Judge: Helen Zukin, Case: 22SMCP00105, Date: 2022-11-28 Tentative Ruling

Case Number: 22SMCP00105    Hearing Date: November 28, 2022    Dept: 207

Background

This petition arises out of a trustee’s sale of real property located at 2627 Basil Lane, Los Angeles, California 90077. Petitioner The Wolf Firm (“Petitioner”) sold the property and was left with $235,123.29 in surplus funds. Pursuant to Civil Code § 2924j(c), Petitioner moved to deposit those funds with the Court, less $7,360.54. The Court granted the request on July 18, 2022, ordering the deposit of $227,327.75 with the Court and separately set a hearing on the disbursement of the surplus funds for October 13. Three claims have been filed asserting a right to all or some of the surplus funds deposited by the Petitioner.

The petition came on for hearing on October 13, 2022. At that time the Court heard oral argument from the claimants and continued the hearing to November 28, 2022. Claimants Christopher Bellamy, Korey Bellamy, Gwen Seals, Sean Bennett, and Andrew Edward McShea (collectively the “Bellamy parties”) filed supplemental documentation on October 17.

Legal Standards

When a trustee’s sale is concluded and there are surplus funds, the trustee has 30 days from the execution of the trustee’s deed to send written notice to individuals with a recorded interest in the real property prior to the trustee’s sale. (Civ. Code, § 2924j(a).) This allows those individuals to make a claim to the surplus funds. (Civ. Code, § 2924j(a)(3).) Claimants have 30 days to make a claim. ((Civ. Code, §¿2924j(a)(4).) Once claims have been received, the trustee must exercise due diligence to determine the priority of the claims. (Civ. Code, § 2924j(b).) If there is no dispute as to the priority, the trustee pays out the funds within 30 after the conclusion of the notice period. (Civ. Code, § 2924j(b).) If the trustee fails to determine priority or there is a dispute, the trustee must deposit the funds with the court pursuant to Civil Code § 2924j(c).

The Court “shall consider all claims filed at least 15 days before the date on which the hearing is scheduled with the court.” (Civ. Code, § 2924j(d).) The Court determines priority as follows:

(1)        To the costs and expenses of exercising the power of sale and of sale, including the payment of the trustee’s fees and attorney’s fees permitted pursuant to subdivision (b) of Section 2924d and subdivision (b) of this section.

(2)        To the payment of the obligations secured by the deed of trust or mortgage which is the subject of the trustee’s sale.

(3)        To satisfy the outstanding balance of obligations secured by any junior liens or encumbrances in the order of their priority.

(4)        To the trustor or the trustor’s successor in interest. In the event the property is sold or transferred to another, to the vested owner of record at the time of the trustee’s sale.

(Civ. Code, § 2924k(a)(1–4).) “Other things being equal, different liens upon the same property have priority according to the time of their creation….” (Civ. Code § 2897.)

Analysis

The Court has received three claims to the surplus funds, brought by the following parties: (1) Bank of New York Mellon FKA the Bank of New York (“BoNYM”), (2) State of California Franchise Tax Board (“FTB”), and (3) the Bellamy parties.

BoNYM filed its claim to surplus funds on October 7, 2022. The Court notes BoNYM’s claim was untimely pursuant to Civ. Code, § 2924j(d), as it was filed less than 15 days before the date set for hearing on the disbursement of the surplus funds. Nonetheless, the Court in its discretion will consider BoNYM’s claim. BoNYM seeks $142,492.20 pursuant to a deed of trust recorded against the property on September 1, 2006, as security for a line of equity.

FTB seeks a disbursement totaling $75,145.01 based on statutory liens for unpaid tax liabilities for the years 2010 (recorded May 21, 2014), 2014 (recorded December 6, 2017), 2015 (recorded September 6, 2018), and 2016 (recorded December 21, 2020).

The Bellamy parties claim a right to the surplus funds stemming from a judgment in the amount of $246,970.00 entered against Eugene Maillard on May 29, 2015, and recorded on September 2, 2015. In supplemental briefing, the Bellamy parties have increased the value of their lien from $246,970.00 to $439,564.09 to account for post-judgment interest.

California has adopted a “first in time, first in right” system of lien priorities and thus as a general rule liens have relative priorities among themselves according to the time of their creation. (MTC Financial, Inc. v. Nationstar Mortgage, LLC (2018) 19 Cal.App.5th 811, 814-815.) “Generally, liens that are recorded earlier take priority over subsequently recorded liens. (Civ. Code, § 1214.)” (Id.) “An instrument is deemed to be recorded when, being duly acknowledged or proved and certified, it is deposited in the Recorder’s office, with the proper officer, for record.” (Civ. Code, § 1170.)

Based on these principles, the Court finds the priority of the claims is as follows:

1.                  BoNYM in the amount of $142,492.20 (recorded 9/1/06)

2.                  FTB in the amount of $51,983.00 for 2010 tax year (recorded 5/21/14))

3.                  Bellamy parties in the amount of $439,564.09 (recorded 9/2/15)

4.                  FTB in the amount of $19,360.82 for 2014 tax year (recorded 12/6/17)

5.                  FTB in the amount of $1,035.64 for 2015 tax year (recorded 9/6/18)

6.                  FTB in the amount of $2,765.55 for 2016 tax year (recorded 12/21/20)

Accordingly, the Court orders the $227,327.75 in surplus funds to be distributed with $142,492.20 going to claimant BoNYM, $51,983.00 going to claimant FTB, and the remaining $32,852.55 to be disbursed to the Bellamy parties.

The supplemental briefing by the Bellamy parties does not alter this result. In their October 17, 2022, memorandum of points and authorities, the Bellamy parties simply recite rule for distribution under Civil Code, § 2924k(a) and summarily state this entitles them to receive all surplus funds. The Bellamy parties offer no argument or authority for the Court to deviate from the rule under Civil Code § 2897 which determines lien priority according to the date of their creation. “Unless the Legislature provides otherwise, lien priorities are established in accordance with Civil Code section 2897.” (Wujcik v. Wujcik (1994) 21 Cal.App.4th 1790, 1793.) The Bellamy parties have not shown their judgment lien was created or recorded prior to the liens of BoNYM and FTB.

Conclusion

The Court orders the $227,327.75 in surplus funds to be disbursed as follows: $142,492.20 to claimant BoNYM, $51,983.00 to claimant FTB, and $32,852.55 to the Bellamy parties.