Memorandum of Decision Re: Tax Refund as Rents

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Decisions
IN THE UNITED STATES BANKRUPTCY COURT FOR THE NORTHERN DISTRICT OF CALIFORNIA
In re GENEVA TOWERS ASSOCIATES,                                               No. 1-90-01514 et al.,        Debtor. ___________________________/ THE DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT,        Plaintiff,     v.                                                                                                 A.P. No. 96-1093 JEFFREY LOCKE, Trustee, et al.,        Defendants. ______________________________/
Memorandum of Decision
     This adversary proceeding is over ownership of a $300,000.00 property tax refund which the debtor obtained postpetition. Plaintiff HUD claims that the refund belongs to it, and not the bankruptcy estate. Defendant Jeffrey Locke, the Chapter 7 trustee, and other interested parties claim that the refund belongs to the estate. Since no material facts are in dispute, the defendants seek dismissal of the complaint. They also seek sanctions against HUD.      The court begins by noting that the case is much more complicated than indicated above, but all the extra facts are not relevant. Rather than complicate what is a very simple issue here, the court intentionally ignores the lengthy history of this case.      HUD claims that the rents and profits provisions in its deed of trust to the debtor's property extended to tax refunds. The merits of this claim are entirely irrelevant. HUD admits that it nonjudicially foreclosed on its deed of trust pursuant to California law, and at the sale bid in the entire amount of its claim. Where the proceeds of sale satisfy the indebtedness, any remaining rents or other collateral belong to the debtor, not the secured creditor. 3 Witkin, Summary of California Law (9th), Security Transactions in Real Property section 152(b), p.650; Cornelison v. Kornbluth (1975) 15 Cal.3d 590; Duarte v. Lake Gregory Land & Water Co. (1974) 39 Cal.App.3d 101; Eastland Savings & Loan Assn. v. Thornhill & Bruce (1968) 260 Cal.App.2d 259.      HUD has alleged it had some sort of informal agreement with the trustee to share the tax refund, but concedes that it is not enforceable because it was never noticed to creditors or approved by the court. Moreover, there would be no point to compensating HUD for more than its claim even if the agreement were enforceable.      While HUD's claims are easily dealt with, that does not compel the sanctions defendants seek from HUD. Rehashing the history of this case is a pointless exercise, but this adversary proceeding is largely the end result of all parties not thinking the case through to its conclusion, not identifying the correct issues, and not stating their positions and understandings clearly. The court is certainly to blame for not clearly explaining its reasoning in some cases. All of this has been going on for several years. The result has been considerable unnecessary litigation. Since HUD alone is not to blame for the present situation, the court declines to assess sanctions, even though its complaint has no legal merit. It was merely the last act in a melodrama scripted by everyone.      The court hopes that the complicated history of this case has not kept the parties from realizing that it has a happy ending for all creditors. The general partners of the debtor have reached an agreement with the trustee whereby all remaining claims will be paid in full. HUD has been paid in full. The trustee has fulfilled his statutory responsibilities. It is time to conclude this case and move on to other things.      For the foregoing reasons, HUD's complaint will be dismissed with prejudice. Each party shall bear its own costs. The request for sanctions will be denied. Counsel for the trustee shall submit an appropriate form of order.
Dated: July 29, 1996                                                       _______________________                                                                                               Alan Jaroslovsky                                                                                               U.S. Bankruptcy