Judge: William A. Crowfoot, Case: 24AHCP00024, Date: 2024-10-03 Tentative Ruling

Case Number: 24AHCP00024    Hearing Date: October 3, 2024    Dept: 3

SUPERIOR COURT OF THE STATE OF CALIFORNIA

FOR THE COUNTY OF LOS ANGELES - NORTHEAST DISTRICT

 

NATIONAL DEFAULT SERVICING CORPORATION

                    Petitioner,

          vs.

 

ALL CLAIMANTS TO SURPLUS FUNDS AFTER TRUSTEE'S SALE OF REAL PROPERTY LOCATED AT: 540 N MARENGO AVE APT 3, PASADENA, CA 91101,

 

                    Respondent(s).

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     CASE NO.:  24AHCP00024

 

[TENTATIVE] ORDER RE: HEARING ON CLAIMS TO SURPLUS FUNDS FROM TRUSTEE’S SALE OF REAL PROPERTY

 

 

 

 

 

Dept. 3

8:30 a.m.

October 3, 2024

 

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I.            INTRODUCTION

National Default Servicing Corporation (“NDSC”) commenced this special proceeding on January 17, 2024. This special proceeding arises because from a trustee’s sale of real property which resulted in a surplus of funds. The property that was encumbered by the deed of trust is located at 540 N. Marengo Avenue, Apt. 3, Pasadena, CA 911011. The trustor on the deed of trust was Robert G. May, who passed away on March 31, 2012.

A trustee’s sale was held on September 19, 2022. The total sale price of the property was $625,500. Surplus funds in the amount of $232,364.85 were deposited with the Court and on June 3, 2024, the Court set a hearing on all potential claims to the surplus funds for July 23, 2024. All potential claims were to be filed at least 15 days before the hearing date. 

II.          LEGAL STANDARD

Civil Code section 2924j(c) permits a trustee unable to determine the priority of claims to the surplus from a trustee's sale to file a declaration of the unresolved claims and deposit the undistributed proceeds with the clerk of the Superior Court in which the sale occurred. Upon deposit of that portion of the sale proceeds that cannot be distributed by due diligence, the trustee shall be discharged of further responsibility for the disbursement of sale proceeds. Any amount deposited by the Trustee with the clerk is deposited by the clerk with the County Treasurer subject to order of the Superior Court upon the application of any interested party.

Civil Code section 2924k specifies the following order of priority for distribution of the proceeds:

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.

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.

The first and second priorities were satisfied when the obligations secured by the deed of trust were paid and the trustee's fees and expenses were paid. (Petition, ¶ 16(e)-(g).)

III.        DISCUSSION

On February 16, 2024, Marti Mackey filed a response to NDSC’s petition arguing that the property is subject to an existing probate case (Case No. 17STPB00634) and that she is filing a wrongful foreclosure lawsuit.

On February 28, 2024, a claim was filed by Malia M. Cohen, State Controller of California, for surplus proceeds in the amount of $3,250.87. The State Controller has a lien on the property dated April 25, 2007, which was recorded on May 14, 2007.

On March 19, 2024, NDSC filed a reply to Mackey’s response stating that the hypothetical challenge to the foreclosure sale should not impact its ability to deposit the surplus proceeds. NDSC also addressed the various issues regarding notice raised by Mackey. Mackey filed a reply purporting to rebut NDSC’s arguments and reiterating claims of a wrongful foreclosure.

On March 28, 2024, the Court granted NDSC’s petition to deposit the proceeds and the proceeds were subsequently deposited with the clerk.

On July 9, 2024, Elizabeth M. Armstrong filed correspondence requesting “due consideration in the distribution of any surplus funds” in accordance with May’s will. Armstrong does not have a recorded interest in the property and therefore is not entitled to a distribution of funds through this special proceeding, which is intended to satisfy the obligations secured by junior lienholders. (Cal-Western Reconveyance Corp. v. Reed (2007) 152 Cal.App.4th 1308, 1318.)   

On July 11, 2024, Mackey filed a “response to hearing re: surplus funds” citing to the probate case as well as an action for wrongful foreclosure, quiet title, and cancellation of documents (Case No. 24NNCV02639), filed on July 1, 2024, and assigned to the Honorable Ian C. Fusselman, Department T of the Alhambra Courthouse. This wrongful foreclosure action is brought by Mackey as an individual and as the administrator of the Estate of Robert G. May against NDSC, among others. Mackey seeks declaratory relief and decrees cancelling the trustee’s sale as well as other recorded instruments. Mackey also seeks compensatory, general, special, and punitive damages.

According to the order of priority established by Civil Code section 2924k, the surplus funds are to first be distributed to the State Controller in the amount of $3,250.87, with the remaining amount going to the Estate of Robert G. May. However, the Court declines to distribute the surplus funds resulting from the trustee’s sale at this time in light of Mackey’s pending action which seeks to invalidate that sale. Instead, the Court continues the hearing on the distribution of surplus funds to June 2, 2025, at 8:30 a.m. in Department 3 of the Alhambra Courthouse. The Court also sets a non-appearance case review or April 2, 2025, to ascertain the progress of Mackey’s wrongful foreclosure action.

IV.        CONCLUSION

The hearing on the distribution of surplus funds is continued to June 2, 2025, at 8:30 a.m. in Department 3 of the Alhambra Courthouse. A non-appearance case review is scheduled for April 2, 2025.

Dated this 3rd day of October, 2024

 

 

 

 

       William A. Crowfoot

Judge of the Superior Court

 

 

Parties who intend to submit on this tentative must send an email to the Court at ALHDEPT3@lacourt.org indicating intention to submit on the tentative as directed by the instructions provided on the court website at www.lacourt.org. Please be advised that if you submit on the tentative and elect not to appear at the hearing, the opposing party may nevertheless appear at the hearing and argue the matter. Unless you receive a submission from all other parties in the matter, you should assume that others might appear at the hearing to argue. If the Court does not receive emails from the parties indicating submission on this tentative ruling and there are no appearances at the hearing, the Court may, at its discretion, adopt the tentative as the final order or place the motion off calendar.