INTERESTED IN A DRUG DEALER'S MANSION?
By Gregory V. Ruzicka, LL.M.
and Earl R. Wallace, Esq.
Overview: The Title of a Purchaser at a Non-judicial Foreclosure Sale Relates Back to the Date the Deed of Trust Was Recorded and Precludes a Civil Forfeiture Proceeding Against the Property Filed by the Government after the Recording of the Deed of Trust.
United States v. Real Property at 2659 Roundhill Drive, Alamo, CA
Real property was purchased in 1990 with the proceeds of a loan secured by a deed of trust on the property. Thereafter, the government filed a complaint and recorded a notice of lis pendens seeking forfeiture of the property, alleging that it was purchased with the proceeds of illegal drug trafficking. After the action was filed, the lender foreclosed the lien and the property was sold at the non-judicial foreclosure sale. The purchasers at the foreclosure sale resold the property, but the district court concluded that the government could recover the amount of the original purchaser's equity over and above the balance due on the lender's trust deed from the resale proceeds.
The Ninth Circuit Court of Appeals reversed the decision. Under California law, when a person purchases property from a trustee at a non judicial foreclosure sale, the purchaser's interest relates back to the time the original deed of trust was recorded, thereby extinguishing any liens or encumbrances that attached to the real property after the deed of trust was recorded and before the sale. Accordingly, the purchasers took title to the property as it existed at the time the lender's deed of trust was recorded, before the government initiated foreclosure proceedings.
The government forfeiture statute has a relation back provision, that the interest in the forfeited property of the United States vests on commission of the act giving rise to the forfeiture. The government argued that the original purchaser's illegal drug trafficking occurred before the purchase of the property and recording of the deed of trust and, therefore, its interest in the property vested before the acquisition of title by the purchasers at the foreclosure sale. However, the relation back provision in the federal statute cannot relate back until there is a judgment of forfeiture. Because no judgment had been entered at the time of the foreclosure sale, the federal statutory relation back was not applicable and the purchasers took title free and clear of the government's claimed interest.
