The California Supreme Court recently addressed the issue of whether a trustee may void a nonjudicial foreclosure sale of real property because the trustee discovered prior to the delivery of the deed to the highest bidder that it mistakenly told the auctioneer an incorrect opening bid from the lender. The Supreme Court held that the trustee acted within its authority when it declared the sale void. (Biancalana v. T.D. Service Company (--- P.3d ----, Cal., May 16, 2013).
David Biancalana (“Biancalana”) placed the highest bid at a nonjudicial foreclosure sale. Two days after the sale, the trustee, T.D. Service Company (“T.D.”), telephoned Biancalana and told him the sale was void. Biancalana filed an action to quiet title to the property alleging that he owned the property because he submitted the highest bid at the trustee’s sale.
EMC Mortgage Corporation was the beneficiary of a loan secured by a deed of trust. The loan went into default and the property was scheduled to be sold at a public auction. The notice for the auction stated that the unpaid balance of the loan plus costs and expenses was $435,494.74 and that the opening bid at the sale may be less than the total indebtedness. Biancalana called the telephone number listed on the notice twice and was told that the opening bid would be $21,894.17. On the morning of the sale, the auctioneer called the trustee twice to verify the opening bid of $21,894.17. At the beginning of the auction, the auctioneer stated that “he had been authorized to place an opening bid, on behalf of the beneficiary, in the amount of $21,894.17.” Biancalana then placed a bid of $21,896. Because there were no further bids, the auctioneer announced that the property had been sold to Biancalana. Biancalana gave the auctioneer a cashier’s check for $22,000.
T.D. informed Biancalana two days after the auction that the sale was void because T.D. “did not offer the Property for a high enough bid amount.” Although T.D. returned the cashier’s check to Biancalana, Biancalana returned the check to T.D. and demanded the deed. T.D. refused to deliver the deed.
T.D. alleged that prior to the auction, the foreclosing beneficiary submitted a bid of $219,105 and T.D. accepted that bid. T.D. asserted the actual high bid at the sale was not Biancalana’s bid “but rather the foreclosing beneficiary’s completed and accepted credit bid.” T.D. claimed it had properly set aside the foreclosure sale due to significant procedural irregularity. T.D. alleged it had mistakenly told the auctioneer that the opening bid was the delinquency amount instead of the bid submitted by the foreclosing beneficiary. The trial court granted summary judgment in favor of T.D. The court of appeal reversed the trial court’s decision.
The Supreme Court reversed the decision of the court of appeal and held “the trustee acted within its discretionary authority in declaring the sale void.” There are three parties to the deed of trust: (1) the trustor, who is the debtor, (2) the beneficiary, who is the lender, and (3) the trustee. The beneficiary may demand that the trustee conduct a nonjudicial foreclosure sale if the debtor defaults on the loan. The trustee or the trustee’s appointee may serve as the auctioneer for the sale. The trustee must conduct the sale fairly and openly and secure the best price for the property.
The purchaser of a property at a foreclosure sale takes title to the property by a trustee‘s deed. “If the trustee’s deed recites that all statutory notice requirements and procedures required by law for the conduct of the foreclosure have been satisfied, a rebuttable presumption arises that the sale has been conducted regularly and properly; this presumption is conclusive as to a bona fide purchaser.” However, this presumption does not apply until the deed has been delivered. If there is a procedural defect that is “discovered after the bid is accepted, but prior to delivery of the trustee’s deed, the trustee may abort a sale to a bona fide purchaser, return the purchase price and restart the foreclosure process.” Here, the defect was discovered before the deed was delivered. The rule applicable here is that “‘gross inadequacy of price coupled with even slight unfairness or irregularity is a sufficient basis for setting the sale aside.’”
Gross inadequacy of price was shown by the fact that Biancalana’s bid was less than 10 percent of the opening bid of $219,105 that was submitted by the beneficiary. If the mistaken bid had not been conveyed by T.D. to the auctioneer, the property would have sold for at least $219,105. The Court found that “even though T.D.’s transcription error occurred before the start of the sale, the error resulted in the auctioneer announcing a mistaken opening bid on behalf of the beneficiary at the sale itself and this error “qualifies as an irregularity occurring within the statutory foreclosure sale process.”
The mistake made by T.D. led to the auctioneer announcing an erroneous opening bid at the auction. The Court found that this was an irregularity in the sale process. The mistaken bid resulted in a grossly inadequate purchase price. Because T.D. discovered the error before it issued the deed, it was authorized to void the sale.