Waiver of debtor protections
In these materials we consider a series of statutory protections for the debtor and duties imposed upon a secured party in connection with a consensual secured transaction, among them: a right of the debtor to reinstate (primarily where the debt is secured by real property); a right of the debtor to redeem prior to foreclosure; a security first principle (where the debt is secured by real property); a duty of the secured party to notify of dispositon; prohibitions or limitations on the recovery of a deficiency; fair value limitations on the amount of a deficiency (where the debt is secured by real property).
Article 9 makes waivers of most protections and duties unenforceable. U.C.C. 9-602. The debtor may waive a few rights through an authenticated agreement following default. U.C.C. 9-624.
California law severely restricts waivers of a debtor's rights where real property is taken as security. Waiver of the right to reinstate, or the right to redeem, contained in a deed of trust or mortgage or in any accompanying agreement, is unenforceable. See Cal. Civ. Code 2953, Cal. Civ. Code 2889. Other devices to the same end are also unenforceable. Thus, agreement in a deed of trust or mortgage to give a deed in lieu upon default will be unenforceable (Cal. Civ. Code 2889). Also, a deed absolute on its face that is intended only as security for an obligation will be construed as an equitable mortgage requiring foreclosure by sale in the absence of a deed in lieu negotiated after default (Cal. Code Civ. Pro. 744).
The protections of the security first rule in connection with real property collateral may not be waived at the time of the grant of the deed of trust or mortgage. See Cal. Civ. Code 2953. Thus, for example, the following clause in a standard deed of trust which is presently in use in California is unenforceable at the option of the debtor because it undermines the security first protection of the one form of action rule by authorizing the trustee to reconvey the real property collateral to the debtor, thereby leaving the beneficiary with an unsecured claim for money against the debtor : " . . . at any time . . . upon written request of Beneficiary . . . and without affecting the personal liability of any person for payment of the indebtedness secured hereby, Trustee may: reconvey any part of said property . . ." However, the protection of the security first rule may be waived by the debtor after default by the debtor's failure to timely assert an affirmative defense to an action in which the creditor seeks recovery on the underlying obligation without first resorting to the security. See Commentary.Security first.
Waivers of the anti-deficiency protections of 580b and 580d at the inception of the transaction are unenforceable under case law. Powell v. Alber, 250 Cal.App. 2d 485 (1967)(580b); Western Security Bank v. The Superior Court of Los Angeles County, 43 Cal.App.4th 80 (1995) (580d). Waiver of the protection of 580b subsequent to the initial transaction (such as in a renegotiation of the terms of the note precipitated by the borrower's difficulty in paying according to the terms of the original note) is unenforceable. Deberard Properties, Ltd. v. Lim, 20 Cal. 4th 659; 976 P.2d 84 (Cal. 1999).
Finally, waivers of the fair value limitations at the inception of the transaction are unenforceable. See Cal. Civ. Code 2953.