Judge: Mark H. Epstein, Case: 19SMCV02046, Date: 2023-02-06 Tentative Ruling

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Case Number: 19SMCV02046    Hearing Date: February 6, 2023    Dept: R

This is an application to order the sale of a dwelling belonging to Brian Witzer.  It is in support of a judgment confirming an arbitration award in which plaintiff prevailed.  The judgment is large and remains largely outstanding.  Although one judgment debtor—the law firm—is in bankruptcy, the other judgment debtor—Witzer—is not.  It is his home that is the subject of the application.

An application to sell a dwelling is governed by Code of Civil Procedure section 704.710 et seq.  In a nutshell, that statute differs from most judgment collection statutes in that the judgment creditor cannot take advantage of this form of collection without court intervention.  In other words, to require the sale of a dwelling, one needs a court order.  The rules for selling a dwelling are, at least in concept, straightforward.  Because the goal is to pay off a judgment, a judgment creditor can only get an order to sell a dwelling if the sale is likely to yield a surplus that can be used to pay off (or pay down) the judgment.  If the sale will not yield that surplus, there is no point in the sale and the order must be denied.  To figure out if there will be such a surplus, the court must know two things: (1) the fair market value of the dwelling; and (2) the liens or other deductions from the sale proceeds that will be used before any sum is available for the judgment creditor.  One such deduction is the homestead deduction.  That is money that the judgment debtor receives ahead of the judgment creditor from the sale of the home. 

Plaintiff here has submitted an appraisal of the home showing a value of $7.1 million.  Pravati states that there is a senior lien on the property of $4,205,832.31 as well as a second lien of $800,000.  Pravati acknowledges a homestead exemption of $626,400.  That leaves about $1.5 million in equity available to help satisfy the judgment (less whatever fees and costs are associated with the actual sale).  That is a significant amount of money.

In response Witzer, the judgment debtor, takes issue with Pravati’s numbers.  His appraiser estimated the FMV to be $5,500,000.  Witzer states that the first lien is $4,380,000 and agrees with regard to the second.  He also asserts five assessments in unknown amounts, $554.26 in unpaid taxes, and a “Mansion tax” of $200,000.  There is also purportedly a “security agreement” on a personal loan of $200,000.  When one adds the homestead (which Witzer calculates a little bit differently than Pravati, but not materially so), Witzer claims that the liens and encumbrances total almost $6.3 million, leaving nothing for Pravati.

A few things.  As to the first mortgage, the question is not the original loan amount, but the outstanding amount, which might account for the almost $100,000 difference between Witzer and Pravati.  The court also is not inclined to credit any unrecorded liens.  An unrecorded lien is irrelevant for these purposes, or at least the court has seen no authority to so state.  As to the “Mansion Tax,” the court assumes that this is a reference to the newly enacted initiative that imposes a surtax on the sale of high value property.  The court is not sure how to deal with that—it may depend on how the initiative was written.  However, as plaintiff points out, that tax has not yet gone into effect so if there is a speedy sale, the tax can be avoided entirely.

More troubling, though, is the appraisal.  Even taking Pravati’s numbers for purposes of encumbrances, if Witzer’s appraisal is right, there is no money left to pay Pravati after a sale.  Which means that the appraisal is the “big casino” here.  It is the court’s obligation to determine the FMV.  (The court must also determine if the exemption applies and, if so, the amount.  However, the parties do not seem to dispute either issue, at least materially.)

Witzer notes that Pravati’s appraiser holds only an “AL” license.  According to Witzer’s reference to the licensing entity’s information, the AL license allows an appraiser to appraise any non-complex 1-4 unit family property with a transaction value up to $1 million.  Witzer’s expert, on the other hand, holds an “AR” license, which allows an appraisal without regard to transaction value.  According to Witzer, that means that Pravati’s expert’s appraisal must be disregarded, as he does not hold the appropriate licensure.  Pravati contends, however, that Witzer over-states the credential issue and that its expert is fully competent and authorized to appraise property worth over $1 million except for certain specific purposes (and this is not among them).  Pravati’s expert confirmed as much in a supplemental declaration.  Witzer’s expert also takes issue with Pravati’s expert regarding the comparables and the adjustments relating thereto.  Pravati’s expert took issue with Witzer’s expert’s choice of comparables and adjustments, emphasizing that Witzer’s expert was looking at comparables with significantly less living space.

Given the dualling reports, the court is left with three choices: (1) Pick the report it likes better; (2) Allow the parties to depose the other party’s expert and submit a supplemental brief; or (3) appoint an independent expert to assist the court in determining the FMV.  The court is inclined to choose the third option.  Although the court is certainly competent to choose from among differing experts (courts and juries do it all the time), there is enough at stake here for the court to want to do it right.  That means having a neutral person make a recommendation. 

Therefore, the court ORDERS the parties to meet and confer to agree upon an expert.  The expert will hold an “AR” license or better.  If the parties cannot agree, then, no later than 10 days from today, they will exchange simultaneously four nominees each.  If any nominee is on both lists, that nominee will be designated.  If more than one nominee is on both lists, the appraiser will be chosen by lot from among the nominees so appearing.  If no nominee is on both lists, then each party may strike one of the other party’s nominees within 5 days of the exchange.  The remaining six nominees will be presented to the court in a JOINT FILING in which the nominees are arranged in alphabetical order without any disclosure as to which nominee was nominated by which party.  For each such nominee, the packet will include: (1) the nominee’s name and employer (or similar entity); (2) the nominee’s CV; (3) the nominee’s hourly rate and the estimated number of hours the appraisal will take or other metric so that the court can issue a “not to exceed” amount; and (4) confirmation that the nominee is prepared to undertake the appraisal and a date by which the appraisal will be completed.  The parties will also submit a form of order appointing the expert (with the name to be filled in by the court).  The court will appoint the appraiser from among the six nominees.  Witzer will cooperate fully in the appraisal, including giving the appraiser reasonable access to the property—interior and exterior—and allow the appraiser to do reasonable inspections.  The cost of the appraisal shall be borne in the first instance by Pravati, but it may be recoverable as set forth in section 704.840.  Failure to participate in the nomination process may mean that the party so acting will forfeit the right to nominate an appraiser.

Upon completion of the work, the appraiser will submit the appraisal to the court and to the parties.  Each party will have 10 court days to submit any further briefing concerning the appraisal and an updated list of encumbrances.  The court will set a hearing date to determine the property’s FMV, the applicable encumbrances, the amount of the homestead exemption, and whether the order of sale ought to issue.

The court will set a non-appearance hearing in 60 days to be sure that the process is moving forward.