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In re Basave De Guillen

United States Bankruptcy Appellate Panel of the Ninth Circuit

August 26, 2019

In re: MARIA A. BASAVE DE GUILLEN, Debtor.
v.
MARIA A. BASAVE DE GUILLEN, Appellee. HIGHLAND GREENS HOMEOWNERS ASSOCIATION OF BUENA PARK, Appellant,

          Argued and Submitted on May 23, 2019 at Pasadena, California

          Appeal from the United States Bankruptcy Court for the Central District of California Honorable Catherine E. Bauer, Bankruptcy Judge, Presiding

          Erin A. Maloney of Fiore, Racobs & Powers argued for Appellant;

          Charity Manee argued for Appellee.

          Before: LAFFERTY, SPRAKER, and TAYLOR, Bankruptcy Judges.

          OPINION

          LAFFERTY, BANKRUPTCY JUDGE

         INTRODUCTION

         Highland Greens Homeowners Association ("Highland Greens") appeals the bankruptcy court's order sustaining in part Debtor Maria Basave de Guillen's objection to Highland Greens' proof of claim. The bankruptcy court found that, under California law, Highland Greens' recorded notice of lien for delinquent homeowners assessments on Debtor's condominium did not secure amounts accruing after the recordation of the lien. Accordingly, the bankruptcy court limited Highland Greens' secured claim to the amount of its recorded pre-petition state court judgment, classifying the remainder of the claim as unsecured.

         We AFFIRM.

         FACTUAL BACKGROUND

         Pre-petition, Debtor fell behind on the homeowners association ("HOA") dues on her condominium in Buena Park, California (the "Property"). As a consequence, Highland Greens recorded a Notice of Delinquent Assessment Lien (the "Notice") against the Property on December 1, 2008.[1] Highland Greens recorded an amendment to the Notice in April 2011 (the "2011 Amendment"). Both the Notice and the 2011 Amendment purported to include, in the amount subject to the lien, unpaid assessments and charges accruing after the date of the notice.

         In August 2011, Highland Greens sued Debtor in state court to enforce its lien and, in April 2012, obtained a default judgment for foreclosure and a money judgment of $21, 398.02 (consisting of $10, 140 principal, attorney's fees of $10, 273.12, and collection costs of $2, 885, minus a $1, 900.10 payment). The money judgment was subsequently recorded, and Highland Greens began the foreclosure process, but no sale was ever conducted.

         Debtor filed a chapter 13[2] case on February 28, 2018.[3] On Schedule D, she listed two debts to Highland Greens secured by the Property, one for $8, 000, described as "interest on claim," and another for $40, 000, described as "assessments and attorney's fees." Her proposed plan provided for payment of both claims in full, with interest at ten percent on the $40, 000 claim.

         Highland Greens then filed a proof of claim for $64, 137.20, purportedly secured by the Property, with interest at twelve percent. The itemization attached to the proof of claim indicated that it consisted of: (1) the April 2012 money judgment of $21, 398.02; (2) $8, 572.63 in interest on the judgment; (3) post-judgment assessments through February 1, 2018 of $14, 060; (4) late charges of $690; (5) post-judgment interest of $7, 207.44; (6) post-judgment attorney's fees and costs of $13, 729.11; less (7) a payment credit of $1, 520. The attachment to the proof of claim explained that the post-judgment assessments were secured by the Property pursuant to the Declaration of Covenants, Conditions and Restrictions ("CC&Rs") recorded in 1964 against the Property. Highland Greens also asserted that it was entitled to twelve percent interest on any delinquent amounts pursuant to California Civil Code § 5650(b)(3).

         Highland Greens attached eight pages of the CC&Rs to its proof of claim. The relevant provision (paragraph 12(b)) provides, among other things, that if a delinquency in assessments is not paid within ten days after delivery of a notice of default, the Board of Governors may file a claim of lien; the provision then lists the information that must be included in such claim of lien. The paragraph continues, "[u]pon recordation of a duly executed original or duly executed copy of such claim of lien by the Recorder of the County of Orange the lien claimed therein shall immediately attach and become effective, subject only to the limitations hereinafter set forth. Each default shall constitute a separate basis for a claim of lien or a lien."

         Debtor filed an objection to Highland Greens' claim. She argued: (1) the claim should be disallowed in its entirety for lack of supporting documentation; (2) most of the claim should be reclassified as unsecured because Highland Greens did not comply with the procedures set forth in the Davis-Stirling Common Interest Development Act ("Davis-Stirling Act" or the "Act"), specifically, California Civil Code §§ 5660 and 5676, and there was no basis to find an equitable lien; (3) only the portion of the debt representing the amount owing under the judgment may be classified as secured; (4) the attorney's fee portion of the claim should be disallowed as unreasonable and unsupported; and (5) the claim should not include future assessments because Debtor was current postpetition on those obligations.

         Highland Greens filed an opposition in which it asserted: (1) the Notice recorded in 2008 complied with all procedural requirements and in any event had been adjudicated valid by the state court in the foreclosure lawsuit; (2) Debtor was barred by issue preclusion from challenging the validity of the lien; (3) Highland Greens was entitled under California Civil Code § 5650(b)(3) to twelve percent interest on the post-judgment assessments and related fees and costs; (4) Highland Greens was entitled to submit cost bills for its judgment enforcement activities, which increased the judgment amount; and (5) the assessment lien was a "continuing lien"; thus, assessments that became delinquent after the recordation of the lien were appropriately included in the amount secured by the lien, citing Bear Creek Master Ass'n v. Edwards, 130 Cal.App.4th 1470, 1489 (2005).

         Debtor filed a reply in which she argued that the Davis-Stirling Act prohibited Highland Greens from asserting a continuing lien. She contended that Bear Creek was not binding on the bankruptcy court and that federal courts in California had held to the contrary, citing In re Warren, No. 15-CV-03655-YGR, 2016 WL 1460844 (N.D. Cal. Apr. 13, 2016), and In re Guajardo, No. 15-31452 DM, 2016 WL 943613 (Bankr. N.D. Cal. Mar. 11, 2016).

         At the initial hearing on Debtor's objection, counsel for Highland Greens stated that the HOA was relying on the assessment lien rather than the judgment lien as the basis for its security interest. The bankruptcy court requested further detail as to how the different components of the claim amount were calculated and continued the matter for further briefing, which the parties submitted.

         At the final hearing on the claim objection, the bankruptcy court did not rule on the reasonableness of the attorney's fees or any of the other arguments raised by Debtor. But it ruled that under applicable law there was no continuing lien based on the Notice. As such, the only basis for Highland Greens' security interest was its judgment lien.[4] Accordingly, the court sustained Debtor's objection in part, allowing Highland Greens' claim in full but reclassifying it as $29, 970.65 secured (principal of $21, 398.02 plus pre-petition interest of $8, 572.63) and the $34, 166.55 balance as unsecured. Shortly thereafter, the court entered its order on the Debtor's claim objection, and Highland Greens timely appealed.[5]

         JURISDICTION

         The bankruptcy court had jurisdiction under 28 U.S.C. §§ 1334 and 157(b)(2)(B). We have jurisdiction under 28 U.S.C. § 158.

         ISSUE

         Did the bankruptcy court err in sustaining in part Debtor's objection to Highland Greens' claim?

         STANDARD OF REVIEW

         This appeal involves issues of statutory and contract interpretation, which we review de novo. See Veal v. Am. Home Mortg. Serv., Inc. (In re Veal), 450 B.R. 897, 918 (9th Cir. BAP 2011) (citations omitted) (an order sustaining or overruling a claim objection "can raise legal issues (such as the proper construction of statutes and rules) which we review de novo . . . ."); Renwick v. Bennett (In re Bennett), 298 F.3d 1059, 1064 (9th Cir. 2002) ...


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