Cnty. of Sonoma v. Quail

56 Cal.App.5th 657

270 Cal.Rptr.3d 1

COUNTY OF SONOMA, Plaintiff and Respondent,

v.James QUAIL, Defendant;

U.S. Bank N.A., as Trustee, etc., Defendant and Appellant.

California Receivership Group, Inc., Defendant and Respondent.

A155837, A157245

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

Filed October 8, 2020

As Modified on Denial of Rehearing October 28, 2020

Reed Smith, Raffi L. Kassabian, Kasey J. Curtis, Zachary C. Frampton, Todd S. Kim, for Defendant and Appellant U.S. Bank N.A.

Bruce D. Goldstein, Robert Pittman, County Counsel, Diana E. Gomez, Holly E. Rickett, Deputy County Counsel, for Plaintiff and Respondent

California Receivership Group, Mark S. Adams, Andrew F. Adams, for Defendant and Respondent

Sanchez, J.

After many unsuccessful attempts by the County of Sonoma (County) to compel James Quail to abate numerous hazardous and substandard conditions on his real property, the County sought and obtained the appointment of a receiver pursuant to Health and Safety Code ¹ section 17980.7 and Code of Civil Procedure section 564 to oversee the necessary abatement work. In these consolidated appeals, U.S. Bank National Association, as Trustee, Deutsche Alt-A Securities Mortgage Loan Trust, Series 2007-2 Mortgage Pass Through Certificates Series 2007-2 (U.S. Bank), challenges the superior court's order authorizing the receiver to finance its rehabilitation efforts through a loan secured by a "super-priority" lien on the property. U.S. Bank also challenges the court's subsequent order authorizing sale of the property free and clear of U.S. Bank's lien.

It has long been recognized that trial courts enjoy broad discretion in matters subject to a receivership, including the power to issue a receiver's certificate with priority over preexisting liens when circumstances warrant this extraordinary step. We conclude that the trial court did not abuse its discretion in subordinating U.S. Bank's lien and confirming the sale of the property free and clear of all liens so that the receiver could remediate the nuisance conditions on the property promptly and effectively. However, the court's order prioritizing the County's enforcement fees and costs on equal footing with the receiver finds no basis in the receivership statutes. We therefore affirm the judgment in part, reverse in part, and remand for a determination of the sale distribution consistent with this opinion.

I. FACTUAL AND PROCEDURAL BACKGROUND

A. Failure to Remediate Hazardous Conditions on Property

Quail was the owner of a 47,480-square-foot lot with two houses, large garages, and several outbuildings in an unincorporated area of Sonoma County. The property came to the County's attention in May 2013 when an inspection of one of its seven structures revealed hazardous and unpermitted electrical wiring, hazardous decking and stairs, unpermitted kitchens and plumbing, broken windows, and lack of power. In December 2013, this structure was destroyed in a fire and two large outbuildings, unlawfully being used as residential dwellings, were also damaged. One report described the conditions on the property as follows:

"The [p]roperty ... exists as a makeshift, illegal mobile home park and junkyard. The list of unaddressed violations is extensive, and includes substandard building conditions, substantial fire damage and risk, and a massive accumulation of junk and debris throughout the homes and exterior of the [p]roperty. There are multiple motorhomes, trailers and other vehicles that are not currently registered and many of these are in very poor shape. The property consists of six buildings. In total, there are three dwelling-like units: one fire-damaged barn and two houses, each of these homes with occupants and multiple illegal and unsanitary living conditions. One of the buildings is being occupied by one James Quail and is a legal albeit non-conforming structure with four bedrooms and two bathrooms, that would require significant work to get it up to code. Another structure is being unlawfully occupied by a family, including several young children.... There is an additional motorhome and other trailers with occupants inside. The exterior of the [p]roperty alone has approximately 150 yards of debris, and the amount of debris inside of the structures (not counting trailers and motor homes) equates to a similar amount. There is an illegal homeless encampment across the street in a field that has been problematic to the [p]roperty, which occupants both relay concern over but simultaneously seem to involve themselves with."

Multiple attempts by the County to gain access to the property for a full inspection were unsuccessful. In December 2013, the County issued two notices and orders for substandard buildings, notifying Quail that the buildings were not to be occupied and directing him to obtain permits either to bring the buildings up to code or to remove them. After Quail continued to deny access to the property, the County filed an ex parte request for an inspection warrant. In support of its request, the County noted that the sheriff's department had responded to 412 "events" concerning the property from 2008 to 2014, including suspicious persons, warrant attempts, and other disturbances. The fire department had responded to the property over 30 times on calls for medical aid. An inspection warrant was issued in July 2014. The resulting inspection revealed a litany of code violations and hazardous conditions.

In September 2014, the County filed a complaint seeking to enjoin the code violations and abate the public nuisances on the property. The parties entered a stipulated judgment in December 2014 in which Quail was permanently enjoined from maintaining violations of the County's building, fire, and zoning codes on the property. He was ordered to abate all violations on the property within 90 days.

Quail failed to abide by the terms of the stipulated judgment. Following inspections in January and February 2017, the County sent letters requesting abatement of violations. When the County reinspected the property in June 2017, not only had the violations set forth in the stipulated judgment not been abated, but the County found more occupied trailers and recreational vehicles and more individuals living in uninhabitable structures that had been ordered vacated. Given these dire circumstances, the County notified Quail—with copies to U.S. Bank, its loan servicer, and all other lienholders on the property—of its intent to seek a court-appointed receiver to oversee the necessary abatement work on the property and to "record a lien against the [p]roperty for the amount of those clean-up efforts" if Quail was unable to pay them. (Italics and bolding omitted.)

B. Appointment of Receiver and Request for Super-priority Lien

Over the next five months, the County received no response from any of the noticed parties. The property's substandard buildings, unlawful and hazardous constructions, unlawful occupancies, fire hazards, and accumulation of junk, garbage, and debris had been left unattended. Finding an "urgent need" to abate the extensive code violations on the property, the County filed a petition in Sonoma County Superior Court in November 2017 seeking appointment of a receiver under the authority of both section 17980.7 and Code of Civil Procedure section 564. The petition sought authorization for the receiver to finance the necessary repairs and clean-up with a loan secured by a lien with priority over all other previously recorded liens on the property—i.e., a "super-priority lien." The petition requested permission for a receiver's certificate of $30,000 with first priority to cover the initial costs of securing the property and beginning the remediation process. And it asked that all receiver and County fees and expenses also be granted super-priority status, to be paid first out of any proceeds from sale. Copies of the pleadings and all supporting materials were served on U.S. Bank in early January 2018.

On January 19, 2018, the trial court granted the County's petition for appointment of a receiver pursuant to section 17980.7, subdivision (c), and Code of Civil Procedure section 564. The court found that the property was in a condition which substantially endangered the health and safety of the public. The order authorized the receiver to exercise the powers granted to receivers by section 17980.7, subdivision (c)(4), and Code of Civil Procedure section 568. It authorized the receiver to borrow funds to finance the necessary remediation on the property and to fund a $30,000 receivership certificate to cover initial costs. The order further provided that the County was entitled to recover its attorney fees and costs and that such enforcement fees would be given the same priority as those of the receiver. The court denied, however, the County's request to issue the receiver's certificate on a super-priority basis.² No appeal was taken from the appointment order.

In May 2018, the receiver filed a motion requesting authorization to obtain a receiver's certificate in the amount of $115,000, secured by a super-priority lien, to ameliorate the nuisance conditions on the property. According to the receiver, he had attempted to negotiate a resolution with the owners and occupants of the property, as well as with U.S. Bank to foreclose on the property, to no avail. The receiver came to the conclusion that the occupants would not vacate and U.S. Bank would not foreclose.³ Moreover, the receiver was unable to obtain financing to carry out the abatement work because no lender would fund the $30,000 receiver's certificate authorized by the court on a nonpriority basis, given the amount of debt already secured by the property.

The receiver's motion laid out three possible options for remediation of the property. The receiver recommended an intermediate option in which the junkyard conditions would be removed, the most damaged structure on the property demolished, the...