Friday, November 4, 2011

FYI: Cal App Holds Foreclosure Sale Proper Despite Trustee's Erroneous Bid Amount

The California Court of Appeal, Sixth District, recently held that a
non-judicial foreclosure sale was procedurally proper where the trustee,
as agent for the beneficiary under a deed of trust, conveyed incorrect bid
information to the auctioneer, who conducted the sale in accordance with
the trustee's information.

A copy of the opinion is available at:

Plaintiff-Appellant, seeking price information on a property scheduled to
be sold at a trustee's sale, contacted Defendant trustee about the amount
of the opening bid on the property. On the day of the sale and just
before the sale started, the auctioneer, after discussing the property
with Plaintiff, contacted the trustee's office and confirmed the amount of
the opening bid. The trustee's office gave the auctioneer the same
opening bid information that it had given Plaintiff earlier.

Based on the information he had received from the trustee's office,
Plaintiff bid slightly over the amount of the purported opening bid,
thereby submitting the winning bid at the sale. After the sale, however,
the trustee discovered that it had incorrectly conveyed to the auctioneer
an opening bid amount that was substantially lower than the opening bid
amount previously submitted to the trustee by the beneficiary under the
deed of trust. Consequently, the trustee refused to accept Plaintiff's
cashier's check or to issue him a trustee's deed.

Plaintiff then sued the trustee to quiet title and sought specific
performance and declaratory and injunctive relief. Following the
reasoning in 6 Angels, Inc. v. Stuart-Wright Mortgage, Inc. 85 Cal.
App.4th 1279 (2001) ("6 Angels"), the trial court initially denied the
trustee's motion for summary judgment and concluded that the trustee's
mistake fell outside California's statutory procedures governing
non-judicial foreclosure sales.

The trustee subsequently successfully moved for reconsideration based on
Millennium Rock Mortgage, Inc. v. T.D. Service Co., 179 Cal. App.4th 804
(2009) ("Millennium Rock"). On reconsideration, the trial court granted
the trustee's motion for summary judgment based on Millennium Rock,
reasoning that the trustee's mistake in causing the incorrect bid to be
submitted by the beneficiary fell within the scope of the trustee's
statutory duties under California's foreclosure law and resulted in a
grossly inadequate price being received at the foreclosure sale. The
trial court also concluded that the Plaintiff was seeking a windfall
profit at the expense of the innocent beneficiary and that the sale should
be set aside. Plaintiff appealed, and the Court of Appeal reversed.

The appellate court noted that under California law governing non-judicial
foreclosure sales, a foreclosure sale may be attacked on grounds of
procedural irregularity where the deed has not been transferred. However,
the Court agreed with Plaintiff that in this case there was no procedural
irregularity in the trustee's sale, because the trustee's mistake fell
outside the procedural requirements set forth in the statutory scheme
governing foreclosure sales.

In so ruling, the Court of Appeal rejected Defendant trustee's argument
that Millennium Rock applied to the foreclosure sale at issue and
determined that 6 Angels, being factually similar, governed this matter.
Specifically, the Court noted that in Millennium Rock, the operative
mistake that resulted in a voidable trustee sale was made by the
auctioneer rather than the trustee and was thus part of the sales process.

The Court concluded that there was no procedural irregularity in the
foreclosure sale to justify setting the sale aside and that the trial
court should have denied the trustee's motion for summary judgment,
because "the mistake was by [the trustee] in the course and scope of its
duty as the beneficiary's agent, not by the auctioneer as in Millennium
Rock" and "[t]he error was wholly under [the trustee's] control and arose
solely from its negligence, just like the error that occurred in 6

Ralph T. Wutscher
McGinnis Tessitore Wutscher LLP
The Loop Center Building
105 W. Madison Street, 18th Floor
Chicago, Illinois 60602
Direct: (312) 551-9320
Fax: (312) 284-4751
Mobile: (312) 493-0874

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