CLERICAL ERROR BY SERVICER OF LOAN IN MISTAKENLY INSTRUCTING TRUSTEE TO OPEN FORECLOSURE SALE WITH A BID OF $10,000 RATHER THAN $100,000 WAS INSUFFICIENT REASON FOR COURT TO VOID FORECLOSURE SALE AT WHICH PROPERTY WAS SOLD FOR $10,000.01
By Earl R. Wallace. Esq.
6 Angels, Inc. v. Stuart‑Wright Mortgage, Inc.
102 Cal.Rptr.2d 711Cal.App. 2 Dist., 2001.
1 Cal. Daily Op. Serv. 125, 2001 Daily Journal D.A.R. 129
Jan. 2, 2001.
Prior to March 21, 1997, Stuart‑Wright Mortgage (hereinafter "SWM") was the beneficiary under a deed of trust encumbering real property owned by Marvin Salazar and Maria Carmen Ruiz. Dovenmuehle Mortgage, Inc., (hereinafter "DMI") serviced the loan on behalf of SWM. Mortgage Default Service was the substituted trustee under the deed of trust.
On February 25, 1997, a notice of trustee's sale regarding the subject property was recorded. The notice listed an indebtedness of $144,656.17, and stated that a trustee's sale was scheduled for March 21, 1997. The day before the trustee's sale, DMI sent a letter to Mortgage Default Service setting an opening bid of $10,000.
6 Angels, Inc. (hereinafter "6 Angels") attended the sale after receiving a copy of the notice of sale. The auctioneer at the sale made an opening bid of $10,000 on behalf of SWM, and 6 Angels tendered a bid for $10,000.01, which was uncontested by any other bidders. Shortly thereafter, DMI learned about 6 Angels's bid and instructed Mortgage Default Service to return the funds tendered by 6 Angels and not to issue a trustee's deed. Mortgage Default Service followed these instructions. MTDS, Inc., doing business under the name of Meridian Trust Deed Service (hereinafter "MTDS") bought the property for $100,000.01 at a second trustee's sale on April 18, 1997.
6 Angels commenced a lawsuit to quiet title (e.g. for a court determination that it was the true owner of the subject property). On October 20, 1998, the Superior Court entered judgment in favor of 6 Angels. The decision was affirmed on appeal.
Foreclosure sales are governed by a "comprehensive" statutory scheme. This scheme, which is found in Civil Code sections 2924 through 2924k evidences a legislative intent that a sale which is properly conducted "constitutes a final adjudication of the rights of the borrower and lender."
The scheme can be summarized as follows: "Upon default by the trustor, the beneficiary may declare a default and proceed with a nonjudicial foreclosure sale. The foreclosure process is commenced by the recording of a notice of default and election to sell by the trustee. After the notice of default is recorded, the trustee must wait three calendar months before proceeding with the sale. After the 3‑month period has elapsed, a notice of sale must be published, posted and mailed 20 days before the sale and recorded 14 days before the sale. The trustee may postpone the sale at any time before the sale is completed. If the sale is postponed, the requisite notices must be given. The conduct of the sale, including any postponements, is governed by Civil Code section 2924g. The property must be sold at public auction to the highest bidder.
As a general rule, there is a presumption that a foreclosure sale has been conducted regularly and fairly. Accordingly, a successful challenge to the sale requires evidence of a failure to comply with the procedural requirements for the foreclosure sale that caused prejudice to the person attacking the sale.
The parties in this case did not dispute that DMI intended to set the opening bid at $100,000, but through a clerical error it mistakenly instructed Mortgage Default Service to open with a bid of $10,000. However, California courts have long held that mere inadequacy of price, absent some procedural irregularity that contributed to the inadequacy of price or otherwise injured the trustor (borrower), is insufficient to set aside a nonjudicial foreclosure sale.
Here, the only irregularity was the clerical error that DMI allegedly made when instructing Mortgage Default Service on the opening bid. However, this error, which was wholly under DMI's control and arose solely from DMI's own negligence, falls outside the procedural requirements for foreclosure sales described in the statutory scheme. Because there is no procedural error here independent of the inadequacy of price, the court concluded that the sale was good.
The public policy underlying the comprehensive framework governing foreclosure sales is a concern for swift, efficient, and final sales. In the court's view, granting relief under the circumstances presented here would frustrate, rather than promote, this policy, by adding uncertainty to the finality of foreclosure sales.
