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612 South LLC v. Laconic Limited Partnership

May 25, 2010


APPEALS from a judgment and order of the Superior Court of San Bernardino County, Bert L. Swift and William Jefferson Powell, Judges. Judgment affirmed in part and reversed in part. Order reversed and matter remanded for further proceedings. (Super. Ct. No. MCV07400).

The opinion of the court was delivered by: McINTYRE, J.


In this case, a bondholder sought and obtained a judgment ordering the foreclosure and sale of property subject to a water district bond issued under the provisions of the Improvement Act of 1911 (the 1911 Act; Sts. & Hy. Code, § 5000 et seq.) and the Municipal Improvement Act of 1913 (the 1913 Act; Sts. & Hy. Code, § 10000 et seq.). (Undesignated statutory references are to the Streets and Highways Code.) The property owner appeals from that part of the judgment ordering: (1) a personal deficiency judgment against it and (2) the award of $139,516 in attorney fees to the bondholder for prosecuting the action. The property owner also appeals from a postjudgment order setting the appellate bond amount, arguing that amount was excessive because the court improperly entered a deficiency judgment. In a cross-appeal, the bondholder challenges the attorney fee and cost award on the ground that the trial court erred by deciding the matter without a noticed motion or consideration of all the evidence.

We reject the property owner's contention that failure to index the notice of assessment under the name of the property owner in the county recorder's office rendered the lien invalid, and that the property owner was a bona fide purchaser without notice of the assessment. We conclude, however, that the court improperly entered a deficiency judgment against the property owner, and reverse that portion of the judgment. This conclusion renders moot the arguments regarding the propriety of the appellate bond, and we order the trial court to exonerate the bond.

We also conclude the trial court abused its discretion in deciding attorney fees and costs without consideration of all the evidence. Accordingly, the matter is remanded for further proceedings to determine attorney fees and costs.


In 1987, the Twenty-nine Palms Water District (the District) annexed 3098 parcels of real property to create Assessment District No. 4. Assessment District No. 4 included 40 acres of vacant land known as assessor's parcel number 634-111-20 (the Property). The District designated the Property as diagram assessment number 3024, and assessed the Property's then owner, Hector Velez, approximately $22,000. Velez informed the District that rather than paying the assessment in full, he preferred to finance the cost by having the District issue and sell a bond which enabled him to pay off the assessment amount over time. The District issued street improvement bond number 2217 under the 1911 and 1913 Acts (the Bond). The District sold the Bond to plaintiff 612 South LLC's (612 South) predecessor-in-interest, who then transferred the Bond to 612 South.

Velez made assessment payments to the District, with the District paying the bondholder, for about 10 years. In 1998, Velez defaulted on the Bond. In 2003, defendant Laconic Limited Partnership's (Laconic) predecessor-in-interest, Repo4Sale, acquired the Property following a public auction of the tax defaulted property. In December 2003, the District sent a letter to Repo4Sale notifying it of the Bond's delinquency. However, the District never received any further payments. At trial, 612 South admitted that it did nothing between 1999 and 2003 to collect on the Bond.

In February 2006, Laconic purchased the Property for $89,000. In March 2006, 612 South's counsel sent Laconic the pre-litigation notice required by section 6610, advising of the delinquent amount then due on the Bond and providing Laconic the required 15-day grace period in which to pay the amount due to avoid a judicial foreclosure action. (§ 6610.) The notice indicated that interest of $1,922.55 and penalties of $12,297.37 had accrued on the $7,324.00 in principal, and that the bond pay-off amount was $21,543.92. In May 2006, 612 South filed this judicial foreclosure action after Laconic failed to pay the delinquent amount.

In January 2008, the court denied 612 South's summary judgment motion on the ground a triable issue of fact existed as to whether the Bond was properly created or recorded so as to impart proper notice to the property owners. In September 2008, the court conducted a bench trial. Following the conclusion of trial testimony, the parties submitted supplemental briefing regarding attorney fees and the personal liability of Laconic for any judgment.

Ultimately, the trial court issued a statement of decision finding that: 612 South held the Bond created under the 1911 and 1913 Acts; Laconic owned the Property securing the Bond; the Bond payments were delinquent; and Laconic was given pre-litigation notice of the delinquency. The trial court concluded that Laconic had actual, constructive, or inquiry notice of the assessment, and that 612 South was entitled to foreclosure sale of the Property and an award of attorney fees. To the extent the amount realized from the foreclosure sale was insufficient to satisfy the defaulted principal, interest, and penalties due on the Bond, and 612 South's costs and reasonable attorney fees, the court held that 612 South was entitled to a personal judgment against Laconic for the judgment balance.

The trial court entered a Judgment for Foreclosure, Order of Sale, and In Personam Recovery of Deficiency, awarding 612 South a total of $172,669.30, including $139,516 in attorney fees and $5,691.60 in costs. Both parties timely appealed. Laconic subsequently moved the trial court to stay execution of the judgment and fix the amount of an appellate bond to protect 612 South's judgment during pendency of the appeal. The trial court fixed the appellate bond at $259,003.95 if posted by a qualified surety, or at $345,338.60 if posted by Laconic or a non-qualified surety. A qualified surety posted a bond on behalf of Laconic.


I. Laconic Had Notice of the Assessment

A. Laconic's Contentions

Among other things, Laconic defended this action on the ground it was a bona fide purchaser for value without notice of 612 South's lien because the documents recorded by the District failed to list the owners of the assessed properties. It claims that the evidence presented at trial shows it had no notice of any kind, except that a water bond would be collected with taxes, which it paid. Accordingly, Laconic contends that the judgment of foreclosure must be reversed because substantial evidence did not support the trial court's findings.

B. Facts

In accordance with the substantial evidence standard of review, we shall recite the facts established by the record viewed in the light most favorable to the judgment, giving 612 South the benefit of every reasonable inference and resolving any conflicts in the evidence in support of the judgment. (Jordan v. City of Santa Barbara (1996) 46 Cal.App.4th 1245, 1254-1255.) Because Laconic's challenge is confined to whether the evidence supports the trial court's finding that it had actual, constructive, or inquiry notice of the assessment, we limit our discussion of the facts to this issue.

In October 1987, the District recorded a notice of assessment in the San Bernardino County Recorder's Office. The notice stated that an assessment and diagram had been recorded in the office of the superintendent of streets under section 3114. The notice also stated that upon its recordation, the assessments for the parcels shown on the diagram became liens on the property. Recorded with the notice of assessment was a list of parcel numbers included in the District's water assessment district. Included in this list was the parcel number for the Property. The District later recorded a number of assessment diagrams, showing the boundaries of the assessment district.

Before Laconic purchased the Property it obtained a preliminary title report indicating that the Property had: "The lien of special tax for the following municipal improvement bond, which tax is collected with the county taxes. [¶] District: Twenty-Nine Palms." After reading the statement in the preliminary title report, Laconic understood it referred to a tax and assumed that the tax had been paid because Laconic paid its taxes. Laconic did not contact escrow to inquire about this statement, nor did it take any steps to investigate the statement. Laconic did not know about the delinquent Bond before the close of escrow.

Diana Hernandez, a representative of the San Bernardino County Recorder's Office, testified that her office and all other recorder's offices in the state rely on "The Recorder's Document Reference and Indexing Manual, A Training and Reference Manual for Statewide Recording and Indexing Personnel" (the Manual) to perform their job duties. The Manual lists four requirements to record a notice of assessment for a district: the name of the assessment; date of the assessment; description of the property; and signature of the district clerk. The names and addresses of the property owners "may be included" but ...

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