Judge Melvin D. Sandvig, Case 22CHCV00474 2023-02-24 Tentative Ruling

Judge: Melvin D. Sandvig, Case: 22CHCV00474, Date: 2023-02-24 Tentative Ruling

Counsel wishing to submit on a tentative ruling may inform the clerk or courtroom assisant in North Valley Department F47, 9425 Penfield Ave., Chatsworth, CA 91311, at (818) 407-2247. Please be aware that unless all parties submit, the matter will still be called for hearing and may be argued by any appearing/non-submitting parties. If the matter is submitted on the court's tentative ruling by all parties, counsel for moving party shall give notice of ruling. This may be done by incorporating verbatim the court's tentative ruling. The tentative ruling may be extracted verbatim by copying and specially pasting, as unformatted text, from the Los Angeles Superior Court’s website, http://www.lasuperiorcourt.org. All hearings on law and motion and other calendar matters are generally NOT transcribed by a court reporter unless one is provided by the party(ies).

Case Number: 22CHCV00474 Hearing Date: February 24, 2023 Dept: F47

Dept. F47

Date: 2/24/23

Case #22CHCV00474

DEMURRER TO THE FIRST AMENDED COMPLAINT

Demurrer filed on 1/4/23.

MOVING PARTY: Defendants Prestige Default Services, LLC and Center Street Lending VIII SPE, LLC

RESPONDING PARTY: Plaintiff Sam Ostayan

NOTICE: ok

Defendant Prestige demurs to the 1^st – 3^rd causes (the only causes of action alleged against Prestige) of action and Defendant Center Street demurs to the 1^st and 4^th causes of action (the only causes of action alleged against Center Street):

1. Declaratory Relief

2. Violation of Civil Code 2924m

3. Bid Rigging

4. Quiet Title

RULING: The demurrer is overruled. Answer is due within 30 days.

SUMMARY OF FACTS & PROCEDURAL HISTORY

This action arises out of Plaintiff Sam Ostayan’s (Plaintiff) claim that Defendant Prestige Default Services, LLC (Prestige), as trustee of the nonjudicial foreclosure sale of real property located at 10711 Sunnybrae Avenue, Chatsworth, California 91311 (the Property), failed to comply with Civil Code 2924m when conducting the foreclosure sale of the Property.

Civil Code 2924m was enacted to give families, renters and housing nonprofits an opportunity to purchase foreclosed properties after the trustee’s sale by enlarging the timeline for the recordation of the trustee’s deed depending on who the bidder is.

The version of Civil Code 2924m operative at the relevant time period (1/1/21 – 12/31/21) defined an eligible tenant bidder as a natural person, who at the time of the trustee’s sale:

“(A) Is occupying the real property as their primary residence.

(B) Is occupying the real property under a rental or lease agreement entered into as the result of an arm's length transaction with the mortgagor or trustor on a date prior to the recording of the Notice of Default against the property.

Civil Code 2924m(a)(2).

The statute further provided that a nonjudicial foreclosure sale of a residential property (one to four units) would not be deemed final until the earliest of the following:

“(1) If a prospective owner-occupant is the last and highest bidder at the trustee's sale, the date upon which the conditions set forth in Section 2924h of the Civil Code for the sale to become final are met. The trustee shall require the prospective owner-occupant to submit the affidavit described in paragraph (1) of subdivision (a). The trustee may reasonably rely upon this affidavit.

(2) Fifteen days after the trustee's sale unless at least one eligible tenant buyer or eligible bidder submits to the trustee either a bid pursuant to paragraph (3) or (4) or a nonbinding written notice of intent to place such a bid. The bid or written notice of intent to place a bid shall be sent to the trustee by certified mail, overnight delivery, or other method that allows for confirmation of the delivery date and shall be received by the trustee no later than 15 days after the trustee's sale.

(3) The date upon which a representative of all of the eligible tenant buyers submits to the trustee a bid in an amount equal to the full amount of the last and highest bid at the trustee's sale… This bid shall be accompanied by an affidavit stating that the persons represented meet the criteria set forth in paragraph (2) of subdivision (a). The trustee may reasonably rely on this affidavit.

(4) Forty-five days after the trustee's sale, except that during the 45-day period, an eligible bidder may submit to the trustee a bid in an amount that exceeds the last and highest bid at the trustee's sale… The bid shall be accompanied by an affidavit identifying the category set forth in paragraph (3) of subdivision (a) to which the eligible bidder belongs and stating that the eligible bidder meets the criteria for that category. The trustee may reasonably rely on this affidavit.”

Civil Code 2924m(c)(1)-(4).

If the winning bidder at the foreclosure sale was a “prospective owner occupant” and completed all of the requirements, the sale was deemed final on the date of the sale, and was deemed perfected as of that date as long as the trustee’s deed was recorded within 18 calendar days. Civil Code 2924m(c)(1). If not, the foreclosure trustee must, within 48 hours of the trustee’s sale, post the following information on the internet:

“(a) The date on which the trustee's sale took place. (Civil Code 2924m(d)(1)(A)).

(b) The amount of the last and highest bid at the trustee's sale. (Civil Code 2924m(d)(1)(B)).

Civil Code 2924m(d)(1)(C).

Thereafter, an eligible tenant bidder or eligible bidder may submit to the trustee a nonbinding written notice of intent to bid within 15 days after the sale. An eligible tenant bidder or eligible bidder will have additional time (no later than 45 days after the sale) to submit a bid and a code-compliant affidavit. If an eligible tenant bidder submits a bid and a compliant affidavit, then the eligible tenant bidder will be deemed the last and highest bidder notwithstanding bids from other classes of eligible bidders. Civil Code 2924m(c)(3). If an eligible bidder submits a bid and a compliant affidavit 45 days after the trustee’s sale, the eligible bidder that submitted the highest bid will be deemed the last and highest bidder. Civil Code 2924m(c)(4).

Here, the foreclosure sale occurred on 6/29/21. At the sale, the Property was sold to U.S. Bank Trust National Association, as Trustee for ABS Trust VI Select Portfolio Servicing, Inc., who is not an owner occupant, for $401,000.00. (FAC ¶¶10-11). Because U.S. Bank is not an “eligible bidder” under Civil Code 2924m, Prestige published the bid amount and started to accept post-sale Notices of Intent to Bid pursuant to Civil Code 2924m.

On 7/12/21, Plaintiff sent a written letter indicating his intent to bid on the Property as his personal residence. (FAC ¶12). Prestige informed Plaintiff that he must submit a bid by 8/13/21, which is the statutory cut-off date (45th day) following the sale. Id. On 8/13/21, Plaintiff delivered a sealed post-sale bid for $555,500. (FAC ¶13). That same day, Defendant Soldiers of America (SOA) also delivered a post-sale bid. Id. Prestige also received a post-sale bid in the amount of $401,000 from a purported “Eligible Tenant.” (FAC ¶14). On 8/13/21, Prestige rejected and refunded both Plaintiff’s and SOA’s respective bids advising Plaintiff and SOA that it was accepting a bid for $401,000 from an “Eligible Tenant,” which bid held higher priority over Plaintiff’s and SOA’s bids. Id.

On 8/16/21, Prestige returned the deposited funds to the purportedly “Eligible Tenant” upon determining that the bid was submitted by a corporation on behalf of a bidder that was deceased at the time of the foreclosure sale and who was, therefore, ineligible to bid under Civil Code section 2924m. (FAC ¶15).

Prestige never issued a trustee’s deed upon sale to any Eligible Tenant. (FAC ¶16). Instead, on 8/23/21, Prestige issued a Trustee’s Deed Upon Sale (TDUS) to SOA based on a new bid submitted outside the 45-day deadline. Id. The TDUS stated that SOA had the highest bid in the amount of $556,000 (just $500 over Plaintiff’s bid of $555,500). Id. Thereafter, Plaintiff learned that SOA’s original sealed but rejected bid submitted to Prestige on 8/13/21, was for $700,000, and not for $556,000, the amount for which SOA purportedly purchased the Property at a later date outside the 45-day window through a new bid. (FAC ¶17). SOA’s original bid and its proffered payment is evidenced by three cashier’s checks that it submitted to Prestige with its bid in the amounts of $500,000, $125,000, and $75,000, which bid was rejected and refunded to SOA on that same date, along with Plaintiff’s bid. Id.

After rejecting Plaintiff’s and SOA’s bids, Plaintiff alleges that Prestige informed SOA of the amount of Plaintiff’s bid, and Prestige allowed only SOA to submit a new bid of $556,000.00. (FAC ¶17). Prestige did not offer Plaintiff the same opportunity to submit a new bid. (FAC ¶18).

Plaintiff contends that Prestige’s acts were unlawful, and that SOA’s new bid was not permitted as it was done outside of the 45-day statutory deadline provided in Civil Code 2924m(c)(4), making the sale void. (FAC ¶18). Plaintiff alleges that SOA then sold the Property to Defendant SoCal Innovative Group, LLC (SoCal) for approximately $1,010,000.00, thereby realizing a substantial profit from its alleged improper purchase of the Property. (FAC ¶19). Plaintiff further alleges that on or about 6/13/22, Defendant Center Street Lending VIII SPE, LLC (Center Street) executed a deed of trust in the amount of $1,152,450.00 secured by the Property. (FAC ¶29). Plaintiff claims that SoCal was not a bona fide purchaser of the Property because the TDUS in favor of SOA was void, as is the legal title of SoCal, a defaulted entity. (FAC ¶21). Therefore, Plaintiff claims that Center Street has no valid lien secured by the Property.

On 6/28/22, Plaintiff filed this action against Prestige, Center Stage, SOA, and SoCal. On 7/27/22, Plaintiff filed his First Amended Complaint (FAC) alleging causes of action for: (1) Declaratory Relief (against all defendants); (2) Violation of Civil Code 2924m (against Prestige and SOA); (3) Bid Rigging (against Prestige and SOA) and (4) Quiet Title (against SOA, SoCal and Center Street).

By way of the First Amended Complaint, Plaintiff seeks a judicial declaration of the rights and obligations of the parties concerning the rights, title to, and ownership of the Subject Property. (FAC ¶23). Plaintiff further requests a judicial declaration that neither SoCal nor Center Street have any right, title, lien, or ownership to the Property because the TDUS under which SOA purportedly obtained title was null and void, in addition to the grant deed to SoCal, and therefore, SoCal has no valid interest in the Property, nor does its lender, Center Street have any secured lien. (FAC ¶24). Plaintiff also seeks a judicial declaration that his bid was the last and highest legitimate bid and that he is the owner of the Property for a purchase price of $555,500, which he offers to immediately tender to Prestige. (FAC ¶25). Finally, Plaintiff alleges that Prestige violated the procedures in Civil Code 2924m and participated in a bid rigging scheme by manipulating and artificially determining the post-sale bidding process and by accepting an untimely new bid from SOA, among other things. (FAC ¶¶30, 35).

On 1/4/23, Prestige and Center Street filed the instant demurrer to the First Amended Complaint whereby Prestige demurs to the 1^st – 3^rd causes of action (the only causes of action alleged against Prestige) and Center Street demurs to the 1^st and 4^th causes of action (the only causes of action alleged against Center Street). Plaintiff has opposed the demurrer and Prestige and Center Stage have filed a reply.

ANALYSIS

The Court notes that the declaration of Kelsey Luu regarding meet and confer referenced in the moving papers was not filed with the Court. Since Plaintiff does not claim that Prestige and Center Street failed to meet and confer before filing the instant demurrer and since failing to meet and confer is not grounds to overrule a demurrer, the Court considered the demurrer on its merits. See CCP 430.41(a)(3), (4).

Prestige and Center Street’s Request for Judicial Notice (RJN) is granted. However, the declaration of Briana Young submitted in support of the demurrer is disregarded by the Court as improper extrinsic evidence. See Childs (1983) 144 CA3d 155, 163.

Plaintiff has alleged sufficient facts to support a finding that Prestige violated Civil Code 2924m and engaged in bid rigging. Plaintiff has alleged that Prestige participated in bid rigging by accepting a new bid from SOA outside the statutory deadline set forth in Civil Code 2924m and after revealing the amount of Plaintiff’s bid without affording Plaintiff the same opportunity. (FAC ¶¶17-18, 23, 28, 30, 34-36). The reply seems to tacitly concede that Plaintiff has alleged sufficient facts to support a finding that Prestige violated Civil Code 2924m and engaged in bid rigging by stating that “[e]ven if Prestige purportedly violated section 2924m, it does not equate to Plaintiff’s standing to sue Prestige for the purported violation.” (See Reply, p.2:20-21). As such, it appears that Prestige now relies on its argument that Plaintiff lacks standing to assert his claims.

If Prestige would have accepted SOA’s first $700,000 bid, its argument that Plaintiff suffered no damages might have merit. However, Plaintiff has alleged that Prestige revealed the amount of Plaintiff’s bid ($555,500) to SOA and allowed SOA to submit a new bid of only $556,000, without providing Plaintiff with the same opportunity to submit a new bid. (See FAC ¶¶16-18, 23, 28, 30, 34). Plaintiff further alleges it was the highest legitimate post-sale bidder because SOA was not an “Eligible Bidder” under Civil Code 2924m(a)(3), because it is neither a “nonprofit association, nonprofit corporation, or cooperative corporation in which an eligible tenant buyer or a prospective owner occupant is a voting member or director” nor an “eligible nonprofit corporation based in California whose primary activity is the development and preservation of affordable rental housing.” (FAC ¶29). Prestige’s argument that it was entitled to rely on SOA’s affidavit under Civil Code 2924m(c)(4) to relieve it from liability based on SOA’s alleged ineligible status cannot be determined on demurrer. Again, if Prestige had made no effort to investigate any of the eligible bidders, its argument might have merit. However, by investigating the “Eligible Tenant’s” affidavit, it could be said that Prestige voluntarily assumed a duty to conduct s an investigation of all of the affidavits and Prestige’s failure to investigate SOA’s affidavit supports Plaintiff’s allegations of bid rigging. See Artiglio (1998) 18 C4th 604, 613 (“if the defendant enters upon an affirmative course of conduct affecting the interests of another, he is regarded as assuming a duty to act, and will thereafter be liable for negligent acts or omissions.” [Citations omitted.]). Additionally, it goes against public policy to allow Prestige to violate the statute and save SOA, and alleged ineligible bidder, $144,000 without providing Plaintiff with the same information and allowing him to submit a new eligible bid. The foregoing is sufficient to confer standing on Plaintiff for damages he allegedly suffered due to Prestige’s alleged misconduct.

A quiet title action may be brought to establish title against adverse claims to real property or any interest therein. See CCP 760.020(a) (miscited by Plaintiff as CCP 720.020(a)). An adverse claim to real property includes any legal or equitable right, title, estate, lien or interest in property or cloud on title. See CCP 760.010(a) (miscited by Plaintiff as CCP 720.010(a)). As such, the deed of trust held by Center Street which is secured by the Property may form the basis for a quiet title claim.

Based on the foregoing and the allegations in the First Amended Complaint, a present and actual controversy exists between the parties which is sufficient to support a separate declaratory relief cause of action. See (FAC ¶¶23-25); Southern California Edison Co. (1995) 37 CA4th 839; Snyder (2014) 229 CA4th 1196; CCP 1060.

CONCLUSION

Based on the foregoing, the demurrer is overruled and an answer is due within 30 days.