Nonjudicial trustee foreclosure sales are regulated by statute. The result is that, so long as the statutory scheme is strictly followed, trustee sales are final and cannot be undone. Procedural irregularities in the statutory foreclosure process coupled with an inadequate sales price may, however, allow the trustee to exercise discretionary authority to void the sale if the error is discovered prior to delivery of the deed.
Civil Code sections 2924 through 2924k govern nonjudicial foreclosure sales pursuant to a power of sale contained in a deed of trust. The rule with respect to the finality of sales can be stated as follows: “The purchaser at a foreclosure sale takes title 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.” But, “the conclusive presumption does not apply until a trustee’s deed is delivered. Thus, if there is a defect in the procedure which 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.” [Moller v. Lien, pp 831-823.]
Therefore, if a trustee discovers an irregularity in the foreclosure process before the trustee’s deed is delivered, the conclusive presumption does not apply. In this context, when the deed has not been delivered, one rule which allows the trustee to void the sale can be stated as follows: “[G]ross inadequacy of price coupled with even slight unfairness or irregularity is a sufficient basis for setting the sale aside.”
In Biancalana v. T.D. Service Company the California Supreme Court was confronted with the question of whether a trustee’s mistake in announcing the amount of the opening credit bid is an irregularity in the foreclosure process. The foreclosing beneficiary submitted a credit bid of approximately $219K and asserted a delinquent amount of approximately $21K. The documentation submitted to the auctioneer by the trustee, and the credit bid announced by the auctioneer, was the smaller delinquent amount — not the actual amount of the opening credit bid submitted by the beneficiary. Biancalana bid a few dollars over the announced amount, the bid was accepted, and Biancalana tendered a cashier’s check for payment.
In unanimously reversing the Court of Appeals, the Supreme Court held that the trustee could properly void the sale under such circumstances. The court reasoned that gross inadequacy of price was shown by the mere fact that Biancalana’s accepted bid was less than 10% of the opening bid submitted by the beneficiary to the trustee — if the trustee had not conveyed the mistaken bid to the auctioneer, the properly would have sold for at least 10 times the amount of Biancalana’s bid.
Since the opening bit at the sale did not accurately reflect the amount of the bid the beneficiary had communicated to the trustee, the auctioneer announced a mistaken opening bid on behalf of the beneficiary. Such irregularity occurs within the statutory foreclosure process and justified the trustee’s refusal to deliver a deed to Biancalana. It occurred within the statutory framework because the error went to the heart of the sale and ran afoul of the trustee’s duty to conduct the sale fairly and openly, and to secure the highest and best price for the trustor’s benefit in order to satisfy the indebtedness owed to the beneficiary and to recover for the trustor as much equity as possible.
The result would be different, however, if the beneficiary, as opposed to the trustee, had made the mistake. The result would also be different if the trustee had not discovered its mistake before it issued the deed. After the deed is issued, a bona fide purchaser, such as Biancalana, would be entitled to the conclusive presumption that the sale was conducted regularly and properly.
I consult with clients and accept cases involving nonjudicial foreclosure, including issues related to void and voidable sales. For other types of cases I accept, please consult the My Practice page. If you are seeking a consult or representation, please give me a call at 818.971.9409. – Michael Daymude