Smith v. James A. Merrill, Inc.

• Citation: 75 Cal.Rptr.2d 108,64 Cal.App.4th 94
• Decision Date: 22 May 1998
• Docket Number: No. D027391,D027391
• Court: California Court of Appeals Court of Appeals
• Parties: , 98 Cal. Daily Op. Serv. 3900 William SMITH et al., Plaintiffs and Appellants, v. JAMES A. MERRILL, INC. et al., Defendants and Respondents.

Page 108

75 Cal.Rptr.2d 108

64 Cal.App.4th 94, 98 Cal. Daily Op. Serv. 3900

William SMITH et al., Plaintiffs and Appellants, v. JAMES A. MERRILL, INC. et al., Defendants and Respondents.

No. D027391.

Court of Appeal, Fourth District, Division 1, California.

May 22, 1998.

[64 Cal.App.4th 96] Bruce M. Douthit, San Diego, for Plaintiffs and Appellants.

Karp & Richardson, N. James Richardson, Huffman & Kostas and James C. Kostas, San Diego, for Defendants and Respondents.

HUFFMAN, Associate Justice.

Plaintiffs William and Nancy Jo Smith and Ralph Wilkerson appeal from a summary judgment entered in favor of defendants James A. Merrill, Inc., James A. Merrill, ¹ Kenneth A. Kirkland, and Michael and Claudia Stoneff on plaintiffs' complaint for declaratory relief. In granting summary judgment, the trial court determined as a matter of law that the remaining proceeds of a trustee's sale of real property owned by Ralph and Evon Wilkerson should be distributed to Merrill based on Merrill's judgment lien against the property. Plaintiffs contend Merrill's judgment lien never attached to the property because the Wilkersons recorded a homestead declaration on the property before Merrill recorded his abstract of judgment. We conclude Merrill's judgment lien attached to the property, but issues of fact remain with respect to the amount of that lien due to the prior recording of the Wilkersons' homestead declaration. Accordingly, we reverse the judgment.

FACTUAL AND PROCEDURAL BACKGROUND

The following facts are undisputed. ² Ralph and Evon Wilkerson owned a home in Alpine which was encumbered by a first deed of trust securing a promissory note. In November 1981, they recorded a homestead declaration with respect to that property.

In March 1983, Gerald and Maryjane Wolfson recorded a second deed of trust on the property, which secured an $18,000 note executed by the Wilkersons. Subsequently, the Wolfsons assigned their interest in the note and deed of trust to defendants Michael and Claudia Stoneff.

Sometime before March 1987, Merrill obtained a judgment against Ralph Wilkerson in the amount of $65,195.44. In March 1987, Merrill recorded an abstract of that judgment with the recorder's office in San Diego County.

In September 1987, the Wilkersons executed a note in favor of Maria Suty in the amount of $30,000. Evon Wilkerson executed a third deed of trust on the Alpine property to secure that note. The deed of trust was recorded in October 1987. Ultimately, Suty's interest in the note and deed of trust was assigned to defendant Kenneth Kirkland.

In July 1988, the Wilkersons gave a fourth deed of trust on the property to plaintiffs William and Nancy Jo Smith to secure a $25,000 note. The Smiths recorded the deed of trust in September 1988.

In early 1995, the Wilkersons were in default on the note secured by the second deed of trust. Accordingly, the Stoneffs commenced proceedings for sale of the property under the power of sale in the deed of trust. ³ On August 28, 1995, the property was sold by San Diego Foreclosure Services, Inc. as In October 1995, Ralph Wilkerson, joined by the Smiths, filed a complaint for declaratory relief against Merrill, Kirkland, and the Stoneffs to determine who was entitled to the remaining proceeds of the trustee's sale. Plaintiffs alleged that the Wilkersons' declared homestead in the Alpine property precluded Merrill from claiming the remaining proceeds based on his judgment lien and that the proceeds should be distributed instead to the junior trust deed holders--Kirkland and the Smiths. ⁴

trustee for the Stoneffs. The buyer paid $105,100 for the property and assumed the first note and deed of trust. The trustee distributed approximately $50,000 of the sale proceeds to pay the costs of the sale and the note held by the Stoneffs. Approximately $55,000 remained to be distributed.

Merrill and Kirkland moved for summary judgment, contending Wilkerson was not entitled to claim a homestead exemption in connection with a nonjudicial foreclosure sale and therefore Merrill was entitled to the remaining sale proceeds as the senior lienholder following the Stoneffs. Plaintiffs opposed that motion and filed their own motion for summary adjudication. Plaintiffs contended that, pursuant to CODE OF CIVIL PROCEDURE SECTION 704.950⁵, subdivision (c), Merrill's judgment lien never attached to the Alpine property because the proceeds of the trustee's sale did not exceed the sum of the senior liens (the first and second deeds of trust) and the applicable homestead amount, which plaintiffs claimed was $75,000. Plaintiffs sought a determination that the deeds of trust held by Kirkland and the Smiths had priority over Merrill's judgment lien and that the Kirkland deed of trust, if valid, was valid as to only half of the sale proceeds because it was executed only by Evon Wilkerson.

After requesting and receiving additional briefing on several issues, the trial court granted Merrill and Kirkland's motion, holding there was no triable issue of material fact that Merrill was entitled to the remaining sale proceeds based on the judgment lien. In so ruling, the trial court relied on the decision in Spencer v. Lowery (1991) 235 Cal.App.3d 1636, 1 Cal.Rptr.2d 795, which held that a judgment debtor may not claim a homestead exemption on the proceeds of a nonjudicial foreclosure sale.

Plaintiffs moved for reconsideration, contending the court had failed to determine the validity and priority of Merrill's judgment lien. The court issued an order granting Plaintiffs' motion, but on reconsideration it merely affirmed its original ruling in favor of Merrill. Accordingly, the court entered judgment directing the trustee to distribute the remaining sale proceeds to Merrill. Plaintiffs appeal. ⁶

DISCUSSION

When property is sold at a trustee's sale pursuant to a power of sale contained in a deed of trust, Civil Code section 2924k, subdivision (a) provides for the distribution of the proceeds in the following order of priority:

"(1) To the costs and expenses of exercising the power of sale....

"(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...."

Here, approximately $55,000 in sale proceeds remained to be distributed under Civil Code section 2924k, subdivision (a)(3) after the trustee paid the costs of sale and the note secured by the deed of trust held by the Stoneffs. The trial court concluded Merrill was entitled to the remaining proceeds as a matter of law because his judgment lien was the next lien on the Alpine property following the Stoneffs' deed of trust. Plaintiffs contend Merrill was not entitled to the remaining sale proceeds because Merrill's judgment lien never attached to the Alpine property due to the homestead declaration the Wilkersons recorded in 1981. Although we reject plaintiffs' contention that Merrill's judgment lien never attached to the property, we conclude Merrill was not entitled to the remaining proceeds of the trustee's sale as a matter of law because the amount of his judgment lien remains to be determined.

A judgment lien on real property is created by recording an abstract of a money judgment with the county recorder. (§ 697.310, subd. (a).) Generally, a judgment lien for the amount required to satisfy the money judgment attaches to all interests in real property which are subject to the enforcement of money judgments located in the county where the lien is created. (§§ 697.340, subd. (a), 697.350, subd. (a).) That rule does not apply, however, when a declaration of homestead has been recorded on the property in question before the abstract of judgment is recorded. (See §§ 697.340, 704.950.) In such a case, the judgment lien generally attaches to the declared homestead only "in the amount of any surplus over the total of the following: [p] (1) All liens and encumbrances on the declared homestead at the time the abstract of judgment or certified copy of the judgment is recorded to create the judgment lien. [p] (2) The homestead exemption set forth in Section 704.730." ⁷ (§ 704.950, subd. (c); see also Teaman v. Wilkinson (1997) 59 Cal.App.4th 1259, 1264, 69 Cal.Rptr.2d 705.)

To the extent plaintiffs rely on pre-1982 case law to argue Merrill's lien never attached to the Alpine property because Merrill never sought to levy execution on the property, plaintiffs' reliance is misplaced. Before the enactment of the Enforcement of Judgments Law (§ 680.010 et seq.) in 1982, a judgment lien could never attach to property subject to a prior homestead declaration, regardless of whether the value of the property exceeded the amount of the homestead exemption. (See, e.g., Engelman v. Gordon (1978) 82 Cal.App.3d 174, 178-179, 146 Cal.Rptr. 835.) The only way for a judgment creditor to reach the excess value in the property above the homestead exemption was to levy execution on the property. (Id. at p. 179, 146 Cal.Rptr. 835; Swearingen v. Byrne (1977) 67 Cal.App.3d 580, 585-587, 136 Cal.Rptr. 736.) By enacting subdivision (c) of section 704.950, the Legislature made it possible for the first time for a judgment creditor to obtain a lien on a declared homestead. (See Stoffel v. Dutton (1985) 175 Cal.App.3d 1185, 1187, 221 Cal.Rptr. 346.) That lien attaches to the homestead without the need for any action other than the recording of the abstract of judgment. The amount of the lien is limited, however, to any surplus over the total of (1) any liens and encumbrances existing when the abstract of judgment was recorded, and (2) the amount of the applicable homestead exemption. ⁸ (§ 704.950, subd. (c).)

Recent case law suggests a judgment lien does not attach to a declared homestead under section 704.950, subdivision (c), unless...