Phillis v. Cnty. of Humboldt

59 Cal.App.5th 432

273 Cal.Rptr.3d 534

Tim PHILLIS et al., Plaintiffs and Appellants,

v.COUNTY OF HUMBOLDT, Defendant and Respondent.

A158725

Court of Appeal, First District, Division 2, California.

Filed December 31, 2020

Certified for Partial Publication.^*

Tim Phillis, Pro. Per.

Office of County Counsel, Jeffrey S. Blanck, County Counsel, Jefferson Billingsley, Interim County Counsel, for Respondent.

Kline, P.J. Appellants Tim and Kathy Phillips sought a reduction in the value at which property they purchased at a trustee's sale was assessed, then challenged the value determined by the Assessment Appeals Board (Board) in superior court. They appeal from the judgment against them, arguing the Board improperly failed to apply the statutory presumption that the purchase price established the property's value, conducted a flawed comparable sales analysis, and made various other errors. We affirm.

BACKGROUND

On June 26, 2013, appellants purchased real property in Humboldt County at a public trustee sale for $153.806.41. The trustee's deed, was recorded on July 12, 2013.¹

The property consists of two 80-acre parcels (parcel 101-122-006 & 101-131-001), which appellant² testified had been merged in May 2000, and which were treated as one appraisal unit by the Humboldt County Assessor (Assessor). The terrain is mostly steep and wooded.

As described by the appraiser, there is a 1,508 square foot, three-bedroom, two-bathroom, manufactured home on a permanent foundation on parcel 101-131-001, which uses a solar generator system for power, a spring-fed water system, and septic system. There are also several outbuildings and sheds that are in poor condition and do not add to the overall value of the property.

According to appellant's testimony, the property had been purchased in May 2000 for $125,000, and the owner added the modular home in 2001 at a cost of $85,000. The prior owners tried without success to sell all or a portion of the property in 2005, 2006, and 2009, and the mortgage holder foreclosed in 2012. The property is approximately two miles from a public road. When the prior owners left the property, they took the gas-powered generator, which was the only source of power; PG&E is two miles away. The prior owners had drilled two wells that failed to produce water and "had been hauling domestic water for years." Mice had ruined the central heat ducting under the house and the private road had been neglected for years. As appellant noted, the appraiser stated the property was in "poor" condition.

After purchasing the property, appellant found a water source and installed a solar pump to pump water for the house, as well as an operating solar system.

On November 26, 2013, appellants submitted an application for changed assessment (application No. 13-26); they filed an additional application (application No. 14-68) on November 10, 2014, and two more (application Nos. 14-72 & 14-73) on November 12, 2014.³ The enrolled property value challenged in application Nos. 13-26, 14-72, and 14-73 was $469,976, which was the prior owner's assessment.⁴ In November 2014, the Assessor reappraised the property at $415,000, using a comparable sales analysis, and this was the value challenged in application No. 14-68. The Assessor explained that this appraisal was the result of a "2013 Prop 8" conducted as an "interim" measure because appellants had purchased the property and were responsible for the outstanding taxes but "could not appeal the base year for 2013," and a value had not yet been set for the date of acquisition....

Appellants’ applications were initially heard by the Board on March 12, 2015. Relying upon the presumption stated in Revenue and Taxation Code ⁵ section 110, subdivision (b), that the purchase price of real property is rebuttably presumed to be its "full cash value" or "fair market value" "if the terms of the transaction were negotiated at arms length between a knowledgeable transferor and transferee neither of which could take advantage of the exigencies of the other," appellant argued at the hearing that the price he paid for the property had to be treated as its taxable value unless respondent County of Humboldt could prove the foreclosure sale at which it was purchased was not an open market, arms length transaction.⁶

The Assessor took the position that a foreclosure sale is not an open market transaction. The appraiser testified that although the trustee's sale is public, potential purchasers at a public trustee sale in the county are limited by the requirements that a deposit of $2,500 be submitted prior to the auction and a winning bid must be paid within three days after the auction, so "traditional financing" is not available. The Assessor's office pointed to an annotation from the California State Board of Equalization (SBE) stating that "[t]he presumptions of full cash value under Revenue and Taxation Code section 110 do not apply to execution and/or foreclosure sales, since these are forced sales and thus considered non-market transactions."⁷ (Board of Equalization, Property Taxes Law Guide (Revision 2017), Annotation No. 460.0031 (Mar. 26, 1999) < https://www.boe.ca.gov/lawguides/property/current/ptlg/annt/460-0031.html> [as of Dec. 31, 2020].)

Appellant also challenged the Assessor's comparable sales analysis, which was summarized on a spreadsheet comparing various aspects of appellants’ property with seven others, referred to as "Comp 1" through "Comp 5," "711 Sawdust trail," and "Off Centerville Rd." Appellant argued the properties used as comparisons were "vastly different in size" and a "considerable distance" from the subject property; unlike his property, all but one of the comparison properties had PG&E service and all had water; the climate differed between the properties; and the subject property was in "substantially worse condition" than the others. In addition, appellant stated the Assessor's office had "no calculations to arrive at the lot size value adjustment."⁸

In response to questions from the Board, appellant testified that his property was about two miles off a public road; the appraiser testified that while some of the comparable properties were closer to public roads, he did not feel this required adjustment because the properties were "drastically further" from cities and towns than the distance from appellants’ property to Ferndale. Asked about adjustments for the absence of public utilities on the property, the appraiser testified that he was not aware there was a problem with water or power and had been told "it was on solar" and had well water. He testified that if he had known, "I don't know that it would make that big of a difference. A lot of these rural properties have issues with power and water." Acknowledging appellant's statement that the comparables did not have a problem with power, the appraiser said the information he had did not indicate one way or the other.

After Board members expressed agreement with the Assessor's view that a foreclosure sale is not an open market transaction, the matter was continued to allow the parties to attempt to reach a mutually acceptable determination of value in light of this view, and for the appraiser to address issues of concern to the Board regarding the comparables, including the properties’ access to utilities and distance from a public road.

At the continued hearing in July 2015, appellant continued to rely upon the purchase price presumption as the measure of value, and argued the SBE annotation addressed tax sales rather than foreclosure sales. The appraiser provided information on whether each of the comparables had utility services and the distance of each from a public road. Appellant again argued the properties were not sufficiently similar to comply with the governing rules, while the appraiser explained that it was difficult to find comparable properties because the subject property is "unique" and these were "the best comps we could find," "rural properties with a manufactured home on it."

The Board concluded that a foreclosure sale is not a fair market value sale and determined the value of the property to be $250,000, finding the comparable sales provided by the Assessor's office "of marginal help due to condition, location, topography and parcel size."

Appellants filed a tax refund action in superior court in November 2015, which was resolved by a stipulation for remand to the Board for determination of the value of the property based on evidence in the administrative record of the March 12 and July 20, 2015 proceedings. The stipulation and order vacating the Board's 2015 decision, remanding the matter for a new hearing, decision and findings of fact, and dismissing the superior court action, was filed on March 8, 2017. Prior to the hearing on remand, appellants objected to the participation of one member of the Board. After a hearing, the request for disqualification was denied.

At the June 8, 2017 hearing on remand, appellant again maintained the purchase price was the proper measure of value of the property, argued the comparative sales analysis could not be utilized unless the Assessor proved the foreclosure sale was not an open market transaction, and argued the properties the Assessor used as comparables were too dissimilar for this purpose. The Assessor reiterated the position that the foreclosure sale was not a market transaction, again pointing to Annotation No. 460.0031. The Assessor also noted the discussion of open market transactions in the Assessment Appeals Manual, which states that that "[o]pen market conditions which tend to produce a ‘full cash value’ or ‘fair market value’ as defined in section 110 include: [¶] Exposure on the open market for a sufficient amount of time [¶] Neither the buyer nor the seller is able to take advantage of the exigencies of the other [¶] Both parties are seeking to maximize their gains [¶] Both buyer and seller have full knowledge of the property and are acting...