How Does a Receiver Sell the Homesteaded Home of a Judgment Debtor to Satisfy a Judgment?

Question: I am a receiver appointed to collect a substantial judgment. The judgment debtor’s home has appreciated since the entry of the judgment five years ago. Can I list the house with a broker and, once a buyer is located, petition the court to approve the sale? The judgment debtor claims he has a homestead exemption and that I can only sell the house if I comply with homestead statute, which requires the sale be in accordance with the provisions for execution sales. Is that correct? I thought, as receiver, I can sell property using other methods, so long as I get court approval.

Answer: Because you are a receiver in aid of execution, appointed pursuant to C.C.P. § 708.620, which is part of the Enforcement of Judgments Law, C.C.P. § 680.010 et. seq., courts have held such a receiver’s sale of a judgment debtor’s home must be conducted pursuant to the provisions for execution sales involving real property, C.C.P. § 704.740. See Wells Fargo Financial Leasing, Inc. v. D&M Cabinets, et. al., 177 Cal. App. 4th 59 (2009) (“D&M”). In the case, the court undertook a “plain meaning” review of the relevant statute and held, because the statue is clear and unambiguous, it must be applied as the legislature wrote it, despite the fact that, as Wells Fargo argued, a sale by the receiver directly, subject to court approval, without complying with the execution sale statute, might be cheaper, quicker and actually result in a higher sales price. Section 704.740 states: “the interest of a natural person in a dwelling may not be sold under this division to enforce a money judgment except pursuant to a court order for sale obtained under this article…” The court explained that the “division” referred to is Division 2 of the Enforcement of Judgments Law – which includes § 708.620, the statute authorizing the appointment of a receiver in aid of execution. The “article” referred to is Article 4. “Homestead Exemption,” sections 704.710 through 704.850 . The court, therefore, concluded: “Read in its entirety, the plain language of section 704.740 contemplates that a receiver may be appointed to sell a dwelling, but the receiver must obtain a court order for sale under article 4” Id. at 103-104. That procedure, however, as one court has acknowledged: “is a cumbersome, time-consuming and expensive undertaking,” Dang v. Smith, 190 Cal. App. 4th, 646, 662 (2010), and “due to the minimum bid requirements… it is very difficult, if not impossible, for a debtor’s home actually to be sold at an execution sale.” Id. at 660 (citations omitted, emphasis in original). The D&M court did review, and distinguish, a number of familiar cases receivers often cite to justify their ability to sell residences, or other property, using procedures other than execution sales. It distinguished each, because in each case the receiver was not a receiver in aid of execution and, therefore, was not bound by the Enforcement of Judgments Law. For example, People v. Riverside University, 35 Cal. App 3d 572 (1973) involved personal property being sold by a receiver of a school over a charitable trust; City of Santa Monica v. Gonzalez, 43 Cal. 4th 905 (2008) was a health and safety receivership; People v. Stark, 131 Cal. App. 4th 184 (2005) was a ‘white-collar’ crime receivership; Lesser & Son v. Seymour, 35 Cal. 2d 494 (1950) was a partnership dissolution receivership.

Therefore, while a receiver in aid of execution can sell a residence, which a judgment debtor claims as his or her homestead, the normal execution procedures for such a sale must be followed. They include: (1) a hearing at which the court determines whether a homestead exemption exists; (2) if it does, the court it must determine the amount of the exemption; (3) the court must also determine the “fair market value” of the dwelling (this will require appraisals); (4) if a sale, subject to the homestead exemption, would produce a sufficient bid to satisfy any part of the judgment, the court can order the sale, but the order must specify the amount of the proceeds to be distributed to each person having a lien on the dwelling, including their name and address; (5) if no bid is received that exceeds the homestead exemption plus the amount needed to satisfy all liens, the property cannot be sold, and the creditor cannot try again for one year; (6) the bid must also be 90 percent or more of the fair market value. See generally C.C.P. §704.750 – 740.850.

This blog is intended to discuss current trends in receivership law and practice.  It should not be construed as representing advice on specific, individual legal matters, but rather as an overview of the subject discussed. Your questions and comments are always welcome. Please do not hesitate to contact me at pdavidson@ecjlaw.com or (310) 281-6363 to further discuss this blog or to answer any questions.

Peter A. Davidson is a Partner of Ervin Cohen & Jessup LLP.  His practice includes all aspects of receivership and bankruptcy law.  He also acts as a receiver, conservator and monitor in state and federal court.