In October 2007, Majestic Asset Management LLC purchased the Cal Oaks Golf Course from prior owners. Majestic is owned by a husband and wife, Hai and Jen Huang, who own a related company Wintech Development, Inc.

The Cal Oaks Golf Course is located within The Colony at California Oaks Homeowners Association. The 2007 purchase agreement included Majestic assuming the obligations of the prior owners to use the property only as a golf course, to maintain it in at least as good condition as that of other similar golf courses in the area, and to maintain and water the fingers in a manner acceptable to the association. These obligations also exist in the grant deed and in a separate performance deed of trust (PDOT). After Majestic’s acquisition of the golf course, grass and trees died, a lake dried up, and the landscaping deteriorated. Majestic began using the site to host events, despite the association’s disapproval, and Majestic stopped paying a portion of the maintenance costs shared with the association.

In 2012, the Majestic sued the association and the prior owner of the golf course to get out from the obligations of operating and maintain the golf course. They challenged the validity and enforceability of the PDOT. The association countersued against Majestic, Wintech and the Huangs. That lawsuit was tried in 2015, and judgment was entered against Majestic, Wintech and the Huangs. The court also found that the PDOT was valid and enforceable, including the foreclosure provision. Majestic and the Huangs appealed the 2016 judgment, which was affirmed in 2018. The appellate court found that the PDOT and all its obligations remained effect as long as Majestic owns the golf course.

In June 2019, the association moved for a foreclosure order based on Majestic’s ongoing failures to satisfy the obligations under the PDOT. The court initially decided to appoint a receiver instead. More than 2 years later the association again moved for foreclosure pursuant to the PDOT. In September 2022, the court found judicial foreclosure was appropriate. And in March 2023, evidentiary hearings were held regarding the value of the default of the PDOT and whether Majestic had a right of redemption. Based on evidence of the cost to rehabilitate the golf course, the court determined that the value of the PDOT was $2.7 million. In August 2023, the court entered ordered foreclosure of the PDOT and included clarifying language that if Majestic did redeem the golf course, all the terms of the PDOT would remain in effect for as long as Majestic were to own the property.

Majestic appealed both the foreclosure order – as to the impact of redemption on the obligations of the PDOT – and the PDOT valuation. Majestic argued two points on appeal: first, if it redeemed the golf course, the PDOT obligations would be extinguished by the redemption, and second, the PDOT was essentially worthless – not $2.7 million. The appellate court slightly modified the value of the PDOT to $2.5 million, eliminating one category of expenses related to restoring the golf course. As to the foreclosure, the court rejected all of Majestic’s contentions holding that foreclosure was proper and that redemption would not extinguish the obligations under the PDOT.

TAKEAWAY:  Deeds of trust do not have to be tied to money to be valid and enforceable.