment does not constitute a lien against the Halm Avenue property.13 Each party is to bear its own costs on appeal.
As required by Civil Code former section 5127 (section 5127) 1 and Droeger v. Friedman, Sloan & Ross (1991) 54 Cal.3d 26, 283 Cal.Rptr. 584, 812 P.2d 931, the trial court canceled certain deeds of trust encumbering community real property, which were obtained without the consent of both spouses. The trial court awarded the lenders money judgments against the consenting spouse only. The lenders recorded abstracts of judgment. Thereafter, the same real property was awarded in the dissolution proceeding to the nonconsenting spouse. The trial court clarified the judgment to expressly state that the abstracts of judgment did not constitute liens against the real property awarded to the nonconsenting spouse in the dissolution proceeding. One of the lenders appeals from the clarification of the judgment. In my view, the result reached by the trial court is not only in accord with all applicable statutes and case authority, but is also the only equitable result. I would affirm.
FACTS AND PROCEDURAL BACKGROUND
Prior to 1974, Gloria Lezine (wife) and Henry Lezine (husband) were married. In 1974, they purchased a home located at 6537 Halm Avenue in Los Angeles. The purchase of the Halm Avenue residence was financed by a note and deed of trust from Home Savings and Loan. In 1988, the Home Savings note and deed of trust were refinanced by a note and deed of trust from San Clemente Savings and Loan Association. Husband and wife also obtained a note and deed of trust from Imperial Thrift to remodel the kitchen of the Halm Avenue residence. On November 8, 1989, husband forged wife's signature to a quitclaim deed in his favor to the Halm Avenue residence; the quitclaim deed was recorded on January 26, 1990.
On January 26, 1990, husband borrowed $240,000 from Guardian Savings and Loan Association secured by a deed of trust on the Halm Avenue residence. Wife was unaware of the loan. Because of irregularities in the loan documents, Guardian Savings should have been aware of the lack of a valid signature on the quitclaim deed. No conduct of wife misled Guardian Savings into lending the funds to husband. One hundred six thousand three hundred five dollars and thirty-eight cents ($106,305.38) of the loan proceeds was used to repay the San Clemente Savings and Imperial Thrift notes and deeds of trust and other community debts; the balance of the loan proceeds was not used for the benefit of the community.
On April 12, 1990, husband obtained a $100,000 line of credit from Security Pacific Financial Services, Inc. secured by a deed of trust on the Halm Avenue residence. Sixty thousand dollars ($60,000) was advanced under the line of credit. Wife was unaware of the line of credit and no portion of the debt was used for the benefit of the community. No conduct of wife misled Security Pacific into lending the funds to husband.
Sometime thereafter, wife learned of the two new encumbrances on the Halm Avenue residence. On June 5, 1990, wife sued husband, Guardian Savings, Security Pacific and others for declaratory relief, quiet title and cancellation of the deeds of trust. On the same date, wife filed a petition to dissolve her marriage. On July 13, 1990, Guardian Savings and Security Pacific cross-complained for declaratory relief, foreclosure of an equitable lien and indemnity against husband, wife and others. On July 16, 1991, a bifurcated judgment of dissolution as to the status of the Lezine marriage was entered; property issues remained to be resolved. A court trial was held in this action on August 5, 1991.
On March 6, 1992, a judgment was entered in favor of wife on the complaint and in favor of Guardian Savings and Security Pacific on the cross-complaint. The Guardian Savings and Security Pacific deeds of trust on the Halm Avenue residence were declared void and canceled. Guardian Savings was given an equitable lien against the Halm Avenue residence in the amount of $106,305.38. Guardian Savings was also given the right to foreclose on the equitable lien after wife had an opportunity to refinance the amount of the lien. Except as to Guardian Savings's equitable lien, Guardian Savings and Security Pacific had no right to any further relief against wife and she had no personal liability for the deficiency. Guardian Savings was awarded $302,527.85 and Security Pacific was awarded $87,799.59 against husband. Abstracts of judgment were issued on March 26, 1992, and recorded on April 2, 1992, against husband.
On July 1, 1992, the Halm Avenue property was awarded to wife in the dissolution proceeding as her sole and separate property free and clear of any debt owed to Guardian Savings or Security Pacific, except to the extent of the equitable lien. Those debts were expressly assigned to husband. Thereafter, wife attempted to obtain a loan to refinance the equitable lien on the Halm Avenue residence and discovered that the two abstracts of judgment constituted a lien on her Halm Avenue residence.
On December 11, 1992, wife moved for clarification of the judgment. The trial court granted the motion and ordered that the two abstracts of judgment did not constitute liens against wife's Halm Avenue residence. Guardian Savings and Security Pacific appealed. Subsequently, Guardian Savings abandoned its appeal.
Security Pacific contends its recorded abstract of judgment against husband constitutes a lien against wife's Halm Avenue residence pursuant to Code of Civil Procedure sections 674, 697.310 and 697.340 and Civil Code former section 5120.160 (section 5120.160).2 Specifically, Security Pacific argues the recordation of an abstract of judgment creates a lien on real property of the judgment debtor, and property received by a spouse in a dissolution is subject to preexisting judgment liens. Thus, Security Pacific continues, it obtained a money judgment against husband and recorded an abstract of judgment against the real property of husband; at the time of recordation of the abstract of judgment, husband held a community property interest in the Halm Avenue residence; when the Halm Avenue residence was subsequently transferred to wife in the division of the community property, it was, therefore, subject to the preexisting judgment lien. Although Security Pacific's argument is superficially appealing, it ignores the equitable nature of the proceedings to cancel the deeds of trust pursuant to section 5127, as well as the circular result flowing from its application. It is important to note that Security Pacific does not contend on appeal the cancellation of its deed of trust was improper.
Section 5127 provides in relevant part: “[E]ither spouse has the management and control of the community real property, whether acquired prior to or on or after January 1, 1975, but both spouses either personally or by duly authorized agent, must join in executing any instrument by which such community real property or any interest therein is leased for a longer period than one year, or is sold, conveyed, or encumbered․” In Droeger v. Friedman, Sloan & Ross, supra, 54 Cal.3d at pages 30 and 46, 283 Cal.Rptr. 584, 812 P.2d 931, the Supreme Court held that during the existence of the community, a nonconsenting spouse is entitled to invalidate in its entirety an encumbrance which violates section 5127. This rule protects the nonconsenting spouse's interest in the community real property and the family law court's ability to make an equitable division of the community property. (Id. at p. 46, 283 Cal.Rptr. 584, 812 P.2d 931.) Section 5127 overrides other statutes subjecting the community real property to execution for debts contracted during the marriage. (Id. at pp. 36–37, 283 Cal.Rptr. 584, 812 P.2d 931.) The protection provided by the statute is unqualified. (Cf. Novo v. Hotel Del Rio (1956) 141 Cal.App.2d 304, 308, 295 P.2d 576.)
It is true that community property is subject to enforcement of a money judgment. (Code Civ.Proc., § 695.020, subd. (a).) It is also true that, ordinarily, property awarded to a nondebtor spouse as separate property in a dissolution proceeding is subject to a lien created by the recordation of an abstract of judgment against the debtor spouse after the decree of divorce, but prior to the division of the property. (Kinney v. Vallentyne (1975) 15 Cal.3d 475, 479–480, 124 Cal.Rptr. 897, 541 P.2d 537.) These rules are, however, subject to exceptions compelled by equitable considerations. (Id. at p. 480, 124 Cal.Rptr. 897, 541 P.2d 537.) 3
Such compelling equitable considerations are present in the circumstances of this case. Husband forged wife's signature to a quitclaim deed to the family residence and used the forged quitclaim deed to obtain a line of credit from Security Pacific. This debt was secured by a deed of trust on the family residence. Wife was unaware of the transaction and did nothing to mislead Security Pacific into making the loan to husband; no portion of the loan was used for the benefit of the community. Shortly thereafter, wife discovered the indebtedness and encumbrance and took steps to remove the encumbrance. She exercised her right to void and cancel the deed of trust. Security Pacific was awarded a money judgment against husband.
In the division of community property, wife was awarded the family residence as her separate property and husband was assigned the Security Pacific debt. Security Pacific apparently did not seek to secure a lien on any property distributed to husband in the dissolution proceeding. (See, e.g., In re Marriage of Katz (1991) 234 Cal.App.3d 1711, 1718–1722, 286 Cal.Rptr. 495.) Rather, Security Pacific recorded an abstract of judgment against husband and sought to enforce that judgment lien against wife's Halm Avenue residence. In effect, Security Pacific seeks to convert a voidable deed of trust, which has been equitably canceled, into a judgment lien on the same property.
The conclusion the abstract of judgment constitutes a lien against wife's Halm Avenue residence places wife in the precise position vis-à-vis Security Pacific following cancellation of the deed of trust and award of judgment against husband, as she was prior to bringing her equitable action to cancel the deed of trust. Indeed, it can be argued she is placed in a worse position. In the trial court, Security Pacific sought to enforce its debt solely against husband's one-half interest in the community real property, except to the extent of benefit to the community. Now it seeks a judgment lien against the entire property.
If section 5127 and the Supreme Court's decision in Droeger v. Friedman, Sloan & Ross, supra, 54 Cal.3d 26, 283 Cal.Rptr. 584, 812 P.2d 931 are to serve any purpose, a trial court must possess the equitable power to prevent the canceled deed of trust from being converted into a judgment lien on the same real property. The trial court appropriately exercised such equitable power in this case. The trial court considered whether any action of wife misled the lenders and concluded it had not. The trial court also considered whether the lenders were at fault and concluded Guardian Savings had been negligent. The trial court further considered the extent the community had benefited from the loans and awarded Guardian Savings an equitable lien in that amount and the right to foreclose against the property. The trial court awarded Guardian Savings and Security Pacific money judgments against husband. (Cf. Andrade Development Co. v. Martin (1982) 138 Cal.App.3d 330, 337, 187 Cal.Rptr. 863.) The trial court did not, however, permit the lenders to obtain by way of recordation of abstracts of judgment, precisely that which they had been required to forfeit in the underlying action for cancellation of the deeds of trust. (Cf. Kennedy v. Taylor (1984) 155 Cal.App.3d 126, 130, 201 Cal.Rptr. 779.)
I would affirm.
1. We take judicial notice of the judgment of dissolution of the marriage of respondent and Henry Lezine, entered on July 16, 1991, as well as the judgment on reserved issues, which included division of the couple's community property, entered on July 1, 1992.
2. Respondent named her husband, the beneficiaries of the two deeds of trust, Guardian Savings and appellant Security Pacific Financial Services, Inc. (“Security Pacific”), and the trustees of the deeds of trust, G.S.L. Financial and SP Escrow Service, Inc. The lenders cross-complained against respondent, Henry Lezine, the notary public who acknowledged respondent's signature on the quitclaim deed, and the notary's bonding company. Only Gloria Lezine and Security Pacific are parties to this appeal.
3. Additionally, the court granted to Guardian Savings “an equitable lien on the subject real property to secure an obligation in the sum of $106,305.38,” which apparently represented the portion of Guardian Savings's loan to Henry Lezine which was used to pay off the mortgage loan previously secured by the home.
4. Respondent apparently was prompted to seek this clarifying order when a title insurer indicated that it would issue a lender's policy of title insurance for a loan secured by the property subject to the liens of Guardian Savings's and Security Pacific's abstract of judgment against Henry Lezine, a condition unacceptable to the prospective lender.
5. Guardian Savings filed a timely notice of appeal but has since abandoned its appeal. Consequently, the trial court's ruling that Guardian Savings's $302,527.85 judgment does not constitute a lien against the property is final, and is not affected by our holding in this opinion.
6. Respondent alleged in her complaint that “At all times herein mentioned defendant HENRY A. LEZINE, SR․ was and is the husband of plaintiff.” There is no evidence in the record that respondent and Henry Lezine were legally separated or living separate and apart at the time that Henry Lezine incurred the debt to Security Pacific.
7. We hereafter refer to the pertinent community property laws as they formerly appeared in the Civil Code; they have since been repealed and reenacted without substantive modification in the Family Code, effective January 1, 1994. (Stats.1992, ch. 162, § 10.).
8. The deed of trust at issue in Droeger was in favor of the wife's lawyers, to secure payment of attorneys' fees incurred in connection with her divorce.
9. In response to the court's holding in Droeger, the Legislature amended Civil Code section 5127 to add a new subdivision which states: “Nothing in this section precludes either spouse from encumbering his or her interest in community real property, as provided in Section 2033, to pay reasonable attorney's fees in order to retain or maintain legal counsel in a proceeding for dissolution of marriage, for nullity of marriage, or for legal separation of the parties.” (Civ.Code, former § 5127, subd. (e).)
10. In this regard, the Court distinguished cases in which the judgment lien for the husband's pre-divorce debt attached after the community property had been awarded to the wife as her separate property. (Id. at p. 480, fn. 8, 124 Cal.Rptr. 897, 541 P.2d 537.)
11. It is, of course, Henry Lezine's failure to pay his debts which is the source of the “inequities” of this case. Had Henry paid the debts assigned to him by the family law court, Security Pacific's judgment would have been satisfied, and appellant would have no cause to seek to foreclosure of its judgment lien.
12. Indeed, this result is consistent with the expressed intentions of the Legislature. The Law Revision Commission in 1983 recommended the recodification and clarification of the law governing the rights of spouses and creditors. (See 17 Cal.Law Rev.Com. Reports, p. 1.) After noting that the community property laws of California provide “maximum protection of creditors' rights with minimum procedural burdens,” the Commission recommended preserving this general approach of existing California law. (Id. at p. 10.) Thus, this state's community property laws were designed to protect creditors at the expense of innocent spouses. If application of these laws produces inequitable results, the sole avenue of redress lies with the Legislature.
13. As noted in footnote 5 above, the clarification of judgment is final as to Guardian Savings.
1. Section 5127 (Stats.1992, ch. 356, § 6) was repealed and reenacted, except for technical, nonsubstantive changes, as Family Code section 1102, effective January 1, 1994 (Stats.1993, ch. 219, § 101; Stats.1992, ch. 162, § 10).
2. Section 5120.160 (Stats.1984, ch. 1671, § 9, pp. 6021–6022) was repealed and reenacted, except for technical, nonsubstantive changes, as Family Code section 916, effective January 1, 1994 (Stats.1992, ch. 162, § 10).
3. In Kinney, the Supreme Court found no equitable considerations compelling the cancellation of a judgment lien against real property distributed to the nondebtor spouse (Kinney v. Vallentyne, supra, 15 Cal.3d at p. 480, fn. 9, 124 Cal.Rptr. 897, 541 P.2d 537); Kinney did not involve the cancellation of an encumbrance pursuant to section 5127.
ARMSTRONG, Associate Justice.
TURNER, P.J., concurs.