Burney v. McLaughlin

The Burneys and Snadons (plaintiffs) sold a hotel property to C & J Properties, taking back a note secured by a second deed of trust; when C & J later refinanced through Bank of America, N.A. (Bank) (defendant), the plaintiffs subordinated their interest to the Bank's new financing based on the loan's terms as they then existed. Over the following six years, the Bank and C & J modified the loan eight times without the plaintiffs' knowledge or consent — extending the maturity date, raising the interest rate, and otherwise changing the deal — and C & J eventually defaulted, partly due to the increased interest under the modified terms. Just before foreclosure, the plaintiffs sued for equitable relief, arguing the unconsented modifications materially impaired their subordination agreement and restored their priority over the Bank; the trial court agreed, and the Bank appealed.