SALE OF PROPERTY AT NON‑JUDICIAL FORECLOSURE MAY BE SET ASIDE WHEN BUYERS HAVE ACTED TO RESTRICT COMPETITION AND PURCHASE PROPERTY FOR INADEQUATE PRICE
By Earl R. Wallace, Esq.
Lo v. Jensen (2001) 88 Cal.App.4th 1093, 106 Cal.Rptr.2d 443
Plaintiffs were the owners of a condominium. When they fell into arrearage in payment of their homeowner's association dues, the association instituted foreclosure proceedings. The amount of the lien subject to foreclosure was $5,000.
The two defendants were experienced competitors in buying properties at foreclosure sales. They decided to join together in one bid at the foreclosure sale of plaintiffs' property so as to eliminate competition and lower the purchase price. They were successful. Although each had planned to bid $100,000 and valued the property at $150,000, they jointly purchased the property for $5,412.
Plaintiffs sued to set aside the sale, alleging violation of Civil Code section 2924h(g). That statute provides that "it shall be unlawful for any person, acting alone or in concert with others: (1) to offer to accept or accept from another any consideration of any type not to bid; or (2) to fix or restrain bidding in any manner, at a sale of property conducted pursuant to a power of sale in a deed of trust or mortgage."
The trial court found that the defendants primary motive in joining together to purchase the property was to restrict competition in violation of section 2924h(g) and not to carry on as co‑owners of a joint business. The trial court set aside the sale on the condition that plaintiffs tender the purchase price to defendants.
The Second Appellate District affirmed. The law has long provided that if a non‑judicial foreclosure sale has been unfairly or unlawfully conducted, or it is tainted by fraud, the trial court has the power to set it aside,. Thus, where two otherwise ready and willing competitive buyers combine in restraint of competition resulting in an artificially low price which amounts to unfairness to the defaulting owners, the sale may be set aside.
The defendants' conduct negated the possibility that they were bona fide purchasers. Even though there was no evidence that either of the defendants prevented any other person from appearing at the sale, the defendants were competitors, and when they agreed not to compete, they deprived the defaulting owners of the benefit of competition.
