Security of a Deed of Trust in California Prevents the Legal Doctrine of Merger of Estates

 Under the legal doctrine of merger, as codified in California Civil Code section 805 and California Civil Code section 811, the owner of an estate in land cannot also hold an easement in the same land.  The rationale behind the two statutes is that holding an easement in the land is unnecessary to the landowner who already owns the same piece of land.

However, there are instances where the doctrine of merger is inapplicable, as was decided recently by the California Appellate Court in Hamilton Court, LLC v. East Olympic, L.P..  This Appellate Court determined that a lender taking a security interest by recording a deed of trust in both California real property and an easement benefiting the same real property does not lose its security interest in the easement because of the borrower’s fee acquisition of  the subject property burdened by the easement.

In other words, when the lender forecloses on the deed of trust security, the purchaser at the foreclosure sale would acquire both the real property security and the benefiting easement right and the doctrine of merger would not apply.

In referenced case, the deed of trust contained an agreement that prevented the merger of the easement.  The deed of trust provided for a merger of title only “if such transfer is made subject to the Trustor’s promissory note and this Deed of Trust and does not affect the priority of this Deed of Trust in any manner whatsoever.”

Here, the Appellate Court determined that whether a merger occurs depends on the actual or presumed intention of the parties and that where there is an agreement between the parties to prevent merger, then the agreement will usually be upheld.

The Appellate Court further determined that in California the union of a lesser and greater estate in real property does not result in a merger of the estate where the result would be an injustice, injury or prejudice to a third person.

Thus, lenders taking deed of trust security interests in California real property should make clear such intention of the lender and borrower that any easement or other right benefiting the real property security will not be extinguished by the borrower subsequently acquiring title to the burdened property.

For further information on this decision or any other real estate matters, please contact Evelyn Ginossi at evelyn@ibvadvisorygroup.com or 310.746.3837.