Hooman Shafazand

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AUTHENTICA

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*

ENTERED _
FEB - 6 2012

““ELERR, US, BANKRUPTCY C
CaNTRAL DISTRICT OF CALIFORNIA

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UNITED STATES BANKRUPTCY COURT
CENTRAL DISTRICT OF CALIFORNIA
LOS ANGELES DIVISION

In re: Case No.: 2:11-bk-54118-NB
CHAPTER 13

MEMORANDUM DECISION (1) PROVIDING
ADDITIONAL TIME FOR VALUATION OF
PROPERTY, (2) OVERRULING ALL OTHER
OBJECTIONS OF SHOREHAM TOWERS
Debtor(s), | HOMEOWNERS ASSOCIATION, AND

(3) CONTINUING DEBTOR’S MOTION TO
VALUE PROPERTY AND TREAT JUNIOR
LIENS AS UNSECURED

Hooman Shafazand,

Prior hearing:
Date: January 26, 2012

Time: 2:00 PM
Courtroom: 1545

Continued hearing:
Date: April 5, 2012
Time: 2:00 PM
Courtroom: 1545

At the above-referenced time and place the Court held a hearing on the debtor's
motion to avoid junior liens on his primary residence (the “Motion’). Caroline Ss. Kim

appeared on behalf of the debtor. Alyssa B. Klausner appeared on behalf of the holder

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of one of the junior liens that the debtor seeks to avoid, Shoreham Towers Homeowners
Association (the “HOA’).

Prior to the hearing, the Court issued a tentative ruling that would have granted
the Motion in part — as against the HOA and one other creditor — and continued the
hearing on the Motion to address issues of service and evidence. A copy of the
tentative ruling is attached hereto as Exhibit A.

Based on the representations of counsel and the matters discussed at the
hearing on January 26, 2012, and based on the Court's further review of the pleadings
in light of the parties’ arguments at that hearing, the Court hereby adopts the attached
tentative ruling and incorporates it herein except that (1) to avoid the risk of inconsistent
orders or judgments in the event that the property at issue is determined to have a value
that does not support the avoidance of junior liens, the Court will continue the hearing
as to all parties, rather than granting the Motion as to some parties and continuing it as
to others, and (2) as to the HOA, the tentative ruling is supplemented and amended as
follows:

A. Fair Market Value

At the hearing on January 26, 2012, the HOA requested more time to obtain an
appraisal on the debtor's primary residence (the “Property”). That request will be
granted.

The debtor argues that the HOA should not be granted additional time because it
already conceded that its claim is fully undersecured, and therefore the lien can be
avoided under 11 U.S.C. § 506. See In re Lam, 211 B.R. 36 (9th Cir. BAP. 1997). Itis
true that in the HOA’s Opposition papers filed on January 12, 2012 (the “Opposition’),
the HOA indicated that the Property “is likely worth less than $550,000.” Opposition at
18:24-25, But this was part of the HOA’s argument that the debtor did not qualify for
avoiding the HOA’s lien under a different statute, 11 U.S.C. § 522(f). fd. at 20:10-13.
The Court does not interpret the HOA’s statements regarding possible values as binding

admissions by the HOA, so the HOA is not barred on that ground from requesting

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of one of the junior liens that the debtor seeks to avoid, Shoreham Towers Homeowners
Association (the “HOA’).

Prior to the hearing, the Court issued a tentative ruling that would have granted
the Motion in part — as against the HOA and one other creditor — and continued the
Motion to address issues of service and evidence. A copy of the tentative ruling is
attached hereto as Exhibit A.

Based on the representations of counsel and the matters discussed at the
hearing on January 26, 2012, and based on the Court’s further review of the pleadings
in light of the parties’ arguments at that hearing, the Court hereby adopts the attached
tentative ruling and incorporates it herein except that (1) to avoid the risk of inconsistent
orders or judgments in the event that the property at issue is determined to have a value
that does not support the avoidance of junior liens, the Court will continue the hearing
as to all parties, rather than granting the Motion as to some parties and continuing it as
to others, and (2) as to the HOA, the tentative ruling is supplemented and amended as
follows:

A. Fair Market Value

At the hearing on January 26, 2012, the HOA requested more time to obtain an
appraisal on the debtor’s primary residence (the “Property’). That request will be
granted.

The debtor argues that the HOA should not be granted additional time because it
already conceded that its claim is fully undersecured, and therefore the lien can be
avoided under 11 U.S.C. § 506. See in re Lam, 211 B.R. 36 (9th Cir. B.A.P. 1997). it is
true that in the HOA’s Opposition papers filed on January 12, 2012 (the “Opposition’),
the HOA indicated that the Property “is likely worth less than $550,000.” Opposition at
18:24-25, But this was part of the HOA’s argument that the debtor did not qualify for
avoiding the HOA’s lien under a different statute, 11 U.S.C. § 522(f). Id. at 20:10-13.
The Court does not interpret the HOA’s statements regarding possible values as binding

admissions by the HOA, so the HOA is not barred on that ground from requesting

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additional! time for an appraisal.

Another issue addressed at the hearing on January 30, 2012, was whether the
HOA’s request for additional time comes too late. It is true that the Opposition did not
request additional time for the explicit purpose of obtaining an appraisal, but a fair
reading of the Opposition is that the HOA did seek additional time for unspecified
purposes (based on the (incorrect) premise that the Motion and notice were not timely
served).

In addition, allowing the HOA additional time to obtain an appraisal, if it chooses,
will permit the Court to decide any disputed valuation issues on the merits, which is
generally preferred over disposing of disputed issues on purely procedural grounds.
The debtor also did not establish that there would be any prejudice from granting
additional time.

For all of the foregoing reasons the HOA will be granted additional time to obtain
an appraisal. The order issued in conjunction with this Memorandum will set forth a
deadline.

The Court clarifies that nothing in this Memorandum or the accompanying Order
requires the HOA to obtain an appraisal. Before the HOA incurs the costs of obtaining
an appraisal it may wish to consider the substantial dollar amount by which its
appraised value must exceed the value recited in the Motion. As pointed out by the
HOA itself, in its Opposition papers, the Property may be “substantially underwater by at
least -$319,467.95” (although that is according to the debtor's figures). Opposition at
29:3-4.

B. Priority of the Liens Secured by the Subject Property

At the hearing on January 26, 2012, the HOA clarified another of its arguments.
According to the HOA, its lien for assessments and other charges (the “Assessment
Lien”) has priority over all deeds of trust on the Property, notwithstanding that the deeds
of trust were recorded before the HOA recorded its notice of delinquent assessments.

The HOA's argument is not persuasive.

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First, as a procedural matter, it is not clear that the Court could rule in favor of the
HOA without appropriate procedures to join all persons against whom the HOA seeks to
obtain priority. That might require an adversary proceeding, among other things. See
Fed. R. Bankr. P. 7001(2).

Second, on the merits, the HOA has not adequately supported its argument. The
HOA cites no provision of California law that would give its Assessment Lien priority
over deed of trust liens. To the contrary, California Civil Code § 1367.1(d) (which is
cited in the HOA’s Opposition) provides that:

[Any assessments] shall be a lien on the owner's separate interest

in the common interest development from and after the time the

association causes to be recorded with the county recorder of the

county in which the separate interest is located, a notice of

delinquent assessment. [Cal. Civ. C. § 1367.1(d), quoted in

Opposition at 10:25-27 (emphasis added)]
In this case the HOA's notice of delinquent assessment was not recorded until after the
deeds of trust, as set forth below.

The HOA also cites no subordination agreement or provisions of the recorded
documents that would be sufficient give it priority notwithstanding the California statute
quoted above. HOA relies on its Declaration of Covenants, Conditions, and Restrictions
and Reservation (the “CC&Rs”), apparently on the theory that any Assessment Lien
automatically relates back in time to when the CC&Rs were recorded and thereby
becomes senior. But Article 13.3 of the CC&Rs provides in relevant part:

A delinquent assessment or installment, together with any late
charges, interest, costs, attorneys’ fees and penalties shall become
a lien on the [Property] upon recordation of a “Notice of Delinquent
Assessment’ in the Office of the Count Recorder ...” [Opposition
Ex. 2 (CC&Rs) § 13.3, emphasis added. ]

More broadly, the HOA argues that its assessments ought to have priority
because condominium depends on assessments to maintain common areas and the

building as a whole. But alleged policy considerations cannot override California law

' Tt is true that other provisions of the CC&Rs muddy the waters somewhat. But ultimately the HOA has
not established that they change the analysis in the text. See generally CC&Rs Article 15 (setting forth, e.g, special
rules for first priority deeds of trust, without limiting the general rule of CC&R § 13.3).

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and CC&R § 13.3. In addition, as discussed at the hearing on January 26, 2012, the
value of condominiums also depends on being able to finance their purchase and sale,
which would be all but impossible unless deeds of trust were entitled to priority.

For all of these reasons the HOA has not established that as a legal matter its
Assessment Lien relates back to when the CC&Rs were recorded. Rather, the
Assessment Lien only has priority if it was recorded prior fo the deeds of trust at issue.

In fact, the Assessment Lien was recorded after the deeds of trust at issue. A
deed of trust in favor of Washington Mutual was recorded October 4, 2007. Motion, ex.
4. Adeed of trust in favor of Bank of America, NA was recorded on January 8, 2008.
Motion, ex. 2. A deed of trust in favor of Countrywide Bank, FSB was recorded on
January 23, 2008. Motion, ex. 3. Another deed of trust in favor of Washington Mutual
was recorded on February 4, 2008. Motion, ex. 4. Finally, subsequent to all of these
deeds of trust, the HOA recorded its Notice of Delinquent Assessment on October 22,
2010. Opposition, ex. 3.

Thus, under the California Civil Code and CC&R § 13.3, the HOA’s lien is the
most junior lien secured by the Property, not the most senior.

C. Alleged Post-Petition Delinquency

The HOA argued at the hearing on January 26, 2012, that the debtor cannot
avoid its lien because that lien includes amounts owed after this bankruptcy case was
filed, on October 23, 2011. At the same hearing the debtor's counsel clarified that he
does not intend to avoid any post-petition delinquencies and conceded that post-petition
assessments must be paid pursuant to Section 523(a)(16), all of which is consistent
with the Motion papers.” If the debtor is post-petition delinquent then the HOA may
seek other remedies, but that issue is not relevant to the issues before the Court at this

time.

2 The Court notes that in the Motion the debtor describes the lien to be avoided as being in the amount of
$31,114.56. Thatis slightly less than the HOA's proof of claim, filed on January 3, 2012, which indicates
that the debtor owed $32,511.51 for a delinquency up to and including October 20, 2011 (a pre-petition
date). The Court interprets the Motion to mean that the debtor seeks to avoid the entire prepetition lien
listed in the HOA's proof of claim, and not any postpetition amounts.

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D. Conclusion

The Court will issue a separate order continuing the hearing on the Motion to the
continued hearing date set forth in the caption above so as to (1) provide the HOA with
time in which to assess the Property and (2) provide the debtor with time in which to
correct the issues of service and evidence of the dollar amount owed on the first priority
lien, as noted in the attached tentative ruling. The Court intends to issue a final ruling

on the Motion after those issues are resolved.

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Date: 2/2/2012 AN tu ou. i ae
Neil W. Bason

U.S. Bankruptcy Judge

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Exhibit A

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United States Bankruptcy Court
Central District of California

Los Angeles
Judge Nei] Bason, Presiding

Courtroom 1545 Calendar

Thursday, January 26, 2012 Hearing Room 1545
2:00 pm
2:11-54118 Hooman Shafazand Chapter 13
#41.00 Hrg. re: Motion to avoid junior

lien on principal residence with
JPMorgan Chase Bank, BOA &
Shoreham Towers Homeowner's
Association

Docket #: 25

Tentative Ruling:

Grant the motion as to Shoreham Towers Homeowner's Association's ("Shoreham's") lien
and Bank of America's 3d priority lien for the reasons stated below. Continue the hearing
to 2/23/12 at 2:00 p.m. as to Bank of America’s 2nd priority lien and JPMorgan Chase
Bank's 4th priority lien to address the following issues. Appearances are not required.

(1) The motion was not adequately served on Bank of America in its capacity as the 2nd
priority lienholder in accordance with FRBP 7004(h) because it was not served on a valid
address for the creditor. (Service on Bank of America in its capacity as the 3d priority
lienholder appears to be sufficient because it was served at the address listed on the
bank's proof of claim, but that proof of claim only addresses the 3d priority lien, not the 2d
priority lien.)

(2) The motion was not adequately served on JPMorgan Chase Bank as the 4th priority
lienholder because service was not to the attention of "Correspondence Mail" as listed on
the creditor's proof of claim, filed on 11/10/11.

(3) The debtor did not file documentary evidence demonstrating the amount owed on the
1st priority lien.

Failure timely to address the above deficiencies will result in denial of the motion as to
Bank of America's 2nd priority lien and JPMorgan Chase Bank's 4th priority lien without
prejudice (absent very good cause shown).

The Court has reviewed Shoreham's opposition to the motion (Dkt 29) as well as the
debtor's reply (Dkt 30). For the reasons stated below, the Court does not find Shoreham's

opposition persuasive.

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United States Bankruptcy Court
Central District of California

Los Angeles
Judge Neil Bason, Presiding

Courtroom 1545 Calendar

Thursday, January 26, 2012 Hearing Room 1545
2:00 pm
Cont.... Hooman Shafazand Chapter 13

(1) Shoreham’s lien can be avoided even though it is a non-consensual statutory
lien.

The debtor does not seek to avoid Shorehar's lien under section 522(f), but rather seeks
to do so under section 506(d). Shoreham’s argument regarding section 522(f) is not
relevant.

(2) The lien can be avoided even though the covenant to pay the homeowners
assessments runs with the land.

Shoreham argues that its lien cannot be avoided because obligations to homeowner
associations “run with the land," citing Foster v. Double R Ranch Assoc. (in re Foster),
435 B.R. 650 (9th Cir. BAP 2010). Foster is inapplicable. In that case a chapter 13
debtor argued that postpetition homeowners association dues were prepetition claims
arising from prepetition contracts and therefore were dischargeable notwithstanding 11
USC 523(a)(16), which generally makes postpetition association dues nondischargeable
for as long as the debtor retains an interest in the property ("you stay you pay"). /d. at
653. Nondischargeability is an entirely different issue from lien avoidance, and only the
latter is at issue in the present motion. Whether a lien arises from a covenant that"runs
with the land" or some other basis is entirely separate from whether that lien has any
equity to which it can attach. If there is no equity, then the lien can be treated as an
unsecured claim for bankruptcy purposes (regardless of the dischargeability issues). See
Widewaters Village Cmty. Ass'n, Inc. v. Haywood (In re Haywood), 2010 U.S. Lexis
143879 (E.D.N.C. July 2, 2010), affirmed, 2011 WL 4793210 (4th Cir. Oct. 11, 2011)).

(3) 11 USC 1322(b)(2) does not preclude modification of a claim allegedly secured
by a debtor's principal residence if the claim is in fact wholly unsecured.

The subject lien is wholly unsecured and thus, not protected by section 1322(b)(2). See
In re Lam, 211 B.R. 36 (9th Cir. B.A.P. 1997).

(4) 11 USC 523(a)(16) is not at issue.

2/2/2012 $:48:39AM Page 2 of 4

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United States Bankruptcy Court
Central District of California

Los Angeles
Judge Nei! Bason, Presiding

Courtroom 1545 Calendar

Thursday, January 26, 2012 Hearing Room 1545
2:00 pm
Cont.... Hooman Shafazand Chapter 13

Shoreham argues that the postpetition homeowners assessments are not dischargeable
in bankruptcy pursuant to section 523(a)(16) and that, for similar reasons, a lien related to
those assessments cannot be avoided. However, the debtor only seeks to avoid
prepetition claims, not postpetition debt. See, e.g., Reply at 6:26-28. Shoreham appears
to be correct that the debtor's obligation is nondischargeable, but that issue is not before
the Court on this motion.

(5) Shoreham argues that the property is worth more than the debtor's valuation.

Shoreham has not provided an alternative valuation nor has it requested time to obtain an
appraisal of the subject property. Therefore, the Court will not address this issue.

(6) The motion was timely served.

The deadline for oppositions to the motion is based on the hearing date, not on the date
of service of the motion. Therefore, FRBP 9006(f) and Section 1.2 in Appendix | of the
Court Manual are not applicable. !n addition, it does not appear that any harm was
caused to Shoreham or that Shoreham requires additional time, because it was able to
file a comprehensive opposition to the motion.

(7) Weighing the equities does not permit the Court to overlook the boundaries set
forth in the Bankruptcy Code.

Although the Court is sympathetic to the need to maintain and repair the premises in
which the subject property is located, it is the nature of bankruptcy that creditors generally
cannot be paid, and Shoreham's maintenance and repair needs cannot circumvent the
requirements of the Bankruptcy Code.

Pursuant to LBR 9021-1(b)(1)(B), movant must serve and lodge a proposed order via
LOU within 7 days of the hearing.

If you wish to dispute the above tentative ruling, please see Judge Bason's Procedures
(posted at www.cacb.uscourts.gov, "Information," "Bason, N.,"
Forms/Instructions/Procedures/Self-Calendaring,” “Procedures;" see the section labeled
“Tentative rulings").

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United States Bankruptcy Court
Central District of California

Los Angeles
Judge Neil Bason, Presiding

Courtroom 1545 Calendar

Thursday, January 26, 2012 Hearing Room 1545
2:00 pm
Cont... Hooman Shafazand Chapter 13
Party Information
Debtor(s):
Hooman Shafazand Represented By

Caroline S Kim

Movant(s):
Hooman Shafazand Represented By
Caroline S Kim
Trustee(s):

Kathy A Dockery (TR)

2/2/2012 8:48:39AM Page 4 of 4

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NOTE TO USERS OF THIS FORM:
1) Attach this form to the last page of a proposed Order or Judgment. Do not file as a separate document.
2) The title of the judgment or order and all service information must be filled in by the party lodging the order.
3) Category |. below: The United States trustee and case trustee (if any) will always be in this category.
4) Category Il. below: List ONLY addresses for debtor (and attorney}, movant (or attorney) and person/entity (or
attorney) who filed an opposition to the requested relief. DO NOT list an address if person/entity is listed in category I.

NOTICE OF ENTERED ORDER AND SERVICE LIST

Notice is given by the court that a judgment or order entitled (specify) MEMORANDUM DECISION

(1) PROVIDING ADDITIONAL TIME FOR VALUATION OF PROPERTY, (2) OVERRULING ALL
OTHER OBJECTIONS OF SHOREHAM TOWERS HOMEOWNERS ASSOCIATION, AND

(3) CONTINUING DEBTOR'S MOTION TO VALUE PROPERTY AND TREAT JUNIOR LIENS AS
UNSECURED was entered on the date indicated as “Entered” on the first page of this judgment or order
and will be served in the manner indicated below:

I. SERVED BY THE COURT VIA NOTICE OF ELECTRONIC FILING (“NEF”) - Pursuant to controlling
General Order(s) and Local Bankruptcy Rule(s), the foregoing document was served on the following
person(s) by the court via NEF and hyperlink to the judgment or order. As of 2/2/42, the following
person(s) are currently on the Electronic Mail Notice List for this bankruptcy case or adversary proceeding
to receive NEF transmission at the email address(es) indicated below.

Kathy A Dockery (TR) _ efiling@CH13LA.com

Caroline S$ Kim — caroline@kimlawgrouppe.com

Alyssa B Klausner abk@sghoalaw.com

Cassandra J Richey cmartin@ppriaw.net

John M Sorich generalmail@aswlawoffice.com, kbernal@alvaradoca.com
United States Trustee (LA) _ustpregion16,la.ecf@usdoj.gov

C1 Service information continued on attached page

ll. SERVED BY THE COURT VIA U.S. MAIL: A copy of this notice and a true copy of this judgment or
order was sent by United States Mail, first class, postage prepaid, to the following person(s) and/or
entity(ies) at the address(es) indicated below:

Debtor:
Hooman Shafazand
8787 Shoreham Drive, #410

West Hollywood, CA 90069
(1 Service information continued on attached page

Hl. TO BE SERVED BY THE LODGING PARTY: Within 72 hours after receipt of a copy of this judgment
or order which bears an “Entered” stamp, the party lodging the judgment or order will serve a complete
copy bearing an “Entered” stamp by U.S. Mail, overnight mail, facsimile transmission or email and file a
proof of service of the entered order on the following person(s) and/or entity(ies) at the address(es),
facsimile transmission number(s), and/or email address(es) indicated below:

(Service information continued on attached page

This form is mandatory. It has been approved for use by the United States Bankruptcy Court for the Central District of California.

August 2010 F 9021-1.1. NOTICE.ENTERED.ORDER