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California Code Of Civil Procedure Section 726.5

Legal Research Home > California Lawyer > Code of Civil Procedure > California Code Of Civil Procedure Section 726.5

(a) Notwithstanding subdivision (a) of Section 726 or any
other provision of law, except subdivision (d) of this section, a
secured lender may elect between the following where the real
property security is environmentally impaired and the borrower's
obligations to the secured lender are in default:
   (1) (A) Waiver of its lien against (i) any parcel of real property
security that is environmentally impaired or is an affected parcel,
and (ii) all or any portion of the fixtures and personal property
attached to the parcels; and
   (B) Exercise of (i) the rights and remedies of an unsecured
creditor, including reduction of its claim against the borrower to
judgment, and (ii) any other rights and remedies permitted by law.
   (2) Exercise of (i) the rights and remedies of a creditor secured
by a deed of trust or mortgage and, if applicable, a lien against
fixtures or personal property attached to the real property security,
and (ii) any other rights and remedies permitted by law.
   (b) Before the secured lender may waive its lien against any
parcel of real property security pursuant to paragraph (1) of
subdivision (a) on the basis of the environmental impairment
contemplated by paragraph (3) of subdivision (e), (i) the secured
lender shall provide written notice of the default to the borrower,
and (ii) the value of the subject real property security shall be
established and its environmentally impaired status shall be
confirmed by an order of a court of competent jurisdiction in an
action brought by the secured lender against the borrower.  The
complaint for a valuation and confirmation action may include causes
of action for a money judgment for all or part of the secured
obligation, in which case the waiver of the secured lender's liens
under paragraph (1) of subdivision (a) shall result only if and when
a final money judgment is obtained against the borrower.
   (c) If a secured lender elects the rights and remedies permitted
by paragraph (1) of subdivision (a) and the borrower's obligations
are also secured by other real property security, fixtures, or
personal property, the secured lender shall first foreclose against
the additional collateral to the extent required by applicable law in
which case the amount of the judgment of the secured lender pursuant
to paragraph (1) of subdivision (a) shall be limited to the extent
Section 580a or 580d, or subdivision (b) of Section 726 apply to the
foreclosures of additional real property security.  The borrower may
waive or modify the foreclosure requirements of this subdivision
provided that the waiver or modification is in writing and signed by
the borrower after default.
   (d) Subdivision (a) shall be inapplicable if all of the following
are true:
   (1) The release or threatened release was not knowingly or
negligently caused or contributed to, or knowingly or willfully
permitted or acquiesced to, by any of the following:
   (A) The borrower or any related party.
   (B) Any affiliate or agent of the borrower or any related party.
   (2) In conjunction with the making, renewal, or modification of
the loan, extension of credit, guaranty, or other obligation secured
by the real property security, neither the borrower, any related
party, nor any affiliate or agent of either the borrower or any
related party had actual knowledge or notice of the release or
threatened release, or if a person had knowledge or notice of the
release or threatened release, the borrower made written disclosure
thereof to the secured lender after the secured lender's written
request for information concerning the environmental condition of the
real property security, or the secured lender otherwise obtained
actual knowledge thereof, prior to the making, renewal, or
modification of the obligation.
   (e) For purposes of this section:
   (1) "Affected parcel" means any portion of a parcel of real
property security that is (A) contiguous to the environmentally
impaired parcel, even if separated by roads, streets, utility
easements, or railroad rights-of-way, (B) part of an approved or
proposed subdivision within the meaning of Section 66424 of the
Government Code, of which the environmentally impaired parcel is also
a part, or (C) within 2,000 feet of the environmentally impaired
parcel.
   (2) "Borrower" means the trustor under a deed of trust, or a
mortgagor under a mortgage, where the deed of trust or mortgage
encumbers real property security and secures the performance of the
trustor or mortgagor under a loan, extension of credit, guaranty, or
other obligation.  The term includes any successor-in-interest of the
trustor or mortgagor to the real property security before the deed
of trust or mortgage has been discharged, reconveyed, or foreclosed
upon.
   (3) "Environmentally impaired" means that the estimated costs to
clean up and remediate a past or present release or threatened
release of any hazardous substance into, onto, beneath, or from the
real property security, not disclosed in writing to, or otherwise
actually known by, the secured lender prior to the making of the loan
or extension of credit secured by the real property security,
exceeds 25 percent of the higher of the aggregate fair market value
of all security for the loan or extension of credit (A) at the time
of the making of the loan or extension of credit, or (B) at the time
of the discovery of the release or threatened release by the secured
lender.  For the purposes of this definition, the estimated cost to
clean up and remediate the contamination caused by the release or
threatened release shall include only those costs that would be
incurred reasonably and in good faith, and fair market value shall be
determined without giving consideration to the release or threatened
release, and shall be exclusive of the amount of all liens and
encumbrances against the security that are senior in priority to the
lien of the secured lender.  Notwithstanding the foregoing, the real
property security for any loan or extension of credit secured by a
single parcel of real property which is included in the National
Priorities List pursuant to Section 9605 of Title 42 of the United
States Code, or in any list published by the Department of Toxic
Substances Control pursuant to subdivision (b) of Section 25356 of
the Health and Safety Code, shall be deemed to be environmentally
impaired.
   (4) "Hazardous substance" means any of the following:
   (A) Any "hazardous substance" as defined in subdivision (h) of
Section 25281 of the Health and Safety Code.
   (B) Any "waste" as defined in subdivision (d) of Section 13050 of
the Water Code.
   (C) Petroleum, including crude oil or any fraction thereof,
natural gas, natural gas liquids, liquefied natural gas, or synthetic
gas usable for fuel, or any mixture thereof.
   (5) "Real property security" means any real property and
improvements, other than a separate interest and any related interest
in the common area of a residential common interest development, as
the terms "separate interest," "common area," and "common interest
development" are defined in Section 1351 of the Civil Code, or real
property which contains only 1 to 15 dwelling units, which in either
case (A) is solely used (i) for residential purposes, or (ii) if
reasonably contemplated by the parties to the deed of trust or
mortgage, for residential purposes as well as limited agricultural or
commercial purposes incidental thereto, and (B) is the subject of an
issued certificate of occupancy unless the dwelling is to be owned
and occupied by the borrower.
   (6) "Related party" means any person who shares an ownership
interest with the borrower in the real property security, or is a
partner or joint venturer with the borrower in a partnership or joint
venture, the business of which includes the acquisition,
development, use, lease, or sale of the real property security.
   (7) "Release" means any spilling, leaking, pumping, pouring,
emitting, emptying, discharging, injecting, escaping, leaching,
dumping, or disposing into the environment, including continuing
migration, of hazardous substances into, onto, or through soil,
surface water, or groundwater.  The term does not include actions
directly relating to the incorporation in a lawful manner of building
materials into a permanent improvement to the real property
security.
   (8) "Secured lender" means the beneficiary under a deed of trust
against the real property security, or the mortgagee under a mortgage
against the real property security, and any successor-in-interest of
the beneficiary or mortgagee to the deed of trust or mortgage.
   (f) This section shall not be construed to invalidate or otherwise
affect in any manner any rights or obligations arising under
contract in connection with a loan or extension of credit, including,
without limitation, provisions limiting recourse.
   (g) This section shall only apply to loans, extensions of credit,
guaranties, or other obligations secured by real property security
made, renewed, or modified on or after January 1, 1992.

Last modified: January 12, 2009