Nearly all real estate loans in California are secured by a trust deed. A trust deed is a device wherein a borrower transfers legal title to property to a trustee which holds it as security for a debt between a borrower and a lender. Most real estate loans have only one lender (at any given time) such as a bank, however, some real estate financing arrangements have multiple lenders (or beneficiaries) for a single trust deed. Often, these beneficiaries will be several private individuals who come together and lend on a single loan. When things are going well and everyone is getting paid, ownership and management of the trust deed is a simple from the beneficiaries’ end…they sit back and get paid in accordance with the terms of the loan. However, if the loan is in default, the different beneficiaries may not agree on how best to move forward. For example, one beneficiary may decide that a deed in lieu of foreclosure is the best way to proceed whereas another beneficiary may want to file a judicial foreclosure action, while another may simply want to walk away.
One way to avoid these types of situations is for the beneficiaries to agree to a “majority action” rule under Civil Code Section 2941.9. Civil Code section 2941.9 establishes a process by which multiple beneficiaries of a single trust deed may agree to be governed by a “majority action” rule. Specifically, Civil Code Section 2941.9 (b) states, in pertinent part: “All holders of notes secured by the same real property…may agree in writing to be governed by the desires of the holders of more than 50 percent of the record beneficial interest of those notes or interests…with respect to actions to be taken on behalf of all holders on the event of default or foreclosure for matters that require direction or approval of the holders…” In order for the “majority action” scheme to be enforceable, Civil Code section 2941.9 requires that such agreement be in writing and included in the recorded trust deed. In addition, Civil Code section 2941.9 further requires that a separate “Majority Action Affidavit” be signed under penalty of perjury by all beneficiaries and recorded in the County’s official records.
Having such a mechanism in place before problems arise will inevitably pay off should beneficiaries disagree over the proper course of conduct in a default situation. We encourage those who may be contemplating loaning money to first consult with an attorney in order to make sure that they are adequately protected.
Jon M. Ansolabehere