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sale of the Oakland home would be exempt from Stephanie’s
creditors. Petitioner also had conversations with David about
the debt. Petitioner felt that David honestly wanted the loan to
be paid but concluded that David was not in a position to make
payments.
In August 1995, after consulting with a real estate agent
about the value of the Atascadero property, petitioner accepted a
deed in lieu of foreclosure to the Atascadero property from David
and Stephanie to avoid losing his security interest. The deed
states that it is in full satisfaction of the obligations secured
by the first deed of trust in favor of Great Western. The deed
was executed by David on August 11, 1995, and by Stephanie on
August 21, 1995. The fair market value of the Atascadero
property was $207,500 at the time the deed was executed. The
outstanding balances on the loans from Great Western and
petitioner’s profit-sharing plan were $168,957 and $170,371,
respectively. At the time the deed was conveyed to petitioner,
neither Stephanie nor David had made any principal payments on
the Atascadero loan. Petitioner did not pursue a judgment in the
California courts for the balance of the loan because he believed
that California’s antideficiency statute, section 580b of the
California Civil Procedure Code (2002), precluded any recovery.
Petitioner made the monthly payments on the Great Western
loan from September 1995 through December 1995. Petitioner paid
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