The statutory scheme governing nonjudicial foreclosure — found in California Civil Code sections 2924 through 2924k — aims for speed, efficiency, and finality.
For example, a bid at a trustee’s sale is deemed to be an “irrevocable offer” to purchase the property for the bid amount. The sale is deemed complete upon acceptance of the winning bid; the later delivery and recordation of the trustee’s deed are mere “ministerial acts.” If the trustee’s deed recites that all statutory notice and procedural requirements have been followed, then a rebuttable presumption arises that the sale has been conducted properly. Once the trustee’s deed is delivered to a bona fide purchaser, that presumption becomes conclusive.
Setting aside a trustee’s sale is notoriously difficult. A party attacking the sale must show that the trustee caused “an illegal, fraudulent, or willfully oppressive” sale, that the party was harmed, and (where challenged by the trustor/mortgagor) that the secured indebtedness was tendered before the sale (or that the tender requirement was excused). The fact that the sale reflects an “inequitable price” is not sufficient alone to set aside the sale. Instead, there must be some “unfairness or irregularity in the sale process.”
Against that backdrop, how would the courts react to a trustee’s sale buyer trying to rescind a completed sale because of a mistake regarding the position of the lien being foreclosed? A recent opinion from California’s Fourth Appellate District — Matson v. S.B.S. Trust Deed Network — provides the (unsurprising) answer.
Facts: trustee’s sale buyer mistakenly believes lien being foreclosed is in first position
A nonjudicial foreclosure sale (aka trustee’s sale) was noticed based on a deed of trust recorded in 2007 securing a Small Business Administration loan. The loan was in second position — a first position deed of trust was recorded in 2004 and was later assigned to Bank of America. As such, the buyer at the trustee’s sale would be taking the property “subject to” the first position lien.
The buyers — Matthew Matson and Matson SDRE Group, LLC (“Matson”) — submitted the winning bid of $502,000. Matson believed the foreclosed lien was in first position. Before the sale, he learned about the property through a software application called PropertyRadar, which identified the lien as being in position “1” although the PropertyRadar terms of service made clear that its assessment of lien priority was no substitute for “professional, financial, legal or other advice or counsel.” The PropertyRadar property profile also showed information regarding the actual first deed of trust held by Bank of America.
About an hour before the sale, Matson also obtained a 94-page profile on the property from a title company. But he did not read the full property profile.
Shortly after the sale concluded with Matson’s winning bid, he learned from a real estate agent that the deed of trust underlying the sale might have been in second, not first, position. He sent a formal “notice of rescission,” and when he received the trustee’s deed by mail, he returned it with a notice of rejection. The trustee, however, cashed Matson’s cashier’s checks and recorded the trustee’s deed.
Matson sued, claiming his “mistake” regarding lien position entitled him to rescind the sale.
Trial court: the sale stands
The trial court rejected Matson’s claims and granted summary judgment to the trustee, finding no irregularity, unfairness, or fraud in the sale process.
The court held that Matson’s reliance on the PropertyRadar profile and his failure to read the entire title company profile were not aspects of the sale process. Instead, Matson assumed the risk of bidding at the sale “without fully investigating the terms of the sale or failing to take the time to understand them.”
Court of Appeal: affirmed; the sale still stands
The Court of Appeal affirmed the trial court’s judgment, concluding that Matson “bore the risk of mistake.”
The court held that Matson “produced no evidence suggesting an irregularity, fraud or unfairness in the nonjudicial foreclosure notice and sale proceedings.” There was no misconduct by the trustee; only a “careless” mistake by Matson who “did not take the time to read” the title report on the property before the sale.
The court concluded that Matson’s claim was inconsistent with the policies behind the nonjudicial foreclosure statutes:
Permitting a common law claim of mistake by the buyer to void the sale would deprive the beneficiary of a quick, inexpensive and efficient remedy. It would upend the finality of the sale and the statutory intent that a properly conducted sale be final among the parties.
Unwinding a trustee’s sale is difficult. A buyer’s “mistake” regarding lien priority does not count as a “procedural irregularity” that would undermine the sale.