Judge: Gail Killefer, Case: BC677717, Date: 2024-10-07 Tentative Ruling
Case Number: BC677717 Hearing Date: October 7, 2024 Dept: 37
Alice M. Jackson, et al. v. Suzanne Chandler, et al. Hearing Date: 8/12 and 9/18/2024
(BC677717)
Moving Party: Plaintiff, Frida
Dilonell
Opposing Party: Defendant, Suzanne
Chandler
Relief Requested: Final Accounting of Taxes
Owed and Management Issues
Tentative Ruling: The Court tentatively finds:
1) Dilonell
is responsible for the payment of outstanding real estate taxes on the Property;
and 2) Chandler’s request for reimbursement in the amount of $450 for the
cleaning is warranted. The court has additional
questions for counsel when they appear on Monday, October 7, 2024, at 1:30
p.m.
Background
Alice M. Jackson ("Jackson") and Suzanne
Chandler ("Chandler") each owned a 50% interest in the real property
located at 703 Walnut Street, Inglewood, California 90301 (the
"Property"). On September 28,
2017, Jackson initiated this action seeking to partition the Property. On or about February 23, 2018, Jackson
allegedly signed an assignment of rights, transferring her rights in this
lawsuit to Frida Dilonell ("Dilonell"). According to Chandler, Jackson
passed away on or about February 24, 2018. On February 26, 2018, a deed was
recorded transferring Jackson's interest in the Subject Property to Dilonell.
The parties have stipulated that Dilonell may be substituted into the case as
the Plaintiff.
After a time when the Property was listed for sale, Dilonell
offered to buy Chandler’s interest in the Property. On April 20, 2023, this Court found Dilonell
made the highest valid offer and ordered Chandler to sign Dilonell’s purchase
agreement and complete the sale.
Chandler appealed that order. The
order was recently affirmed by the Court of Appeal, Second Appellate District.
It is now time for Dilonell to move forward with her
purchase of the Property. Before doing
so, both parties request an accounting of expenses related to the Property as
set forth in the Court’s Order of October 2, 2019. That Order provided in relevant part:
The net sales proceeds shall be
held in an interest bearing bank account at a bank mutually selected by the
parties, subject to dispersal upon the signed written instructions of both
parties or upon Court Order. The
disbursement of the sales proceeds shall be subject to an accounting of un-reimbursed
expenses incurred by each party, or Plaintiff’s predecessor in interest, in
respect to the Property (including but not limited to real estate taxes,
insurance, maintenance expenses, and repair expenses reasonably incurred for
the maintenance or improvements of the Property [pursuant to permit when such
improvements required a permit]; and to any judgment issued by the court in
this case).
(Order, October 2, 2019, ¶ 14.) Moreover, when effecting a partition, the
Court may order an accounting or other compensatory adjustment among the
parties:
Every partition action includes
a final accounting according to the principles of equity for both charges and
credits upon each cotenant’s interest.
Credits include expenditures in excess of the cotenant’s fractional
share for necessary repairs, improvements that enhance the value of the
property, taxes, payments of principal and interest on mortgages, and other
liens, insurance for the common benefit, and protection and preservation of
title.
(CCP § 872.140.)
The parties have presented the Court with three accounting
issues: 1) the allocation of property
taxes between the parties; 2) Chandler’s Claims for Expense Reimbursement; and
3) the allocation of the security deposits between the parties. The Court conducted an evidentiary hearing on
August 12, 2024, and September 18, 2024.
Based upon the testimony, the evidence presented, and the arguments of
counsel, the court tentatively rules as follows.
A.
Allocation of Taxes
Prior to 2016, Jackson and Chandler were equally
responsible for the real estate taxes related to the Property. There was no agreement to the contrary. The tax assessment on each party’s ownership interest
is determined by California’s Proposition 13 (passed in 1978) which required
the reassessment of properties at fair market value as of March 1975 and a
reappraisal for each subsequent change in ownership. The March 1975 assessment is referred to as
the owner’s original Prop 13 base value, which increases annually (the trended
base value) not to exceed 2 percent per year.
Here, the assessment of the two owners’ interests in the Property
now differs due to changes in ownership.
The tax assessment of Chandler’s interest continues to be based on her
Prop 58 Parent-Child Transfer Claim, which is excluded from reassessment. Chandler inherited her fifty percent interest
in the Property from her grandfather and then her mother, meaning that she has retained
the original trended base value from 1975.
Dilonell’s interest in the Property was subject to two
changes in ownership: first, in June 2016, when Jackson acknowledged she
inherited her interest from Chandler’s grandfather; and second, in February
2018, when Dilonell acquired her ownership interest from Jackson. Each time Dilonell’s portion of the Property
exchanged hands, her portion was reassessed for tax purposes.
The issue before the Court is whether the two owners are each
responsible for only the assessment of their respective shares of the Property
or whether both owners are equally responsible for the tax value of the entire
Property.
1.
Partial
Interest Transfer
When a portion of Property changes ownership and is
subject to reappraisal, that reassessment is referred to as a Partial Interest
Transfer (“PIT”). When the Assessor’s
Office discovers property or a taxable event that should have been assessed but
was not, a correction or “escape assessment” is made to a property’s assessed
value on the local property tax roll.
The parties do not dispute the taxes assessed on
Property, only their respective responsibility for paying those taxes.
The first PIT on Jackson’s fifty percent ownership
occurred in June 2016 and resulted in escape tax arrearages in the amount of
$11,036.72 from the eight years between 2009-2016 (Ex. 123-126). The second PIT occurred after Dilonell
recorded her February 26, 2018, grant deed.
2.
Testimony of David Olsen, County Appraiser
David Olsen, Los Angeles County Appraiser testified before
the Court on August 12, 2024. He has
worked for the County for fourteen years and is with the Special Investigations
Unit, Special Assessment Office. He
often investigates complex tax issues involving a single property with multiple
owners.
In his testimony, Mr. Olsen explained “PITs” and escape assessments. He explained that the taxable value of a
property is the various ownership portions “blended together.” In this case, for example, the taxable value
of the Property is a blend of the tax value of the portions owned by both
parties to this action. The county sends
the tax bill to the address on file with the county and leaves the allocation
of who pays the tax bill to the owners.
The county does not get involved with the question of how much each
owner pays.
As a professional courtesy, Mr. Olsen helped Chandler
learn what a fair allocation of the taxes would be between herself and
Dilonell. Mr. Olsen determined that
given that Chandler retained the original trended base value from 1975 on her
portion of the Property, and Dilonell’s portion had undergone a change of
ownership twice, he opined that Chandler is responsible for 9.1% of the taxable
value of the Property, and Dilonell is responsible for the balance
(91.9%).
3.
Testimony
of Julio Virgen, Los Angeles County Tax Services
Julio Virgen is head of Tax Services in the Los Angeles
County Controller’s Office. He has
worked for the Los Angeles County Tax Collector for seventeen years and has
overseen the day-to-day operations of Tax Services for six years.
Pursuant to subpoena, on August 5, 2024, Mr. Virgen’s
staff produced “[a]ll documents showing tax payment history, including
statements, annual property tax bills, payment dates, property addresses
associated with the payments, and taxes paid from 2017 to the present
day.” (Ex. 43.) The amount owing on the
Property to the Tax Collector as of that date was $18,881.30.
4.
Analysis
It is apparent to the Court that both parties have been aware
and concerned with the taxes assessed on the Property for years. Chandler understood that with her original
trended base value, her portion was assessed significantly less in taxes than Dilonell’s
portion, which had undergone two changes in ownership. Dilonell appealed the tax assessments, but apparently
did not directly consider the impact of the two PITs on her interest in the
Property.
Mr. Olsen testified that the Tax Collector leaves it to
the parties to decide what is fair in allocating the amount of taxes to be paid
by each owner. Mr. Virgen testified that
his job is to collect the taxable valuable of a property, not to decide how the
tax bill should be paid.
Neither counsel has cited any authority to the court on
this issue. There was no evidence of an agreement
between the parties, or an agreement between Jackson and Chandler, as to how
the taxes should be allocated.
As a matter of fairness, the Court finds that each owner
should be responsible for the assessment only on their portion of the
property. The court cannot decipher a
reason why Dilonell should reap the benefit of an original trended base value
from 1975 on her portion of the Property when she only became an owner in
2018. Similarly, the court cannot understand
why Chandler would be penalized with a higher tax rate on her portion of the
Property when it was intended that her portion receive the original trended
base value from 1975.
It was not disputed that Chandler paid her portion of the
taxes throughout. (Ex. 43.) The unpaid tax amounts, including penalties
and late fees, therefore fall to Dilonell.
The Court finds that Dilonell is responsible for the payment of outstanding real
estate taxes on the Property.
B.
Chandler’s Management Claims Against
Dilonell
When Dilonell became an owner of the Property, International
Realty managed the Property. When
Dilonell visited the Property and spoke with the five tenants, she learned they
were disappointed in the current management.
In October 2018, Dilonell began managing all day-to-day issues at the
Property, such as collecting the rent and paying the property expenses every
month. She did so without compensation,
thus saving both owners the fee charged by International Realty of eight
percent of the Property’s income. Since
October 2018, Dilonell has provided Chandler with detailed monthly statements
that include an accounting of all income and expenses for the Property.
On January 26, 2021, counsel represented to the court
that they had resolved all accounting issues and that “$16,000 from plaintiff’s
net proceeds in escrow shall be disbursed to Defendant by the escrow which will
be given as an irrevocable escrow instruction.”
(Minute Order of January 26, 2021.)
Since January 26, 2021, several additional accounting
issues have arisen. Chandler now seeks
reimbursement for six expenses: 1) Chandler seeks reimbursement of $475 for the
$950 she paid for cleaning the property prior to placing the property back on
the market for sale after Plaintiff lost the second appeal; 2) Chandler seeks
additional rent for the rent increases Dilonell could and should have made, but
did not, between November 2022 and August 2024 ($5126); 3) $992.50 for
reimbursement for checks Dilonell wrote to herself from the property management
account for expenditures settled in 2021; 4) $2,453.64 of the $4,907.28 spent in
November and December 2023 for a kitchen remodel in Unit A; 5) $2115.93 of the
$4,231.87 Dilonell spent to install a water heater in Unit D without permits or
authorization; and 6) reimbursement for $1950 that Dilonell spent for a water
heater in Unit B which was replaced without a permit. (Notice of Defendant Chandler’s List of
Expenses to be Reimbursed, filed July 12, 2024, p.3.)
The Court will address each in turn.
1.
The
Cleaning
Chandler seeks reimbursement for half the $950 cost she
paid in October 2022 for a laborer to power-wash the four deteriorated
structures, despite the Court’s instruction that the Property was to be sold in
its AS-IS condition. Dilonell argues this
was not a necessary expense but Chandler’s personal expense to pursue her
desire of convincing the listing agent that the Property had been
underpriced.
The Court finds that, although perhaps unnecessary, the
cleaning was not unreasonable and may have resulted in a benefit to both
parties. The Court grants Chandler’s
request for a reimbursement of half the cost or $475.
2.
Lost
Rental Income
In October 2022, Chandler notified the tenants at the
Property of a rental increase of 7.9% that was approved by the City of Inglewood’s
rental increase provisions. Chandler
registered the increase with the City of Inglewood online and personally served
notice to the tenants 30 days in advance.
(Ex. 185.) Chandler contends that
Dilonell informed the tenants that they do not have to pay the 7.9% and argues
that she has lost $233 per month (per owner) in rental income.
At the August 12, 2024, hearing, the Court ruled this
claim was flawed for at least two reasons.
First, Chandler’s claim for lost rental income is not a “claim” subject
to this Court’s jurisdiction under the October 2, 2019, Order or the partition statute. Moreover, Senior Program Specialist/ Hearing
Officer for the City of Inglewood Amari Watson emailed both Dilonell and
Chandler and advised them that the notice to the tenants was improper and thus
null and void. (Ex. 18.)
Chandler did not further pursue increased rents and thus is
not entitled to this purported lost income.
The Court denies Chandler’s request for lost rental
income.
3.
Expenses
settled in 2021 regarding lead and tree root assessment
In May 2023, Dilonell paid herself for an expense of $1,985
that she was required to spend on lead testing and abatement planning. Chandler argues she is entitled to reimbursement
for half of this amount, or $992.50, because these lead and tree root
assessments that were not mandated by the City of Inglewood or authorized by
Chandler. Payments were allegedly made
from the Property Management Account in 2021.
Chandler’s counsel also argues that these expenditures were from claims
settled by the previous stipulated settlement agreement in January 2021.
The Court would like to hear Dilonell’s response to this
argument.
4.
Unauthorized
capital improvements to Unit A after the Court ordered the sale of the property
Rental proceeds from November and December 2023 went towards
paying $4,907.28 for a kitchen remodel of Unit A, including the installation of
new cabinets and new countertops. Chandler
seeks reimbursement for half this amount, arguing that this expense was unreasonable
and unnecessary. Dilonell argues that
the corrections to Unit A’s kitchen were required by the City of Inglewood). (Ex. 21, 23, 24, and 222.).
The Court finds that the work on Unit A was mandated by the
City of Inglewood and was a reasonable and necessary expense. The Court denies Chandler’s request for reimbursement
for this work.
5.
Water Heater in Unit D
Chandler argues that in April 2024, Dilonell used Radden
Construction to install a water heater in Unit D for a total of $4,231.87
without permits or authorization from both owners. Chandler seeks reimbursement for half this
amount, arguing that this expense was unreasonable and unnecessary and was done
without the necessary permits. Dilonell argues
that the water heater in Unit D was an emergency repair required to maintain
habitable conditions on the property.
(Ex. 30, pp. 90, 92-94; 82-87.)
The Court finds that the water heater installed in Unit D
was a reasonable and necessary expense and denies Chandler’s request for reimbursement.
6.
Water Heater in Unit B
Chandler argues she is not responsible for paying her
share of the $1950 for Unit B’s water heater which Dilonell replaced in May
2024 without a permit. Dilonell contends
that the gas company shut off the gas to the water heater in Unit B, issued a
red tag marking it as dangerous, and required its replacement. (Ex. 30, p. 99.) Although Chandler argues these repairs required
a permit, Dilonell hired a licensed contractor to replace the water heater
which did not require a permit. (Ex. 30,
pp. 99-103.)
The Court finds that the water heater installed in Unit B
was a reasonable and necessary expense and denies Chandler’s request for reimbursement
for this work.
C.
Tenant
Security Deposits
Dilonell requests that Chandler pay Dilonell her 50% of
all tenant security deposits, totaling $2,625.00. Dilonell contends that Chandler received half
the security deposits. (Ex. 26, 28, and
29.) Dilonell argues that she cannot
return these deposits in the future unless Chandler turns overs her half of the
deposits to the new owner Dilonell now.
The Court has not yet heard from Chandler’s counsel as to
why Chandler should not provide Dilonell with the $2,650.00 she allegedly received
as half of all tenant security deposits.
The Court is inclined to order Dilonell to do so.