Hastings Business Law Journal


California's complex real estate security laws have long presented challenges to real estate-secured creditors, which have resulted in a deep and rich body of case law. Nevertheless, derivatives creditors wishing to use California real estate as collateral must face, without the benefit of definitive case law guidance, a variety of unique and novel legal issues. It is anticipated that such case law guidance, when it arrives, will give due consideration to the special documentation and policy issues surrounding derivatives and, having done so, conclude that close-out netting does not contravene section 726's security-first rule, and that section 2924c does not enable a defaulted derivatives debtor to reinstate closed-out derivatives trades. In the meantime, derivatives creditors electing to be secured by California real estate may wish to consider mitigation techniques.