Wells Fargo Bank, N.A. v. 6354 Figarden Gen. P'ship

• Decision Date: 01 July 2015
• Docket Number: F067568
• Court: California Court of Appeals Court of Appeals
• Parties: WELLS FARGO BANK, N.A., Plaintiff and Respondent, v. 6354 FIGARDEN GENERAL PARTNERSHIP et al., Defendants and Appellants.

238 Cal.App.4th 370

190 Cal.Rptr.3d 13

WELLS FARGO BANK, N.A., Plaintiff and Respondent

v.6354 FIGARDEN GENERAL PARTNERSHIP et al., Defendants and Appellants.

F067568

Court of Appeal, Fifth District, California.

Filed July 1, 2015

Petition for Rehearing Denied July 30, 2015

The Freeman Law Firm, Jordan M. Freeman, Fresno; Wendel, Rosen, Black & Dean, Charles A. Hansen and Kevin R. Brodehl, Oakland, for Defendants and Appellants.

Coleman & Horowitt, C. Fredrick Meine III, Fresno, and Jennifer T. Poochigian for Plaintiff and Respondent.

OPINION

FRANSON, J.

This appeal presents issues of statutory construction involving Code of Civil Procedure section 729.060¹ and the calculation of the redemption price for real property sold by judicial foreclosure. In general terms, the redemption price includes the amount paid by the purchaser at the foreclosure sale (1) adjusted upward for certain property-related expenses incurred by the purchaser and (2) adjusted downward or offset for certain benefits the purchaser obtained from the property.

The questions of statutory construction essential to the resolution of this appeal involve subdivision (c) of section 729.060, which states: “Rents and profits from the property paid to the purchaser or the value of the use and occupation of the property to the purchaser may be offset against the amounts [included in the redemption price pursuant to] subdivision (b).”

First, when the property subject to redemption contains multiple parcels, some vacant and unimproved and some improved with offices occupied by rent-paying tenants, is the sole measure of the offset “the value of the use and occupation of the property to the purchaser” for the entire property? We conclude it is not the sole measure because the statute allows the trial court to calculate the offset by adding (1) the amount of rents paid for the improved portion of the property with tenants and (2) the value (i.e., monetary worth) to the purchaser of the use and occupation of the unimproved and unleased portion of the property, if any such value was realized. In this case, the trial court's finding that the purchaser's use and occupation of the unleased portion had no value is supported by substantial evidence. Therefore, the trial court did not err in reducing the redemption price only by the rents paid.

Second, does the offset to the redemption price for “[r]ents ... paid to the purchaser” refer to gross rents or net rents? We conclude subdivision (c) of section 729.060 refers to net rents. Consequently, the redemptioner suffered no prejudice when the trial court subtracted the management fees and operating expenses related to the business of the renting units of the property from the redemption price as “reasonable amounts for ... maintenance, upkeep, and repair of improvements on the property” (§ 729.060, subd. (b)(2) ) because, if not treated as costs of maintenance and repair, those fees and expenses should have been deducted from the gross rents added to the redemption price. Thus, the final redemption price would have been the same if the management fees and operating expenses had been accounted for in calculating the net rents, rather than in calculating the maintenance and repairs.

We therefore affirm the order determining the redemption price.

FACTS AND PROCEEDINGS

Plaintiff in this judicial foreclosure action is Wells Fargo Bank, N.A. (Wells Fargo).

Defendants are 6354 Figarden General Partnership, a California general partnership, and its general partners Ralph Thomas Freeman, Linda Kay Freeman, Spencer Freeman, Jordan Freeman, Jared Freeman and Sara Freeman (collectively, Borrowers).

In May 2008, Wells Fargo and Borrowers entered into a construction loan agreement and related documents pursuant to which Wells Fargo agreed to finance Borrowers' development of a 10-acre parcel of real property located inside the Figarden Loop in Fresno, California. Under the agreement, Borrowers could take advances totaling $4,362,500 to fund the development of the property. The loan was secured by a construction deed of trust recorded against the property.

In June 2010, the construction loan matured and Borrowers did not pay the outstanding balance of approximately $2.7 million.

In April 2011, Wells Fargo filed a judicial foreclosure action and sought the appointment of a receiver to take control of the property. The application for a receiver asserted (1) the deed of trust explicitly authorized the appointment of a receiver to collect rents and manage the property and (2) Borrowers were mismanaging the property, converting cash collateral, and not paying the property taxes.

The trial court issued an order appointing a receiver, limiting the receiver's fees to $2,500 per month and authorizing the receiver to employ a management company at not more than the greater of $2,000 per month or 5 percent of gross monthly rents.

In November 2011, the parties entered a stipulation for entry of a foreclosure decree that stated the amount of the debt secured by the deed of trust totaled $2,940,410. Pursuant to the foreclosure decree, the trial court issued a writ of sale to the Fresno County Sheriff.

In February 2012, the judicial foreclosure auction was held and Wells Fargo, the only bidder, purchased the property for a partial credit bid of $1,332,000. Wells Fargo then filed an application requesting the property's fair value be set at $1,454,762.70 and the deficiency judgment be set at $1,564,762.95.

In March 2012, Wells Fargo took possession of the property from the receiver and hired Dana Butcher Associates (DBA) to manage the property. The receiver filed a final accounting and subsequently was discharged by the trial court.

In response to Wells Fargo's application for a deficiency judgment, Borrowers argued the fair value of the property was over $3.1 million, which exceeded the indebtedness, and therefore Wells Fargo was not entitled to any deficiency.

In June 2012, after taking evidence and hearing argument, the trial court filed a thorough 22-page statement of decision. The court found the fair value of the property was $2,451,545.40, allocating $700,000 to the vacant land and $1,751,545.40 to the office buildings. The court subtracted this fair value determination from the amount of the indebtedness and awarded Wells Fargo a deficiency judgment of $576,466.41.²

Borrowers paid the deficiency judgment in full and, in November 2012, an acknowledgement of satisfaction of judgment was filed with the court.

In December 2012, the parties resolved their dispute about who should be in possession of the property during the redemption period and, as a result, Wells Fargo and DBA surrendered the property to Borrowers.³

As to the redemption price, the parties were unable to agree on an amount. Consequently, in February 2013, Borrowers filed a petition requesting the court to determine the redemption price in accordance with the procedures set forth in section 729.070. The petition stated Wells Fargo demanded a redemption price of approximately $1.62 million while Borrowers asserted the price should be approximately $1.44 million. In support of their position, Borrowers argued that (1) Wells Fargo had included various types of expenses that the statute did not permit to be included in the redemption price and (2) the value of Wells Fargo's 296 days of use and occupation of the vacant portion of the property ($33,810) and the office buildings portion of the property ($164,657.10) should be subtracted from the redemption price.

In April 2013, the trial court filed a memorandum of decision explaining its determinations affecting the redemption price. The court addressed Borrowers' argument that the redemption price should be reduced by the value of the use and occupation of the property as follows:

“The subject property consists generally of an approximately ten acre parcel, three acres of which is improved with a small office suite complex and seven acres of which is unimproved. While the office complex had a history of generating income, the vacant land did not. Moreover, the vacant land was poorly maintained and would have required some fairly substantial investment to have been put in a position where it would have the potential to generate any income, not only to clean up, but also to subdivide. In the court's view, allocating a use value to the vacant land under these circumstances would be speculative at best and so the request is denied. As to the office complex, the court finds the actual rents received by [Wells Fargo] during its occupation of the property is the appropriate amount of credit to be allowed [Borrowers] because the alternative, in the form of the opinion of Gregg Palmer, improperly assumes the complex was a full service office building, rather than individual office suites with a relatively high vacancy factor, even at the time [Wells Fargo] took possession.”

As to Borrowers' argument that various expenses should not be included in the redemption price, the court found “the vast majority of the expenses incurred by [Wells Fargo] during its use and occupation of the property qualify as operating expenses and may be added to the redemption price.” Except for specific items identified in the decision, the court stated Borrowers had not proved the challenged expenses were unreasonable or resulted in a permanent improvement to the property. As a result, the court stated it “allows all other costs claimed by [Wells Fargo], including management fees, as necessary for ‘maintenance, upkeep and repair.’ ”

As directed by the court, counsel met and conferred to quantify the redemption price pursuant to the rulings and directions provided in the memorandum of decision. Then, proposed orders determining redemption price were submitted to the court.

On May 21, 2013, the trial court filed an order setting the redemption price at $1,581,542.17, which included (1) the $1,332,000 bid at the sale, (2) real property taxes, (3) insurance costs, (4) maintenance, upkeep...