Lezine v. Sec. Pac. Fin. Servs., Inc. - 14 Cal. 4th 56, 58 Cal. Rptr. 2d 76, 925 P.2d 1002 (1996)

Rule:

Construing Cal. Civil Code § 5127 (current version at Cal. Fam. Code § 1102) with reference to, and in harmony with, the various statutory schemes governing the liability of community property for marital debts, it does not appear that the purpose or effect of § 5127 is to exempt community real property from liability for satisfaction of marital debts incurred unilaterally by one spouse, for which the community otherwise is liable. Thus, the creditor who loses its security interest under § 5127 retains the rights of any other unsecured creditor to resort to the community real property for satisfaction of the underlying debt. 

Facts:

In an action by a wife against her husband and two trust deed beneficiaries, the trial court determined that two trust deeds securing loans encumbered by the couple's residence were void because they were executed without the wife's knowledge or consent, in violation of Civ. Code, former § 5127. The trial court further determined, after the couple's divorce became final, that the residence, awarded to the wife as her separate property, was not subject to the lien of a money judgment awarded to one of the trust deed beneficiaries at the time the trust deeds were found to be void. The trial court also entered an order extinguishing the judgment lien encumbering the property filed by one beneficiary before the division of community property. The Court of Appeal, Second Dist., Div. Five, No. B075088, reversed.

Issue:

Did the setting aside of the security interest in the community real property pursuant to Civ. Code, former § 5127, in and of itself, cancel the underlying obligation or the liability of the community real property for satisfaction of that obligation?

Answer:

No.

Conclusion:

The court held that the setting aside of the security interest in the community real property pursuant to Civ. Code, former § 5127, in and of itself, did not cancel the underlying obligation or the liability of the community real property for satisfaction of that obligation. The beneficiary's recordation of the abstract of judgment, prior to the division of property in the marital dissolution proceeding, created a judgment lien that attached to the property and was enforceable for satisfaction of the money judgment against the husband, and the trial court exceeded its authority in purporting to extinguish the lien following the division of property. The court held that the plain language of Fam. Code, § 1102 (Civ. Code, former § 5127), requiring that "both spouses . . . must join in executing any instrument by which such community real property or any interest therein" is transferred, reflects a legislative intent to protect an innocent spouse against an unauthorized unilateral transfer of community real property by the other spouse. Nothing in the foregoing statutory language, however, refers to the liability of community real property for marital debts, and no part of Civ. Code, former § 5127, indicates any intent to exempt community real property from liability for marital debts, even debts incurred unilaterally by one spouse. Instead, as reflected in Code Civ. Proc., § 695.020, the Legislature expressly has established the liability of community real property for the satisfaction of money judgments rendered against either spouse, and the property that is liable includes the nondebtor spouse's one-half community interest. Thus, a creditor that loses its security interest under Civ. Code, former § 5127, retains the rights of any other unsecured creditor to resort to the community real property for satisfaction of the underlying debt.