Judge Peter A. Hernandez, Case Number: 23STCV17608, Date: 2024-10-11 Tentative Ruling

Judge: Peter A. Hernandez, Case: 23STCV17608, Date: 2024-10-11 Tentative Ruling

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Case Number: 23STCV17608 Hearing Date: October 11, 2024 Dept: 34

Homebridge Management, Inc. v. John Corey Razo, Jr., et al. (23STCV17608)

1. Defendant Four Corners Housing, LLC’s Motion for Summary Judgment is GRANTED.

2. Plaintiff Homebridge Management, Inc.’s Motion for Summary Judgment is DENIED.

Background

Plaintiff Homebridge Management, Inc. (“Plaintiff”) alleges as follows:

On July 25, 2023, Plaintiff attended a nonjudicial foreclosure sale for a property located at 12035 Beverly Blvd., #1-A, Whittier, CA 90601. Plaintiff was the winning bidder at the foreclosure sale and tendered a cashier’s check to S.B.S. Lien Services (“Trustee”), the foreclosure trustee for the homeowners’ association nonjudicial foreclosure sale, for the full amount of Plaintiff’s winning bid.

Trustee improperly treated the sale of the property as one governed by Civil Code section 2924m despite the sale being conducted pursuant to a homeowners’ association lien. As such, the Trustee improperly entertained post-auction bids and notices of intent to bid from individuals and entities under Civil Code Section 2924m.

On July 27, 2023, Plaintiff field a complaint asserting the following causes of action against Defendant John Corey Razo, Jr. (“Razo”) and Does 1-10:

1. Declaratory Relief; and

2. Quiet Title.

On September 12, 2023, Plaintiff filed an Amendment to its Complaint naming Doe 1 as Four Corners Housing, LLC (“Four Corners”).

On December 7, 2023, Plaintiff filed an Amendment to its Complaint naming Doe 2 as S.B.S. Lien Services.

On December 12, 2023, Plaintiff filed its First Amended Complaint (“FAC”) asserting the following causes of action against Defendants Razo, Four Corners as Doe 1, S.B.S. Lien Services as Doe 2, and Does 3-10:

1. Declaratory Relief;

2. Quiet Title;

3. Intentional Interference with Prospective Economic Advantage; and,

4. Unfair Business Practices.

On February 16, 2024, the court granted a joint stipulation to file a Second Amended Complaint where Plaintiff agreed to remove the cause of action for intentional interference against Four Corners, remove the request for punitive damages and attorneys’ fees, remove allegations regarding DS Housing and Dove Street Housing Foundation, but to maintain its other equitable claims.

On March 1, 2024, Plaintiff filed its second amended complaint (“SAC”) asserting the following causes of action against Defendants Razo, Four Corners as Doe 1, S.B.S. Lien Services as Doe 2, and Does 3-10:

1. Declaratory Relief;

2. Quiet Title; and

3. Unfair Business Practices.

On March 21, 2024, Four Corners filed its answer to Plaintiff’s SAC.

On June 28, 2024, Four Corners filed its Motion for Summary Judgment. On September 17, 2024, Plaintiff filed its opposition to Four Corners’ motion. On October 4, 2024, Four Corners filed a reply to Plaintiff's opposition.

On July 26, 2024, Plaintiff filed its Motion for Summary Judgment. On September 30, 2024, Four Corners filed its opposition to Plaintiff's motion. On October 4, 2024, Plaintiff filed a reply to Four Corners’ opposition.

1. Defendant Four Corners Housing, LLC’s Motion for Summary Judgment

A. Legal Standard

“A party may move for summary judgment in an action or proceeding if it is contended that the action has no merit or that there is no defense to the action or proceeding. The motion may be made at any time after 60 days have elapsed since the general appearance in the action or proceeding of each party against whom the motion is directed or at any earlier time after the general appearance that the court, with or without notice and upon good cause shown, may direct.” (Code Civ. Proc., § 437c, subd. (1)(a).)

“[T]he party moving for summary judgment bears the burden of persuasion that there is no triable issue of fact and that he is entitled to judgment as a matter of law. That is because of the general principle that a party who seeks a court’s action in his favor bears the burden of persuasion thereon. There is a triable issue of material fact if, and only if, the evidence would allow a reasonable trier of fact to find the underlying fact in favor of the party opposing the motion in accordance with the applicable standard of proof.” (Aguilar v. Atl. Richfield Co. (2001) 25 Cal.4th 826, 850, citation omitted.)

“[T]he party moving for summary judgment bears an initial burden of production to make a prima facie showing of the nonexistence of any triable issue of material fact; if he carries his burden of production, he causes a shift, and the opposing party is then subjected to a burden of production of his own to make a prima facie showing of the existence of a triable issue of material fact.” (Aguilar, supra, at p. 850; Smith v. Wells Fargo Bank, N.A. (2005) 135 Cal.App.4th 1463, 1474, [applying the summary judgment standards in Aguilar to motions for summary adjudication].)

“On a summary judgment motion, the court must therefore consider what inferences favoring the opposing party a factfinder could reasonably draw from the evidence. While viewing the evidence in this manner, the court must bear in mind that its primary function is to identify issues rather than to determine issues. Only when the inferences are indisputable may the court decide the issues as a matter of law. If the evidence is in conflict, the factual issues must be resolved by trial.” (Binder v. Aetna Life Ins. Co. (1999) 75 Cal.App.4th 832, 839, citation omitted.)

“The trial court may not weigh the evidence in the manner of a fact finder to determine whose version is more likely true. Nor may the trial court grant summary judgment based on the court's evaluation of credibility.” (Binder, supra, at p. 840, citations omitted; see also Weiss v. People ex rel. Dep’t of Transp. (2020) 9 Cal.5th 840, 864 [“Courts deciding motions for summary judgment or summary adjudication may not weigh the evidence but must instead view it in the light most favorable to the opposing party and draw all reasonable inferences in favor of that party”].)

B. Discussion

Four Corners moves the court for an order granting summary judgment in its favor and against Plaintiff.

1. Request for Judicial Notice

“A court may properly take judicial notice of its own records. (Evid. Code, § 452, subd. (e).)” (Garcia v. Sterling (1985) 176 Cal.App.3d 17, 21.) Judicial notice may be taken of “[f]acts and propositions that are not reasonably subject to dispute and are capable of immediate and accurate determination by resort to sources of reasonably indisputable accuracy.” (Evid. Code §§ 452(c), (h).) Judicial notice may also be taken of “[o]fficial acts of the legislative, executive, and judicial departments of the United States and of any state of the United States.” (Evid. Code § 452(c); see (Scott v. JPMorgan Chase Bank, N.A. (2013) 214 Cal.App.4th 743, 755

Four Corners requests judicial notice of: (1) Senate Rules Committee Notes pertaining to SB 1079 and Civil Code Section 2942m; (2) Plaintiff’s second amended complaint; (3) Four Corners’ Articles of Incorporation; (4) Clear Preservation Housing Foundation’s Articles of Incorporation; (5) Trustee’s Deed Upon Sale; and (6) Covenant pursuant to Civil Code Section 2924o. (Four Corners’ RJN, Exh. A-F.)

Four Corners’ Request for Judicial Notice is granted.

Plaintiff also requests judicial notice of: (1) Plaintiff’s complaint; (2) Amendment to Complaint as to Doe 1; (3) Amendment to Complaint as to Doe 2; (4) Plaintiff’s First Amended Complaint; (5) Razo’s Request for Dismissal; (6) SBS’s Declaration of Non-Monetary Status; (7) Four Corners’ Answer to Plaintiff’s Second Amended Complaint; (8) Senate Bill No. 1079 Legislative Counsel’s Digest; and (9) California Bill Analysis for SB 1079. (Plaintiff’s RJN, Exh. 1-9.)

Plaintiff’s Request for Judicial Notice is granted.

2. Relevant Undisputed Facts

On July 25, 2023, Plaintiff attended a nonjudicial foreclosure sale for a property located at 12035 Beverly Blvd., #1-A, Whittier, CA 90601 (“Property”). (Undisputed Fact (“UF”), Nos. 8-9.)The Property was part of the Whittier Beverly Park Homeowners Association (“HOA”). (Ibid) Defendant S.B.S. Lien Services (“Trustee”) acted as the trustee for the nonjudicial sale arising from a Notice of Delinquent Assessment and Claim of Lien recorded by the HOA. (Ibid) Plaintiff was the winning bidder at the foreclosure sale and tendered a cashier’s check for $11,039.56. (Ibid)

Four Corners is a Limited Liability Company wholly owned by Clear Preservation Housing Foundation (“CPHF”) which is a nonprofit corporation deemed a 501(c)(3) entity. (Id., Nos. 1-4.) On August 1, 2023, Four Corners submitted a Notice of Intent to Bid and Affidavit of Eligible Bidder to Trustee pursuant to Civil Code Section 2924m. (Id., No. 10.) On August 29, 2023, Matthew Regan, sole member of Four Corners, confirmed with Trustee that the Property had not been redeemed. (Id., No. 11.) Trustee also confirmed that the last day for Trustee to receive notices of intent to bid was on September 8, 2023. (Ibid)

On September 1, 2023, Four Corners submitted a Qualified Bid, an Affidavit of Eligible Bidder, and a cashier’s check for $52,000.00 to Trustee. (Id., No. 12.) As Four Corners’ bid exceeded Plaintiff’s initial bid, on September 12, 2023, Trustee notified Four Corners that it had submitted the highest qualified post-auction bid under Section 2924m deeming Four Corners as the successful bidder. (Id., Nos. 13-14.)

On October 24, 2024, Trustee issued a Trustee’s Deed Upon Sale for the Property in favor of Four Corners and recorded it on October 27, 2023. (Id., No. 15.)

On December 19, 2023, Four Corners recorded a Section 2924o covenant with regard to the Property

3. Civil Code Section 2924m

Four Corners argues that Civil Code Section 2924m, enacted in 2021, modified the non-judicial foreclosure auction bidding process by providing a right of first refusal to tenants, prospective owner-occupants, and community non-profits, among other “eligible bidders” defined in Section 2924m. (Four Corners’ MSJ, 2:4-16.) Four Corners explains that Section 2924m allows eligible bidders to purchase a one to four unit single-family residence after a trustee’s sale by either matching or beating the winning bid at the sale. (Ibid.) Eligible bidders have 45 days after the trustee’s sale to provide the trustee a bid before the sale is deemed final as long as the trustee received a notice of intent to bid from the eligible bidders within the first 15 days following the foreclosure sale. (Ibid.) Four Corners contends that the purpose of Section 2924m, based upon the Senate Rules Committee Notes of SB 1079, was to promote more individuals and nonprofit organizations to acquire foreclosed properties for the development and preservation of affordable housing. (Ibid.)

Four Corners argues that it was a qualified bidder under Section 2924m(a)(3)(E) and was properly awarded the Property by Trustee. (Id., 6:8-11.) Four Corners contends that Section 2924m states that a potential eligible bidder includes a limited liability company wholly owned by an eligible nonprofit corporation. (Id., 6:11-22.) Four Corners argues Four Corners is a qualified bidder as it is wholly owned by CPHF which satisfies all requirements of Section 2924m(a)(3)(D) in that CPHF (1) has a determination letter from the Internal Revenue Service affirming its tax-exempt status pursuant to Section 501(c)(3) of the Internal Revenue Code and is not a private foundation as that term is defined in Section 509 of the Internal Revenue Code; (2) has its principal place of business in California; (3) has the primary residences of all board members located in California; (4) has as one of its primary activities the development and preservation of affordable rental or homeownership housing in California; and (5) is registered and in good standing with the Attorney General’s Registry of Charitable Trusts. (Ibid.)

Additionally, Four Corners argues that it complied with all required provisions of Section 2924m overbid process as alleged in Four Corners’ Separate Statement of Undisputed Facts. (Id., 6:23-28, 7:1-21.) As such, Four Corners argues that it was the eligible bidder who submitted the winning overbid and awarded the Property pursuant to Section 2924m. (Ibid.)

Four Corners argues that Plaintiff alleges that the overbid process pursuant to Section 2924m was wrongfully applied by Trustee to the sale of the Property because the sale was pursuant to a Notice of Delinquent Assessment and Claim of Lien recorded by the HOA, and not a power of sale contained in a deed of trust or mortgage. (Id., 7:24-27.) Four Corners argues that a review of the enabling statute for HOA foreclosures, the legislative history, and intent behind Section 2924m provides that Plaintiff’s argument is not appropriate. (Id., 7:28, 8:1-2.)

Four Corners argues that California’s legislature created a statutory right to lien property, with identical foreclosure procedures as those created by a deed of trust, when it passed the Davis-Stirling Act which was previously codified in Civil Code section 1350. (Id., 8:3-20.) Four Corners contends that Civil Code Section 1367.1(g) states that “any sale by the trustee shall be conducted in accordance with Sections 2924, 2924b, and 2024c applicable to the exercise of powers of sale in mortgages and deeds of trust.” (Ibid.) Four Corners contends that even when the Davis-Stirling Act was revamped in Civil Code Section 5710, the same language pertaining to foreclosure under an HOA lien remained. (Ibid.) As such, Four Corners argues that the legislature intended that identical procedures would be used to foreclose HOA liens as those used to foreclose on consensual liens such as mortgages and deeds of trust. (Ibid.)

Four Corners further argues that Civil Code Section 5700(a) states that a “lien may be enforced in any manner permitted by law, including sale by the court, sale by the trustee designated in the notice of delinquent assessment, or sale by a trustee substituted pursuant to Section 2934a.” (Id., 8:21-28.) As such, Four Corners argues that Plaintiff’s position that an HOA lien can be foreclosed in any manner permitted by law, except by Section 2924m, is wrong. (Ibid.)

Four Corners argues that Section 2924m applies to the foreclosure of HOA liens since there is no language within the statute stating otherwise. (Id., 9:11-28.) Four Corners refutes Plaintiff’s allegation that the language of Section 2924m(c) restricts the applicability of the overbid process to a trustee’s power sale contained in a deed of trust or mortgage on real property. (Ibid.) Instead, Four Corners argues that Plaintiff’s position negates the language of the Davis-Stirling Act regarding foreclosures arising from HOA liens and it is contrary to the legislative intent of Section 2924m. (Ibid.) Specifically, Four Corners points to the Senate Rules Committee Notes stating that the intent of SB 1079 and Section 2924m was to “mitigate against blight, vacancy, and the transfer of residential property ownership from owner-occupants to corporate landlords in the event that California experiences a wave of foreclosures” following the Covid-19 pandemic. (Ibid.) Four Corners contends that the Senate Rules Committee Notes refer to foreclosures generally with the intent that Section 2924m applies to all of them, not only those arising from powers of sale in deeds of trust or mortgages. (Ibid.)

As such, Four Corners argues that Plaintiff’s SAC causes of action for declaratory relief and quiet title lack merit as there is no private right of action under Section 2924m and because Plaintiff has no standing to sue since Trustee’s sale never became final as to Plaintiff due to Four Corners’ overbid pursuant to Section 2924m. (Id., 10:23-28.) Additionally, Four Corners argues that Plaintiff’s cause of action for violation of Business & Professions Code Section 17200 lacks merit because there is no evidence of wrongful conduct by Four Corners when it overbid for the Property and acquired title, nor that Plaintiff suffered any actual injury. (Id., 12:16-28, 13:1-9.)

In opposition, Plaintiff argues that the plain language of Section 2924m indicates that the statute does not apply to nonjudicial foreclosure sales of real property based on an HOA’s assessment lien. (Opp., 4:11-28.) Instead, Plaintiff contends that Section 2924m states that it only applies to “trustee’s sale[s] of property under a power of sale contained in a deed of trust or mortgage on real property containing one to four residential units...” (Id., 5:11-18; Civ. Code § 2924m(c).) Plaintiff cites various authority arguing that when the language of a statute is clear, courts do not need to go any further in interpreting the statute. (Id., 4:12-28.) Plaintiff contends that if the language of a statute is not ambiguous, a court does not need to go beyond that pure expression of legislative intent. (Ibid.)

Plaintiff also argues that even if the court finds Section 2924m to be ambiguous, legislative history confirms the intent of the statute. (Id., 5:27-28, 6:1-6.) Plaintiff points to the same Senate Rules Committee Notes as Four Corners to highlight that the legislature anticipated economic fallout from Covid-19 and “the prospect that many California homeowners will soon default of their mortgage payments...” (Ibid.) Plaintiff contends that the legislature does not make any mention of a concern for a widespread foreclosure arising from HOA assessment liens and that there is no basis to conclude otherwise. (Ibid.)

Plaintiff further notes that the legislative intent behind Section 2924m is further shown in the Legislative Counsel’s Digest presented in Plaintiff’s Request for Judicial Notice in Opposition to Four Corners’ motion. (Id., 6:16-28.) Plaintiff quotes the Digest’s discussion stating that “[e]xisting law prescribes various requirements be satisfied before the exercise of a power of sale under a mortgage or deed of trust and prescribes a procedure for the exercise of that power…” and “that “[t]his bill…would prescribe an alternative process in connection with a trustee’s sale of property under a power of sale contained in a deed of trust or mortgage on real property . . .” (Ibid.) Plaintiff claims that there is no indication that the legislature intended Section 2924m to apply to foreclosure based on an HOA lien. (Ibid.)

Plaintiff also contends that the legislature’s exclusion of nonjudicial foreclosures arising from delinquent HOA liens and assessments from Section 2924m must be presumed to be purposeful as the legislature has addressed HOA foreclosures elsewhere and did not include them in Section 2924m. (Id., 7:19-23.) Plaintiff argues that the Davis-Stirling Act and Civil Code Section 5700 showcases the legislature asserting specific regulation over nonjudicial foreclosures arising under HOA liens. (Id., 8:3-8.) Plaintiff contends that Civil Code Section 5710(a) expressly states that “[a]ny sale by the trustee shall be conducted in accordance with Sections 2924, 2924b, and 2924c applicable to the exercise of powers of sale in mortgages and deeds of trust” but does not list Section 2924m. (Id., 8:9-15.)

Plaintiff argues that the procedure stated in Section 2924m directly conflicts with a homeowner’s 90-day redemption rights contained in Civil Code Section 5715(b). (Id., 8:16-28.) Plaintiff argues Section 2924m(c) deems the sale final either 15 or 45 days after auction and in some cases, it is final on the same day as the auction conflicting with the 90-day period found in Section 5715(b). (Ibid.; Civ. Code §§ 2924m(c)(1), (c)(2), (c)(3), (c)(4).) Plaintiff also points to Section 2924h to show further conflicts between a homeowner’s right to redemption and Section 2924m. (Id., 8:26-28, 9:1-6.)

Plaintiff also notes that Section 2924m has undergone several amendments, showing that if the legislature wanted to include foreclosures under HOA liens, it had ample opportunity to do so. (Id., 10:3-12.)

Plaintiff opposes Four Corners arguments that Plaintiff’s SAC causes of action have no merit since Plaintiff contends that Section 2924m was wrongly applied to the foreclosure sale of the Property in this case making Four Corners’ acquisition of title erroneous. (Id., 11:11-22, 12:3-16, 13:17-28.)

In reply, Four Corners contends that Plaintiff does not dispute that Four Corners was a qualified bidder under Section 2924m or that Four Corners was properly awarded properly awarded the Property. (Reply, 2:9-20.) Four Corners reiterates its previous arguments that Plaintiff’s narrow interpretation of Section 2924m only applying to foreclosures arising from mortgages and deeds of trust is meritless and is in conflict with the legislative intent. (Id., 2:21-26.) Additionally, Four Corners argues the Trustee is responsible for foreclosing the Property and enforcing the statutory 90-day redemption period under Section 5715. (Id., 5:13-28.) As such, the Trustee here was mindful of the 90-day redemption period and did not finalize the sale of the Property under after the redemption period ended. (Id., 5:1-8.) Four Corners argues that Plaintiff did not meaningfully address Four Corners argument that Plaintiff is seeking a private right of action under Section 2924m which is not available. (Id., 6:9-22.) Four Corners also argues that Plaintiff provided no meaningful response to its lack of standing since Plaintiff did not hold legal title to the Property and has never held legal title. (Id., 6:23-28; 7:1-9.)

The main issue present here is whether Section 2924m applies to foreclosure sales based on HOA liens. Plaintiff’s most prominent position is that Section 2924m(c) makes reference to deeds of trust or mortgages. However, when the court reads Section 2924m(c) closer, there is no clear limitation to the application of Section 2924m(c) to foreclosure sales based on deeds of trust or mortgages only.

(c) A trustee's sale of property under a power of sale contained in a deed of trust or mortgage on real property containing one to four residential units pursuant to Section 2924g shall not be deemed final until the earliest of the following:

When taking this section for its plain meaning, it does not exclude Section 2924m from applying to foreclosures based on HOA liens as Plaintiff implies.

Additionally, Civil Code section 5710(a) of the Davis-Stirling act states that “[a]ny sale by the trustee shall be conducted in accordance with... the exercise of powers of sale in mortgages and deeds of trust.” In other words, Section 5710(a) codifies that the foreclosure procedure of any sale by a trustee under the Davis-Stirling act should follow the procedure of powers of sale in mortgages and deeds of trust, including 2924m, which undoubtedly applies to a foreclosure sales based on deeds of trust or mortgages.

Furthermore, ruling that Section 2924m does not apply for the foreclosure sale here would go against the the intent expressed in the Senate Rules Committee Notes for enacting Section 2924m. The intent behind Section 2924m is to mitigate against the transfer of residential property ownership from owner-occupants to corporate landlords without giving eligible bidders, as defined in Section 2924m, an opportunity to match (in the case of tenants) or outbid (in the case of other eligible bidders) a foreclosure sale bidder.

Plaintiff’s argument that Legislative Counsel’s Digest makes it clear that Section 2924m pertains to foreclosure sales based on deeds of trust or mortgages is unpersuasive since the Legislative Counsel’s Digest is not controlling.

Plaintiff’s argument that Section 2924m conflicts with a homeowner’s right for redemption is also not an issue here. As Four Corners argues in its reply, the Trustee reconciled both statutory requirements of Section 2924m and the 90-day redemption period under Section 5715.

As such, the court finds that Section 2924m is applicable to foreclosure sales based on HOA liens. Thus, the Property was properly awarded to Four Corners.

The motion is granted.

2. Plaintiff Homebridge Management, Inc.’s Motion for Summary Judgment

A. Legal Standard

See above.

B. Discussion

Plaintiff moves the court for an order granting summary judgment in its favor and against Four Corners or in the alternative for summary adjudication.

Due to the court’s ruling on Four Corners’ motion for summary judgment above, Plaintiff’s motion is moot.

The motion is denied.

Conclusion

Defendant Four Corners Housing, LLC’s Motion for Summary Judgment is GRANTED. Plaintiff Homebridge Management, Inc.’s Motion for Summary Judgment is DENIED.