STATEMENT OF THE CASE

This is an action for judicial foreclosure. The trial court granted the Lenders’

motion for summary judgment. Thus, it entered a judgment ordering a foreclosure sale,

finding the amount due to be $381,713.49 (plus costs, including attorney fees), and

declaring the Borrowers liable for any deficiency. Later, the trial court awarded $45,266

in attorney fees, making the total indebtedness $426,979.49.3

On April 24, 2019, the property was sold in a foreclosure sale. Polycomp bought

in the property, with a credit bid of $49,000.

The Lenders then filed a motion for a fair value determination. As discussed in

more detail below, the Lenders’ expert testified that the fair market value of the property

was $15,000, the Borrowers’ expert testified that the fair market value of the property

was $149,000.

The trial court found that the fair value of the property was $15,000. It entered a

deficiency judgment for $411,979.49.

II

THE EVIDENCE OF FAIR VALUE

The Borrowers contend that the trial court erred by finding that the fair value of

the property was $15,000 rather than $149,000.

3 The trial court also awarded costs. However, the Lenders took no steps to have these included in the deficiency judgment.

3 A. Additional Factual and Procedural Background.

1. The lenders’ appraiser.

The property at issue consists of 0.5464 acres, i.e., 23,801 square feet, on West

Main Street in Barstow. At one time, it was improved with two retail buildings. In

August 2017, however, the buildings were damaged by fire, and later they were

demolished.

The Lenders’ expert appraiser, Steven R. Fontes, valued the property by looking at

comparable sales. He found four of these.4 After adjustments for location, site size,

access, shape, off-site improvements, and land use, the sale prices per square foot of these

comparables ranged from $0.24 to $1.13. Fontes selected $0.60 as being roughly in the

middle and “as appropriate, considering all the market data.” This resulted in an estimate

of $14,281, which he rounded up to $15,000.

Thus, Fontes opined that the fair value of the property as of April 24, 2019, the

date of the foreclosure sale, was $15,000.

2. The borrowers’ appraiser.

The Borrowers’ expert appraiser, Alan R. Sims, relied on just one comparable: a

property at 147 West Main Street (other property), which had sold for approximately

$100,000 on March 12, 2019. The comparable was smaller than the subject property —

4 Fontes noted a fifth comparable property, which was listed for sale but had not yet been sold; ultimately, he did not include it in his calculations.

4 just 13,052 square feet.5 Also, “it contained an old building that needs restoration,

retrofitting or razing, which will be an additional cost.” The building had two stories,

with a “[b]usiness on the bottom” and a “rental on the top.” However, when listed for

sale, it was vacant and not producing income.

Sims calculated the value of the subject property as follows:

1. Demolition of the building at the other property would cost $18,000.

2. He subtracted the $18,000 demolition cost from the $100,000 sale price,

resulting in a “residual land value” of $82,000, or $6.28 per square foot.

3. At $6.28 per square foot, the subject property would be worth $149,470, which

he rounded down to $149,000.

Thus, in Sims’s opinion, the fair value of the property was $149,000.

3. The trial court’s ruling.

The trial court ruled that “[The Lenders] have met their burden to establish the fair

value of the property is $15,000, and [the Borrowers] have failed to offer evidence

refuting this.”

It found that Sims’s valuation was not credible, for four reasons: (1) he used only

one comparable; (2) his “failure to respond to Fontes’ report raises questions about his

investigation”; (3) he compared the subject property which was vacant, to “income-

5 It is not clear how Sims arrived at this square footage. The documents concerning the other property that he attached to his declaration show a lot width of 28 feet and a lot depth of 54 feet, for a total of 1,512 square feet.

5 producing commercial rental property”; and (4) he did not testify to the value of the

subject property specifically as of the date of the foreclosure sale.

It therefore found, in accordance with Fontes’s opinion, that the fair value of the

property was $15,000.

B. Discussion.

1. General legal background.

“‘A deficiency judgment” is a personal judgment against a debtor for a recovery of

the secured debt measured by the difference between the debt and the net proceeds

received from the foreclosure sale.’ [Citations.]” (Dreyfuss v. Union Bank of California

(2000) 24 Cal.4th 400, 407.)

Under section 580a,6 however, the creditor cannot recover more than the

difference between the debt and “the fair market value of the real property . . . at the time

of sale.” In other words, the amount of the deficiency judgment must be the amount of

the debt, minus either the proceeds of the foreclosure sale or the fair market value,

whichever produces the smaller deficiency judgment.

“To establish the amount of the deficiency, the foreclosing creditor must file an

application for a fair value determination and a deficiency judgment within 3 months

after the date of the foreclosure sale and as part of the foreclosure action. [Citations.]”

6 This and all further citations are to the Code of Civil Procedure, unless otherwise specified.

6 (1 Bernhardt et al., Cal. Mortgages, Deeds of Trust, and Foreclosure Litigation

(Cont.Ed.Bar 4th ed. 2019) § 3.87 (Bernhardt).)

In an appeal from a deficiency judgment, if any statutory construction is

necessary, “[t]he meaning and construction of a statute is a question of law, which we

decide independently. [Citation.]” (B.H. v. County of San Bernardino (2015) 62 Cal.4th

168, 189.) Otherwise, “[t]he determination of fair value is factual in nature.” (Bernhardt,

supra, § 3.88.) Accordingly, we apply the substantial evidence standard of review. (Cf.

Mart v. Severson (2002) 95 Cal.App.4th 521, 530 [finding of fair value of stock]; see,

e.g., City Bank of San Diego v. Ramage (1968) 266 Cal.App.2d 570, 585-586.)

Under this standard, we must sustain the trial court’s finding if it is supported by

“any substantial evidence, contradicted or uncontradicted . . . .” (Crawford v. Southern

Pac. Co. (1935) 3 Cal.2d 427, 429.) “We must therefore view the evidence in the light

most favorable to the prevailing party, giving it the benefit of every reasonable inference

and resolving all conflicts in its favor . . . . [Citations.]” (Jessup Farms v. Baldwin

(1983) 33 Cal.3d 639, 660.)

2. Problems with Sims’s opinion.

a. Sims used only one comparable.

The trial court found that Sims was not credible, in part because he considered

only one comparable property. The Borrowers do not discuss this point. It afforded

ample reason, all by itself, to disregard Sims’s testimony.

7 As the Borrowers say themselves, “Comparable sales are an integral part of

valuation in California.” This method has been codified in Evidence Code section 816.

“Under this method, the appraiser identifies sales of properties deemed to resemble the

[subject] property in relevant respects, and then derives a market value for the [subject]

property from the prices paid for these ‘comparables,’ typically adjusting the price to

reflect such matters as material differences between the properties and differences in

market forces between the time and location of the comparable sale and that of the

property being valued.” (Emeryville Redevelopment Agency v. Harcros Pigments, Inc.

(2002) 101 Cal.App.4th 1083, 1094.)

It stands to reason that a valuation is more accurate if it is based on an average of

multiple comparable sales rather than on just one single comparable sale. That sale may

be a fluke. Moreover, using just one sale suggests that the appraiser has cherry-picked

from among the available comparables, seeking the one that is highest or lowest,

whichever best suits the client’s interests.

Here, Fontes used four comparables. Sims used only one. It was way out of line

with Fontes’s four. Moreover, Sims did not explain why he ignored the four that Fontes

used.

The Borrowers argue — with some chutzpah — that Fontes’s appraisal was

unreliable because he did not consider the March 2019 comparable that Sims did. Fontes

could properly reason, however, that it was not truly comparable, because it was

improved and/or because it was smaller than the subject property. (See part II.B.2.c,

8 post.) All else being equal, a smaller property will have a higher price per square foot.

Fontes’s comparables were all about the same size as or larger than the subject property.

In addition, as mentioned, it was not clear how Sims determined the square footage of the

other property. Sims’s appraisal was unreliable because it did not consider the four

comparables that Fontes did — and for no apparent reason.

b. Sims did not respond to Fontes’s analysis.

The Borrowers claim that Sims did respond to Fontes’s analysis, and that the trial

court erred by finding otherwise. All Sims said about Fontes’s analysis was that he had

read it and, in his opinion, it was too low — “more of a liquidation value.” However, he

did not criticize Fontes’s methods; he did not explain where Fontes had supposedly gone

wrong. His “response” was mere name-calling, not a reasoned explanation.

c. The comparable that Sims used was improved.

The trial court also reasoned that Sims was improperly comparing vacant land to

improved commercial rental property. The Borrowers mischaracterize this as a finding

that “the building on the comparable was added value and that [the] subject property was

of less value as vacant.” They then argue that their property was actually worth more

after the building that had been on it burned down.

There is no evidence that their property was worth more. They claim it was “a

1940’s style wooden building, with old plumbing and electrical.” However, there is no

evidence of this, nor is there any evidence that such a building makes the property that it

is on less valuable.

9 More to the point, the trial court did not find that the other property was worth

more simply because it had a building on it. Rather, it ruled that it was not genuinely

comparable, not only because it had a building on it, but also because that building was

potentially income-producing. It is not unreasonable to conclude that, all else being

equal, a property with an income-producing improvement is worth more than a vacant

property. In any event, it is surely not unreasonable to conclude that such a property is

not a valid comparable.

d. Sims did not assign a date to his valuation.

The trial court also reasoned that Fontes had testified to the fair value of the

property as of April 24, 2019, the date of the foreclosure sale, whereas Sims had merely

testified to the fair value of the property, without specifying a date. By statute, the trial

court must make a finding as to the fair value of the property as of the date of the

foreclosure sale. (§§ 580a, 726, subd. (b).) Because Fontes testified specifically to that

and Sims did not, the trial court could reasonably disregard Sims’ opinion.

Arguably, it could have done otherwise. It could have reasoned that Sims’s

opinion was based on a comparable sale in March 2019, and thus — at least inferably —

in Sims’s opinion, the value of the subject property had remained constant from March

through July 2019 (the date of his declaration).

However, it was not required to draw this inference. Sims did not specifically

state that in his opinion the valuation was unchanged, nor did he explain how he

10 determined that it was not. In the absence of such assurances, the trial court could

properly conclude that Sims’s opinion was not sufficiently reliable.

Even assuming the trial court did err by taking into account Sims’s failure to give

a date for his valuation, the error was undoubtedly harmless. As discussed above and

below, there were ample other reasons not to rely on Sims’s opinion.

e. Additional problems with Sims’s opinion.

There were problems with Sims’s opinion even beyond the four that the trial court

identified. Sims stated that the building on the other property “need[ed] restoration,

retrofitting or razing . . . .” However, he considered only the cost of razing it. The new

owner might well prefer restoration or retrofitting, which would save the cost of building

a whole new building. Sims did not consider those costs. More important, because the

building on the other property could be restored or retrofitted, the other property was

simply not comparable to the subject property.

Even more grievously, Sims subtracted the cost of demolition from the sale price

of the other property. This makes no sense. If a buyer is willing to pay $100,000 for a

property, and then to pay $18,000 to demolish a building on it, then surely the fair market

value of the same property without a building is $118,000, not $82,000. This is an odd

error for Sims to make, as it actually resulted in understating the fair value of the subject

property. For that very reason, however, it called his expertise and his credibility into

question.

11 3. The basis for Fontes’s opinion.

Most of the Borrowers’ brief is devoted to arguing that the trial court erred by

rejecting Sims’s opinion. However, they also argue that it erred by accepting Fontes’s

opinion, because the list of comparables that he used was “based on no proximate

comparable sales, but rather a summary of land data that may or may not include a proper

comparable, but rather an unauthenticated list of [four] pieces of land. The date that

summary of land data was prepared, and under what circumstance, was missing and is

important for proper authentication and context.”7

In his report, Fontes stated, “[W]e began by searching for sales of similarly sized

[and zoned] parcels with similar locations, as well as similar physical characteristics. A

search of the public records was made, as well as discussions with brokers active in the

subject market area. The sales data selected as most relevant are summarized on the

following . . . table.” (Italics added.) Thus, Fontes did explain the circumstances under

which his list was prepared; the list was authenticated; and Fontes’s opinion was based on

comparable sales. The date when the list was prepared is irrelevant.

4. Conclusion.

We therefore conclude that the trial court could reasonably believe Fontes’s

opinion and disbelieve Sims’s. Thus, its fair value finding was supported by substantial

evidence.

7 The Borrowers also complain that Fontes’s list of comparables is “illegible.” There are two copies of that list in the record. One is, in part, illegible, but the other is perfectly legible.

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III

TYPOGRAPHICAL ERROR IN THE JUDGMENT

Independently, we have identified one typographical error in the judgment.

The deficiency judgment is for $411,979.49. This is equal to $426,979.49, the

amount of the foreclosure judgment, minus $15,000, the fair value of the property.

However, the foreclosure sale price, $49,000, was more than the fair value, $15,000.

Accordingly, the judgment should be for $426,979.49, the amount of the judgment,

minus $49,000, the sale price. (§ 580a.) The correct amount is $377,979.49.

We will modify the judgment accordingly.8

IV

DISPOSITION

The judgment is modified so as to award the amount of $377,979.49 instead of

$411,979.49. The judgment, as thus modified, is affirmed. The trial court is directed to

enter an amended judgment, nunc pro tunc, modified accordingly. In the interest of

justice, the Lenders are awarded costs on appeal against the Borrowers.

NOT TO BE PUBLISHED IN OFFICIAL REPORTS

RAMIREZ

P. J.

We concur:

SLOUGH

J.

RAPHAEL

J.

8 At oral argument, counsel for the Lenders said this proposed modification was “fine.”

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