Judge James C. Chalfant, Case Number: 24STCV03052, Date: 2024-03-14 Tentative Ruling

Lone Oak Fund, LLC v. Beverly Hills Flats, LLC et al., 24STCV03052

Tentative decision on confirmation of appointment of receiver: granted

Plaintiff Lone Oak Fund, LLC (“Lone Oak”) seeks confirmation of the appointment of Kevin Singer (“Receiver”) for 1009 N. Croft Avenue, Los Angeles, California 90069 (“1009 Property”) and 1015 N. Croft Avenue, Los Angeles, California 90069 (“1015 Property”).

The court has read and considered the moving papers (no opposition is on file) and renders the following tentative decision.

Plaintiff Lone Oak commenced this action on February 5, 2024 against Defendant Beverly Hills Flats, LLC (“Flats”) and Nominal Defendant Davoud Kobaei (“Kobaei”) as Trustee of the DPK Family Trust (“Trust”). The Complaint alleges (1) judicial foreclosure of real property and (2) specific performance of assignment of rents, issues, and profits, along with appointment of receiver and injunctive relief. The Complaint alleges in pertinent part as follows.

Defendant Flats owns the Properties, each of which consists of a seven-unit apartment building with a floor area of 6,499 square feet.

On October 2, 2020, Lone Oak loaned Flats (“Lone Oak Loan”) $4.44 million via a loan agreement (“Lone Oak Loan Agreement”) and Note (“Lone Oak Note”). Farhad Farahmand (“Farahmand”) executed the Note on Flats’ behalf. The Note provided for interest only payments of $21,633.33 per month based on a cumulative 5.9% rate on the first of each month from December 1, 2020 thereafter. The balance would then be due and payable on September 30, 2021.

The Lone Oak Note defined default to include any event of default so defined in the deed of trust recorded against the Properties (“Lone Oak DOT”) to secure the loan. The Lone Oak DOT defines an event of default to include, inter alia, (a) failure to make any payment of principal or interest on the Lone Oak Note when due; and (d) mortgage, assignment, or further encumbrance of the Properties without Lone Oak’s prior written consent.

Upon an event of default, the Lone Oak Note allows Lone Oak to declare due the outstanding principal and all interest accrued. The annual interest rate upon default or maturity of the Loan will also increase to 24%.

The Lone Oak DOT assigns all rights to receive rentals, income, receipts, issues and profits from the Properties to Lone Oak. Pursuant to Civil Code section 2938, the Lone Oak DOT provides for appointment of a receiver to take possession of and manage the Property and collect all rent from it. The Lone Oak DOT also gave Lone Oak the right to declare all secured obligations immediately due and payable.

In January 2021, Flats obtained a junior loan in a second position from Kobaei as Trust’s Trustee for $2.95 million. This loan was secured by a Deed of Trust against the Properties in Trust’s favor (“Trust DOT”). This junior loan was a material breach of the Lone Oak Note and Lone Oak DOT.

On October 13, 2021, Lone Oak and the Defendants entered a Loan Modification (“Lone Oak First Modification”) extending the Lone Oak Loan’s maturity date to September 30, 2022. On September 22, 2022, Lone Oak and Defendants entered a second Loan Modification (“Lone Oak Second Modification”) extending the Lone Oak Loan’s maturity date to September 30, 2023.

When the Lone Oak Loan matured on September 30, 2023, Flats failed to pay the outstanding balance despite demand to do so. This was another material breach of the Lone Oak Loan and meant that interest accrued at the 24% annual default rate beginning October 1, 2023.

Flats further failed to pay the 2023 property taxes for the 1009 Property and the 1015 Property.

Lone Oak has declared a default per the Lone Oak Note and Lone Oak DOT. Both documents also entitle Lone Oak to attorney’s fees and costs incurred in legal action to enforce them.

On February 8, 2024, this court granted Lone Oak’s ex parte application for a temporary restraining order (“TRO”) and appointment of a receiver for the Properties.

On February 9, 2024, the proposed receiver, Kevin Singer (“Singer”) signed the Oath of a Receiver. Also on February 9, Lone Oak posted a $1,500 undertaking for the TRO and a $1,500 undertaking for the appointment of a receiver. Singer posted a $10,000 undertaking as Receiver.

Also on February 9, 2024, Lone Oak personally served Flats with the Complaint, Summons, ex parte application for a TRO, moving papers, and the granted order. Lone Oak personally served Flats’ attorney with the ex parte order on February 12, 2024.

On February 13, 2024, Lone Oak personally served Kobaei with the Complaint, Summons, ex parte application for a TRO, moving papers, and the granted order. It also served Flats the same documents by substitute service, effective February 23, 2024.

CCP section 564(b) provides that the court has authority to appoint a receiver in any of the following pertinent circumstances: (2) In an action by a secured lender for the foreclosure of a deed of trust or mortgage and sale of property upon which there is a lien under a deed of trust or mortgage, where it appears that the property is in danger of being lost, removed, or materially injured, or that the condition of the deed of trust or mortgage has not been performed, and that the property is probably insufficient to discharge the deed of trust or mortgage debt; (9) in all other cases where necessary to preserve the property or rights of any party; (11) in an action by a secured lender for specific performance of an assignment of rents provision in a deed of trust, mortgage, or separate assignment document; and (12) in a case brought by an assignee under an assignment of leases, rents, issues, or profits pursuant to Civil Code section 2938(g).

Upon default of the assignor under the obligation secured by the assignment of leases, rents, issues, and profits, Civil Code section 2938(c)(1) allows the assignee to enforce the assignment via appointment of a receiver.

The appointment of a receiver is a drastic remedy to be utilized only in “exceptional cases.” As such, a receiver should not be appointed unless absolutely essential and because no other remedy will serve its purpose. City & County of San Francisco v. Daley, (“Daley”) (1993) 16 Cal.App.4th 734, 744.

Once appointed, a receiver has, under the control of the court, power to bring and defend actions in his own name, as receiver; to take and keep possession of the property, to receive rents, collect debts, to compound for and compromise the same, to make transfers, and generally to do such acts respecting the property as the court may authorize. CCP §568.

On October 8, 2020, a grant deed was recorded transferring the 1015 Property to Flats. RJN Ex. 1. Flats owns the Properties, each of which consists of a seven-unit apartment building with a floor area of 6,499 square feet. Rothstein Decl., ¶3. Flats’ Statement of Information lists Farahmand as its managing member. Rothstein Decl., ¶3; RJN Ex. 2.

On October 2, 2020, Lone Oak loaned Flats $4.44 million via the Lone Oak Loan Agreement and Lone Oak Note, both of which Farahmand signed. Rothstein Decl., ¶¶ 4-6, Exs. A-B. The interest rate under the Lone Oak Note was 5.9%. Rothstein Decl., ¶6, Ex. B. Under section 1.4, on the first of each month from December 1, 2020 thereafter, Flats was required to pay all interest accrued, or $21,633.33 per month, and would pay the principal balance on the maturity date, defined in section 1.1 as September 30, 2021. Rothstein Decl., ¶6, Ex. B.

Section 1.12 of the Note defines “Default” as the occurrence of an Event of Default under the Lone Oak DOT. Rothstein Decl., ¶7, Ex. B. Default entitles Lone Oak to declare immediately due and payable the outstanding principal and all interest accrued to that point. Rothstein Decl., ¶8, Ex. B. The annual interest rate upon default or maturity of the Loan increases to 24%. Rothstein Decl., ¶9, Ex. B.

To secure the loan, the Lone Oak DOT was recorded against the Properties. Rothstein Decl., ¶10; RJN Ex. 3. It assigned to Lone Oak all interest in leases, rents, and revenue from the Properties as security for the Loan. Rothstein Decl., ¶¶ 11-12; RJN Ex. 3. It granted Flats a license to collect and retain payments under such leases as they became due until an Event of Default under the Lone Oak DOT. Rothstein Decl., ¶13; RJN Ex. 3.

Section 4.1 of the Lone Oak DOT defines an Event of Default to include, inter alia, (a) failure to make any payment of principal or interest on the Lone Oak Note when due; (b) failure to pay any other amount when due and payable under the Lone Oak Note; (d) mortgage, assignment, or further encumbrance of the Properties without Lone Oak’s prior written consent; and (g) existence of any Default as defined in the “Loan Documents,” including the Lone Oak Loan Agreement and Lone Oak Note. Rothstein Decl., ¶14; RJN Ex. 3. Upon such an Event, section 4.2 of the Lone Oak DOT gives Lone Oak the right to pursue all rights and remedies, including the right to, inter alia, (a) declare all secured obligations immediately due and payable, (c) foreclose on the Lone Oak DOT, and (d) apply to a court of competent jurisdiction for, and obtain, appointment of a receiver of the Properties as a matter of strict right and without regard to the adequacy of the security for the repayment of the Loan. Rothstein Decl., ¶15; RJN Ex. 3.

On October 13, 2021, Lone Oak and Defendants entered the Lone Oak First Modification. Rothstein Decl., ¶16, Ex. C. It extended the Lone Oak Loan’s maturity date to September 30, 2022. Rothstein Decl., ¶16, Ex. C. In exchange, the annual interest rate would increase to 6.4% beginning April 1, 2022. Rothstein Decl., ¶16, Ex. C. On the first of each month, Flats was to pay all interest accrued up to that point, or $23,680 per month. Rothstein Decl., ¶16, Ex. C. It would then pay the principal balance on the maturity date. Rothstein Decl., ¶16, Ex. C.

On September 22, 2022, Lone Oak and Defendants entered a Lone Oak Second Modification. Rothstein Decl., ¶17, Ex. D. It extended the Lone Oak Loan’s maturity date to September 30, 2023. Rothstein Decl., ¶17, Ex. D. In exchange, the annual interest rate would increase to 7.9%. Rothstein Decl., ¶17, Ex. D. On the first of each month, Flats was required to pay all interest accrued up to that point, or $29,230. Rothstein Decl., ¶17, Ex. D. It would then pay the principal balance on the maturity date. Rothstein Decl., ¶17, Ex. D.

In January 2021, Flats obtained a junior loan in a second position from Kobaei as Trust’s Trustee for $2.95 million. Rothstein Decl., ¶19. This loan was secured by the Trust DOT against the Properties, recorded January 19, 2021. Rothstein Decl., ¶19, RJN Ex. 4. This was a material breach of the Lone Oak Note and Lone Oak DOT. Rothstein Decl., ¶20.

When the Lone Oak Loan matured on September 30, 2023, Flats failed to pay the outstanding balance despite demand to do so. Rothstein Decl., ¶21. This was another material breach of the Lone Oak Loan. Rothstein Decl., ¶21.

Flats failed to pay the 2023 property taxes totaling $25,748.38 for the 1009 Property and $25,747.06 for the 1015 Property. Rothstein Decl., ¶23, Exs. E-F. These taxes became delinquent on December 11, 2023. Rothstein Decl., ¶23, Exs. E-F. Lone Oak also expects Flats to miss the April 10, 2024 deadline to pay property taxes of $23,403.31 for each Property. Rothstein Decl., ¶23, Exs. E-F.

Lone Oak has declared default under the Lone Oak Note and DOT. Rothstein Decl., ¶24. This means that interest has accrued at the 24% annual default rate beginning October 1, 2023. Rothstein Decl., ¶25.

On January 19, 2024, Lone Oak recorded a Substitution of Trustee assigning its interest in the Lone Oak DOT to Peak Foreclosure Services (“Peak”). Rothstein Decl., ¶26; RJN Ex. 5. Later that day, Peak recorded a Notice of Default and Election to Sell (“NOD”) under the Lone Oak DOT. Rothstein Decl., ¶26; RJN Ex. 6.

An onsite inspection shows that Flats has rented out units on the Properties and collects rent from them. Rothstein Decl., ¶27. It has not used this revenue to repay the balance on the Lone Oak Loan. Rothstein Decl., ¶27.

The inspection also revealed that Flats has left some units vacant, possibly in anticipation of developing the Properties. Rothstein Decl., ¶28. When the parties signed the Lone Oak Note, Flats produced a rent roll showing annual rent income of $318,192.48. Rothstein Decl., ¶28, Ex. G. Failure to rent all units negatively impacts Lone Oak and diminishes the Properties’ value. Rothstein Decl., ¶28. A receiver is needed to collect existing rent and to rent vacant units to increase revenue. Rothstein Decl., ¶28.

The inspection also revealed signs of vandalism and a lack of necessary repairs to the Properties. Rothstein Decl., ¶29. Flats’ failure to act in the Properties’ best interests has risked diminution of the value of Lone Oak’s security under the Lone Oak Note. Rothstein Decl., ¶29.

Based on the sum of the principal owed, default interest, foreclosure fees, reconveyance fees, inspection fees, and attorney’s fees, less a $29,230 partial payment, Flats owes $4,768,078.14 as of January 23, 2014. Rothstein Decl., ¶30.

Singer is the founder and president of Empire Brokerage & Real Estate Services, Inc. Singer Decl., ¶2. His company specializes in both state and federal court receiverships, referee assignments, partition sales, professional trustee assignments, real estate & business brokering, and real estate consulting for receiverships. Singer Decl., ¶2. Singer has served as a receiver for 530 state cases in the last twenty-four years. Singer Decl., ¶¶ 3-4, Ex. A.

Hourly rates range from $295 for the principal and partners to $85 for bookkeepers. Singer Decl., ¶6.

Plaintiff Lone Oak seeks confirmation of the appointment of Receiver to preserve the Properties and collect rents and profits. No opposition has been filed.

CCP section 564(b) provides that the court has authority to appoint a receiver, inter alia, (2) in an action by a secured lender for the foreclosure of a deed of trust or mortgage and sale of property upon which there is a lien under a deed of trust or mortgage, where it appears that the property is in danger of being lost, removed, or materially injured, or that the condition of the deed of trust or mortgage has not been performed, and that the property is probably insufficient to discharge the deed of trust or mortgage debt; (9) in all other cases where necessary to preserve the property or rights of any party; (11) in an action by a secured lender for specific performance of an assignment of rents provision in a deed of trust, mortgage, or separate assignment document; and (12) in a case brought by an assignee under an assignment of leases, rents, issues, or profits pursuant to Civil Code section 2938(g).

On October 2, 2020, Lone Oak loaned Flats $4.44 million via a Lone Oak Loan Agreement and Lone Oak Note. Rothstein Decl., ¶¶ 4-6, Exs. A-B. This loan was secured by a Lone Oak DOT which assigned to Lone Oak all rent Flats obtained from leasing the Properties. Rothstein Decl., ¶¶ 11-12; RJN Ex. 3.

Lone Oak asserts three forms of default under the Lone Oak Note and DOT. Flats has failed to repay the principal after two extensions of the maturity date. Rothstein Decl., ¶¶ 21-22, Exs. C-D. Flats also obtained a loan from Trust and recorded a junior DOT against the Properties. Rothstein Decl., ¶19, RJN Ex. 4. Flats further failed to pay the 2023 property taxes, totaling $25,748.38 for the 1009 Property and $25,747.06 for the 1015 Property. Rothstein Decl., ¶23, Exs. E-F. Because of Flats’ default, Lone Oak may invoke remedies under the Lone Oak DOT, including the right to a receiver to collect the rents assigned thereunder. Rothstein Decl., ¶15; RJN Ex. 3.

The appointment of Receiver to maintain the Properties and collect rents and properties is confirmed. A preliminary injunction will issue enjoining both parties from interfering with Receiver, compelling them to cooperate with Receiver, and directing them to turn over all property, related records and documents, and rents and profits in their possession, custody, or control. Lone Oak has posted $1,500 undertakings each for the TRO and appointment of a receiver. Receiver has posted a $10,000 undertaking for his receivership. The TRO bond will function as the preliminary injunction bond.

[1] Lone Oak requests judicial notice of (1) a grant deed recorded on October 8, 2020 (RJN Ex. 1); (2) Flats’ January 5, 2023 Statement of Information (RJN Ex. 2); (3) the Lone Oak DOT recorded on October 8, 2020 (RJN Ex. 3); (4) the Trust DOT recorded on January 19, 2021 (RJN Ex. 4); (5) a Substitution of Trustee recorded on January 19, 2024 (RJN Ex. 5); and (6) a Notice of Default and Election to Sell Under Deed of Trust recorded on January 19, 2024 (RJN Ex. 6). The requests are granted. Evid. Code §452(c).