2018-00224749-CU-BC

Lek Service Corp vs. Fu Ji Lin

Nature of Proceeding: Motion to Appoint a Receiver

Filed By: Whiteford, Kevin P.

Plaintiff’s Application for Appointment of a Receiver is DENIED.

Pleadings

Plaintiff’s verified complaint, filed Jan. 3, 2018 sets forth causes of action for breach of contract (Note and Deed of Trust) and Judicial Foreclosure against defendant Fu Ji Lin, Does 1-20 and Junior Lienors 21-60.

The complaint alleges that on or about June 7, 2017, Debtor executed and delivered to LEK’s predecessor, Val-Chris Investments, Inc., a promissory note in the original principal sum of $373,750.00 and a first priority deed of trust encumbering a residence commonly known as 13493 Montfort Avenue, Herald, California 95638. On or about June 13, 2017, Val-Chris assigned the Deed of Trust and all benefits thereunder to LEK. (Compl. ¶ ¶ 6-8)

Plaintiff alleges that Debtor defaulted under the Note and Deed of Trust by, inter alia, failing to timely pay property taxes, and committing waste on the Property and altering the Property so as to make it violate any number of local and state laws, ordinances, and regulations. (Compl. ¶ 9)

LEK thus accelerated the Note. Despite demand therefor, Debtor has failed and refused to cure the aforesaid defaults. (Compl. ¶ 10)

Ex Parte

On Jan. 5, 2018, on an ex parte Application for Appointment of a Receiver at which only plaintiff’s counsel was present, this Judge temporarily appointed a receiver and granted the Order to Show Cause why the Receiver’s Appointment Should Not Be Confirmed.

On Jan. 5, 2018, the Court ordered that Kimberly A. Wilcox be appointed receiver of all the real property commonly known as 13493 Montfort Avenue, Herald, California 95638 together with all structures, fixtures, appurtenances and related personal property , subject to the posting of a $50,000 undertaking. The receiver’s bond was posted on Jan. 10, 2018.

Evidence

Moving party Plaintiff (Creditor) is the Assignee of the Note and Deed of Trust securing the principal sum of $373,750 for the residence located at 13493 Montfort Avenue, Herald, California 95638. (Kaminski Dec., ¶ ¶ 3-5, Exhs. A, B and C.)

Plaintiff relies upon the language in para. 17 of the Deed of Trust that provides that upon default, Creditor has the right to appoint a receiver to take possession of the property and collect rents, issues and profits and to care for and manage the property to protect creditor’s interests. (Kaminski Dec., ¶ 4, Exh. B) That language provides as follows:

“17. Assignment of Rents; Appointment of Receiver; Lender In Possession. As additional security hereunder, and without regard to the adequacy of any security for the indebtedness hereby secured, Borrower hereby assigns to Lender the rents of the Property, provided that Borrower shall, prior to acceleration under paragraph 18 hereof or abandonment of the Property, have the right to collect and retain such rents as they become due and payable.

Upon acceleration under paragraph 18 hereof or abandonment of the Property, Lender, in person, by Agent or by judicially appointed receiver shall be entitled to enter upon, take possession of and manage the Property and to collect the rents of the Property including those past due. All rents collected by Lender or the receiver shall be applied first to payment of the costs of management of the Property and collection of rents, including, but not limited to, receiver’s fees, premiums on receiver’s bonds and reasonable attorney’s fees, and then to the sums secured by this Deed of Trust. Lender and the receiver shall be liable to account only for those rents actually received.”

Plaintiff at the ex parte hearing provided the Kaminski Declaration with supporting evidence. Kaminski is the President of Plaintiff LEK Service Corp. (Creditor) and a

custodian of business records.

The Court SUSTAINS the defendant’s evidentiary objections nos. 1-3 to paras. 6, 7, 8 of the Kaminski declaration, on the basis of lack of personal knowledge, expert opinions and legal conclusions. The Court SUSTAINS the defendant’s evidentiary objection nos. 4-11 to para. 8, 10 – 16 on the grounds of hearsay, lack of foundation, lack of personal knowledge and for lack of authentication.

Mortgage and Property Taxes

Plaintiff sent a letter dated Dec. 27, 2017 by US Mail to Lin’s New York address notifying him that he was in default due to failure to keep property taxes current and failure to keep the property in good repair and not commit waste, therefore the entire loan had been accelerated and defendant was required to payoff the loan in full by Jan. 27, 2018. (Lin Dec., ¶ 26, Exh. R)

Defendant did not receive that letter until he returned home to New York on Jan. 4, 2018, from California where he had been arranging to remedy the notice of unpermitted electrical wiring from the County of Sacramento.

Defendant’s evidence reflects that he purchased the real property as an investment, and his brother in law was a tenant on the premises.

Defendant has always been current in his mortgage payments, which have been cashed by the plaintiff, even while plaintiff sought the appointment of a receiver. (Lin Dec., paras. 31-33)

The basis for the defendant’s alleged “default” on the loan is the defendants’ failure to timely pay the Dec. 2017 property tax bill. The Creditor Plaintiff asserts that it made two payments of the taxes on Dec. 22, 2017 in the amount of $1,790.54 and $1,635.00. (Baron Dec. ¶ 2, Exh. A)

Defendant declares that he is a resident of New York, has never previously owned property in California and is unfamiliar with the schedule for payment of property taxes in California. (Lin Dec., para. 22) Lin declares that he did not receive the Dec. 2017 property tax bill for $1635.98, and was unaware of it and therefore failed to timely pay it. However, he promptly paid the supplemental property tax bill in the amount of $1790.54 in Dec. 2017, before it was due. (Lin Dec., paras. 22-25, 28, 35).

The Creditor provided no timely notice and opportunity to cure to Lin regarding his failure to pay the Dec. 2017 property tax bill when due. (Lin Dec., para. 28)

Waste of Real Property

Plaintiff’s evidence of “waste” of the real property is based on primarily inadmissible evidence that the real property was used as marijuana grow house, with unpermitted electrical wiring. Defendant’s objections to the specified evidence submitted have been sustained.

Defendant Lin declares that on Nov. 24, 2017 he became aware that Tiawan Ye and others were arrested at his real property. No criminal charges were filed against defendant Lin, the owner of the real property. (Lin Dec. para. 7) On learning of the

arrests and his failure to receive the Dec. rent payment, Lin flew to California to inspect the real property, arriving on Dec. 26, 2017. There was no artificial light at the property to inspect during that night. (Lin Dec. para. 7-10)

Lin returned to the property on Dec. 30, to inspect and conduct repairs. He found a letter from the County of Sacramento dated Dec. 28, 2017 attached to the gate reflecting that a 1st notice of violation was issued Dec. 27, 2017, reflecting a complaint regarding unpermitted electrical work. He understood that the notice gave him 30 days to correct the violation. (Lin Dec. paras. 12-14.)

Lin retained the services of Sharma Electric, a licensed electrical contractor to perform the required remedial work. (Lin Dec., para. 14-16; Sharma Dec. para. 5-7, 18, Exh. D) On Jan. 3, 2018, Sharman applied for a permit from the County of Sacramento and began work to remove the violation. On Jan. 4, 2018, after completing work at the house, Sharman became aware that additional work was required to remediate the garage and barn on the property. Lin intended to authorize Sharma to complete the remainder of the remediation on Jan. 5, 2018, however the ex parte appointment of a receiver prevented Sharma from completing the additional work. (Lin Dec., para. 19; Sharma Dec. para. 8-36)

Plaintiff sent a letter dated Dec. 27, 2017 by US Mail to Lin’s New York address notifying him that he was in default and that the entire loan had been accelerated. (Lin Dec., ¶ 26, Exh. R) Defendant did not receive that letter until he returned home to New York on Jan. 4, 2018, from California where he had been arranging to remedy the notice of unpermitted electrical wiring from the County of Sacramento.

Code Civ. Proc., § 564 (b) (2) provides that a receiver may be appointed by the court in the following cases: “In an action by a secured lender for the foreclosure of a deed of trust or mortgage and sale of property upon which there is a lien under a deed of trust or mortgage, where it appears that the property is in danger of being lost, removed, or materially injured, or that the condition of the deed of trust or mortgage has not been performed, and that the property is probably insufficient to discharge the deed of trust or mortgage debt.”

The Court in Barclays Bank of California v. Superior Court (1977) 69 Cal.App.3d 593, 602, wrote “We therefore hold it to be the law of California that although a trust deed’s recital that upon default the beneficiary shall be entitled to the appointment of a receiver is not binding upon the courts, such a recital nevertheless has some evidentiary weight. Ascribing to the recital such evidentiary weight, it reasonably follows that it presents a prima facie, but rebuttable, evidentiary showing of the beneficiary’s entitlement to appointment of a receiver.”

Here, the trust deed’s recital is not binding on this Court, but provides only a rebuttable showing of the plaintiff beneficiary’s entitlement to appointment of a receiver.

The opposition papers of defendant reflect that there was no material breach of the deed of trust, any technical breach has been waived by the continued acceptance of the mortgage payments, and the plaintiff’s representations in its ex parte application that it was required to make two property tax payments (the second prior to the due date) constitutes unclean hands. The doctrine of unclean hands does not deny relief to a plaintiff guilty of any past misconduct; only misconduct directly related to the matter in which he seeks relief triggers the defense.” (Kendall-Jackson Winery, Ltd. v.

Superior Court (1999) 76 Cal.App.4th 970, 974.)

Defendant has shown his good faith in working to prompt remedy the need for repairs at the real property by flying to California on Dec. 26, 2017, a week before this action was filed. He immediately went to inspect the property, found the notice of code violations and retained the electrician Sharma who pulled a permit on Jan. 3, 20187 and made significant progress to complete the remedial work, only being interrupted by the interim appointment of a receiver at the ex parte hearing on Jan. 4, 2018.

No showing has been made that Lin allowed the property to suffer waste. His lack of ability to speak English and the intervening Christmas and New Year’s holidays caused only a brief delay.

The value of the real property at issue here is in excess of $630,000, and Lin currently owes $374,444.32 in principle. Thus the holder of the deed of trust is in no danger of the impairment of his security. (Lin Dec., para. 36) Defendant wishes to retain control of his real property, and once control is returned to him he will retain the services of Jenny Jian, a licensed real estate agent to manage the property, ensuring that all property tax bills are timely paid, obtaining and approving renters, and eventually placing the property on the market for resale. (Lin Dec., para. 37)

As the property is currently not rented, there is no need for a receiver to collect rents. Once the receiver’s appointment is set aside, Lin declares that he will contract for the completion of the remediation to the real property. (Lin Dec., para. 38)

The Court would note that receivership is a provisional remedy authorized by statute (see Code Civ. Proc. §§ 564-570; Kreling v. Kreling (1897) 118 Cal. 421, 422; Steinberg v. Goldstein (1956) 145 Cal. App. 2d 692, 698.) Thus, the appointment of a receiver is ancillary to or in aid of the action brought (La Societe Francaise d’Epargnes et de Prevoyance Mutuelle v. District Court of Fifteenth Judicial Dist. (1879) 53 Cal. 495, 553.) Because it is a remedy incidental to the main objects of the complaint, there is no such thing as an action brought for the mere appointment of a receiver (Id.; Starbird v. Lane (1962) 203 Cal. App. 2d 247, 261.) Receivership is, however, an extraordinary remedy, to be applied with caution, and only in cases of apparent necessity, and when other remedies would be inadequate (Rogers v. Smith (1946) 76 Cal. App. 2d 16, 21.)

The Order to Show Cause is discharged. The Receiver is ordered to stop all work and allow defendant full access to the real property. The Receiver is discharged and shall submit a statement and final accounting for payment of services rendered to date to the court for approval; upon approval such fees and costs shall be paid by defendant