Date: 11-12-2018

Case Style: Bear Creek Master Association v. Southern California Investors, Inc.

Case Number: E066588

Judge: Fields

Court: California Court of Appeals Fourth Appellate District, Division Two on appeal from the Superior Court, County of Riverside

Plaintiff's Attorney: Michael R. Perry, Larry M. Roberts, and Evan H. Goldsmith

Defendant's Attorney: Jackson Tidus and F. Scott Jackson

Description: In this case, the parties dispute which of their recorded liens against a golf course
property has priority. In 2013, defendant, cross-complainant, and respondent, Southern
California Investors, Inc. (SCI), recorded a third deed of trust against the golf course
property. In 2014, plaintiff, cross-defendant, and appellant, Bear Creek Master
Association (BCMA), a homeowners association, recorded an assessment lien against the
golf course property. The trial court entered judgment on the pleadings in favor of SCI
after determining that SCI’s third deed of trust had priority over BCMA’s later-recorded
assessment lien. BCMA appeals, claiming its assessment lien has priority.
BCMA owns and is responsible for maintaining the common areas within the Bear
Creek Development, a common interest development in Murrieta. The golf course
property is adjacent to but is not part of the Bear Creek Development. In 1984, the
developer of the Bear Creek Development and the golf course property recorded a set of
covenants, conditions, and restrictions governing the golf course property (the
GCC&R’s.) The GCC&R’s granted BCMA the right to maintain the golf course property
in accordance with the GCC&R’s, if its owner failed to do so. To this end, the GCC&R’s
granted BCMA a “claim of lien” against the golf course property to secure certain costs
that BCMA later incurred in maintaining the golf course property. After SCI recorded its
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third deed of trust in 2013, BCMA incurred costs in maintaining the golf course property
and recorded its assessment lien.
BCMA claims its assessment lien was created by the GCC&R’s and “relates back”
to the 1984 recordation of the GCC&R’s. (Civ. Code, § 2884.)1 We disagree.
According to the lien provisions of the GCC&R’s, the assessment lien was neither
created nor perfected until it was recorded in 2014. Nonetheless, we agree with BCMA’s
alternative claim that its assessment lien has priority over SCI’s previously-recorded third
deed of trust pursuant to the priority and subordination provisions of the GCC&R’s, even
though the assessment lien was recorded after SCI’s third deed of trust was recorded.
II. FACTS AND PROCEDURE2
A. The GCC&R’s Governing the Golf Course Property
As indicated, BCMA owns and is responsible for maintaining the common areas
within the Bear Creek Development, a common interest development comprised of 620
single-family homes and townhomes in Murrieta. The golf course property is adjacent to
but is not part of the Bear Creek Development. In the early 1980’s, Bear Creek, Ltd.
developed the Bear Creek Development and the golf course property. In February 1984,
Bear Creek, Ltd. executed the GCC&R’s, and the GCC&R’s were recorded on March 2,
1 All further statutory references are to the Civil Code unless otherwise indicated.
2 The facts are taken from the complaint, cross-complaint, the documents attached
to those pleadings, and judicially noticed recorded instruments.
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1984. Bear Creek, Ltd. sold the golf course property on March 2, 1984, and the grant
deed for that original sale incorporated the GCC&R’s.
The GCC&R’s require the golf course property owner to maintain the golf course
property “in a clean and attractive condition” and grant BCMA the right, but not the
obligation, to enter upon the golf course property in order to remedy its owner’s failure to
maintain it. To these ends, the GCC&R’s created a “claim of lien” against the golf
course property in order to reimburse BCMA for certain future costs it incurred
(including interest, collection costs, and attorney fees) in maintaining the golf course
property in accordance with the GCC&R’s.
Section 3 of article III3 of the GCC&R’s states: “There is hereby created a claim
of lien, with power of sale, on the Golf Course Property to secure payment to [BCMA] of
any and all Assessments levied against any and all owners of the Golf Course Property
pursuant to this Declaration, together with interest thereon as provided for in this
Declaration, and all costs of collection which may be paid or incurred by the Association
in connection therewith, including reasonable attorneys’ fees. . . . [¶] . . . [¶] . . . Upon
such recordation of a duly executed original or copy of such a claim of lien, the lien
claimed therein shall immediately attach and become effective in favor of the Association
[BCMA] as a lien upon and against the Golf Course Property. . . . Any such lien may be
3 References to sections of the GCC&R’s are to sections of article III of the
GCC&R’s.
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foreclosed by appropriate action in court or in the manner provided by the California
Civil Code for the foreclosure of a deed of trust with power of sale . . . .”
Section 3 further provides that an assessment lien “shall have priority over all
liens or claims created subsequent to the recordation of this Declaration [the
GCC&R’s], except for tax liens for real property taxes and assessments in favor of any
municipal or other governmental assessing unit and except for certain trust deeds as
provided in Section 4 below.” (Italics added.) Section 4 provides: “The lien for the
Assessment provided for herein shall not be subordinate to the lien of any deed of trust or
mortgage, except the lien of a first deed of trust or first mortgage . . . (such deed of trust
or mortgage being hereinafter referred to as a ‘prior deed of trust’).”4
B. The Covenants, Conditions, and Restrictions Governing the Bear Creek Development
The Bear Creek Development is governed by a “master” declaration of covenants
conditions, and restrictions, recorded in 1982 (the BCC&R’s). Like the GCC&R’s, the
4 Section 4 further provides: “The sale or transfer of the Golf Course Property
shall not affect any Assessment lien created pursuant to the terms of this Declaration to
secure an Assessment due prior to, on, or after the date of such sale or transfer . . . ;
provided, however, that the sale or transfer of the Golf Course Property pursuant to a
judicial foreclosure or foreclosure by power of sale of a prior deed of trust . . . shall
extinguish any Assessment lien which has attached and become effective with regard to
the Golf Course Property prior to the time of such sale or transfer, and shall prohibit the
recordation of any Assessment which became due prior to the date of such sale or
transfer; provided, however, that there shall be a lien on the interests of the purchaser at
such sale which shall attach, be created and become effective and be foreclosed in
accordance with this Declaration and which shall secure any Assessment becoming due
after the date of any such sale or transfer. For the purpose of this Section 4, a sale or
transfer of the Golf Course Property shall occur on the date of recordation of a deed or
other instrument of title evidencing the conveyance of record title to the Golf Course
Property.
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BCC&R’s provide that BCMA shall have the right, but not the obligation, to enter upon
and maintain the golf course property in the event its owner fails to maintain it, and
grants BCMA the right, but not the obligation, pursuant to the GCC&R’s, “to levy
assessments against the Golf Course Property for the payment of such maintenance.”
The BCC&R’s provide: “Such assessments shall, pursuant to the [GCC&R’s], become a
lien against the Golf Course Property and shall have the priority and enforcement rights
set forth in the [GCC&R’s].” (Italics added.)
C. The Third Deed of Trust, Assessment Lien, and 2015 Foreclosure Sale
On September 12, 2013, when Bear Creek Partners LLC (BCP) owned the golf
course property, SCI’s third deed of trust, securing BCP’s $350,000 promissory note to
SCI, was recorded against the golf course property. On August 29, 2014, BCMA
recorded a “Notice of Delinquent Assessment Lien” against the golf course property (the
assessment lien). The assessment lien states it was being recorded in accordance with the
GCC&R’s and section 5675 of the Davis-Stirling Common Interest Development Act
(the Davis-Stirling Act). (§§ 4000-6150.)
Notwithstanding the reference in BCMA’s assessment lien to section 5675, the
parties and we agree that the Davis-Stirling Act does not apply to the golf course
property. Section 5675 states that an “assessment” on an owner’s separate interest within
a common interest development “shall be a lien on the owner’s separate interest . . . from
and after the time . . . a notice of delinquent assessment” is recorded. (Italics added.)
Thus, if the Davis-Stirling Act applied to the golf course property, BCMA’s assessment
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lien would be subordinate to SCI’s third deed of trust pursuant to section 5675, or former
section 1356. (Thaler v. Household Finance Corp. (2000) 80 Cal.App.4th 1093, 1099-
1100 (Thaler).) Although the Bear Creek Development is a common interest
development within the meaning of the Davis-Stirling Act (§§ 4100, 4175), the
BCC&R’s show that the golf course property is not part of the Bear Creek Development.
Thus, the golf course property is not a “separate interest” or separately owned lot, parcel,
or space, within the Bear Creek Development. (§§ 4185, subd. (a)(3), 5675.)5
BCMA’s assessment lien secured $171,460 through August 18, 2014, including
$168,557 for costs incurred by BCMA in replacing a parking lot and irrigation on the golf
course property. BCP did not pay the assessment lien, and in December 2014 BCMA
recorded a notice of default and election to sell the golf course property pursuant to the
power of sale granted by the GCC&R’s.
Meanwhile, SCI instituted nonjudicial foreclosure proceedings on the third deed of
trust. A notice of sale was recorded in November 2014, stating that $1,657,084.13 was
owed on the third deed of trust and setting a trustee’s sale on December 24, 2014. Before
the noticed trustee’s sale date, BCP filed for bankruptcy, but SCI obtained relief from the
5 At our direction, the parties submitted letter briefs addressing whether the
Davis-Stirling Act applies to the Bear Creek Development and whether the golf course
property is a separate interest within that development. In its letter brief, SCI asked us to
take judicial notice of BCMA’s articles of incorporation and the BCC&R’s. We deny
these requests as moot. The BCC&R’s are already part of the record on appeal, and show
the golf course property is not part of, or a separate interest within, the Bear Creek
Development.
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bankruptcy stay and purchased the golf course property at its postponed foreclosure sale
on July 9, 2015.
SCI then sold part of the golf course property in a private sale, and the escrow
company for that sale, Ticor Title Company (Ticor), requested payoff demands from
BCMA and all other holders of liens against the golf course property. BCMA demanded
$475,937.60 from Ticor to pay its assessment lien in full.
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Ticor withheld approximately $703,000 from the escrow for SCI’s private sale,
comprised of BCMA’s $475,937.60 payoff demand plus 50 percent of that amount. SCI
posted a bond with Ticor in lieu of paying BCMA’s payoff demand for its assessment
lien through the escrow. SCI later demanded that BCMA release its payoff demand,
BCMA refused do so, and SCI advised BCMA that its assessment lien had been
extinguished in the foreclosure sale. BCMA disputes that claim.
D. The Pleadings: BCMA’s Complaint and SCI’s Cross-complaint
1. BCMA’s Complaint
In September 2015, BCMA filed a complaint for declaratory relief against SCI,
alleging the parties had a genuine controversy regarding the priority of BCMA’s
assessment lien over SCI’s third deed of trust. BCMA alleged its assessment lien had
priority based on the GCC&R’s, which provided that all deeds of trust except first deeds
6 BCMA’s $475,937.60 payoff demand included $168,557 for the costs of
replacing a parking lot and irrigation on the golf course property, $16,624.80 in
“[i]nterest on [p]rincipal,” $16,090.60 in “[c]ollection costs,” $250 in “[c]losing [c]osts,”
and $291,040 in attorney fees incurred in the bankruptcy proceedings. We express no
opinion whether any of these costs were reasonably incurred.
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of trust would be subordinate to any assessment lien for maintaining the golf course
property. The complaint alleged SCI failed to pay the assessment lien after foreclosing
on its third deed of trust, and Ticor, the escrow company for SCI’s subsequent private
sale of the golf course property, would not release funds to BCMA to pay the assessment
lien without “a judgment stating that the [assessment lien] was not extinguished by
[SCI’s] foreclosure.” Thus, BCMA sought a judicial declaration that its assessment lien
was not extinguished by the foreclosure sale, that SCI’s third deed of trust was
subordinate to the assessment lien, and that BCMA was entitled to recover attorney fees
and other costs as part of its assessment lien.
2. SCI’s Cross-complaint
In November 2015, SCI cross-complained against BCMA, alleging SCI’s third
deed of trust had priority over BCMA’s assessment lien because it was recorded first, and
that the assessment lien was extinguished in the foreclosure sale. SCI thus sought a
judicial declaration that its third deed of trust had priority over the assessment lien, and
sought to cancel the assessment lien. The complaint includes copies of the third deed of
trust, the notice of trustee’s sale for the July 9, 2015, foreclosure sale, BCMA’s response
to Ticor’s request for a payoff demand, and billing statements from BCMA’s attorneys
supporting the attorney fee portion of BCMA’s payoff demand.
E. The Judgment on the Pleadings
SCI moved for judgment on the pleadings, claiming BCMA’s complaint did not
state a cause of action. (Code Civ. Proc., § 438, subd. (c)(1).) The court granted the
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motion without leave to amend and entered judgment cancelling the assessment lien,
stating that BCMA’s complaint failed to state a cause of action, that BCMA would take
nothing by its complaint, and that BCMA had no defense to SCI’s cross-complaint.
BCMA appeals.
III. DISCUSSION
A. Standard of Review
A motion for judgment on the pleadings may be made on the ground the complaint
fails to state a cause of action. (Code Civ. Proc., § 438, subd. (c)(1).) The motion is
equivalent to a general demurrer and is governed by the same de novo standard of review.
(People ex rel. Harris v. Pac Anchor Transportation, Inc. (2014) 59 Cal.4th 772, 777.)
In reviewing the motion, we deem true all properly pleaded material facts, but not
contentions, deductions, or conclusions of fact or law, and we may also consider
judicially noticed matters. (Blank v. Kirwan (1985) 39 Cal.3d 311, 318.) Our task is to
determine, independently of the trial court, whether the challenged pleading states a cause
of action. (Bezirdjian v. O’Reilly (2010) 183 Cal.App.4th 316, 322.)
B. The Lien Priority Statutes, Overview
California follows a first in time, first in right system or rule of lien priorities
which is “modified by the recording statutes.” (First Bank v. East West Bank (2011) 199
Cal.App.4th 1309, 1313; 4 Miller & Starr, Cal. Real Estate (2017 supp.) § 10:1, pp. 10-9
to 10-10 (4 Miller & Starr).) The rule is expressed in section 2897, which provides:
“Other things being equal, different liens upon the same property have priority according
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to the time of their creation . . . .” (Italics added.) The rule “assumes” that a party with a
subsequently-created lien had actual or constructive knowledge of “all pertinent facts”
concerning a previously-created lien. (4 Miller & Starr, supra, at § 10:1, p. 10-11.)
Thus, under the rule, a person receiving a deed of trust on real property acquires his or
her lien subject to all previously-created liens and encumbrances of which the person has
actual or constructive knowledge. (Ibid.; §§ 1213, 1217.)
The recording statutes (§§ 1213-1220) “generally do not govern either the creation
or the relative priority of interests in real property.” (4 Miller & Starr, supra, at § 10:1, p.
10-11.) “Rather, they affect the priority of interests [in real property] by defining when a
person is deemed to have constructive notice of another interest in the property.” (Id. at
§ 10:1, p. 10-12, fn. omitted.) “A properly recorded conveyance of real property . . .
serves as constructive notice of its contents to all subsequent purchasers and
encumbrances. (§ 1213[]),” and, “a conveyance recorded first generally has priority over
any later-recorded conveyance. (§ 1214.)” (Thaler, supra, 80 Cal.App.4th at p. 1099.)
A “‘conveyance’” includes “every instrument in writing by which any estate or
interest in real property is created, aliened, mortgaged, or [e]ncumbered, or by which the
title to any real property may be affected, except wills.” (§ 1215; Thaler, supra, 80
Cal.App.4th at p. 1099.) A conveyance is “perfected,” meaning it gives constructive
notice of its contents, upon its recordation. (Thaler, supra, at p. 1100.) The perfection of
a conveyance is not to be confused with its creation. (See 4 Miller & Starr, supra, at
§ 10:1, pp. 10-11 to 10-12.)
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The GCC&R’s, SCI’s third deed of trust, and BCMA’s assessment lien are
conveyances for purposes of the recording statutes (§ 1215; Thaler, supra, 80
Cal.App.4th at p. 1099), and all were properly recorded. Thus, SCI had constructive
notice of the 1984-recorded GCC&R’s when SCI’s third deed of trust was recorded in
2013, and BCMA had constructive notice of SCI’s third deed of trust when BCMA’s
assessment lien was recorded in 2014. The GCC&R’s created a covenant running with
the golf course property, binding on its original owner and all subsequent owners and
encumbrancers. (§ 1468; Citizens for Covenant Compliance v. Anderson (1995) 12
Cal.4th 345, 349, 367.)
C. The Parties’ Lien Priority Dispute
BCMA claims its 2014-recorded assessment lien has priority over SCI’s 2013-
recorded third deed of trust because the assessment lien was both created and perfected in
1984, when the GCC&R’s were executed and recorded. We disagree. Pursuant to the
GCC&R’s, the assessment lien was neither created nor perfected until it was recorded in
2014. Nonetheless, the assessment lien has priority over SCI’s third deed of trust,
pursuant to the priority and subordination provisions of the GCC&R’s.
1. The GCC&R’s Did Not Create or Perfect BCMA’s Assessment Lien
We first address whether BCMA’s assessment lien was created and thus perfected
by the 1984-recorded GCC&R’s. To answer to this question, we must interpret the
GCC&R’s. “‘The same rules that apply to interpretation of contracts apply to the
interpretation of CC&R’s.’ [Citation.]” (Fourth La Costa Condominium Owners Assn. v.
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Seith (2008) 159 Cal.App.4th 563, 575.) That is, “[t]he language of a contract is to
govern its interpretation, if the language is clear and explicit.” (§ 1638.) In addition, we
interpret the entire contract, taken together, “so as to give effect to every part, if
reasonably practicable, each clause helping to interpret the other.” (§ 1641.) “A contract
must receive such an interpretation as will make it lawful, operative, definite, reasonable,
and capable of being carried into effect, if it can be done without violating the intention
of the parties.” (§ 1643; see generally Zalkind v. Ceradyne, Inc. (2011) 194 Cal.App.4th
1010, 1027.) Contractual provisions are interpreted de novo where, as here, their
interpretation turns solely on the language of the provisions and does not involve the
credibility of any evidence extrinsic to the provisions. (Morgan v. City of Los Angeles
Bd. of Pension Comrs. (2000) 85 Cal.App.4th 836, 843.)
In section 3(b), titled “Enforcement by Lien,” the GCC&R’s provide: “There is
hereby created a claim of lien, with power of sale, on the Golf Course Property to secure
payment to the Association [(BCMA)] of any and all Assessments levied against any and
all owners of the Golf Course Property pursuant to this Declaration . . . .” (Italics added.)
If any “delinquency in the payment of any such Assessment” is not paid within 10 days
of BCMA’s written demand, BCMA “may thereafter elect to file and record a claim of
lien” stating the amount claimed for the delinquency. “Each delinquency shall constitute
a separate basis for a demand or claim of lien or a lien, but any number of defaults may
be included within a single demand or claim of lien . . . .” Section 3(b) then provides that
“[u]pon such recordation of a duly executed original or copy of such a claim of lien, the
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lien claimed therein shall immediately attach and become effective in favor of the
Association [(BCMA)] as a lien upon and against the Golf Course Property.”
(GCC&R’s, § 3(b), italics & underlining added.) These provisions make it clear that an
inchoate “claim of lien” was created and perfected when the GCC&R’s were recorded in
1984, but no actual “lien” or assessment lien was or could be created or perfected against
the golf course property until the claim of lien was reduced to an assessment lien and was
recorded.
BCMA argues its assessment lien was created by the GCC&R’s statement that
“[t]here is hereby created a claim of lien . . . .” (Italics added.) We disagree. This
argument disregards other GCC&R provisions which state the “claim of lien” does not
“attach” to the golf course property or become “effective in favor of” the Association or
BCMA “as a lien upon and against the Golf Course Property” (italics added), unless and
until four contingencies are satisfied: (1) the owners of the golf course property fail to
maintain the golf course property in accordance with the GCC&R’s; (2) BCMA incurs
costs to maintain the golf course property; (3) the owner of the golf course property fails
to pay those costs within 10 days of BCMA’s written demand; and (4) the claim of lien is
reduced to a writing, stating its amount, and is recorded. (GCC&R’s, § 3(b), italics
added.)
The GCC&R’s as a whole show that its drafters intended to create an inchoate or
contingent “claim of lien” in favor of BCMA, upon the 1984 execution and recordation
of the GCC&R’s. But the GCC&R’s did not create a fully-fledged “lien” or “assessment
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lien” against the golf course property. Instead, they created a procedure for BCMA to
follow in order to transform its inchoate or contingent “claim of lien” into an assessment
lien, and make that assessment lien “effective in favor of” BCMA. The last contingency
required BCMA to record its claim of lien against the golf course property for a specified
amount, but this did not occur until 2014 when BCMA recorded its notice of delinquency
of assessment lien.
Section 4, titled “Subordination to Certain Trust Deeds[,]” supports our
interpretation of the provisions of section 3. Section 4 provides that “[t]he lien for the
Assessment provided for herein shall not be subordinate to the lien of any deed of trust or
mortgage, except the lien of a first deed of trust or first mortgage . . . that is of record as
an encumbrance against the Golf Course Property . . . .” This provision does not state
that the “claim of lien” shall not be subordinate to other liens.
Section 4 further provides that “[t]he sale or transfer of the Golf Course Property
shall not affect any Assessment lien created pursuant to the terms of this Declaration to
secure an Assessment due prior to, on, or after the date of such sale or transfer . . . .”
(Italics added.) It does not state the sale or transfer of the golf course property shall not
affect the “claim of lien.” In sum, the GCC&R’s as a whole show that BCMA’s
assessment lien was not created or perfected until BCMA’s notice of delinquency of the
assessment lien was recorded in 2014.
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2. The Assessment Lien Does Not “Relate Back” to the GCC&R’s
BCMA next claims its assessment lien “relates back” to the 1984 execution and
recordation of the GCC&R’s because the GCC&R’s effectively secured any future costs
BCMA incurred in maintaining the golf course property. In support of this relation back
claim, BCMA relies on section 2884, which provides: “A lien may be created by
contract, to take immediate effect, as security for the performance of obligations not then
in existence.” (Italics added.) We disagree that the GCC&R’s created a presently
effective lien securing BCMA’s subsequently incurred costs of maintaining the golf
course property.
Although a lien may be contractually created to take immediate effect as security
for obligations not then existing (§ 2884), that is not what occurred in this case. As we
have explained, the assessment lien was not created by and did not take “immediate
effect,” upon the 1984 execution and recording of the GCC&R’s. Rather, the assessment
lien was created and became effective in favor of BCMA as a lien against the golf course
property in 2014, when BCMA recorded its notice of the delinquency of the assessment
lien and all of the other conditions for creating the assessment lien were satisfied.
BCMA relies on Tapia v. Demartini (1888) 77 Cal. 383 and Oaks v. Weingartner
(1951) 105 Cal.App.2d 598 to support its claim that the 1984 execution and recording of
the GCC&R’s was sufficient to secure any future costs BCMA incurred in maintaining
the golf course property, including the assessment lien. Tapia and Oaks are
distinguishable because they involved mortgages for future advances which were created
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and perfected at the time the mortgages were recorded, not when the future advances
were made. In contrast, BCMA’s assessment lien was not created or perfected until after
BCMA had incurred costs in maintaining the golf course property, and the notice of
delinquency of the assessment lien was recorded in 2014.
The parties in Tapia disputed whether a mortgage securing a promissory note for
$15,000 plus interest had priority over several subsequently-recorded mechanic’s liens.
(Tapia v. Demartini, supra, 77 Cal. at p. 384.) At the time the mortgage was executed,
the mortgagor owed less than $4,000 on the mortgage, but the mortgage was “executed
and delivered with the understanding and agreement” that it would secure payment of the
amounts owed when the mortgage was executed plus future advances of up to the
$15,000 amount secured, plus interest. (Id. at pp. 384-385.) In holding the mortgage had
priority over the subsequently-recorded mechanic’s liens up to the $15,000 amount, plus
interest, the Tapia court explained: “It is firmly settled by a long line of decisions that a
mortgage, made in good faith to cover future advancements or indorsements, is valid, not
only as between the immediate parties to the instrument, but as against subsequent
purchasers or encumbrancers, if properly recorded.” (Id. at p. 386, citing § 2884 &
cases.) The Tapia court also pointed out that it was unnecessary for the mortgage to have
stated the amount it secured. (Tapia v. Demartini, supra, at p. 387.) The mortgage
would have been “sufficiently definite to put subsequent encumbrancers on inquiry” of
the amount it secured, if the mortgage had stated that it secured an unspecified amount of
future advances. (Ibid.)
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Oaks involved a recorded mortgage for an unspecified amount of future advances.
(Oaks v. Weingartner, supra, 105 Cal.App.2d at p. 599.) The mortgage stated that it
secured a $4,178 loan and that it would also secure “‘any further or additional loans (not
to exceed in the aggregate the sum of $ ____, to be evidenced by a note or notes therefor)
. . . .’” (Ibid.) A total of $11,000 in additional loans were made to the mortgagor. The
holders of subsequently-recorded liens claimed the mortgage was only sufficient to
secure the $4,178 loan, but the Oaks court disagreed. Following Tapia, the Oaks court
held that the mortgage secured the full amounts advanced, even though those amounts
were not stated in the mortgage. (Oaks v. Weingartner, supra, at pp. 599-602.) “By not
so filling in the blank the parties elected to place no limitation upon the general
covenant.” (Id. at p. 600.)
The differences between the mortgages for future advances in Tapia and Oaks and
the GCC&R’s are readily apparent. The mortgages in Tapia and Oaks plainly stated that
they would secure future advances, and their terms were sufficiently definite to impart
constructive notice to subsequent encumbrancers of the real properties that they would
secure future advances against those real properties. In contrast, the GCC&R’s did not
state that they were creating a presently or immediately effective lien in favor of BCMA
to secure any future costs BCMA incurred in maintaining the golf course property.
(§ 2884.) Rather, the GCC&R’s provided only that BCMA would have an assessment
lien against the golf course property if and when an assessment lien for a specified
amount was recorded against the golf course property.
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3. BCMA’s Assessment Lien is Nonetheless Prior to SCI’s Third Deed of Trust
BCMA claims that even if the assessment lien was not created or perfected until it
was recorded in 2014, it still has priority over SCI’s third deed of trust pursuant to the
priority and subordination provisions of the GCC&R’s. BCMA argues these provisions
modified “default” “first in time, first in right” rule, and rendered SCI’s third deed of
trust subordinate to BCMA’s later-recorded assessment lien. We agree.
The language of the GCC&R’s is clear and explicit. Section 3 provides that an
assessment lien “shall have priority over all liens or claims created subsequent to the
recordation of this Declaration [of the GCC&R’s], except for tax liens for real property
taxes and assessments in favor of any municipal or other governmental assessing unit and
except for certain trust deeds as provided in Section 4 below.” Section 4, titled
Subordination to Certain Trust Deeds, provides: “The lien for the Assessment provided
for herein shall not be subordinate to the lien of any deed of trust or mortgage, except the
lien of a first deed of trust or first mortgage . . . .” The BCC&R’s echo these provisions.
They provide that any assessments against the golf course property for the payment of
maintenance expenses, “shall, pursuant to the [GCC&R’s], become a lien against the
Golf Course Property and shall have the priority and enforcement rights set forth in the
[GCC&R’s].” (Italics added.)
These provisions modified the otherwise-applicable “first in time, first in priority”
rule of lien priorities. (§ 2897.) They constructively notified SCI that any recorded
assessment lien against the golf course property would have priority over SCI’s third
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deed of trust—even if the assessment lien was recorded after the third deed of trust was
recorded. “Subordination is, strictly speaking, a status, not an agreement . . . . It refers to
the establishment of priority between different existing encumbrances on the same parcel
of property, by some means other than the basic priority involved in the concept of ‘first
in time, first in priority’ . . . .” (Middlebrook-Anderson Co. v. Southwest Sav. & Loan
Assn. (1971) 18 Cal.App.3d 1023, 1029-1030, italics added.)
4. Conclusion
The GCC&R’s created a covenant running with the golf course property in favor
of BCMA, and derivatively, in favor of the Bear Creek Development homeowners, to
ensure that the golf course property was maintained in “a clean and attractive condition.”
(§ 1468; Citizens for Covenant Compliance v. Anderson, supra, 12 Cal.4th at pp. 349,
367.) To this end, the GCC&R’s allow BCMA to maintain the golf course property if its
owner fails to do so, and to create and record an assessment lien to secure certain costs
incurred in maintaining the golf course property. The GCC&R’s further provide that any
assessment lien will have priority over all other liens, including deeds of trust, except a
first deed of trust, recorded at any time after the GCC&R’s were recorded. By these
provisions, the GCC&R’s ensure that the Bear Creek Development homeowners will not
have to live near a poorly maintained golf course property with no means of remedying
the situation or of adequately securing certain costs incurred by BCMA in maintaining
the golf course property. SCI had constructive notice of the GCC&R’s when it recorded
its third deed of trust against the golf course property in 2013, and SCI is bound by the
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GCC&R’s. Thus, BCMA’s assessment lien is prior to SCI’s previously-recorded third
deed of trust.

Outcome: The judgment on the pleadings in favor of SCI is reversed. The parties shall bear
their respective costs on appeal. (Cal. Rules of Court, rule 8.278.)

Plaintiff's Experts:

Defendant's Experts:

Comments: