LaForgia v. Kolsky

Alan Williams owned a residence encumbered by a first deed of trust in favor of California First Bank (bank). Williams took out a loan from the LaForgia group of investors (LaForgia) (plaintiff) secured by a second deed of trust to make improvements to his residence. Williams then took out yet another loan from the Kolsky group of investors (Kolsky) (defendant) secured by a third deed of trust on the residence. Williams defaulted on his obligations and filed for bankruptcy. During the bankruptcy proceedings, the bankruptcy court authorized a sale of Williams’s residence to Kolsky as part of an effort both to restructure Williams’s debts and to afford the bank, LaForgia, and Kolsky an opportunity to salvage their investments. The bank, LaForgia, and Kolsky all agreed to the terms of the sale. Under those terms, Kolsky issued LaForgia a promissory note for the amount of unpaid principal and interest Williams had owed to LaForgia, with this new promissory note continuing to be secured by a second deed of trust. Kolsky similarly issued the bank a new note for what Williams had owed the bank, secured by a first deed of trust. Kolsky and LaForgia attempted but failed to find a buyer for the residence willing to pay a high enough price to cover the encumbrances, and the bank foreclosed pursuant to its first deed of trust. LaForgia then sued Kolsky, seeking a deficiency judgment for the balance due on the note Kolsky issued to LaForgia. The trial court granted summary judgment in favor of LaForgia, and Kolsky appealed.