Judge: Gary Y. Tanaka, Case: 21TRCP00387, Date: 2022-07-25 Tentative Ruling

Case Number: 21TRCP00387    Hearing Date: July 25, 2022    Dept: B

PROCEEDINGS

Quality Loan Service Corporation v. All Claimants to Surplus Funds...., et al. 21TRCP00387

1. State of California Franchise Tax Board’s Claim to Surplus Funds

2. Angela Richardson Allen’s Claim to Surplus Funds   

    

    

   TENTATIVE RULING

    

                State of California Franchise Tax Board’s Claim to Surplus Funds and Angela Richardson Allen’s Claims to Surplus Funds are continued.  

    

                Background

    

                Petitioner filed its petition on October 27, 2021.  Petitioner alleges the following facts.  Petitioner Quality Loan Service Corp. is the Trustee under a Deed of Trust executed by Angela Richardson Allen.  The Deed of Trust was secured by real property which was sold by non-judicial foreclosure sale on May 4, 2021.  The sale resulted in the receipt of funds that exceeded the amount due and owing under the Deed of Trust.  Quality Loan Service Corp. was unable to determine how the surplus funds should be distributed and seeks to deposit the funds with the clerk pursuant to Civil Code section 2924j, subdivision (c).  On April 20, 2022, Petitioner Quality Loan Service Corp.’s Motion to Deposit Surplus Funds Pursuant to Civil Code Section 2924j and to Discharge Petitioner was granted.

    

                Claim to Surplus Funds

    

               When proceeds remain after a trustee’s sale, the trustee is required to send written notice to those persons, with recorded interests in the property, who would have been entitled to receive a copy of the notice of default pursuant to Civ. Code § 2924b(b)(c).  Civ. Code § 2924j(a). The notice must inform each such person that there has been a trustee’s sale, that he or she may have a claim to all or a portion of the remaining proceeds, and that he or she may contact the trustee.  Civ. Code § 2924j(a).  The trustee must exercise due diligence in determining the priority of written claims received from those persons to whom the notice was sent.  If there is no dispute as to the priority of written claims to the surplus proceeds, the trustee shall pay the proceeds within 30 days after conclusion of the above notice period.  But if the trustee has failed to determine the priority of the claims within 90 days following the 30 day notice period, within 10 days thereafter, the trustee must either deposit the funds with the court clerk or file an interpleader action.  Civ. Code § 2924j(b).  If the trustee decides to deposit the funds with the court clerk, the trustee must send written notice to all interested persons, as defined, informing them of the intent to deposit the funds and that their claims must be filed within 30 days from the date of the notice.  The trustee also files a declaration of the unresolved claims.  Civ. Code § 2924j(c)-(d).  Here, petitioner met all the statutory requirements to obtain an order to deposit the surplus funds. Thus, the funds should be ordered deposited with the Court as of this date. 

    

               Civil Code section 2924j, subdivision (d), states, in relevant part: “Within 90 days after deposit with the clerk, the court shall consider all claims filed at least 15 days before the date on which the hearing is scheduled by the court, the clerk shall serve written notice of the hearing by first-class mail on all claimants identified in the trustee's declaration at the addresses specified therein. Where the amount of the deposit is twenty-five thousand dollars ($25,000) or less, a proceeding pursuant to this section is a limited civil case. The court shall distribute the deposited funds to any and all claimants entitled thereto.”

    

               In Lord v. Superior Court (1946) 27 Cal.2d 855, the Supreme Court held that a court can maintain ancillary jurisdiction with respect to funds on deposit with the court.  “After an action has been dismissed under Code of Civil Procedure, section 583, the court is without jurisdiction to hear or determine any motion unrelated to the dismissal of the action.  However, this general rule is subject to exceptions and a court is not divested of jurisdiction for all purposes after the dismissal of an action.  Thereafter the court has the power to determine the disposition of funds held in custodia legis after notice to all parties interested.”  Id. at 857-58 (internal citations omitted). 

    

               On April 20, 2022, Petitioner’s petition to deposit surplus funds was heard and granted.  Petitioner met all the statutory requirements to obtain an order to deposit the surplus funds.  The clerk was ordered to receive the sum of $87,685.87 payable to the Superior Court of California, County of Los Angeles, and to deposit said amount into the court’s trust account less any applicable fee.  Petitioner was discharged of any further responsibility for disbursement of sale proceeds.

    

                On May 17, 2022, the California Franchise Tas Board (“FTB”) filed a claim for right to payment of the surplus funds generated from the Trustee’s sale of the subject property.  FTB contends that former property owner Willie M. Richardson owes FTB $12,615.89, as of May 10, 2022, and that interest currently accrues on that amount at the daily rate of $1.04.  A copy of the Certificate of Tax Due and Delinquency, dated May 10, 2022, was attached as Exhibit B.  A Certificate of Tax Due and Delinquency is “prima facie evidence of the levy of the tax, penalties, and interest of the delinquency” and of FTB’s compliance with statutes relating to computation and levy of the tax.  Rev. & Tax Code section 19374.

    

               Government Code section 7170(a) states that "a state tax lien attaches to all property and rights to property whether real or personal, tangible or intangible, including all after-acquired property and rights to property, belonging to the taxpayer and located in this state.” Government Code section 7171(a) allows the FTB to record a Notice of State Tax Lien with the county recorder in the same county where the real property is located.

    

                On July 7, 2022, Angela Richardson Allen filed a claim for surplus funds on the ground that she was the title owner of the property.  Respondent Allen provided evidence that she was the last listed owner of the property in question just prior to the trustee’s sale. Thus, as the trustor on the deed of trust encumbering the property, Allen is entitled to surplus funds following the trustee’s sale minus any lien priorities that exist.  Allen opposes and disputes that FTB is entitled to payment based on its claim for surplus funds.  Allen contends that FTB’s lien was previously satisfied and deducted from the amount deposited. Allen argues that the current claim is not based on a recorded lien.

    

                Upon review of the applicable authorities, it appears that a recorded lien may have been required for FTB to obtain lien priority.  FTB has not established that it recorded a lien with respect to the amount currently sought in its claim.  However, neither party has provided any authority to show whether FTB’s mere issuance of the Certificate of Tax Due and Delinquency would provide priority to FTB with respect to the payment of the surplus funds.

    

                Thus, the Claims are continued to August 26, 2022.  At least 9 court days prior to this hearing, respondents are to submit briefs, no longer than 5 pages in length, as to the issue of FTB’s purported claim to surplus funds, without the recordation of a lien, but simply based on the issuance of the Certificate of Tax Due and Delinquency.

    

                Respondent Allen is ordered to give notice of this ruling.