Judge: Layne H. Melzer, Case: "Inre:32018ViaCanela,SanJuanCapistrano,California92675", Date: 2022-11-03 Tentative Ruling
Petitioner California TD Specialists
Unresolved Claims
Before the court is the Petition to deposit undistributed surplus proceeds for unresolved claims after the foreclosure of the Deed of Trust (DOT) recorded on 3/22/19 for the real property commonly described as 32018 Via Canela, San Juan Capistrano, California 92675 by foreclosure Trustee California TD Specialists.
A Trustee’s Sale took place on January 22, 2021. The total sale price of the Property was $185,000. There is a surplus in the amount of $67,002.28, after the Sale was finalized and the DOT paid off.
If, after due diligence, the trustee is unable to determine the priority of the written claims received or if the trustee determines that there is a conflict between potential claimants, he or she may file a declaration of the unresolved claims and deposit the undistributed proceeds, less any fees charged by the clerk, with the clerk of the superior court of the county where the sale occurred. (C.C. 2924j(c); see CTC Real Estate Services v. Lepe (2006) 140 C.A.4th 856, 861.)
Here, the Substituted Trustee has identified three potential claimants, the California Franchise Tax Board in the amount exceeding the surplus finds for a tax lien recorded on 9/3/20; the original lender, Mr. Henry A. Thomas in the amount of $16,941.50, for defense of a post-foreclosure lawsuit; and the owner of the property Denise Metzger.
The Substitute Trustee declares in the Attachment 11a to the Petition that it is unable to determine the priority of the claims.
Under subsection (c), the trustee may file a declaration of the unresolved claims and deposit the surplus funds with the clerk. Before filing the declaration, the trustee shall send written notice to all persons with a recorded interest in the property, “informing them that the trustee intends to deposit the funds with the clerk of the court and that a claim for the funds must be filed with the court within 30 days from the date of the notice.” Civ. Code, § 2924j(d).
Here, this was accomplished. On May 13, 2022, the Substitute Trustee sent a Notice of Intent to Deposit Surplus Funds by mail to all interested parties including the three claimants. See Attachment 13 to the Petition.
The declaration shall “specify the date of the trustee's sale, a description of the property, the names and addresses of all persons sent notice pursuant to subdivision (a), a statement that the trustee exercised due diligence pursuant to subdivision (b), that the trustee provided written notice as required by subdivisions (a) and (d) and the amount of the sales proceeds deposited by the trustee with the court. Civ. Code, § 2924j(c).
Here, this is accomplished.
Further, the trustee shall submit a copy of the trustee's sales guarantee and any information relevant to the identity, location, and priority of the potential claimants with the court and shall file proof of service of the notice required by subdivision (d) on all persons described in subdivision (a). Civ. Code, § 2924j(c).
Here, this is accomplished.
Once that portion of the sale proceeds that cannot be distributed by due diligence is deposited with the court, the Trustee will be discharged of further responsibility for disbursement of the sale proceeds. (C.C. 2924j(c).)
In this regard, this Petition came for hearing on 8/25/22. The court noted that the surplus funds had been deposited on 6/22/22. (See ROA 29).
The court noted that the Substitute Trustee deducted fees and expenses in the amount of $3,925 in Paragraph 15 of the Petition relating to this Petition pursuant to Civil Code §2924k(a)(1) and (b) prior to depositing the surplus finds. The court ordered the trustee to submit paperwork justifying the deductions 15 days prior to the 11/3/22 continued hearing date. The Trustee has complied and the court accepts the detailed time records and testimony. (ROA 36.)
The court therefore discharges the Substitute Trustee California TD Specialists.
After the prior hearing on 8/25/22, the Clerk served written notice pursuant to Civil Code§ 2924j(d) of the instant hearing date by first-class mail on all claimants identified in the trustee's declaration at the addresses specified. (See ROA 29, 30.)
Thus, the matter is ripe for determination as to entitlement to the remainder of the surplus funds from the sale of the property in the amount of f $62,642.28, deposited with the court on 6/22/22.
The Substitute Trustee identified three potential claimants to the deposited surplus funds:
Each claimant has filed a response to this Petition.
Per statute, the distribution of the surplus funds shall be made in the following order of priority pursuant to C.C. §2924k:
(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.)
Here, the State of California Franchise Tax Board provided a Response to the Petition. (See ROA 23) It argues that its lien against the property was perfected on 9/3/20 when it recorded a Notice of State Tax Lien in the Orange County Recorder’s office for the 2018 tax year totaling $92,839.56. (Jeff Curl Decl., ¶2.) The Board does not argue that it is entitled to any priority before the date its lien was perfected.
Mr. Thomas, the original Lender and foreclosing party argues that he is entitled to attorney’s fees pursuant to CCP §1717 and CCP § 1021 for “prevailing” in an underlying action filed after the foreclosure sale by Ms. Metzger to set aside the foreclosure. (Metzger vs. Thomas, etc., Case No. 2021-01191639.) Mr. Thomas asserts that the attorney’s fees/costs expended in prevailing in the 2021 Action is an obligation secured by his DOT, which was recorded on 3/21/19, prior to the 2020 tax lien.
Mr. Thomas never sought an award of attorney’s fees or costs as a prevailing defendant in the underlying 2021 Action because he contends he was never served with Ms. Metzger’s Request for Dismissal of the entire action without prejudice. But Mr. Thomas had not yet appeared in the 2021 Action according to the court’s docket at the time of dismissal and was therefore not entitled to service of the dismissal. (See CCP §1010.)
The dismissal is effective upon tender, not service on the parties, and all subsequent proceedings are void (other than issues relating to an award of attorney fees and costs or attacking the validity of the dismissal). (Aetna Cas. & Sur. Co. v. Humboldt Loaders, Inc. (1988) 202 CA3d 921, 931.)
Mr. Thomas wants this court to adjudicate that he prevailed in the underlying case, even though he never appeared in that case or filed any documents in that case.
He then asserts that whatever amount the court determines to be reasonable should be considered a collateral advance added to the amount of the debt and given the same priority as the lien itself. It is also then not subject to the limitations in Civil Code section 2924c and does not run afoul of antideficiency laws citing Passanisi v. Merit-McBride Realtors, Inc. (1987) 190 CA3d 1496, 1512, fn. 10. The court notes that Passanisi, a judgment was entered in the underlying action for attorney’s fees and costs.
The court sees several issues with Mr. Thomas’ argument.
First, Mr. Thomas provides no authority for the proposition that this court can adjudicate reasonable attorney’s fees spent in prevailing in the underling 2021 Action. This is particularly true when Mr. Thomas never appeared in that case.
Second, the court is not satisfied that Mr. Thomas is entitled to fees. As Mr. Thomas acknowledges, Civil Code § 1717 specifically provides that there is no “prevailing party” for purposes of this statute when an action is voluntarily dismissed, including dismissals pursuant to settlements. (See Civ. C. § 1717(b)(2).) That is the case here. The case was dismissed in its entirety before Mr. Thomas appeared.
Mr. Thomas argues that attorney’s fees to defend tort claims are not barred by 1717. (Santisas v. Goodin (1998) 17 Cal. 4th 599, 619 (upheld contractual fee award for defense of tort claims following voluntary dismissal of complaint, the fees are awarded under CCP §1021).)
Where Plaintiff voluntarily dismissed the action containing contract and noncontract claims, Civ. Code § 1717(b)(2) prohibited Defendant from recovering fees for his defense of Plaintiff's contract claims; but the broadly worded fee clause in the underlying contract opened up the possibility that defendant could recover fees related to the tort claims. (Khan v. Shim (2016) 7 CA5th 49, 57-58, 62.)
Here, Mr. Thomas has not shown that the purported attorney’s fees clauses at issue in the Promissory Note and DOT are broad so as to include tort claims under Section 1021. Moreover, he has not shown what was expended on the tort claims, as opposed to other statutory claims. Ms. Metzger’s Complaint made claims for: (1) Violation of Civil Code §2923.5; (2) Violation of Civil Code §3273.15; (3) Negligence; (4) Wrongful foreclosure, and (5) Unfair business practices. Here, the billing is lumped together for all claims.
Thus, this court finds that Mr. Thomas has not shown entitlement to attorney’s fees and costs pursuant to Civil Code §1717 and/or CCP §1021 with regard to the underling 2021 Action.
The court will therefore distribute the surplus funds in their entirety to the California Franchise Tax Board.