Laura Mendez
I. INTRODUCTION
The dispute between the parties surrounds the condominium located at 440 W. Citracado Pkwy., Unit 25, Escondido, CA 92025, APN 238-130-32-25 (the “Property“). ECF No. 32 at 6. The Debtor and the Defendant purchased the Property and took title by way of a grant deed to “Maria Mendez, an unmarried woman and Laura Mendez, a single woman as joint tenants” in March 2018. Id.; Case No. 23-90024-JBM, at ECF No. 54-3 at 8. They have primarily lived together in the condo ever since. Id. The Debtor suffers certain medical issues that have in part led to her longstanding cohabitation with her mother, the Defendant. On January 12, 2021, the Debtor transferred her interest in the Property to the Defendant as a gift through a quitclaim deed. Case No. 23-90024-JBM, ECF No. 64 at 9. In August 2022, the Debtor filed a Voluntary Petition under Chapter 7 for bankruptcy (the “Petition“) due to apparently unfortunate circumstances involving a romantic entanglement that went awry. Her ownership interest in the Property became the subject of much dispute as a result.
II. PROCEDURAL BACKGROUND
A. The Debtor‘s Chapter 7 Bankruptcy Proceedings
On August 18, 2022, Laura commenced this Bankruptcy Case by filing the Petition. Case No. 22-02160-JBM7 (the “BK Case“), ECF No. 1. During the BK Case, the Debtor made two Substitutions of Attorney. First, on October 28, 2022, Richard L. Barrett substituted in as the Debtor‘s attorney after Suzette Douglas substituted out. ECF No. 22. Then, on May 22, 2024, Cheryl Stengel substituted in after Mr. Barrett‘s passing. ECF No. 44. The Court notes the Substitutions as they could contribute to some of the complexities in this case. On May 3, 2023, the Court entered the Debtor‘s Discharge. BK Case, ECF No. 34. However, the case continued as the parties disputed how to treat the Property for purposes of closing the BK Case.
When the Debtor first filed the Petition, she included the Property as an asset in her Schedule A/B, stating “Loan is solely in the name of Maria Mendez, Debtor‘s mother. Debtor was originally on the loan to help her mother qualify to purchase. Debtor remains on title.” BK Case, ECF No. 1 at 10. The Debtor listed the Property‘s value as $470,500. Id.
The Claims Register in the BK Case reflects total unsecured claims in the amount of $73,559.13, which will become especially relevant for purposes of determining whether the sale of the Property benefits the Estate sufficiently to authorize the sale.
B. The First Adversary Proceeding
In 2023, the Trustee filed an adversary proceeding against the Defendant to avoid the Debtor‘s transfer of the Property to the Defendant referenced above. After multiple mediations failed, the Court partially granted the Trustee‘s motion for summary judgment and, among other
C. The Second Adversary Proceeding
On March 26, 2025, the Plaintiff filed this Adversary Complaint (the “Complaint“) against the Defendant, initiating the present case. ECF No. 1. The Plaintiff sought turnover of property of the Estate, to quiet title, authority to sell all ownership interests in the Property, and injunctive relief. The Defendant filed an Answer and later, in October 2025, submitted a Status Report indicating she intended to file a Motion for Summary Judgment, but ultimately never filed one. ECF Nos. 8 and 20. In the Plaintiff‘s Status Report, he indicated “No written or oral discovery was conducted in this matter by the Plaintiff, as he believes the necessary facts have been determined in testimony from the Defendants provided both in the underlying bankruptcy case as well as in the prior adversary proceeding against Defendant MARIA MENDEZ, AP Case No. 23-90024-JBM.” ECF No. 18 at 1.
1. The Parties’ Pre-Trial Filings
The parties thereafter submitted a Pre-Trial Order, which the Court modified and entered, and their respective Trial Briefs. ECF Nos. 26, 29, 30, and 32. In the Pre-Trial Order, the parties agreed the only issues of fact remaining to be litigated were:
- The extent of the Debtor‘s joint tenancy interest in the Property;
- Whether the sale of the Property is necessary to maximize the value of the Estate and to facilitate distributions to unsecured creditors;
- The market value of the Property, the value of liens, and the amount of equity in the Property;
- Whether the Property maintains substantial equity, which can only be realized from a sale;
- The benefit to the Estate of a sale of the Property free of the interests of Defendant outweighs the detriment, if any, to the Defendant;
- The detriment, if any, to the Defendant of the sale of the Property;
Whether any conduct of the Defendant and the Debtor will cause great and irreparable injury to the Estate‘s interest in the Property; - Whether the Plaintiff has any remedy against any destruction or dissipation of the Property while under the control and possession of the Defendant and the Debtor;
- Whether the Court should issue an injunction restraining and enjoining the Defendant and the Debtor from disrupting the marketing of the Property;
- Whether the Plaintiff has adequate remedy at law for any injuries that might result from the continued refusal of the Defendant to turn over the Property;
- Whether, and to what extent, the Defendant is entitled to any allowance, accounting, contribution, or other compensatory adjustment prior to division of any proceeds of sale of the Property.
ECF No. 26 at 7-8.1 The Defendant also proposed submitting her bank statements from February 1, 2018, through July 31, 2025, as well as a summary of voluminous records as exhibits. Id. at 11. The Plaintiff objected to that proposal to the extent the underlying documents had not been authenticated and claimed the summary itself did not appear to be accurate. Accordingly, prior to the trial the Defendant provided paper copies of the bank records to the Court and prepared to authenticate many of the records during the trial.
On January 29, 2026, the trial commenced. The parties spent considerable time addressing the Debtor‘s medical and mental health concerns and appeared to raise certain issues as to her legal capacity. ECF No. 52 at 182:17-183:1. The parties also elicited significant testimony regarding the
2. The Parties’ Post-Trial Filings
At the conclusion of the trial, the Court ordered the parties to each file a post-trial brief to address certain outstanding issues. The Court specifically directed the parties to brief two issues: “the first issue is that neither party in their trial briefs did any of the math for their particular position regarding the credits.” ECF No. 52 at 181:11-13. The Court went on and instructed the parties, “We‘ve got the evidence now. I want you to give me the numbers, as you see them from your client‘s perspective, for calculating that accounting,” referring to credits to the Defendant for mortgage and HOA payments and any of the Plaintiff‘s purported offsets for rental value. Id. at 182:4-6. Second, the Court requested additional briefing regarding the Debtor‘s capacity issues given the amount of testimony devoted to those issues. Id. at 182-183. On February 26, 2026, Maria filed her Post-Trial Brief (ECF No. 43), and the Plaintiff filed his Post-Trial Brief on March 24, 2026 (ECF No. 55). Laura did not file a Post-Trial Brief.
In Maria‘s Post-Trial Brief, she argued that she must receive credits for her disparate contributions to the Property, that the Court should deny any rental offset to the Plaintiff, and that Laura‘s medical and mental health issues did not compromise her legal capacity. ECF No. 43 at 2-4. With respect to the Plaintiff‘s overarching burden to show that the benefit to the Estate outweighs the detriment to her, Maria argued the Plaintiff did not adequately establish a benefit to the Estate and that her potential detriment dramatically outweighs any such benefit. Id. at 5-7. Maria estimated $23,000 in sales proceeds would be available to the Estate after allowing her credits for disproportionate contributions to the Property since its 2018 purchase. Id. at 6.
The Plaintiff addressed similar issues in his Post-Trial Brief, first claiming Maria is not entitled to any offsets or reimbursements. ECF No. 55 at 2-7. Next, he argued that if Maria is entitled to offsets for her contributions to the Property, then the Estate can rightfully claim an offset for the rental value of the property. Id. at 9-10. Turning to the Section 363(h) analysis, the Plaintiff then asserted Maria could obtain a comparable property (and thus will not suffer a large detriment)
III. LEGAL STANDARDS
The legal standards for the claims and issues presented at trial are as follows.
A. 11 U.S.C. § 542(a)
Under Section 542(a), an entity in possession, custody, or control, during the case, of property that the trustee may use, sell, or lease under Section 363 shall deliver to the trustee, and account for, such property or the value of such property, unless such property is of inconsequential value or benefit to the estate. This Section requires turnover of property subject to Section 363‘s applicability.
B. Quiet Title
As a threshold matter, the Plaintiff brings this cause of action solely as a vehicle to fix the parties’ respective ownership interests in the Property for purposes of the 363(h) claim and determining how to distribute sale proceeds. See e.g., ECF No. 32 at 6 (“The Estate is entitled to quiet title of the property and is authorized to sell it pursuant to
Under Section 363(j), proceeds from a property sale under this Section must be distributed according “to the property‘s co-owners, after the payment of costs and expenses, according to the
A joint interest is one owned by two or more persons in equal shares, by a title created by a single will or transfer, when expressly declared in the will or transfer to be a joint tenancy, or by transfer from a sole owner to himself or herself and others, or from tenants in common or joint tenants to themselves or some of them, or to themselves or any of them and others, or from spouses, when holding title as community property or otherwise to themselves or to themselves and others or to one of them and to another or others, when expressly declared in the transfer to be a joint tenancy, or when granted or devised to executors or trustees as joint tenants. A joint tenancy in personal property may be created by a written transfer, instrument, or agreement.
However, the presumption of a creation of a true joint tenancy based on a deed alone may be rebutted. “Although a joint tenancy deed is not conclusive as to the character of real property, it creates a rebuttable presumption that it is held in joint tenancy.” Machado v. Machado, 58 Cal. 2d 501, 506 (1962). Specifically, the presumption may be rebutted where there is evidence of an understood agreement regarding the character of the property. Id. (Parties may rebut the presumption “by evidence tending to prove a common understanding or an agreement that the character of the property was to be other than joint tenancy,” though testimony of the “hidden intentions of one of the parties” does not suffice.) A party challenging the presumption that property held in joint tenancy is equally owned has the burden of proof. 20 Am. Jur. 2d Cotenancy and Joint Ownership § 116 (citing In re Crouch C Stores, Inc., 120 B.R. 178 (Bankr. D. Kan. 1990).).
Courts weigh circumstantial evidence to support this rebuttal, including evidence of an agreement contrary to the deed and the parties’ conduct in the course of ownership. The California Supreme Court in Gudelj v. Gudelj, 41 Cal. 2d 202, 213 (1953) held that “unless there is an oral or written agreement as to the ownership of property, or such an understanding may be inferred from
C. 11 U.S.C. § 363(h)
Under Section 363(h), the trustee may sell both the estate‘s interest and the interest of any co-owner in property in which the debtor had, at the time of the commencement of the case, an undivided interest as a tenant in common, joint tenant, or tenant by the entirety, only if (1) partition in kind of such property among the estate and such co-owners is impracticable; (2) sale of the estate‘s undivided interest in such property would realize significantly less for the estate than sale of such property free of the interests of such co-owners; (3) the benefit to the estate of a sale of such property free of the interests of co-owners outweighs the detriment, if any, to such co-owners; and (4) such property is not used in the production, transmission, or distribution, for sale, of electric energy or of natural or synthetic gas for heat, light, or power. The plaintiff in an action to sell a property pursuant to this Section bears the initial burden of proof to show these elements. In re Phillips, 379 B.R. 765, 795 (N.D. Ill. 2007). However, once the plaintiff has demonstrated a benefit to the estate, the burden shifts to the defendant to show their detriment. Id. (recognizing shifting burden). If the defendant establishes a detriment, the burden then shifts back to the plaintiff to show the benefit to the estate outweighs the detriment to the defendant.
Importantly, under Section 363(j), “[a]fter a sale of property to which subsection (g) or (h) of this section applies, the trustee shall distribute to the debtor‘s spouse or the co-owners of such property, as the case may be, and to the estate, the proceeds of such sale, less the costs and expenses, not including any compensation of the trustee, of such sale, according to the interests of such spouse or co-owners, and of the estate.” (emphasis added.) State law thus impacts this determination, where Section 363(j) “gives the court substantial discretion to order the distribution, subject to the
Finally, the Court‘s ultimate decision “to allow [or disallow] a Section 363(h) sale is an equitable judgment that is discretionary and fact driven.” In re Francis, 597 B.R. 195, 200 (Bankr. D. Mass. 2019).
D. Fed. R. Bankr. P. 7065
Under
IV. FINDINGS OF FACT, CONCLUSIONS OF LAW, AND APPLICATION OF LAW TO FACTS
A. Jurisdiction
This adversary proceeding arises in and relates to the BK Case before this Court. In the Pretrial Order, the parties agreed that this Court possesses jurisdiction to consider this adversary proceeding pursuant to
The Plaintiff brings four causes of action that all hinge on his success with respect to the third cause of action under Section 363(h). As detailed above, the Plaintiff bears the initial burden of proof on all four elements. The parties do not dispute that the Plaintiff can establish the first and fourth elements of Section 363(h), as evidenced by their absence from the disputed issues in the Pre-Trial Order detailed above, and during the trial the Defendant did not dispute the Plaintiff‘s claim as to the second element. ECF No. 26 at 7-8. Accordingly, the Plaintiff bore the initial burden to show the Property‘s sale benefits the estate, after which Maria must have shown she suffers some detriment. Once Maria established her detriment, the Plaintiff must have demonstrated that the benefit to the Estate outweighs that detriment to prevail. The Plaintiff must make this showing by a preponderance of the evidence. In re Al-Idrisi, 634 B.R. 174, 183 (Bankr. D. Mass. 2021). As to the fourth cause of action, the Plaintiff also bears the burden of meeting the elements in support of the requested permanent injunction.
C. Evidentiary Record
Prior to the trial, the Plaintiff objected to the Defendant‘s Exhibit B, which the Defendant presented as a summary of voluminous bank statements pursuant to
During the trial, the Defendant moved to enter the bank records into evidence, and the Plaintiff did not object. ECF No 52 at 34:17-25. Counsel for the Defendant laid a foundation with respect to the records by eliciting testimony that the Defendant highlighted certain transactions in the bank records of which she had personal knowledge, including mortgage payments and payments toward her homeowner‘s association fees. Id. at 36-37. Specifically, the Defendant stated “I did highlight my mortgage statements, the payments that I did, and I highlight the homeowners association fees. And I believe some of the ones that I highlighted did as my main expenses, like my San Diego Gas & Electric because I‘m making the payments. Those are my main bills.” Id. at 37:20-23. The Court and the Defendant thereafter clarified that some months included additional
The Defendant moved the Summary into evidence, and the Plaintiff objected on the basis that the Defendant did not lay a proper foundation for the Summary and as to its accuracy. Id. at 44:25-45:8. The Court overruled the objection and admitted the Summary into evidence because “the probative value of the document outweighs any prejudice that [the Court] might experience in reviewing the evidence before [it] because [it has] the underlying bank statements.” Id. at 46:5-8.
During the Plaintiff‘s case, the Court admitted Exhibits 1, 2, 3, 4, 5, 6, 7, 9, 16, 17, 18, and 19 into evidence with no objections. The Court notes Exhibit 16 constituted a report from Apartments.com demonstrating rental listings for condos in the Defendant‘s complex (though not her own). Id. at 74:22-77:8. Exhibit 17 showed a Zillow listing that included both a rental value and purchase value (at $530,000) for a different condo in the Defendant‘s complex. Id. at 86:1-17.
D. Factual Background
On March 22, 2018, the Debtor and the Defendant purchased the Property, taking title as joint tenants. BK Case, ECF No. 64 at 8; Case No. 23-90024 at ECF No. 54-3 at 8. During the trial, Maria testified that she did not discuss being a co-owner with Laura and instead had simply listened to a professional at her mortgage company who assisted her with qualifying for her mortgage loan. ECF No. 52 at 82:10-23. In part, including Laura on the title and as a co-borrower on the loan increased the owners’ income and thus their ability to qualify for a loan. Id. at 82:24-83:2. More impactful, Laura testified that at the time of purchasing the Property, she alone qualified for a first-time homeowner‘s assistance loan that made the purchase possible. Id. at 116:19-117:7. Maria testified that she intended “to purchase it by myself” and that she did not know what “joint title” means. Id. at 83:15-84:12. Along with making these statements, Maria acknowledged she could not complete the purchase without Laura‘s help. Id. at 83:16-17; 83:20-22 (“since I didn‘t qualify, I needed her to help me with a little bit of income,” “she came and -- and qualified for the loan to help -- to help me to purchase the house.“).
According to both Maria and Laura, no agreement, written or oral, ever existed regarding Laura paying rent or toward the mortgage at the Property, nor for a division of expenses more
In May 2019, Laura moved out of the Property and did not return until August 2019, creating a four-month period in which she was out of possession. BK Case, ECF No. 64-2 at 12:2-13. Laura moved out for another period from June 2022 until November 2022. Id. at 35.
Earlier, in 2018, Laura began experiencing financial difficulties born of a romantic entanglement with an individual who convinced her to make purchases on a credit card and to incur a debt related to a vehicle. ECF No. 52 at 96:19-97:9. According to her deposition, in the fall of 2019, she began consulting with bankruptcy firms to seek advice related to these difficulties. BK Case, ECF No. 64 at 8-9. And on March 2, 2020 Ford Motor Credit Company, LLC, (“Ford“) first began to make demands on the Debtor related to her breach of its contract. Id. at ECF No. 64-2 at 61:8-15.
On January 12, 2021, the Debtor executed the Quitclaim Deed transferring her interest in the Property to the Defendant by way of Doc #2021-002339. Case No. 23-90024, ECF No. 54-3 at 28. On March 11, 2022, Ford filed a complaint against the Debtor for breach of contract in the San Diego Superior Court. Ford Motor Credit Company, LLC, v. Laura Mendez, San Diego Superior Court Case No. 37-2022-00009731-CU-BC-NC, Dkt. No. 1. Shortly thereafter, the Debtor began her second period out of possession from the Property, moving out in June 2022 and not returning until November 2022 as mentioned above. BK Case, ECF No. 64-2 at 35. In the interim, on August 15, 2022, Ford obtained a default judgment against the Debtor in the amount of $32,969.25. BK Case, Proof of Claim 2-1 at 4-5. On August 18, 2022, the Debtor filed her Petition. BK Case, ECF No. 1.
These occurrences led the Plaintiff to file the First Adversary Proceeding detailed above where the Plaintiff prevailed on the Motion for Summary Judgment to avoid the transfer by the Quitclaim Deed.
With only the Defendant and the Debtor as witnesses, and a sparse evidentiary record other than the bank records and earlier proceedings in the various cases, some of the Court‘s conclusions rely on the credibility of the parties as witnesses. The Court found both witnesses credible.
F. The Substantive Claims
1. 11 U.S.C. § 363(h)
As detailed above, the parties agree that the Plaintiff has met the first, second, and fourth elements of Section 363(h). Accordingly, the Court focuses only on the third element—whether the benefit to the Estate in selling the Property outweighs the detriment to the co-owner.
The first legal issue the Court must decide is whether the sale of the Property benefits the Estate generally. If the Plaintiff failed to satisfy this threshold issue, the inquiry ends there. The parties agree that some benefit to the Estate exists in this case where, as recounted above, both the Plaintiff and Defendant submit that funds would be available from the sale proceeds to the Estate. Accordingly, the Plaintiff satisfied the initial burden of demonstrating the Estate would benefit from selling the Property. The Court now turns to quantifying the benefit to the Estate and weighing the detriment to the Defendant for purposes of determining whether the benefit outweighs that detriment such that the Court may authorize the sale.
A. The Benefit to the Estate
(1) The Parties’ Respective Ownership Interests in the Property
To determine whether the benefit to the Estate outweighs the detriment to the Defendant and thus that the Plaintiff may proceed with the sale, the Court must determine the proper division of the proceeds from such sale under Section 363(j). Whether sufficient funds will remain such that the benefit to the Estate outweighs the detriment to the Defendant depends on how the funds will be split. As detailed above, California state law governs the parties’ respective ownership interests in the Property.
The Plaintiff cites Milian v. De Leon, 181 Cal. App. 3d 1185 (1986) for the proposition that the Defendant cannot recover credits for her contributions to the Property by way of mortgage and HOA payments because she and the Debtor owned the Property as joint tenants. However, that case and the cases that followed Milian are readily distinguishable. Milian dealt with the unique circumstances of a “palimony” case, where co-owners of the property were not married but were seriously romantically involved and had an agreement with one another regarding both ownership and contributions to the property. Milian, 181 Cal. App. 3d at 1191 (“Sanchez also frequently stated at trial that the couple‘s extensive financial entanglement was based upon an agreement that the two would be equal partners in owning the home, sharing all of their property and resources, and preparing for marriage.“). (emphasis added.) In that context, the circumstances invoked community property principles and California‘s longstanding interest in equal division in palimony cases, even with respect to contributions toward a co-owned property outside of marriage. The plaintiff in Milian testified that “in anticipation of marriage the couple had agreed to pool their resources or some of them to acquire the property in dispute and had agreed to own it equally irrespective of their individual contributions to the purchase price and expenditures for improvements to and maintenance and preservation of the property,” entirely contrary to the testimony before this Court where the parties both explicitly testified they did not intend to own the Property as equal partners nor agree to split home ownership expenses. Id. (emphasis added.)
In finally determining the circumstances in Milian warranted an equal split, the court conducted a review that “demonstrate[d] a relationship that far exceeds the normal arms length relationship entered into by persons who agree to jointly hold property,” where the evidence “illustrate[d] a relationship that is far more intimate, complex and intertwined than casual dating.” Id. at 1192. In so doing, the Court found the parties entered “an implied contract” “to treat their property equally and to divide the same equally.” Id. Nothing before the Court demonstrates the Defendant and the Debtor impliedly contracted in this manner. To the contrary, the Plaintiff admits “since the Property‘s purchase, as it was Defendant‘s understanding, by her own admission, that she
The Court looks to the parties’ course of conduct and testimony and infers a clear understanding existed to rebut the joint tenancy presumption as contemplated by Machado. None of the evidence points to “a hidden intention not disclosed to the other party at the time of the execution of the document” either with respect to the parties’ form of ownership, as prohibited by Machado. Machado, 58 Cal. 2d at 506. When the Plaintiff asked the Debtor during her deposition “Besides helping out with food and the SDG&E bill, are there any other expenses of things you pay for living there?” the Debtor responded, “No. I don‘t pay anything towards the house.” ECF No. 64-2 at 13:8-11. The Debtor went on to explain how she assisted with paying for groceries, for example running errands for her mother, pointing to a parent-child relationship, rather than a complex and intertwined relationship headed toward lifelong marital partnership.
Another key distinguishing factor from Milian lies in the parties’ possession of the Property, addressed at length below. In Milian, one party “alone had actual use of the property from the time of its purchase to the present time,” whereas the Debtor and the Defendant both had actual use of the Property here for the vast majority of the ownership period. Milian, 181 Cal. App. 3d at 1199. Overall,.this clear course of conduct supports an inferred understanding that the parties did not intend to be joint tenants.
The Court further concludes that even if the parties held title to the Property as true joint tenants, which the Court concludes they do not based on the clear intentions of the parties, in Milian the court held “insofar as any disparity in the contributions of the parties to the initial acquisition of the property is concerned, the determination there was a true joint tenancy supports the court‘s determination that there need be no accounting or contribution.” Id. at 1195 (emphasis added.) In Milian, the court surveyed California cases and could not find one “in which a true joint tenancy
Moreover, the Milian court also acknowledged that “the disparate treatment of joint tenants and tenants in common is more theoretical than real because in a suit for partition all parties’ interests in the property may be put in issue regardless of the record title.” Id. at 1195-1196 citing
The Court further concludes the Defendant presented sufficient evidence to rebut the presumption under the record title that the parties held title to the Property as true joint tenants. Specifically, the Defendant presented significant evidence illustrating unequal contributions to the payments toward the mortgage and Homeowners’ Association for the Property by way of the bank statements now before the Court, conduct that shows the parties had an understanding as to their ownership interests contrary to a joint tenancy. The bank statements make abundantly obvious that the Defendant contributed all if not nearly all the funds toward the expenses of maintaining the Property. Since the parties did not enter a true joint tenancy, the Court concludes they held title to the Property as tenants in common and, because the deed did not indicate their percentage ownership interests in the Property, further concludes the Defendant and the Estate each possess a 50% interest in the Property. Case No. 23-90034-JBM, ECF No. 54-3 at 8; Caito v. United California Bank, 20 Cal. 3d 694, 705 (1978)
Thus the Court must account for the Defendant‘s contributions by treating the parties as co-tenants rather than joint tenants because, as detailed above “a joint tenancy deed is not conclusive as to the character of real property.” Machado, 58 Cal. 2d at 506. The parties’ testimony during the trial paired with their consistent and obvious conduct over the eight-year ownership period shows their mutual understanding that they were not true joint tenants.
California courts have applied this principle and treated co-owners as tenants in common despite taking deed to the Property as joint tenants when one cotenant sought “to obtain contribution respecting improvements made, or amounts expended in protection or preservation of the property.” Hunter v. Schultz, 240 Cal. App. 2d 24, 31 (1966). Accordingly, the Court determines that the parties did not take title to the Property as true joint tenants and instead treats the ownership interests as those of tenants in common, and in California, “[w]hen a cotenant makes advances from his own pocket to preserve the common estate, his investment in the property increases by the entire amount advanced. Upon sale of the estate he is entitled to be reimbursed his entire advancement before the balance is equally divided.” Southern Adjustment Bureau, Inc. v. Nelson, 230 Cal. App. 2d 539, 541 (1964) (emphasis added).
Because the Court finds Milian inapplicable, the Court is not persuaded that the Defendant is not entitled to reimbursement for her disproportionate contributions. The Court further concludes that even if the parties held the Property in a joint tenancy, the Defendant would still possess a right to reimbursement for her contributions toward the Property‘s value after acquisition.
Consequently, the Court concludes the Defendant is entitled to dollar-for-dollar credits from the sale proceeds for her principal and interest contributions toward the Property. The Ninth Circuit in Kenney v. United States, 458 F.3d 1025 (9th Cir. 2006) provides an applicable approach for determining how to allocate credits to the Defendant. In Kenney, a couple took title to a property as joint tenants, and the court analyzed the parties’ contributions to the property for purposes of
Accordingly, the Court must first credit the Defendant for all her principal and interest payments on the mortgage, as well as HOA fees, before dividing the potential proceeds of the proposed sale for purposes of determining the benefit to the Estate. The Court further concludes that any outcome other than crediting the Defendant would be fundamentally unfair and, as detailed above, this judgment is an equitable and discretionary one. In re Francis, 597 B.R. at 200. The Court has reviewed the bank statements the Defendant submitted and concludes the total amount to be credited, or the expenditures in excess of her fractional share of the Property‘s ownership, is $96,120.81. The Court acknowledges that as the Defendant has continued to pay the mortgage and HOA fees since the trial these expenditures have continued to increase. That amount must be accounted for pursuant to any attempt to obtain a further order approving the sale. During the trial, Counsel for the Defendant stated that certain highlights in the Defendant‘s records for San Diego Gas & Electric bills should be “disregarded,” so the Court notes here that it examined and excluded those portions from the above calculated credits. ECF No. 52 at 40:25. Accordingly, the Court calculated the Estate‘s potential share as follows:
| Property value as admitted in the Debtor‘s Schedules. BK Case, ECF No. 1 at 10. | $470,500 |
| Defendant‘s expenditures in excess of her share (her credits). | - $96,120.81 |
| Approximate amount to be paid to mortgage. ECF No. 43 at 6. | - $270,000 |
| Remainder to be split between Defendant and Estate. | $104,379.19 |
| Divided by two. | $52,189.60 |
| Costs of sale (subtracted from Estate‘s share). | -$23,535 |
| Estate‘s share (to be distributed to creditors and paid toward administrative expenses). | $28,664.60 |
The Court notes that it did not split the costs of the sale itself between the Defendant and the Estate as contemplated in Section 363(j).
(b) Rental Value Offsets
The Plaintiff also claims that, should the Defendant be entitled to credits, “Plaintiff is entitled to the reasonable rental value of the Property during Defendant‘s occupancy and use, since Plaintiff has never had occupancy or possession of the Property, while Defendant has occupied and had use of it since its purchase.” ECF No. 55 at 8. The Plaintiff so submits based on principles of equity and in reliance on the case Hunter v. Schultz. There, the California appellate court found it “proper”
Here, the Debtor began occupying the Property in 2018 and still lives there, having only maintained two brief periods out of possession during that entire time. BK Case, ECF No. 64-2 at 11-12. The Trustee seems to suggest that the Estate‘s inability to occupy the Property triggers rental value offsets, including the pre-petition period following the Property purchase. (“Such rental values should be calculated for the entirety of Defendant‘s tenancy since the Property‘s purchase, as it was Defendant‘s understanding, by her own admission, that she was to be solely responsible for the mortgage and HOA expenses since that time.” ECF No. 55 at 8.) Such a proposition is not reasonable. The Debtor did not file the Petition until August 18, 2022. BK Case, ECF No. 1. Accordingly, the Estate did not even exist, and thus could not have “had occupancy or possession of the Property,” until at least its inception in 2022, if the Estate‘s possession or occupancy of the Property could even be possible. The Court doubts this possibility taking shape in any form other than the Debtor‘s occupancy herself. The Estate would then step into her shoes for purposes of this analysis. The Debtor has continuously lived in the Property since shortly after she filed her bankruptcy petition in November 2022.
Moreover, the Trustee did not present any relevant evidence during the trial regarding the reasonable rental value during the two periods when the Debtor left the Property. Instead, he claims “the rental value of the Property is approximately (and historically has been) close to the same monthly amount Defendant pays for her mortgage and HOA fees (Tr. 74:9-12; 76:9-12; 78:12-22), as set forth more thoroughly in Section ‘D,’ below.” ECF No. 55 at 8. The Court having reviewed the sections of the Trial Transcript to which the Trustee refers does not find this persuasive. Isolated statements regarding the Defendant‘s current mortgage payments compared with 2026 rental values for different, nearby properties cannot adequately serve as evidence for the 2019 and 2022
(c) The Property‘s Value
During the trial, the parties did not present persuasive evidence as to the Property‘s value. Neither party presented an appraisal for the Property. Instead, the Plaintiff entered into evidence a price estimate from Zillow for a nearby property, rather than the Property, referenced above. Trial Exhibit No. 17. Although such online sources can aid the Court in determining a ballpark valuation for properties, they cannot reliably establish a property‘s value for legal purposes.
The Plaintiff also argued in his Post-Trial Brief that the Defendant could testify to the value of her own property. That principle is correct, but the Defendant did not do that. Instead, as the Plaintiff concedes, she “stated at trial that she was aware that other condos in her complex were recently listed for as much as $530,000.00.” ECF No. 55 at 9 citing ECF No. 52 at 70:17-20 (emphasis added). The Defendant‘s testimony as to the potential value of other properties (because that is all a listing price is) cannot establish the value of the Property, especially given the unique character of every piece of real estate. This is the case even if all of the condos in the complex have the same floor plan because they might vary widely in terms of condition, quality of upgrades, location within the complex, etc.
The Court concludes the best evidence before it, albeit outdated, is the Debtor‘s own admission as to the Property value in her August 2022 Petition. BK Case, ECF No. 1 at 10. There, the Debtor valued the Property at $470,500. Id. The Court is familiar with the San Diego real estate market and it is common knowledge that prices throughout San Diego County have increased in the nearly four years following the Debtor‘s bankruptcy filing. Absent any better evidence, the Court thus employs this value for purposes of calculating the benefit to the Estate, though the Court expects the August 2022 value to be lower than the true value of the Property.
(d) A Meaningful Distribution to Unsecured Creditors
The other challenge before the Court is determining whether a surplus exists to pay general unsecured creditors from the proceeds of a sale, as evidence of administrative expenses in this case is absent. Neither the Defendant‘s nor the Plaintiff‘s financial analyses include the currently outstanding administrative expenses. ECF No. 43 at 6; ECF No. 55 at 9. In light of Ninth Circuit caselaw regarding the benefit to the estate, the Court addresses whether payment toward administrative expenses constitutes a benefit to the estate in the first instance. The Court will further address how much must be distributed to unsecured creditors to support a sufficient benefit to the estate if payment of administrative expenses alone does not suffice.
Courts do not uniformly characterize payment toward administrative expenses as a benefit to the estate. For example, a Bankruptcy Court in Tennessee held “the payment of administrative expenses and secured and priority liens, which would result from the proposed sale, constitutes benefit to the estate.” In re Bell, 80 B.R. 104, 106 (M.D. Tenn. 1987). Twelve years later, a New York Bankruptcy Court held that “[i]t is a benefit to the estate to pay secured creditors, administrative and priority unsecured claims from the proceeds of a sale of property pursuant to § 363(h) of the Code.” In re Roswick, 231 B.R. 843, 860 (Bankr. S.D.N.Y. 1999).
However, a more recent Massachusetts Bankruptcy Court did not consider administrative expenses “to be a benefit to the estate in this case” because “a substantial amount of the administrative expense claims in this case are likely to relate to the Trustee‘s effort to sell the Property.” In re Al-Idrisi, 634 B.R. 174, 184 (Bankr. D. Mass. 2021). The Eighth Circuit concluded a lower bankruptcy court did not abuse its discretion in denying a trustee‘s sale motion under
In the Ninth Circuit, determining whether a benefit to the estate exists hinges on the amount to be distributed to unsecured creditors; specifically, the distribution must be “meaningful.” In re
Another court further defined this term in In re Scoggins, 517 B.R. 206, 208 (Bankr. E.D. Cal. 2014), holding “a distribution to unsecured priority and general claims that is less than the trustee‘s fee is not ‘meaningful’ and is disproportionate and presents an ‘extraordinary’ circumstance” such that the administrative expense should be reduced. (emphasis added.)
The court in In re Haley, 100 B.R. 13 (Bankr. N.D. Cal. 1989) applied these principles to a
Taken together, these cases demonstrate that the Plaintiff has satisfied this element of
b. The Detriment to the Defendant
The Defendant satisfied her burden to show she will suffer detriment if the sale goes forward, but the Court concludes such detriment does not outweigh the benefit to the Estate. The Court does not discount the difference in value, particularly in a real estate market like San Diego, in owning compared with renting real property. Since the Defendant purchased the Property in 2018, the San Diego real estate market has shifted significantly. The Court further details its specific conclusions as to the Defendant‘s detriment below.
(1) The Defendant‘s Ability to Purchase Another Property
First, the Plaintiff claims the Defendant will not suffer detriment in part because she “could obtain comparable property.” ECF No. 55 at 11. However, disputes as to real property frequently call for specific performance in light of the unique character of each parcel of real estate. See e.g., In re Aslan, 65 B.R. 826, 831 (Bankr. C.D. Cal. 1986); Nationstar Mortg. LLC v. Saticoy Bay LLC, Series 9229 Millikan Ave., 996 F.3d 950, 959 (9th Cir. 2021). The possibility of purchasing a comparable property cannot entirely cure this harm because of this longstanding principle. Moreover, the Court doubts the Defendant realistically could do so.
To the Plaintiff‘s credit, the detriment to the defendant in a
to the extent that the Defendant‘s arguments do demonstrate a detriment, it would still be outweighed by the benefit to the estate. A sale of the Property would result in a satisfaction of the indebtedness under the Refinanced First Mortgage, for which the Defendant is also liable. See LBR 7056–1 Stat. ¶ 34, ECF No. 51–20. This benefit would therefore accrue to both parties, and would ameliorate any detriment to the Defendant.
In re Schulter, 585 B.R. 670, 681 (Bankr. E.D.N.Y. 2018). Accordingly, whether the benefit to the estate outweighs the detriment to the defendant must account for the elimination of a defendant‘s
However, this factor does not necessarily weigh in the Plaintiff‘s favor given the dramatic changes in mortgage lending rates since the Defendant refinanced her loan in 2021. The Defendant‘s current loan accrues interest at a fixed rate of 2.8%. ECF No. 52 at 178:1. As of the date of this ruling, fixed rate mortgages sit around 6-7%.4 The Defendant‘s current mortgage loan totals $270,000 and it is likely that to purchase a comparable property she would take on a larger loan at a much less favorable interest rate. ECF No. 43 at 6. Moreover, even with the sale proceeds from the Property, she will not be able to qualify for a loan to purchase a property of comparable value.5 Indeed, the Defendant herself testified “I won‘t be able to replace my home or purchase another one with -- with that amount of money” in reference to sale proceeds. ECF No. 52 at 30:22-23. The Plaintiff does not address these realities, and indeed elicited testimony to the same effect. Id. at 71:7-12 (“Q. And if the property were sold and you got 100,000 dollars, you would have 100,000 dollars to purchase something else. Is that a fair statement? A. Yes, but that would not be enough because of the prices of the homes right now. And I won‘t be able to qualify for a first-home-time (sic) buyer.“). As detailed above, the Defendant seems likely to receive nearly $150,000 from the sale of the Property if it sells at the value the Debtor ascribed to it in August of 2022. This may still present her with limited purchase options in San Diego County, however, given her testimony regarding her monthly income. Thus, the Court concludes the Defendant has demonstrated she will suffer a significant detriment, though that detriment is certainly ameliorated by the very large sum she will receive if the Property sells.
Finally, the Plaintiff attempted to show the detriment to the Defendant is weak in his Post-Trial Brief, arguing “should she not continue to work, or have her boyfriend‘s income, she admits
The Court does not take the detriment inherent in losing one‘s home lightly. However, courts have interpreted this Section to require severe detriment to a co-owner to justify denial of a sale pursuant to
The Court thus conditionally authorizes the sale of the Property subject to the Trustee‘s obtaining a further order of the Court explicitly authorizing the sale once the Trustee has received an offer to purchase the Property that satisfies the conditions detailed here. As discussed above, the Court‘s decision as to whether to authorize the sale is an equitable one and so the Court has the discretion to impose the conditions that it does here. Thus, the Court finds it appropriate to require that the Trustee must obtain an offer for a purchase price that will ensure the twenty-five percent distribution after subtracting administrative expenses as required above.
2. Quiet Title
In the Complaint‘s Second Claim for Relief, the Plaintiff alleged that because the “Plaintiff successfully moved this Court for an order avoiding such quitclaim to Defendant and returning Debtor‘s interest in the Property to the Estate,” “[l]egal title to the Property is properly vested in the joint names of Debtor and Defendant as joint tenants.” ECF No. 1 at 9. The Plaintiff thereafter prayed “[f]or a declaration and determination that the quitclaim deed transferring the Property to Defendant recorded on January 12, 2021 (Exhibit B), is avoided, and that rightful legal title to the Property is properly vested in the names of Debtor Laura Mendez and Defendant Maria Mendez, as joint tenants.” Id. at 12. In the Plaintiff‘s Trial Brief, he only referred to this cause of action once: “The Estate is entitled to quiet title of the property and is authorized to sell it pursuant to
This cause of action is therefore inextricably intertwined with the Court‘s ruling on the
3. 11 U.S.C. § 542(a)
The Plaintiff prevailed on his cause of action under
4. Fed. R. Bankr. P. 7065
The Plaintiff succeeded on the merits in this case. To obtain a permanent injunction, he must show that the Estate has suffered or will suffer an irreparable injury; that remedies available at law, such as monetary damages, are inadequate to compensate for that injury; that, considering the balance of hardships between the plaintiff and defendant, a remedy in equity is warranted; and that
The evidence set forth at trial does not support an injunction to prevent the destruction or dissipation of the Property while under the control and possession of the Defendant and the Debtor. During the trial, the Plaintiff elicited some testimony from the Defendant regarding water damage at the Property. ECF No. 52 at 72:14-73:18. The water damage has not yet been repaired. However, the Defendant also testified to making efforts toward repairing the damage and the damage has existed for quite some time. It is not clear to the Court how an injunction “preventing destruction or dissipation” would be implicated by this evidence. In the Plaintiff‘s Trial Brief, the water damage was also the only damage the Plaintiff presented to justify an injunction “removing Defendant and Debtor and tenants from the Property‘s possession and control.” ECF No. 32 at 15.
Moreover, the Court concludes the balance of hardships weighs in favor of the Defendant with respect to this portion of the Plaintiff‘s request for injunctive relief. The court in In re Houghton, 123 B.R. 869, 874 (Bankr. C.D. Cal. 1991) acknowledged the depth of that hardship, concluding “The balance of hardships tips in favor of the Debtors” when they would “be evicted from their home in a matter of days if I rule against them. I accept the proposition that being uprooted from one‘s home by a forced eviction process cannot be adequately repaired by the payment of money.” Although in Houghton the debtors sought the injunction to prevent a foreclosure sale going forward, the circumstances are somewhat similar. The debtors sought the restraining order while they moved for relief from prior orders granting stay relief to sell the house, creating somewhat analogous conditions to those at hand where the sale of the Property may or may not happen. The Court agrees with the sound reasoning of the Houghton court that a forced eviction process tips the balance of the hardships in favor of those in possession, despite the distinction in the procedural posture here. The Plaintiff similarly seeks an immediate injunction to remove the
Finally, the Court concludes an injunction immediately removing them from possession would not serve the public interest as courts recognize “Congress‘s commitment [to] the importance of offering a debtor every opportunity to save a residence through the bankruptcy process.” In re Virella, 661 B.R. 199, 213 (Bankr. D.N.J. 2024). Although the court in Virella addressed this public interest in the Chapter 13 context, the Court considers the unique circumstances of this case where the Chapter 7 Debtor appeared to not understand her ownership interest in the Property with her mother co-owner. Under these exceptional circumstances, the Court concludes the overarching principle underlying the public interest in allowing individuals to save their residence is best supported by forestalling the Debtor and Defendant‘s removal from the Property until the conditions for sale are met.
Given the Plaintiff has not suffered any irreparable injury nor presented evidence to suggest he will prior to the conditional sale, the balance of hardships favors the Defendant, and the injunction would not serve the public interest, the Court will not grant this request.
Respecting the Plaintiff‘s remaining request for injunctive relief, the Court also concludes the balance of hardships does not support ordering the Debtor and the Defendant “to immediately vacate the Property to allow for the marketing and turnover of the Property for sale.” ECF No. 32 at 15. However, an injunction to prevent any disruption or interference with the marketing and sale of the Property is appropriate. The Court concludes irreparable harm could arise without a clear remedy should the Defendant and the Debtor refuse to allow access to the Property for showings or open houses, or to allow the Plaintiff to prepare the Property to be marketed. Moreover, the level of disturbance that would befall the Defendant and the Debtor by ensuring such conduct can go forward does not lend to a finding of hardship. Finally, the public interest in ensuring the expedient progress of the proceedings and bankruptcy process weighs in favor of granting this injunction. Accordingly, the Court hereby enjoins the Defendant and the Debtor from disrupting or interfering with the Plaintiff‘s efforts to prepare, market, and obtain offers for the Property. The parties shall
Should the sale proceed, it will go forward in the normal course, with the owners vacating after the sale. If they do not do so, the Court anticipates it will issue an order authorizing their removal from possession in connection with the Court‘s order approving the sale itself, which the Court will issue if the Trustee‘s proposed sale meets the conditions outlined above.
V. CONCLUSION
The events leading to the underlying bankruptcy case and resulting in this adversary proceeding are unfortunate. The Court does not underestimate this. However, the bankruptcy system affords significant benefits to debtors in need while carrying with it certain obligations. Should the Plaintiff obtain an offer that will generate a twenty-five percent distribution to unsecured creditors, the Court will approve the sale.
Accordingly, the Court orders the Defendant and the Debtor to cooperate with the Trustee in marketing the Property and preparing it for sale. The Trustee must obtain a further order of the Court explicitly authorizing the sale once the Trustee has received an offer to purchase the Property that meets the Court‘s conditions. However, should the Trustee be unable to meet the conditions because of administrative expenses, the Trustee may seek an order to authorize the sale that relies on the Court‘s lowering administrative expenses.
The Trustee shall upload a proposed judgment consistent with this decision.
IT IS SO ORDERED.
Dated: May 1, 2026
The Honorable J. Barrett Marum
United States Bankruptcy Judge