Judge: Mary H. Strobel, Case: 21STCV13141, Date: 2023-04-27 Tentative Ruling

Hon. Mary H. Strobel The clerk for Department 82 may be reached at (213) 893-0530.

Case Number: 21STCV13141    Hearing Date: April 27, 2023    Dept: 82

            Receiver Pacific Crest Realty Advisors, LLC (“Receiver”) moves for orders authorizing Receiver to sell real property commonly known as 3500 W. Manchester Boulevard, # 421, Inglewood, CA 90305-4421 (“Manchester Property”), 7135 Hollywood Boulevard # 1110, Los Angeles, CA 90046 (“Hollywood Property”), 5110 Orange Place, Los Angeles, CA 90008-1111 (“5110 Orange Property”), and 5116 Orange Place, Los Angeles, CA 90008-1111 (“5116 Orange Property”).   

Relevant Procedural History

            On April 6, 2021, Plaintiff Sound Equity High Income Dept Fund, LLC (“Plaintiff’) filed a verified complaint against Defendants Top Flight Investments LLC, Palms Blvd Venice Beach, LLC, Doug Sanchez, and Andre Wegner for multiple causes of action for judicial foreclosure and specific performance of deed of trust, among other claims.

            On March 10, 2022, the court granted Plaintiff’s motion to impose a full equity receivership on Top Flight.  On March 17, 2022, the court entered an Order Appointing Equity Receiver and Preliminary Injunction (“2022 Appointment Order”).

            On November 29, 2022, after a hearing, the court granted Receiver’s three prior motions for orders authorizing the sale of receivership real property. 

On February 1, 2023, Receiver filed four motions seeking approval to sell the Manchester, Hollywood, 5110 Orange, and 5116 Orange Properties.  The motions were scheduled for hearing on February 23, 2023.  On February 22, 2023, the day before the hearing, Receiver filed untimely replies in support of the motions.  On February 23, 2023, the day of the hearing, Defendant Andre Wegner filed an untimely declaration in opposition to the four motions. 

On February 23, 2023, the four motions came for hearing before the court.  The court and counsel conferred regarding the motions and status of the sales, including the opposition filed by Wegner.  The court continued the motions to April 27, 2023, and ordered Receiver to file and serve supplemental information regarding the motions by April 5, 2023.  The court ordered any opposition to be filed and served by April 14, 2023, and any reply by April 20, 2023. 

On April 4, 2023, Receiver filed and served the four instant motions for orders authorizing the sale of the Manchester, Hollywood, 5110 Orange, and 5116 Orange Properties.   On April 14, 2023, Wegner filed and served an opposing declaration.  On April 21, 2023, Receiver filed and served replies. 

Analysis   

Notice

            CCP section 568.5 states: “A receiver may, pursuant to an order of the court, sell real or personal property in the receiver's possession upon the notice and in the manner prescribed by Article 6 (commencing with Section 701.510) of Chapter 3 of Division 2 of Title 9.”  Notice procedures for the sale of real property are set forth in CCP section 701.540, et seq.  While a court sitting in equity is not strictly required to follow such procedures, the court must consider the circumstances of the case in determining the appropriate method of sale, including the notice given.  (County of Sonoma v. Quail (2020) 56 Cal.App.5th 657, 684.)  Absent some reason to not give notice of the sale, it would appear notice generally should be given.  (See Cal-American Income Property Fund VII, supra, 138 Cal.App.3d at 273-74 [CCP sections 568 and 568.5 “authorize the receiver to … [sell] real and personal property upon notice and subject to court confirmation”].) 

            It appears from the proofs of service and Receiver’s declarations that all parties and interested non-parties have been served with the motions, and that the prospective buyers have also been notified of the motions.  (See e.g. Constantinescu Decl. ISO of Motion to Sell Manchester Property (“Manchester Decl.”) ¶ 42.)

Are the Proposed Sales Reasonable In Light of the Surrounding Circumstances?

“Judicial confirmation of a receiver's sale rests upon the appointing court's sound discretion exercised in view of all the surrounding facts and circumstances and in the interest of fairness, justice and the rights of the respective parties. [Citation] The proper exercise of discretion requires the court to consider all material facts and evidence and to apply legal principles essential to an informed, intelligent, and just decision.”  (Cal-American Income Property Fund VII, supra, 138 Cal.App.3d at 274.)

Manchester Property

Approximately two years ago, the Manchester Property was appraised for $630,000.  (Manchester Decl. ¶ 25.e.)  In the course of his duties under the Appointment Order, Receiver also “conducted [his] own internal valuations, surveyed brokers, reviewed appraisals, marketed, and have solicited offers through MLS listings for the purchase of most of the properties within the Receivership Estate, including the Manchester Property.”  (Id. ¶ 14.)

When the court appointed a receiver, the Manchester Property was occupied by Victoria Green.  In assessing the value of the property, Receiver considered, among other things, “the listing history for the property, as well as any offers procured by the Defendants and submitted for the Court’s consideration during their two bankruptcies, including an offer by Green to purchase the Manchester Property for $680,000 where Defendants as seller agreed to credit Green $150,000 at closing (effectively reducing the sale price to $530,000).”  (Id. ¶ 15.)  Receiver determined Green’s offer “was not viable, not arms-length, and not in the best interest of the receivership estate and its creditors.”  (Id. ¶ 15.)

 Receiver filed an unlawful detainer action against Green, which was adjudicated in November 2022 through a judgment and settlement hybrid whereby Green has a limited amount of time within which to purchase the Property for $650,000.  (Id. ¶¶ 17-19, Exh. A-B.)  “After the UD Action was adjudicated, [Receiver] commissioned a broker opinion of value and determined that $650,000 is a market-correct sale price.”  (Id. ¶ 20.)  Receiver also listed the property for sale on the MLS and solicited back-up offers in the case Green does perform under the terms of the settlement from the UD action.  (Id. ¶¶ 21-22.)  Receiver has received “substantial interest in the property at the $650,000 price level and above. However, potential buyers are not interested in submitting a back-up offer until Green has been evicted and they can inspect the interior of the property.”  (Id. ¶ 22.) 

Receiver declares that the proposed sale to Green, or to another buyer after evicting Green, in the amount of $650,000 or more is in the best interest of the Receivership estate for several reasons, including because the debt on the Property incurs approximately $13,000 in interest each month; the sales price exceeds the appraised value of $630,000; and macroeconomic conditions continue to pressure interest rates and market sentiment.  Due to factors highlighted by Receiver, including rising interest rates, there may be downward market pressures on residential real estate prices that could impact future offers Receiver could receive for the Property, should this sale not close.  Closing the transaction with Green would save the receivership estate approximately $29,000 in brokerage commissions.  Green is occupying the property and has an at-risk earnest money deposit of $19,500.  Green has also waived all contingencies.  (Id. ¶¶ 25-28.)     

Receiver submits a Seller’s Estimated Settlement Statement.  Contrary to Wegner’s assertion, he can determine the estimated “payoff details” for the proposed sales from this Statement and from Receiver’s motions and declarations.  (See Wegner Decl. ¶ 33.)  In addition to broker commissions and title/escrow charges, the Statement identifies certain “Additional Charges” to be deducted from the sale proceeds, including 2022 Property Taxes (2nd half) owed to the Los Angeles County Treasurer and Tax Collector; delinquent property taxes for the first half of 2022; and $25,000 for Receivership operation funds.  (Id. Exh. C.)  Receiver declares that the property is encumbered by PACE liens.  The proposed order states that “[t]he PACE Lien on the property is not extinguished by the sale authorized by this Order and will continue to run with the Manchester Property and be an obligation of subsequent owners of the Manchester Property unless paid in full according to its terms.”  (Proposed Order ¶ 9.)

A lis pendens was filed against the Manchester, Hollywood, 5110 Orange, and 5166 Orange Properties by Dee Brothers in Case No. 22STCV11646.  Receiver filed a motion to expunge the lis pendens.  (Manchester Decl. ¶¶ 36-39.)  The court judicially notices from the court file in Case No. 22STCV11646 that Receiver’s motion to expunge the lis pendens was granted on April 13, 2023.

In its November 29, 2022, ruling on the prior motions to sell property, the court ordered as follows: “The $50,000.00 the receiver holds back may be used for receivership operating expenses and normal travel reimbursement. It is not to be used for payment of the receiver's professional costs.”  (11/29/22 Minute Order at 11.)  The same restriction applies to the receiver holdbacks in the proposed sales of the Manchester, Hollywood, 5110 Orange, and 5116 Orange Properties, as reflected in Receiver’s proposed orders.

The court has considered Wegner’s declaration and Receiver’s reply.  Wegner challenges the proposed sale on several grounds.     

First, Wegner argues that the Manchester Property is being sold below market value and that Receiver did not adequately market the Property.   Relatedly, he argues that the proposed sale does not make “economic sense.”  (Wegner Decl. ¶¶ 3, 7, 31.)  As evidentiary support, Wegner cites an alleged purchase agreement dated April 27, 2021, in which Green offered to purchase the Property for $680,000, an amount slightly higher than the proposed sale for $650,000.  (Id. ¶¶ 3, 7, Exh. A.)  Receiver submits evidence that as part of the April 27, 2021, agreement, Top Flight agreed to provide Green a credit of $150,000, reducing the effective purchase price to $530,000.  Also, Green did not fulfill terms of the alleged agreement, including payment of rent, and Receiver determined the agreement was not bona fide.  (Id. ¶¶ 6-15.)  Green subsequently stipulated to a different agreement in the UD action. (Id. ¶¶ 16-18.)  Receiver also commissioned a broker opinion to determine that $650,000 is a market-correct sale price for the Manchester Property.  (Id. ¶ 20.)  Wegner does not rebut this evidence.   The court finds that Receiver has taken adequate steps to determine the fair market value of the Property; to market the Property; and to sell the Property in light of Green’s occupancy of the unit, as outlined above and in Receiver’s declaration. 

Wegner argues that the proposed sale does not make economic sense after “fees are taken out of the sales proceeds.”  (Id. ¶ 31.)  However, Wegner does not submit an appraisal or similar evidence showing that Receiver’s valuation of the Property and proposed sale to Green are below a reasonable market price.  Nor does Wegner show that the fees could be avoided if the proposed sale is delayed.  Thus, his argument is not supported. 

Wegner argues that Plaintiff should have foreclosed on the properties by non-judicial foreclosure, which would “greatly reduce the cost of the sales and maximize the recovery” for Plaintiff and Defendants.  He believes that judicial sales are inefficient because they require payments to brokers/agents, escrow, and title, which reduce the recovery from the sales.  (Wegner Decl. ¶ 5.)  Receiver proposes to sell the Manchester Property directly to Green, with no brokers involved.  Thus, Wegner’s criticism does not fully apply to the proposed sale of the Manchester Property, which would save approximately $29,000 in broker commissions.  (Manchester Decl. ¶ 25.b.) 

Receiver also declares: “Furthermore, selling the Manchester Property now saves substantial additional delay and associated carry costs (default interest accrual, property taxes and security costs) associated with a transition from receivership to trustee sale, which is a process that would take at least six months to effectuate. Selling the Manchester Property now also saves the need for expending the actual costs associated with setting up the trustee sale itself, the substantial loss the lender will likely suffer by selling the Manchester Property on the courthouse steps, or in the alternative, any internal wages, fees and costs associated with the lender’s REO department associated with possibly having to complete Green’s eviction and the subsequent property management, security, staging and marketing of the Manchester Property again.”  More generally, Receiver opines that “an orderly market-oriented approach to selling distressed, but desirable, real estate assets consistently yields more net present value proceeds for the estate and its creditors than other liquidation alternatives (note sale or foreclosure/REO), which by their nature and stigma of desperation always result in lower gross prices even before any additional costs are considered.”  (Reply Manchester Decl. ¶ 26.d.) 

Wegner has not submitted persuasive evidence that the proposed judicial sale will result in a lower recovery than a non-judicial foreclosure sale.  Although a non-judicial foreclosure could avoid broker and agent commissions, which is relevant for the proposed sales of the other three properties discussed below, it could also result in a distressed sale price, a delay in the sale, increased accrued interest, and other costs to the receivership estate.  With respect to the four properties at issue for these motions, the court finds that the judicial sale procedure is in the best interest of the receivership estate. 

Wegner argues that Receiver and Plaintiff have unreasonably delayed the sales of the properties, resulting in “excessive” fees, costs, and accrued interest.  (Wegner Decl. ¶¶ 17-22.)  At the same time, Wegner challenges the proposed sales and seeks to further delay the disposition of this receivership property, which will result in increased fees, costs, and interest.  Wegner does not show that Receiver or Plaintiff have unduly delayed the proposed sales of any of the four properties at issue.  With respect to the Manchester Property, the Receiver has sufficiently described the many steps required to finalize the proposed sale with Green, including Receiver’s internal valuation of the property, the UD action, and marketing of the property to other potential buyers. 

Finally, Wegner argues that Plaintiff failed to abide by the past sale orders and did not provide requisite notice before funds were distributed.  (Wegner Decl. ¶¶ 23-33.)  Wegner raises certain claims from the verified cross-complaint which the court does not adjudicate for a motion for approval to sell receivership property.  (Id. ¶¶ 24-26.) 

Specifically, Wegner contends that Receiver sold the Tamit Property on January 18, 2023, without notice to Top Flight.  (Id. ¶¶ 27-29.)  On November 29, 2022, the court granted Receiver’s motion for an order authorizing the sale of the Tamit Property.  Counsel for Top Flight attended the hearing, and notice was given to all defendants and interested parties, including Wegner.  (See 11/29/22 Minute Order; Leeds Decl. ¶ 7.)  Consistent with the court’s order, the Tamit Property was sold on January 18, 2023.  (Leeds Decl. ¶ 8.)  Wegner and Top Flight were not deprived of notice of the court’s order approving this sale.  Further, as reflected in the stipulation attached to the court’s order approving the sale, Defendants did not oppose the sale.  (Order for Sale of Tamit Property filed 12/5/22, Exh. A; see Leeds Decl. ¶ 5.)

Wegner argues that Plaintiff did not send Defendants a beneficiary demand prior to the sale of the Tamit Property, as required by the parties’ stipulation that was incorporated in the court’s order.  As a result, Top Flight “never got to review much less object to the disbursements of the proceeds of the sale.”  (Wegner Decl. ¶¶ 28-29.) 

Plaintiff’s counsel acknowledges that he neglected to send the beneficiary demand to counsel for Defendants, which he states was an “oversight.”  (Leeds Decl. ¶ 10.)  Plaintiff’s counsel submits evidence that “the proceeds of sale were insufficient to pay the principal that was actually advanced on the loan.”  (Ibid.)  Wegner submits no evidence to the contrary.  Thus, the failure to send the beneficiary demand does not appear to have caused economic harm to Defendants. 

In any event, the proposed orders for the sales of the Manchester, Hollywood, 5110 Orange, and 5116 Orange Properties do not include the beneficiary demand procedure included in the order for the sale of the Tamit Property.  Rather, the Receiver is requesting that the sale proceeds be distributed to its Receiver account until further order from this court.  The proposed order states that “the Receiver will hold the remaining Proceeds until all parties of interest have had the opportunity to be heard on their preferred distribution of the remaining Proceeds.”  (Proposed Order ¶ 6.c.)  Therefore, Receiver has taken steps to ensure that the oversight in the sale of the Tamit Property with respect to service of the beneficiary demand will not re-occur.

Having considered Wegner’s objections, the court finds the proposed sale of the Manchester Property to be reasonable in light of the circumstances discussed above and in Receiver’s declarations. 

Hollywood Property

The Hollywood Property appraised for $820,000 in March 2022, “at the peak of the real estate market cycle.”  (See Constantinescu Decl. ISO of Motion to Sell Hollywood Property (“Hollywood Decl.”) ¶ 21.c.)  Based on his market research, Receiver opines that the Hollywood Property has a value in the range of $750,000-$900,000.  (Id. ¶ 19.)  Receiver declares: “After reviewing the original appraisal from March 2022, reviewing comparable sales in the area over the prior six months, conducting my own static residual analysis to account for the condition of the property, and obtaining a broker opinion of value from my listing agent, I synthesized these data points within my own analysis and determined the initial listing price of $899,950 based on my experience and expertise in real estate.  During the first 30 days on the MLS market, I procured two bona fide offers, each substantially below the listing price.   I rejected those offers because they did not reflect current market-correct offers in terms, price, or timeline for closing escrow.”  (Id. ¶¶ 16-18.)

In October 2022, Receiver executed a sale agreement in the amount of $800,000.  He declares that the proposed sale is in the best interest of the Receivership estate for several reasons, including because the debt on the Property incurs approximately $16,000 in default interest each month; the $800,000 offer is close to the appraised value of $820,000, which was determined at the peak of the real estate market in March 2022; the Property has limited market appeal, including because of high HOA fees; the only two offers received by Receiver are substantially lower; and macroeconomic conditions continue to pressure interest rates and market sentiment.  Due to factors highlighted by Receiver, including rising interest rates, there may be downward market pressures on residential real estate prices that could impact future offers Receiver could receive for the Property, should this sale not close.  (See Hollywood Decl. ¶¶ 19-25.) 

Receiver submits a Seller’s Estimated Settlement Statement.  In addition to broker commissions and title/escrow charges, the Statement identifies certain “Additional Charges” that include 2022 Property Taxes (1^st half) owed to the Los Angeles County Treasurer and Tax Collector; delinquent property taxes for the first half of 2022; and $50,000 for Receivership operation funds.  (Id. Exh. C.)  Receiver declares that the property is encumbered by PACE liens.  (Id. ¶ 3.)  As with the Manchester Property, the PACE lien will not be extinguished by the proposed sale.  (Proposed Order ¶ 9.)

            In his opposing declaration, Wegner objects to the proposed sale of the Hollywood Property on the same grounds discussed above.  For the same reasons discussed above, the court finds Wegner’s arguments unpersuasive.

            Specifically for the Hollywood Property, Wegner contends that Receiver has not adequately marketed the property because Top Flight obtained a February 15, 2022, agreement to sell the property for $875,000, which is $75,000 more than the offer obtained by Receiver.  (Wegner Decl. ¶¶ 9-10, Exh. B.)  In his moving declaration, Receiver explains why he determined the February 15, 2022, offer was not viable, as follows:

a.    The offer was not arms-length. The purported buyer was Rebecca Traynor who the Receiver discovered to be an affiliated party to Defendant Top Flight Investments LLC (“Top Flight”) and Defendant Andre Wegner by virtue of being installed as the landlord for the Hollywood Property prior to the Receiver’s appointment;

b.    Furthermore, I was not ever able to verify that Ms. Traynor ever deposited any earnest money pursuant to the February 15, 2022 offer purchase contract, nor that an escrow was ever opened;

c.    Despite numerous attempts via emails, phone calls, and texts, I was not ever able to speak with or otherwise communicate with the listing agent, buyer, and alleged selling agent, in order to obtain information about offer terms, transaction status, and location of the title insurance file, as well as to identify, confirm and locate escrow and the alleged earnest money deposit.

d.    Based on the elusiveness of the buyer, the lack of communication from the agents involved, and the lack of any evidence supporting an active title insurance file or escrow for this transaction, I determined that the offer was not real and validated my confirmation that the buyer was an affiliate of one or more of the principals for Top Flight and/or Palms Blvd Venice Beach, LLC, and may even be Andre Wegner himself acting through a proxy.

(Hollywood Decl. ¶ 9.)

Receiver also explains other steps he took to determine the fair value of the Property and to market the Property, as summarized above.  (Id. ¶¶ 5-25.)  Wegner did not rebut this evidence in his opposing declaration.  Nor has Wegner submitted an appraisal or similar evidence showing that the proposed sale price of $800,000 does not reflect a fair value for the Property and is not in the best interest of the receivership estate.

Having considered Wegner’s objection, the court finds the proposed sale of the Hollywood Property to be reasonable in light of the circumstances discussed above and in Receiver’s declaration. 

5110 Orange Property and 5116 Orange Property

The 5110 Orange and 5116 Orange Properties each appraised for $800,000 in 2021, during a stronger real estate market.  (See Constantinescu Decl. ISO of Motion to Sell 5110 Orange Property (“5110 Orange Decl.”) ¶ 20.c; Constantinescu Decl. ISO of Motion to Sell 5110 Orange Property (“5116 Orange Decl.”) ¶ 20.c.)

Based on his market research, Receiver opines that the 5110 Orange and 5116 Orange Properties each have a value in the range of $900,000 and $1,250,000.  Receiver has obtained an offer of $975,000 for each Property, which exceeds the appraised values of $800,000.  He declares that the proposed sales are in the best interest of the Receivership estate for several reasons, including because the debts on the Properties incur approximately $20,000 in interest each month; the proposed sales exceed the appraised values of the Properties; the Properties have limited market appeal, including because of their partially completed conditions; the current offers are the only “bona fide and market correct one[s]”; and macroeconomic conditions continue to pressure interest rates and market sentiment.  Due to factors highlighted by Receiver, including rising interest rates, there may be downward market pressures on residential real estate prices that could impact future offers Receiver could receive for the Properties, should these sales not close.  (See 5110 Orange Decl. and 5116 Orange Decl. ¶¶ 6-23.)

As with the Manchester and Hollywood Properties, Receiver submits Seller’s Estimated Settlement Statements that reflect charges to be deducted from the proposed sales and receiver hold backs of $25,000 for each sale. 

In his opposing declaration, Wegner objects to the proposed sales of the 5110 Orange and 5116 Orange Properties on the same grounds discussed above.  For the same reasons discussed above, the court finds Wegner’s arguments unpersuasive.

Specifically for the 5110 Orange and 5116 Orange Properties, Wegner contends that Receiver has not adequately marketed the properties because Top Flight obtained agreements on April 7, 2023, to sell each property for $1,100,000, which is more than the offers obtained by Receiver.  (Wegner Decl. ¶¶ 11-14, Exh. C, D.)  In his moving and reply declarations, Receiver explains why he determined that the April 7, 2023, and similar February 15, 2022 offers from “Anonymity Holdings, LLC” were not viable.  (See 5110 Orange Decl. and 5116 Orange Decls. ¶¶ 8-11; Reply 5110 Orange Decl. and 5116 Orange Decls. ¶ 9.)  Among other reasons, “the buyer in that transaction was ‘Anonymity Holdings, LLC,’ signed by the entity, not a member or manager, making it very challenging to determine who the ultimate buyer is and avoid selling the property to an affiliate of Top Flight, or to a criminal enterprise.”  (See 5110 Orange Decl. and 5116 Orange Decls. ¶¶ 8-11.)  Receiver “was not able to confirm the buyer’s identity due to not knowing which state the buyer was formed in or registered with.” (Ibid.)  Further, during the bankruptcy proceedings, “Top Flight elected to not close a single one of the sales it now claims are superior to the Receiver’s current sales being considered by the Court.”  (Id. ¶ 11.)  Receiver also explains other steps he took to determine the fair values of the Properties and to market the Properties, as summarized above.  (Id. ¶¶ 5-23.)

Wegner did not rebut this evidence in his opposing declaration.  Nor has Wegner submitted an appraisal or similar evidence showing that the proposed sales for $975,000 do not reflect fair values for the Properties and are not in the best interest of the receivership estate.

Having considered Wegner’s objections, the court finds the proposed sales of the 5110 Orange and 5116 Orange Properties to be reasonable in light of the circumstances discussed above and in Receiver’s declarations. 

Conclusion

            The motions are GRANTED.

The receiver holds back may be used for receivership operating expenses and normal travel reimbursement. They are not to be used for payment of the receiver's professional costs without court approval.