Legal Question in Real Estate Law in California

If this is true, the Note is certainly enforceable, just unsecured of record. If you were to file BK before the Deed of Trust is recorded, you might be able to schedule the 1st as an unsecured nonpriority debt in a Chapter 13 bankruptcy and wipe it out. Then you could possibly cram-down the 2nd. Or, more likely in such a circumstance the 2nd would move into 1st position. Contact a bankruptcy lawyer in your locality. Or you could possibly convey the property to a bona fide purchaser, the property would then be subject only to the lien created by the recorded 2nd.

Failure to record an instrument does not make it unenforceable between the parties or others who know about it, or should know. The purpose and function of recording a deed of trust is not to make the debt enforceable against the borrower. The purpose is to make it enforceable against strangers - for example, someone who comes along later and makes another loan. That person is entitled to know he's making a second loan, not a first. Someone is giving you flawed information.

If the deed of trust was not recorded, it simply is no longer a first deed of trust. It also does not give notice to third parties, so subsequent liens and deeds of trust will have priority. It does not cause the note to be unenforceable.