California Coastal Commission, etc., et al. v. Michael A. Allen, ___ Cal. App. 4th ___ (Oct. 1, 2008, Case No. B197974)

In this case, California Court of Appeal affirmed an order for sale of dwelling pursuant to California Code of Civil Procedure section 704.740 (part of the state’s Enforcement of Judgments Law) finding the Coastal Commission's assignee of a $1,469,000 judgment lien had properly secured a valid assignment of the judgment and that the homestead exemption did not apply because the subject dwelling was not owned by a natural person. 

Appellant, Michael Allen, owned a home in the coastal area of Malibu, California. Following disputes with the California Coastal Commission (Commission) and violation of the Commission’s cease and desist order, the Commission obtained a default judgment against Allen for $1,469,000. In June 1999, the Commission recorded an abstract of judgment against Allen’s home for the amount of the judgment. Then, in May of 1999 another judgment for $67,903 was obtained against Allen by the Radoseviches (the Allen opinion does not state the source for the Radoseviches’ judgment). The Radoseviches also recorded an abstract of judgment against Allen’s home, taking a security position junior to the Commission’s judgment lien on the Allen property. A bank held a first position deed of trust for $430,000 on Allen’s home. The combined interests of the bank deed of trust and Commission's judgment lien exceeded the value of Allen’s home.

Following Allen’s discharge from bankruptcy, in July 2003 Allen transferred title to his home to a corporation of which Allen was the sole shareholder.

Realizing their third position judgment lien would yield no recovery if they pursued a judicial foreclosure, the Radoseviches negotiated a deal with the Commission to obtain a temporary two-year assignment of the Commission’s judgment so the Radoseviches could execute on the Commission’s judgment as an assignee. In October 2006, the Radoseviches filed an application for order for sale of the home. Allen challenged the Radoseviches standing to bring the action on the grounds the assignment was not valid and asserting the property was subject to a homestead exemption. In January 2007, the trial court approved the application and issued an order for sale of the home. Allen appealed on the same grounds that the application was challenged.

The appellate court noted that state law (Code of Civil Procedure section 680.240) defines a judgment creditor to include an assignee. For an assignee to enforce a judgment, there must be an acknowledgement of the assignment per section 673 of the Code of Civil Procedure. The facts demonstrated that the Radoseviches complied with these requirements by securing an acknowledgement of the assigned judgment executed and notarized by the executive director of the Commission and counsel for the Radoseviches. The executed and notarized acknowledgement was then filed in the superior court. The appellate court found nothing further was required under the Enforcement of Judgments Law and the Radoseviches had standing to pursue the application for sale.

With regard to the homestead exemption, the appellate court explained that under Civil Code of Procedure section 704.730, if real property is a debtor’s home that is subject to an action to enforce a money judgment, the debtor may be entitled to a homestead exemption on the sale proceeds. However, the court observed the exemption applies to the interest of a natural person in a dwelling where the debtor or debtor’s spouse resided when the judgment attached and continuously resided until a judicial determination as to whether the dwelling is a homestead. As to the first requirement, the appellate court noted that even if Allen were the sole shareholder of the corporation to which title in his home was transferred, amendments to the Enforcement of Judgments Law in 1984 clarified the exemption would not apply to dwellings owned by corporations or artificial persons (citing Legis. Com. com., 17 West’s Ann. Code of Civ. Proc (1987 ed.) foll. section 704.740, p. 351.). The second requirement that Allen show he continuously resided for the requisite time period was also not satisfied because Allen had entered into a two-year lease and rented the home to a tenant during the relevant period. Allen argued the lease allowed him to have possession of a garage and attic area where he stayed when visiting which satisfied the continuous residing requirement. The appellate court declined to find this retained access right to visit and stay at the dwelling while Allen apparently resided elsewhere for the two-year lease term met the continuous residence requirement for a principal dwelling. (citing Code of Civil Procedure section 704.710). Based on the foregoing, the court found the property was not subject to the homestead exemption under section 704.740 of the Code of Civil Procedure. The order of sale of the trial court was affirmed.