CREDITOR IS PROHIBITED FROM FORECLOSING
ON PROPERTY WHEN DEBTOR FAILED TO SIGN STIPULATION FOR JUDGMENT

In a case with very interesting facts, and one which could result in complications for creditors holding trust deeds, an Appellate Court has ruled that a creditor under a deed of trust could not foreclose where the deed of trust stood as security for a stipulated judgment which was not signed by the debtor.

In the case of Account Management Associates vs. Sanglimsuwan, a state Appellate Court, in a split decision, reversed a Trial Court Ruling permitting a foreclosure of a property under a deed of trust where the deed of trust stood as security for a stipulated judgment. In the Account Management Associates case, American Professional Business Bureau, Inc. had filed a civil lawsuit against property owner Sanglimsuwan. The case settled before trial. Under the settlement, a stipulated sum was to be paid by the debtor. The stipulated sum was secured by a stipulation of judgment, which in turn was secured by a deed of trust.

While the debtor did sign the deed of trust in favor of the plaintiff creditor, the debtor did not sign the stipulation for entry of judgment. When the debtor failed to pay the amount under the stipulated judgment, the creditor attempted to foreclose. In a suit to forestall the foreclosure, the debtor argued that since he had not signed the stipulation for entry of judgment, the deed of trust could not be used to foreclose on the property.

At the Trial Court level, the Court ruled that the stipulation was enforceable and that the deed of trust could be foreclosed upon.

The debtor then appealed. On appeal, the Appellate Court, in a split decision found that because the debtor did not orally stipulate to the settlement, did not attend Court on the day the agreement was reached, and did not sign the stipulated judgment, the Court found that it was unclear that the property owner understood the terms of the stipulation for entry of judgment. The Court also specifically ruled that, even though the debtor had signed the deed of trust, signing the deed of trust did not establish that he was aware of the settlement of the case.

The important lesson of the Account Management Associates case is that a creditor should make sure that, where an agreement to pay money is secured by a deed of trust, all documents involving the agreement, including the settlement papers, be signed. It is noted that this case may be appealed to the California Supreme Court.