California

Warning: The following opinion is provided for purposes of discussion only. We have not Shepardized™ this opinion, and do not know the subsequent disposition of this case nor whether the effect of the opinion has been overruled or superceded by other law.

HENRY H. Y. KIM et al., Plaintiffs and Appellants, v.
FIRST FEDERAL BANK OF CALIFORNIA, Defendant and Respondent.

B153996

COURT OF APPEAL OF CALIFORNIA, SECOND APPELLATE DISTRICT,
DIVISION TWO

July 17, 2002, Filed

NOTICE: [*1] NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS CALIFORNIA RULES OF COURT, RULE 977(a), PROHIBITS COURTS AND PARTIES FROM CITING OR RELYING ON OPINIONS NOT CERTIFIED FOR PUBLICATION OR ORDERED PUBLISHED, EXCEPT AS SPECIFIED BY RULE 977(B). THIS OPINION HAS NOT BEEN CERTIFIED FOR PUBLICATION OR ORDERED PUBLISHED FOR PURPOSES OF RULE 977.

PRIOR HISTORY: APPEAL from a judgment of the Superior Court of Los Angeles County. Los Angeles County Super. Ct. No. BC250730. Morris B. Jones, Judge.

DISPOSITION: Affirmed.

COUNSEL: Wayne Yee for Plaintiffs and Appellants.

Epport & Richman, Steven N. Richman, Victor R. Berwin for Defendant and Respondent.

JUDGES: BOREN, P.J. We concur: NOTT, J., ASHMANN-GERST, J.

OPINIONBY: BOREN

OPINION: Is a former homeowner entitled to a statutory homestead exemption over the competing claim of a creditor with a judgment lien? We conclude that when the homeowner's residence is sold pursuant to a trust deed, the homeowner is not entitled to an automatic residential homestead exemption to defeat the rights of the judgment creditor.

ALLEGATIONS AND PROCEDURAL HISTORY

First Federal Bank of California (the Bank) obtained a judicial foreclosure judgment against Henry and Peggy Kim (the Kims), and [*2] recorded an abstract of judgment on July 2, 1996. On July 23, 1996, the Kims declared bankruptcy. On July 24, 1996, the Kims recorded a declaration of homestead on their residence.

The Kims' bankruptcy proceeding ended in November 1996. The Bank's judgment was not discharged in bankruptcy. Eventually the Kims' home was sold in foreclosure after they defaulted on a note secured by a deed of trust from a senior lender. The proceeds from the trustee's sale were used to pay off encumbrances held by two senior trust deed holders. A surplus of $ 176,350 from the sale of the Kim residence remained after the trust deed holders were repaid. The foreclosure trustee distributed the entire surplus to the Bank.

The Kims filed this lawsuit for declaratory relief, alleging that there is a dispute regarding the respective rights of themselves and the Bank to the surplus funds remaining after the foreclosure sale of the residence. The Bank demurred to the complaint. The trial court sustained the demurrer without leave to amend. Judgment was entered in favor of the Bank.

DISCUSSION

The judgment is appealable. (Code Civ. Proc., § 904.1, subd. (a)(1); Castro v. State of California (1977) 70 Cal. App. 3d 156, 158, 138 Cal. Rptr. 572.) [*3] Review is de novo. We exercise our independent judgment to determine whether a cause of action has been stated as a matter of law. ( Desai v. Farmers Ins. Exchange (1996) 47 Cal.App.4th 1110, 1115.)

The state Constitution directs the Legislature to "protect, by law, from forced sale a certain portion of the homestead and other property of all heads of families." (Cal. Const., art. XX, § 1.5.) The constitutional mandate is put into effect by statute. (Code Civ. Proc., § 704.710 et seq.) n1 "The purpose of the homestead statutes is to protect the value of the homestead from judgment creditors." ( Smith v. James A. Merrill, Inc. (1998) 64 Cal.App.4th 94, 102.)

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n1 All future statutory references are to the Code of Civil Procedure.

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There are two types of exemptions protecting residential homeowners. First, there is the "declared homestead" exemption, which is created when the property owner records a declaration of homestead in the county where the dwelling is located. ( § 704.920.) [*4] Under this procedure, a judgment lien does not attach to a declared homestead if the declaration of homestead "was recorded prior to the time that the abstract or certified copy of the judgment was recorded to create the judgment lien." ( § 704.950, subd. (a)(1). See Yager v. Yager (1936) 7 Cal.2d 213, 217, 60 P.2d 422: "A declaration of homestead may be filed during the pendency of litigation, at any time before the judgment has become a lien upon the property.") A judgment lien is created by recording an abstract of a money judgment with the county recorder. ( § 697.310, subd. (a).)

The "declared homestead" exemption does not apply in this case. The Bank recorded an abstract of judgment on July 2, 1996, thereby creating a judgment lien. The Kims did not record a declaration of homestead until July 24, 1996. The Kims' untimely declaration of homestead is not good against an existing judgment lien. n2

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n2 We also note that a declaration of homestead recorded after the homeowner files a bankruptcy petition is a nullity. ( In re Halub (Bankr. C.D.Cal. 1982) 25 B.R. 617, 619, fn. 1; In re Myers (Bankr. E.D.Cal. 1982) 17 B.R. 410, 411.) The declaration of homestead in this case was filed one day after the Kims filed a bankruptcy petition.

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The second type of exemption is the "residential exemption" or "automatic homestead," which, as the name suggests, does not require any recordation. ( Webb v. Trippet (1991) 235 Cal. App. 3d 647, 650, 286 Cal. Rptr. 742.) The "automatic residential exemption applies when a party has continuously resided in a dwelling from the time that a creditor's lien attaches until a court's determination that the exemption applies." ( Id. at p. 651; § 704.710, subd. (c).)

The homestead exemptions "do not apply if the judgment to be enforced is for the foreclosure of a mortgage, deed of trust, or other lien or encumbrance on the property other than a lien created pursuant to this division . . . ." ( § 703.010, subd. (b).) The homestead statutes protect against forced sales, and do not have any effect on liens created with the homeowner's consent. Liens created by a deed of trust are consensual in nature. ( In re Mulch (Bankr. N.D.Cal. 1995) 182 B.R. 569, 573.)

Thus, if the homestead is sold by foreclosure on a deed of trust, "the exemption does not attach to the surplus sales proceeds. A judgment creditor can execute on the surplus proceeds [*6] and the debtor is not entitled to protection by the exemption." (Miller & Starr, Cal. Real Estate (3d ed. 2000) Homesteads, § 13.23, p. 53.) In other words, "the proceeds of a sale pursuant to a deed of trust's power of sale are not exempt from execution to satisfy a money judgment." ( Spencer v. Lowery (1991) 235 Cal. App. 3d 1636, 1639.) The Spencer case is factually indistinguishable from the case at bench and controls here. The case the Kims rely upon, Smith v. James A. Merrill, Inc., supra, 64 Cal.App.4th 94, is factually inapposite because it applies only to declared homesteads. As discussed above, the Kims do not qualify for the declared homestead exemption because their declaration of homestead was untimely recorded.

The trial court properly sustained the Bank's demurrers without leave to amend. The facts alleged in the complaint establish that the Kims' residence was sold at a trustee's sale. The law establishes that the Bank, as a secured creditor with a judgment lien, is entitled to the surplus remaining after the trust deed holders were repaid, up to the amount of the Bank's judgment. The Kims have not disclosed how they could allege [*7] any additional facts that would distinguish this case from Spencer v. Lowery, supra, 235 Cal. App. 3d 1636.

DISPOSITION

The judgment is affirmed.

BOREN, P.J.

We concur:

NOTT, J.

ASHMANN-GERST, J.

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