⊳ Secret continued from Page 37 Borrower misrepresentations = default
Mandatory bundling of properties California lawmakers are highly focused on the rise of single-family home- ownership by corporate investors. Many legislators assume investors buy single-family residences in bulk at foreclosure sales, but that has never been true. Several years ago, California prohibited “bundling” properties under the same DOT in one foreclosure sale unless the DOT requires it. Since most DOTs give lenders the right — but not the obligation — to bundle, the amendment effectively prevents lenders from combining properties at one sale. This prohibition can be problematic when selling unfinished devel- opments or properties that should remain under common ownership. It also increases foreclosure costs through multiple notices of sale, which borrowers ultimately pay. A simple potential solution is to include a provision in multi-security DOTs requiring that all properties be sold together at foreclosure, while allowing the lender to waive this requirement. This gives lenders flexibility to bundle or separate sales based on circumstances. If a loan was originally secured by one property, consider adding this bundling language when adding additional security through loan modifi- cation or extension. ● ● ● Most standard private lending DOTs generally provide lenders the right to foreclose in the event of a monetary default. However, for more com- plex transactions or higher-value loans, lenders should consider using customized loan documents tailored to the specific deal — or at least ensure the suggested provisions are included in the loan. ● Key Takeaways When mortgage disputes arise, the deed of trust (DOT) is the first document reviewed. While consumer loan documents are largely standardized, business-purpose loans vary widely, creating gaps in lender protection. To mitigate litigation risks and strengthen enforcement rights, lenders should incorporate five critical provisions often overlooked in standard DOTs: 1. Judicial Reference 2. Borrower Misrepresentation as Default 3. Cross-Default Clauses 4. Guaranty Waiver Language 5. Mandatory Bundling of Properties Bottom line: For complex or high-value transactions, customized loan documents incorporating these provisions are essential to minimize risk and maximize recovery.
Lenders may foreclose only upon default under the DOT, so defining “event of default” broadly is critical. Every DOT provides that the fail- ure to make payments or an unauthorized transfer constitutes a default. Sophisticated DOTs often add grounds such as senior obligation default, bankruptcy, missing financial statements, ownership changes or failure to reimburse advances. One often overlooked default is material misrepresentation in loan docu- ments. It allows lenders to act if borrowers lied about income, property value, occupancy intent or loan purpose. Without it, lenders may have no remedy. Cross-default provisions Sticking with the default theme, most business purpose DOTs omit or poorly draft cross-default provisions. A cross-default clause lets lenders treat a borrower’s default on one loan as a default on others — even loans made by other lenders. Declaring all loans in default helps prevent borrowers from abandon- ing unprofitable projects or underwater properties. Most provisions only cover one borrower. For single-purpose limited liability companies owning one property, this is ineffective. A well-drafted clause can include defaults by any LLCs controlled by an individual or affiliated entities. Linked to a personal guaranty, it can also cover guarantor defaults on other loans or properties. Guaranty waiver language When lending to an LLC or a corporation, most lenders require the con- trolling member to execute a personal guaranty. This separate contract between lender and guarantor — distinct from the note and deed of trust — obliges the guarantor to repay the loan if the borrower defaults. To ensure full protection, lenders should include all applicable waivers of defense. In California, Civil Code §2845 gives guarantors the right to demand that lenders first pursue the borrower or foreclose under the deed of trust before enforcing the guaranty. However, courts consistently uphold waivers of §2845, allowing lenders to sue guarantors directly without first foreclosing or seeking recovery from the borrower. This lev- erage often motivates guarantors to reinstate or pay off the borrower’s defaulted loan. It is important to note that the personal guaranty must always be in a separate document from the note or deed of trust and cannot be executed by the borrower. A borrower cannot personally guarantee their own loan.
T. Robert Finlay, Esq. is a founding partner of Wright, Finlay & Zak. He can be reached at rfinlay@wrightlegal.net. Michelle R. Rodriguez, Esq. is a partner at Wright, Finlay & Zak. She can be reached
at mrodriguez@wrightlegal.net. The above information is intended for information purposes alone and is not intended as legal advice. Please consult with counsel before taking any steps in reliance on any of the information contained herein.
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Scotsman Guide | February 2026
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