Guess v. Bernhardson, et al. (2015)

The appeal in Guess v. Bernhardson, et al. (2015) arose from a civil action for declaratory relief based on a 1999 family-court judgment which included spousal support of $12,000.00 per month payable to Carol Guess by her former husband, Donald Guess, and which by its recordation imposed a judgment lien on real property subsequently purchased by Donald and from Washington Mutual Bank at a nonjudicial trustee’s sale to the defendants, Mark and Ivy Bernhardson.  

The Fourth District, Division One, Court of Appeal affirmed the trial court’s order in that the 1999 judgment lien was valid only for the principal amount owing through the date of entry of the spousal support order plus interest, not the amount owing on the date of sale of the real property to the Bernhardsons.  The appellate court also affirmed that another provision of the judgment which required Donald to maintain $2,000.000.00 in life insurance designating Carol as the beneficiary and securing the payment of spousal support to Carol was neither a money judgment nor a spousal support judgment on which a lien could be created.

Facts

The parties’ judgment was recorded in May, 1099.  In it, the parties agreed that spousal support was not subject to modification or termination until Donald attained the age of 65 1/2 years old.  

The acquisition and sale of the real property is as follows.  In 2001, Donald acquired real property in Coronado, California.  In 2005, Donald executed a deed of trust encumbering the real property in favor of Washington Mutual Bank, N.A., as security for a loan of $2,080,000.  The trust deed was then recorded with the San Diego County Recorder’s Office.  In February, 2009, Washington Mutual recorded a notice of default on Donald’s loan and election to sell under the terms of the trust deed.  In May, 2009, a notice of trustee’s sale was recorded in the San Diego County Recorder’s Office.  On June 16, 2009, the trustee conduced a non-judicial foreclosure sale and transferred title to JPMorgan Chase Bank, N.A., Washington Mutual Bank’s successor-in-interest.  On June 24, 2009, a trustee’s deed upon sale transferring transferring title to Chase was recorded.  On April 30, 2010, a grant deed transferring title to the Bernhardsons was recorded.

Carol filed this action for declaratory relief in 2011, alleging non-payment of spousal support since December, 2007, and a failure to maintain the life-insurance policies securing spousal support payments and an anticipated cancellation of those policies as a result.  Carol argued that the judgment lien had priority over Chase’s interest and that of the Bernhardsons, as she recorded first in time and therefore had the senior interest.

The Bernhardsons moved for summary judgment, but the parties entered into a stipulation for summary adjudication of issues, i.e., whether, as argued by the Bernhardsons, the amount subject to the judgment lien was that amount due and fixed when title to the real property was encumbered by the deed of trust given by Donald on July 15, 2005, pursuant to Code of Civil Procedure section 697.390(b), which was zero; or, as argued by Carol, $336,000.00 in April, 2010, when the Bernhardsons bought the property.  Additionally, the Bernhardsons argued the Judgment provision for Donald to maintain a life-insurance policy as security for the payment of spousal support was a not a money judgment at all pursuant to Code of Civil Procedure section 680.270, and therefore no lien could attach.  Carol argued the provision for life insurance as security constituted a support judgment pursuant to Code of Civil Procedure section 697.320.

The trial court denied the motion for summary judgment [meaning one or more material facts were still in dispute], but granted summary adjudication for the Bernhardsons on the life-insurance issue. The court concluded Donald’s life insurance obligation under the judgment was neither a money judgment nor a support obligation payable in installments that could create a judgment lien.

On the remaining issue of the amount, if any, of Carol’s support-judgment lien, the parties stipulated to certain facts, including the following:

  • All monthly installments of spousal support in the amount of $12,000.00 required by the Judgment have been paid through December 31, 2007.
  • Monthly installments of spousal support in the amount of $12,000.00 required by the Judgment have not been paid since January 1, 2008.
  • As of June 24, 2009, the amount of unpaid spousal support was $216,000, plus accrued interest of $15,290.94.  And,
  • As of April 30, 2010, the amount of unpaid spousal support was $336,000.00 plus accrued interest of $37,762.17.

The parties also stipulated to the facts regarding the judgment’s provisions, conveyance of the real property to Husband, recording of the deed of trust on the real property, nonjudicial-foreclosure sale of the real property to Chase under deed of trust given to Washington Mutual, and transfer of the real property by Chase to the Bernhardsons.  

The trial court found in favor of the Bernhardsons on the issue of the support-judgment lien. The court cited Code of Civil Procedure section 697.350(c), which limits the lien of an installment judgment to the amount of installments that have matured, and Code of Civil Procedure section 697.390(b), which provides a property remains subject to a support judgment lien in the amount of the lien at the time of a transfer of or encumbrance on the property. The court found that when Donald encumbered the real property with the deed of trust to Washington Mutual in July 2005, the real property remained subject to Carol’s support judgment lien in the amount of that lien at the time of the encumbrance. Any future defaults by Donald to pay support installments not then mature were not covered by Carol’s judgment lien on the real property. Because the amount of Carol’s support-judgment lien in July 2005 was zero, the court found there was no support-judgment lien on the real property after the July 2005 encumbrance. The court entered judgment for the Bernhardsons, and Carol appealed.

Law and Analysis

A defendant moving for summary judgment or summary adjudication “bears the burden of persuasion that there is no triable issue of material fact and [the defendant] is entitled to judgment as a matter of law.” (Aguilar v. Atlantic Richfield Co. (2001).)  To meet that burden, a defendant must show one or more elements of the cause of action cannot be established, or that there is a complete defense to that cause of action. (Id.; § 437c, subd. (p)(2).)  To show the plaintiff cannot establish at least one element of the cause of action, the defendant must show “the plaintiff does not possess, and cannot reasonably obtain, needed evidence.” (Aguilar, at p. 854.)  If the defendant does not present sufficient evidence to meet its initial burden, the trial court must deny the motion for summary judgment or summary adjudication. (Id. at p. 850.)  If the defendant meets its initial burden of production, the burden shifts to the plaintiff to set forth specific facts showing that a triable issue of material fact exists as to the cause of action or a defense thereto. (Aguilar, at p. 849.)  If the plaintiff meets that burden, summary judgment or summary adjudication should be denied. (Gaggero v. Yura (2003).)  If not, summary judgment or summary adjudication for the defendant is appropriate. (Id.)

Code of Civil Procedure section 697.390 provides: . . . If an interest in real property that is subject to a judgment lien is transferred or encumbered without satisfying or extinguishing the judgment lien: . . .  (b) The interest transferred or encumbered remains subject to a judgment lien created pursuant to Section 697.320 in the amount of the lien at the time of transfer or encumbrance plus interest thereafter accruing on such amount.” [Italics added.]

In other words, under section 697.390, “unmatured installments that become due after a transfer or encumbrance are not added to the amount of the judgment lien on the property transferred or to the amount of the judgment lien given priority over the encumbrance” (Cal. Law Revision Com. com., 16B West’s Ann. Code Civ. Proc. (2009 ed.) foll. § 697.390, p. 319).  And, Carol “has not submitted any evidence showing the Legislature had an intent contrary to the clear and unambiguous language” of section 697.390(b).

On appeal, Carol also argued that because Washington Mutual failed to request subordination or release of her support lien, before making the loan to Donald in return for the deed of trust, it somehow reflects her judgment lien still had priority over the deed of trust.  The Bernhardsons, who argued that specific lending practices are irrelevant in light of her lien being fixed to the amount owed at the time of the transfer or encumbrance under  Code of Civil Procedure section 697.390(b):  The appellate court agreed with the Bernhardsons: “a lender’s real property security interest is subordinate to a prior support-judgment lien only in the amount of unpaid support payments due at the time of the recording of the lender’s security interest (e.g., trust deed) and therefore has, in effect, priority over any support payments that become due thereafter and are not paid.”

The appellate court also dispensed with Carol’s argument that Code of Civil Procedure section 697.390(b) must be interpreted as fixing the amount of a support-judgment lien at the time of the particular “transaction” between the support-judgment lienholder (here, Carol) and the party acquiring an interest in the real property (here, the Bernhardsons).  The Bernhardsons had acquired title to the real property by purchasing it from Chase, which had obtained title to it by a nonjudicial foreclosure sale pursuant to the deed of trust.  The Bernhardsons’ title was in the chain of title arising from the July 2005 deed of trust given to Washington Mutual and therefore under Code of Civil Procedure section 697.390(b), it is the July 2005 encumbrance that fixed the time for determining the amount of Carol’s support judgment lien as it relates to the Bernhardsons’ title.  

(The appellate court did note, however, at footnote 4 that, had Washington Mutual (which merged into Chase) not conducted a nonjudicial foreclosure sale and continued to hold the deed of trust interest in 2010 and the Bernhardsons had instead purchased the real property directly from Donald in 2010, Carol’s argument might have had some merit regarding the amount of her lien as against the Bernhardsons’ interest in the real property.)

The appellate court then addressed the Judgment’s provision of life insurance as security for support payments.  That provision stated:

“As additional non taxable spousal support, the spousal support award shall be secured by life insurance policies with a total face value of two million dollars, so long as a spousal support obligation exists. [Husband] shall be the owner of both of the existing million dollar policies insuring his life and their cash surrender/loan value. There shall be no prohibition against [Husband] borrowing on, or in any manner encumbering, any cash value, provided that the borrowing or encumbering of the policy or policies does not reduce the total death benefit below the amount required by this section. [Guess] shall be the irrevocable beneficiary so long as a spousal support obligation exists. . . . [Husband] shall pay all premiums or other charges necessary to keep the policies in force. . . .”

Carol argued Donald’s life-insurance obligation constituted a support judgment under Code of Civil Procedure section 697.320 for which she had a support-judgment lien.

For a judgment lien to be created under Code of Civil Procedure section 697.310, there must be a “money judgment.”  For a judgment lien to be created under Code of Civil Procedure section 697.320(a), there must be a “money judgment” that is “payable in installments.” As the Bernhardsons assert, Husband’s life insurance obligation under the Judgment is neither a money judgment nor payable in installments and therefore could not create a judgment lien under either section 697.310 or section 697.320.  

A money judgment is that part of a judgment requiring the payment of money (CCP sec. 680.270) and generally must be stated with certainty and specify the amount. (Estate of Kampen (2011).) There was no language in the judgment’s life-insurance provision requiring Donald to pay a certain amount of money.  At most, it required him to pay uncertain amounts of money as premiums to obtain and/or maintain life insurance policies totaling $2,000,000 in benefits for Carol in the event of his death. That obligation is not a “money judgment” that can create a judgment lien under either Code of Civil Procedure section 697.310 or section 697.320(a).

Furthermore, contrary to Carol’s assertion, Donald’s obligation to pay premiums to obtain and/or maintain life-insurance policies for her benefit is not a judgment for “spousal support payable in installments” within the meaning of Code of Civil Procedure section 697.320(a)(1).  The life-insurance provision in the judgment does not require Husband to periodically pay certain amounts of money and therefore his obligation to pay insurance premiums is not a judgment for spousal support payable in installments under Code of Civil Procedure section 697.320(a)(1).

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