Trustee Empowered To Void Foreclosure Sale Where Error Discovered Before Delivery Of Trustee’s Deed

by Miller Starr Regalia
Contact

Biancalana v. T.D. Service Co., — Cal.App.4th — (May 16, 2013)

California’s Supreme Court affirmed a trustee’s right to void a non-judicial foreclosure sale based on mistakes in the foreclosure process discovered before delivery of a trustee’s deed to the successful bidder. The case affirms existing California law that there is a conclusive presumption that the foreclosure sale was conducted properly and regularly, but only after the sale has concluded and the trustee’s deed has been delivered to the buyer.

Background: At a foreclosure of property in Santa Cruz County, the Trustee accepted the winning bidder’s cashier’s check for $21,895. The only event that had not yet occurred was delivery of the trustee’s deed. The trustee returned the check to the winning bidder two days later after discovering that the trustee had mistakenly communicated to the auctioneer an incorrect opening bid that was too low: rather than submitting the specified credit bid of $219,105 by the lender beneficiary, the trustee mistakenly submitted an opening bid of $21,894.17, which was less than 10% of the lender’s credit bid. The trustee declared the sale void. The winning bidder brought a quiet title action to enforce the foreclosure sale and his successful bid.

Holding: The California Supreme Court reversed judgment in favor of the bidder. There were three key factors evaluated by the Court in reaching this conclusion.

1.  No delivery of the Trustee’s Deed. The Court acknowledged California’s rule: If a “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.” Biancalana, supra, Cal.App.4th at *4 (quoting Moeller v. Lien, 25 Cal.App.4th 822, 831 (1994)). The presumption of a properly-held sale is not conclusive until the trustee’s deed is delivered. Id. This means that, if there is a defect in the process that is discovered after a winning bid is accepted, but before delivery of the trustee’s deed, the trustee may void the sale—even to a bona fide purchaser—return the price paid, and restart the foreclosure process. Id. (citing Moeller, supra, 25 Cal.App.4th at 832.) That is what occurred here: “[T]he trustee discovered its error before it delivered the deed, so the conclusive presumption [of a properly conducted sale] does not apply.” Id. at *4 (citations omitted).

2.  Inadequate Price. The California Supreme Court noted that “ample cases have stated the applicable rule as follows:  gross inadequacy of price coupled with even slight unfairness or irregularity is a sufficient basis for setting the sale aside.” Id. (citations omitted). Inadequacy of price was clear from the fact that the winning bid of $21,896 was less than 10% of the true opening bid of $219,105 that the lender beneficiary had submitted to the trustee. Id. (citing Millennium Rock Mortgage, Inc. v. T.D. Service Co., 179 Cal.App.4th 804 (2009)). But for the trustee’s mistake, the property would have sold for $219,105. Because a trustee bears the duty to secure the highest possible price for the borrower and the lender beneficiary (see id. at *3), it is consistent with such goals to void a foreclosure sale that results in an unfair price due to discovered error.

3.  Irregularity Within Foreclosure Process. The third factor requires the trustee’s mistake to be part of the foreclosure sale process because of a trustee’s statutory “duty to conduct the sale fairly and openly, and to secure the best price for the trustor’s benefit.” Id. at *7 (citations omitted). The Court held that processing a duly-submitted credit bid pursuant to California Civil Code § 2924h is a key function of a trustee within the statutory framework regulating foreclosure sales. A point of a non-judicial foreclosure sale is to allow the lender beneficiary to make a credit bid through the trustee. Id. at *5 (citations omitted). Because of the trustee’s error, the opening bid given at the auction did not reflect the $219.105 credit bid to which the lender was entitled. “This qualifies as an irregularity occurring within the statutory foreclosure sale process.” Id.

Negligence by Trustee Not Imputed to the Beneficiary. While a trustee is considered an agent of the beneficiary and trustor, it is only an agent in a limited sense and its negligence cannot be imputed to the beneficiary. The Court analogized a trustee (under a deed of trust) as “a kind of common agent for the trustor and the beneficiary,” with “neither the powers nor the obligations of a strict trustee….” Id. at *7. Such a trustee’s duties are defined by contract—the deed of trust. Id.

Comments: This case does not change existing law that provides for a conclusive presumption of propriety where the sale price is within the ballpark of fairness and the trustee’s deed has been delivered to the winning bidder without the discovery of mistakes in the process. The winning bidder at an unfair foreclosure sale will, no doubt, be unhappy about losing the windfall he would have obtained if the sale were upheld. However, such a buyer is hardly prejudiced by rescission of the sale when “[v]oiding the sale and then conducting a proper sale would put the bidder in no worse position than if the trustee had made no mistake in the first place.” Id. at *9. The end result is to protect both the goals and effects of the conclusive presumption of a bona fide sale once a trustee’s deed is delivered, promoting the finality sought in real estate transactions.

Written by:

Miller Starr Regalia
Contact
more
less

Miller Starr Regalia on:

Readers' Choice 2017
Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
Sign up using*

Already signed up? Log in here

*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Privacy Policy (Updated: October 8, 2015):
hide

JD Supra provides users with access to its legal industry publishing services (the "Service") through its website (the "Website") as well as through other sources. Our policies with regard to data collection and use of personal information of users of the Service, regardless of the manner in which users access the Service, and visitors to the Website are set forth in this statement ("Policy"). By using the Service, you signify your acceptance of this Policy.

Information Collection and Use by JD Supra

JD Supra collects users' names, companies, titles, e-mail address and industry. JD Supra also tracks the pages that users visit, logs IP addresses and aggregates non-personally identifiable user data and browser type. This data is gathered using cookies and other technologies.

The information and data collected is used to authenticate users and to send notifications relating to the Service, including email alerts to which users have subscribed; to manage the Service and Website, to improve the Service and to customize the user's experience. This information is also provided to the authors of the content to give them insight into their readership and help them to improve their content, so that it is most useful for our users.

JD Supra does not sell, rent or otherwise provide your details to third parties, other than to the authors of the content on JD Supra.

If you prefer not to enable cookies, you may change your browser settings to disable cookies; however, please note that rejecting cookies while visiting the Website may result in certain parts of the Website not operating correctly or as efficiently as if cookies were allowed.

Email Choice/Opt-out

Users who opt in to receive emails may choose to no longer receive e-mail updates and newsletters by selecting the "opt-out of future email" option in the email they receive from JD Supra or in their JD Supra account management screen.

Security

JD Supra takes reasonable precautions to insure that user information is kept private. We restrict access to user information to those individuals who reasonably need access to perform their job functions, such as our third party email service, customer service personnel and technical staff. However, please note that no method of transmitting or storing data is completely secure and we cannot guarantee the security of user information. Unauthorized entry or use, hardware or software failure, and other factors may compromise the security of user information at any time.

If you have reason to believe that your interaction with us is no longer secure, you must immediately notify us of the problem by contacting us at info@jdsupra.com. In the unlikely event that we believe that the security of your user information in our possession or control may have been compromised, we may seek to notify you of that development and, if so, will endeavor to do so as promptly as practicable under the circumstances.

Sharing and Disclosure of Information JD Supra Collects

Except as otherwise described in this privacy statement, JD Supra will not disclose personal information to any third party unless we believe that disclosure is necessary to: (1) comply with applicable laws; (2) respond to governmental inquiries or requests; (3) comply with valid legal process; (4) protect the rights, privacy, safety or property of JD Supra, users of the Service, Website visitors or the public; (5) permit us to pursue available remedies or limit the damages that we may sustain; and (6) enforce our Terms & Conditions of Use.

In the event there is a change in the corporate structure of JD Supra such as, but not limited to, merger, consolidation, sale, liquidation or transfer of substantial assets, JD Supra may, in its sole discretion, transfer, sell or assign information collected on and through the Service to one or more affiliated or unaffiliated third parties.

Links to Other Websites

This Website and the Service may contain links to other websites. The operator of such other websites may collect information about you, including through cookies or other technologies. If you are using the Service through the Website and link to another site, you will leave the Website and this Policy will not apply to your use of and activity on those other sites. We encourage you to read the legal notices posted on those sites, including their privacy policies. We shall have no responsibility or liability for your visitation to, and the data collection and use practices of, such other sites. This Policy applies solely to the information collected in connection with your use of this Website and does not apply to any practices conducted offline or in connection with any other websites.

Changes in Our Privacy Policy

We reserve the right to change this Policy at any time. Please refer to the date at the top of this page to determine when this Policy was last revised. Any changes to our privacy policy will become effective upon posting of the revised policy on the Website. By continuing to use the Service or Website following such changes, you will be deemed to have agreed to such changes. If you do not agree with the terms of this Policy, as it may be amended from time to time, in whole or part, please do not continue using the Service or the Website.

Contacting JD Supra

If you have any questions about this privacy statement, the practices of this site, your dealings with this Web site, or if you would like to change any of the information you have provided to us, please contact us at: info@jdsupra.com.

- hide
*With LinkedIn, you don't need to create a separate login to manage your free JD Supra account, and we can make suggestions based on your needs and interests. We will not post anything on LinkedIn in your name. Or, sign up using your email address.
Feedback? Tell us what you think of the new jdsupra.com!