Filed 8/14/26 JL Financing v. Sanchez CA2/5
NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS
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IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA
SECOND APPELLATE DISTRICT
DIVISION FIVE
JL FINANCING, LLC, B344936
Plaintiff and Appellant, (Los Angeles County
Super. Ct. No.
v. 21STCV31210)
CHARLES L. SANCHEZ, JR.,
Defendant and
Respondent.
APPEAL from a judgment of the Superior Court of the
County of Los Angeles, Theresa M. Traber, Judge. Affirmed.
Shapero & Shapero, Steven J. Shapero, for Plaintiff and
Appellant.
Decker Law, James Decker and Griffin Schindler, for
Defendant and Respondent.
I. INTRODUCTION
JL Financing, LLC (JL Financing), a sold-out junior lienor1,
sued Charles L. Sanchez, Jr. (Sanchez), for breaching a
promissory note. Following a bench trial, the court concluded
that Code of Civil Procedure section 580d2 applied to bar recovery
of a personal judgment against Sanchez. We affirm.
II. FACTUAL BACKGROUND3
A. Parties and Related Entities
Sanchez designed and developed residential real estate
projects, including the four-home project (the project) from which
this action arose. He owned 10 adjacent vacant lots in the Silver
1 “The term ‘sold-out junior lienor’ refers to the situation in
which a senior lienholder forecloses its lien, eliminating the
junior lienor’s security interest. ‘A senior foreclosure sale conveys
the property free of all junior liens … . Thus, the junior no longer
has a lien on the property, and the security has been entirely
destroyed. A sold-out junior thus holds security that has “become
valueless” and is permitted to sue directly on the note.’
[Citation.]” (Bank of America v. Graves (1996) 51 Cal.App.4th
607, 611–612.)
2 All further statutory references are to the Code of Civil
Procedure, unless otherwise indicated.
3 Consistent with the standard governing our review, we
recite the facts “in the light most favorable to the prevailing
party, drawing all reasonable inferences in support of the
findings.” (Thompson v. Asimos (2016) 6 Cal.App.5th 970, 981
(Thompson).)
2
Lake area of Los Angeles upon which he proposed to build the
project.
JL Financing was a hard money lender4 on real estate
development projects. John Lee Gregg III (Lee Gregg) owned
95 percent of the company, and his two children owned the other
five percent.
John Lee Gregg II (John Gregg)5 was a retired real estate
developer and Lee Gregg’s father. He was the beneficial owner of
an individual retirement account (the John Gregg IRA) held for
his benefit by custodian Pensco Trust Company, an independent
financial institution. He also owned Gregg’s Artistic Homes, Inc.,
but had no ownership interest in JL Financial.
Anthony Rees-Thomas worked for Gregg’s Artistic Homes,
Inc. and also performed services for other Gregg family entities,
including loan servicing and administrative work. He had
worked on loan transactions for, among others, JL Financing and
the John Gregg IRA.
B. Negotiations
Sanchez was originally put in contact with “the Gregg
family” in early September 2017 by a friend who knew Sanchez
was looking for hard money to start the project. He first
communicated with Lee Gregg by e-mail and then had a site visit
4 As a hard money lender, JL Financing made loans for
proposed real estate development projects based primarily on the
equity value of the real estate offered as security, without
considering the income, tax returns, or business of the borrower.
5 John Gregg, who was in his 90s, was unavailable to testify
at trial due to health issues, including Alzheimer’s disease.
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with John Gregg and Rees-Thomas on September 5, 2017, but
they were not interested in lending at that time.
About two months after his first contact with Lee Gregg,
Sanchez sent a project book describing the project in detail to
John Gregg on October 26, 2017. When John Gregg showed
interest in the project, Sanchez again walked the 10-lot site with
him and Rees-Thomas6 on November 10, 2017, and discussed the
approvals that would be required from the City of Los Angeles to
begin construction.
Sanchez had originally intended to raise financing for the
project by encumbering only five of the lots which would enable
him to sell one or more of the other lots to fund the construction.
But John Gregg said he was only willing to make a loan if all 10
lots were included as security. In return for a security interest in
all 10 lots, John Gregg offered to loan Sanchez $900,000. He also
informed Sanchez in a November 10, 2017, telephone call that
the loan would be structured in “two pieces,” an initial $600,000
disbursement and then a subsequent $300,000 disbursement
from his IRA. Rees-Thomas and John Gregg told Sanchez that
because he owed approximately $350,000 on the existing
mortgage on the properties and another $200,000 in unpaid tax
liens, the Greggs wanted to wait on funding the $300,000 portion
until Sanchez used the $600,000 portion to pay off the existing
loan and taxes. John Gregg did not specify “where the [$600,000]
was going to come from,” but Sanchez believed he and Rees-
Thomas were both affiliated with and representing JL Financing;
6 Sanchez negotiated the financing for the project primarily
with John Gregg and Rees-Thomas. He did not communicate
with Lee Gregg about the transaction after his first contact with
him.
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and John Gregg did not disclose during the negotiations that he
was not part of JL Financing.
As Sanchez understood the proposed structure of the loan,
“[t]hey were just basically holding back the [$300,000] from the
[$900,000] until they had a clean title.” He understood, however,
that the entire “$900,000 [indebtedness] was secured against the
land.” Sanchez needed to have at least $900,000 in financing in
place before his construction lender would consider making a
construction loan.
John Gregg’s offer was confirmed in a November 10, 2017,
e-mail from Rees-Thomas to Sanchez. In the e-mail, Rees-
Thomas reiterated the basic deal points: “Just so it’s clear what
we are willing to do, we will make a 1st on the 10 parcels for
$600K at 12%, 1 point to Lender, $1,000 in Lender fees and 1
point to the broker. [¶] We will make a 2nd of $273K with the
same deal points.” Rees-Thomas also specified that “[t]he loan
was contingent on two issues:” (1) a scheduled phone call
between John Gregg and the construction lender “to determine if
they [would] provide a sufficiently large land-draw to pay[ ]off
our mortgage”; and (2) obtaining an updated preliminary title
report. (Italics added.) Rees-Thomas confirmed that the e-mail
accurately summarized the terms of the loan structure that were
being offered to Sanchez by the Gregg family.
Sanchez responded to Rees-Thomas that same afternoon,
advised that he had contacted the title company to expedite the
updated title report and stated that he would prefer to sign the
loan documentation by November 13, 2017.
At no time between the November 10, 2017, e-mail
confirming the terms of the financing and the time Sanchez
signed the loan documents for the $600,000 loan did John Gregg
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or Rees-Thomas explain that “the funding [was] going to be split
into two different pieces and funded by two completely separate
entities, namely JL Financing … and [John Gregg’s] IRA … [.]”
Had they explained that there would be two different lenders—
JL Financing and the John Gregg IRA—and that following a
foreclosure on the first loan, he would be personally liable on the
$300,000 loan from the John Gregg IRA, Sanchez would not have
agreed to either loan.
C. $600,000 Loan
On November 14, 2017, Sanchez, as borrower, signed a
package of loan documents that were presented to him that day.
Among the documents was a loan application for a five-year,
adjustable rate $600,000 interest-only loan at 12 percent interest.
The application listed Cashion Investments Inc. (Cashion), as the
“loan originator.” It did not identify the lender. Sanchez had no
relationship with Cashion, did not fill out the application, and did
not provide JL Financing or Cashion with any of the information
on the form. Sanchez also executed a deed of trust (senior lien)
on the 10 lots naming Gregg’s Artistic Homes, Inc., as trustee,
and JL Financing, as lender and beneficiary. On or about
November 17, 2017, the $600,000 loan closed. As agreed, the
majority of the funds from that loan were used to pay off, before
the foreclosure sale, the existing prior loan and state tax liens, as
well as charges for the loan.
D. $300,000 Loan
Following the funding of the first loan, Sanchez needed the
funds from the promised $300,000 loan to make the monthly
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payments of $6,000 per month on the first loan and to begin work
on the project. His construction lender would not have
considered making a construction loan if Sanchez did not have
“additional money and funding [with] which to start the permit
process and get permits on the parcels to start the
construction[.]” Sanchez also began to incur overhead expenses,
including payments for workers and draftsmen he hired, a
surveyor, a tree specialist, lot clearance, and fire abatement.
Therefore, on December 8, 2017, Sanchez went to the
escrow office to execute the documentation necessary to procure
the funding from the second loan. As part of the package of loan
documents presented to him that day, Sanchez, as borrower,
signed a loan application for the $300,000 loan with terms
identical to the $600,000 loan, that is, a five-year, adjustable
rate, interest-only loan at 12 percent. Like the first loan, the
application listed Cashion as the “loan originator” and did not
identify the lender. Sanchez did not fill out the application or
provide JL Financing or Cashion with any of the information on
the form. Sanchez also signed that day a deed of trust (junior
lien) naming Gregg’s Artistic Homes, Inc., as trustee, and Pensco
Trust Company (as custodian for the benefit of the John Gregg
IRA) as lender and beneficiary. In addition, Sanchez signed a
one-page borrower’s acknowledgement identifying the lender on
the $300,000 loan as the John Gregg IRA, through custodian
Pensco Trust Company. Sanchez knew from these documents
that the second loan came from the John Gregg IRA. Although
he represented on the borrower’s acknowledgement that he fully
understood the consequences of borrowing money and using his
property as security, Sanchez did not understand that, if he failed
to make payments on the loan, he would be personally liable and
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instead believed that “[t]hey would initiate foreclosure and take
the asset, the property, to recoup their money they lent.”
E. Defaults on the Loans
By January 2019, Sanchez was in default on both loans.
After Sanchez defaulted on the $600,000 loan, JL Financing
recorded a notice of entry of default on January 24, 2019. The
noticed foreclosure sale was delayed, however, due to Sanchez’s
intervening bankruptcy actions.
On February 21, 2020, Lenders T.D. Service, as agent for
the trustee under the senior lien securing the $600,000 loan, held
a nonjudicial foreclosure sale. JL Financing submitted a
credit‑bid of $600,000 at the sale and was the highest qualified
bidder. On February 24, 2020, Lenders T.D. Service issued a
trustee’s deed upon sale to JL Financing.
F. Assignment of the $300,000 Note
Lee Gregg understood that the foreclosure of JL
Financing’s senior lien extinguished the junior lien on the same
properties securing the $300,000 loan. He spoke to his father to
determine how to proceed on the $300,000 loan as it was both in
default and unsecured. When John Gregg expressed an interest
in pursuing litigation, they discussed the problems with having
the IRA custodian, Pensco Trust Company, acting as a plaintiff
and decided to assign the note to JL Financing for purposes of
litigation. On August 10, 2021, Pensco Trust Company assigned
to JL Financing “for collection” the interest of the John Gregg
IRA in the $300,000 note.
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III. PROCEDURAL BACKGROUND
On August 24, 2021, JL Financing filed a complaint
asserting a single cause of action for breach of the $300,000
promissory note. It sought recovery of the $300,000 principal,
interest, and attorney fees.7
On December 20, 2023, the action proceeded to a bench
trial over three days. On August 8, 2024, the trial court issued
its statement of decision. The court rejected JL Financing’s
assertion that there were two separate loan applications, finding
that “Sanchez requested a single loan by oral application during
his conversations with John Gregg and Rees-Thomas prior to
November 10, 2017.” The court continued, “JL Financing’s
reliance on the so-called loan applications as evidence that
Sanchez knowingly sought two separate loans is plainly wrong.
… [T]hese documents were prepared by JL Financing’s agent
[Cashion] without Sanchez’s involvement and without identifying
any lender, and presented to Sanchez on the same day as the
loan transaction occurred … .”
7 Sanchez filed a cross-complaint against JL Financing,
Gregg’s Artistic Homes, Inc., John Gregg, and Lee Gregg. The
cross-complaint asserted three causes of action for: fraud,
violation of the Unfair Business Practices Act (Bus. & Prof Code,
§ 17200 et seq.), and negligent misrepresentation. According to
Sanchez, cross-defendants “represented to [him] that splitting the
[$900,000] loan in two would prove easier … by allowing [them]
to obtain the funds quicker from an alternative source” but, in
truth, they “were merely trying to circumvent California’s one-
form-of-action rules and merger doctrine by intentionally
misrepresenting to [Sanchez] the true lender behind the loans
… .”
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As to JL Financing’s “contention that there were two
separate, unrelated loans offered for entirely different purposes,”
the trial court found that Sanchez had “established that the
$900,000 loan he sought was part of his integrated plan to
construct a residential development consisting of four houses on
four adjacent parcels owned by Sanchez.”
As to the timing of the two loans, which funded several
weeks apart, the trial court cited Sanchez’s expectation “that
both parts of his loan package would close simultaneously at the
time the loan structure was defined by Rees-Thomas’[s]
November 10 e[-]mail” and concluded that “the brief delay in
funding the second loan payment does not undermine Sanchez’s
contention that the two payments constituted a single loan
transaction.”
The trial court also disagreed with JL Financing’s assertion
that the loans were provided by “entirely different entities,”
finding that “John Gregg and Rees-Thomas acted as agents for
both entities without explaining to Sanchez that they represented
any specific Gregg family entities, much less one LLC that would
lend $600,000 and a separate IRA that would offer a second loan
of $300,000. … John Gregg never disclosed to Sanchez that he
was not a principal in or otherwise affiliated with JL Financing.”
The court therefore concluded that “Sanchez did not receive clear
notice that there were two separate lenders to be named as
lenders until he was presented with the escrow documents on or
about December 8, 2017. By then, however, the two-part loan
transaction was a fait accompli.”
Based on these findings, the trial court concluded that “JL
Financing and its agents, John Gregg and Rees-Thomas, engaged
in an evasive loan-splitting plan that concealed from Sanchez the
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principals for whom they were acting and the financial basis and
consequences of their decision to employ two deeds of trust rather
than one, despite the unitary character of the transaction.”
Because “JL Financing used improper gamesmanship in securing
the two-part loan transaction and enforcing the liens against
Sanchez,” the court determined that JL Financing was
“precluded from recovery on the [j]unior [n]ote by operation of …
[section] 580d.”8
On February 19, 2025, the trial court entered a judgment
on the final statement of decision. On February 21, 2025, JL
Financing filed its notice of appeal.
IV. DISCUSSION
A. Standard of Review
“In reviewing a judgment based upon a statement of
decision following a bench trial, we review questions of law de
novo. [Citation.] We apply a substantial evidence standard of
review to the trial court’s findings of fact. [Citation.] Under this
deferential standard of review, findings of fact are liberally
8 On the cross-complaint, the trial court explained that
although “none of the [c]ross-defendants disclosed to Sanchez the
identity of the two lenders or the significance of the scheme to use
two deeds of trust to secure a single loan transaction, Sanchez
has not proven that [c]ross-defendants held positions that
required them to disclose these facts or that they intentionally
misled Sanchez in their loan dealings. The kind of
gamesmanship or evasive loan-splitting that invalidates JL
Financing’s ability to sue on the [j]unior [n]ote is not tantamount
to affirmative fraud or even negligent misrepresentation.”
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construed to support the judgment and we consider the evidence
in the light most favorable to the prevailing party, drawing all
reasonable inferences in support of the findings. [Citation.]”
(Thompson, supra, 6 Cal.App.5th at p. 981.)9
B. Legal Principles
“Under California law, a creditor can recover a debt secured
by a deed of trust on real property through a nonjudicial
foreclosure action to sell the property at a public auction.
[S]ection 580d provides that a creditor cannot collect a deficiency
judgment—that is, the difference between the amount of
indebtedness and the fair market value of the property—if the
property is sold for less than the amount of the outstanding
debt.” (Black Sky Capital, LLC v. Cobb (2019) 7 Cal.5th 156, 158
(Black Sky Capital).) Section 580d, however, does not bar
recovery by a sold-out junior lienor who did not initiate the
foreclosure proceeding. (Black Sky Capital, supra, 7 Cal.5th at
p. 159.) “The reason is that ‘[t]he position of a junior lienor whose
security is lost through a senior sale is different from that of a
selling senior lienor. A selling senior can make certain that the
security brings an amount equal to his claim against the debtor
or the fair market value, whichever is less, simply by bidding in
for that amount. He need not invest any additional funds. The
junior lienor, however, is in no better position to protect himself
9 JL Financing urges us to apply a de novo standard of
review “because the material facts are undisputed.” We disagree.
JL Financing challenges the trial court’s finding that it engaged
in evasive loan splitting and improper gamesmanship in securing
a two-part loan, a factual finding that we review for substantial
evidence.
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than is the debtor. Either would have to invest additional funds
to redeem or buy in at the sale.’” (Id. at p. 160.) Thus, so long as
“there is no allegation of evasive loan splitting or recovery in
excess of what any junior lienholder would be able to recover …
section 580d does not bar a deficiency judgment on the junior
note.” (Id. at p. 165.) Accordingly, our Supreme Court has found
that even when one entity holds both the senior and junior note,
“and there is no evidence to suggest … that the two notes …
arose from intentional loan splitting; they were executed in
separate transactions more than two years apart” and “the
[borrower] … ‘never [took] the position’ that ‘anything untoward’
occurred in the origination of the loan[ ],” “section 580d does not
bar a deficiency judgment on the junior note.” (Id. at pp. 164–
165.) Where, however, “there is evidence of gamesmanship by
the holder of senior and junior liens on the same property, a
substantial question … arise[s] whether the two liens held by the
same creditor should—in substance, if not in form—be treated as
a single lien within the meaning of section 580d.” (Id. at p. 164.)
C. Analysis
JL Financing contends that it was entitled to enforce its
junior lien because “[t]he [two] loans were made at different
times, by different lenders. There was no linkage between them,
such as Sanchez could only obtain the [s]enior [l]oan if he took
the [j]unior [l]oan as well.” Thus, as noted, JL Financing
challenges the sufficiency of the evidence supporting the trial
court’s contrary finding that the lenders engaged in evasive loan
splitting and gamesmanship to split a single loan of $900,000 into
two separate loans of $600,000 and $300,000.
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Substantial evidence supported the trial court’s finding.
Sanchez’s trial testimony, which was largely uncontradicted,
describing his negotiations with John Gregg and Rees-Thomas
supported a reasonable inference that he believed he was
negotiating for a loan with representatives of the Gregg family
and that he requested a single, $900,000 loan for his project from
the Gregg family, not JL Financing or the John Gregg IRA. And
John Gregg, whom Sanchez believed was acting on behalf of the
Gregg family entities, agreed to make him a loan in that amount
in return for an increased security interest covering all 10 lots.
Rees-Thomas confirmed the structure of the deal in an e-mail,
referring to “the loan” and “our mortgage”, that is, a single
$900,000 loan secured by a single mortgage on all ten lots. The
evidence further supported an inference that neither John Gregg
nor Rees-Thomas disclosed to Sanchez that two loans would
made by two different entities until he was presented with the
loan documents for the $300,000 loan in December 2017, at which
point he had no alternative but to accept the loan from the second
lender. Finally, after JL Financing foreclosed on the $600,000
senior deed of trust and purchased the properties at the
foreclosure sale, Lee Gregg, knowing that the foreclosure
extinguished the junior lien securing the $300,000 loan, agreed
with his father to have JL Financing acquire by assignment the
defaulted promissory note for that loan and then pursue
litigation against Sanchez personally. That assignment to the
same creditor that held and foreclosed on the senior lien, when
considered together with the negotiation testimony and e-mail
describing a single loan, supported an inference the two liens
here “should—in substance, if not in form—be treated as a single
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lien within the meaning of section 580d.” (Black Sky, supra, 7
Cal.5th at p. 164.)
Substantial evidence supported the trial court’s findings of
evasive loan splitting and gamesmanship and its conclusion that
section 580d therefore operated to prohibit JL Financing from
foreclosing and collecting on the $600,000 note and deed of trust
and then pursuing a deficiency judgment against Sanchez based
upon the $300,000 promissory note.
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V. DISPOSITION
The judgment is affirmed. Sanchez is awarded costs on
appeal.
NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS
KIM (D.), J.
We concur:
BAKER, Acting P. J.
KUMAR, J.*
* Retired judge of the Los Angeles County Superior Court,
assigned by the Chief Justice pursuant to article VI, section 6 of
the California Constitution.
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