Archive for November, 2011

Trustee’s Foreclosure Sale Is Valid, Despite Substantial Error in Opening Bid

Saturday, November 12th, 2011

A recent case illustrates the need for a beneficiary to exercise care when making a bid at a trustee sale.  In Biancalana v. TD Service Company (Oct. 31, 2011) 2011 DJDAR 15972, the secured debt was $219,105.  However, due to error by the beneficiary, the trustee was instructed to make an opening bid of only $21,894.  “The auctioneer was not instructed by TD to make any further because of the property over above the opening bid.”

The buyer made a successful bidder $21,896.  A day later, the beneficiary discovered the error, and instructed the trustee not to issue a trustee’s deed to the buyer.  The buyer sued to compel the trustee to issue a deed for the sales price.  The court of appeal held in favor of the buyer, rejecting the beneficiary’s argument that there had been a “procedural defect” in the sale.

The Court of Appeal explained the nonjudicial foreclosure process as follows.  “The purposes of this comprehensive scheme are threefold: (1) to provide the creditor/beneficiary with a quick, inexpensive and efficient remedy against a defaulting debtor/trustor; (2) to protect the debtor/trustor from wrongful loss of the property; and (3) to ensure that a properly conducted sale is final between the parties and conclusive as to a bona fide purchaser.”

The court rejected the argument that the sale was not “bona fide” because of the substantial difference between the fair market value for the property and the opening bid.  (The successful buyer was the only bidder at the sale.)   “Mere inadequacy of price, absent some procedural irregularity that contributed to the inadequacy of price of otherwise injured the trustor, is insufficient to set aside a nonjudicial foreclosure sale.”

Eiffel Tower at Night

The court distinguished the decision in Millennium Rock Mortgage, Inc. v. T.D. Service Co. (2009) 179 Cal.App.4th 804.  In Millennium Rock Mortgage, the auctioneer was set to sell two properties on the same street in Sacramento. “The script prepared for the 13th Avenue auction contained the proper trustee sale number and legal description of the property, but due to a clerical error, listed the address for the Arcola Avenue property, rather than the 13th Avenue property.”

The Millennium Rock Mortgage sale was reversed for the following reasons.  “”The auctioneer called out the legal description and credit bid applicable to one property, while announcing the street address of a different property.  This created a fatal ambiguity in determining which property was being auctioned.  Due to the contradictory descriptions of the property, the auctioneer’s mistake went to the heart of the sale.  Since irregularity, gross inadequacy of the price, and unfairness were all abundantly present, the sale was voidable at the option of the trustee.”

No such facts were present in Biancalana.  “The beneficiary’s servicing agent miscalculated the amount owed on the subject property … This error, which was wholly under the agent’s control and arose solely from the agent’s own negligence, falls outside the procedural requirements for foreclosure sales described in the statutory scheme.”

“In the instant case, TD was acting as the beneficiary’s agent in preparing the property for the foreclosure sale.  It submitted the incorrect credit bid to the auctioneer, and twice confirmed the incorrect bid when the auctioneer called to inquire just prior to the sale.”

“Consequently, the mistake was made by TD in the course and scope of its duty as the beneficiary’s agent, not by the auctioneer as in Millennium Rock. The auctioneer simply announced the bid submitted by TD. The error was wholly under TD’s control and arose solely from its negligence … As a result, there was no procedural irregularity in the foreclosure sale and TD’s motion for summary judgment should have been denied.”

The moral of the story – a beneficiary should always be diligent to confirm the proper amount of the opening bid at a foreclosure sale, or suffer the loss.

Biancalana v. TD Service Company (Oct. 31, 2011) 2011 DJDAR 15972

Strict Compliance Regarding Three-Day Notice Essential for Eviction Proceeding

Sunday, November 6th, 2011

A recent case reinforces the necessity to comply with the technical requirements for prosecuting an unlawful detainer complaint in California. [Commonly known as an eviction.]  Specifically, the issue at trial was whether the three-day notice had been served properly.  The trial court held that service was defective.  This was reversed on appeal, based on the statutory presumption arising from service by a registered process server.

The take away rule is that you should always have a registered process server serve the three-day notice.  If you do not, make sure that the person who effected service of the three-day notice is present in court to testify on behalf of the landlord.

The situation in Palm Property Investments, LLC v. Yadegar (2011) 194 Cal.App.4th 1419 involved years of unpleasant litigation.  In 2002, the “penthouse apartment” was been leased out for $3,500 per month.  The rent was later increased slightly, followed by a third addendum in 2003 which reduced the rent to $32,000 per year, subject to rent being prepaid one year in advance.

The prior owners had engaged in bitter litigation with the tenant.  The landlord was not successful in its prior eviction lawsuit, and was ordered to pay $109,062 in attorney’s fees to the tenant.  The landlord took that matter up on appeal, lost, and was ordered to pay a further $70,770 in attorney’s fees to the tenant.

[No, I am not exaggerating.  These are the dollar amounts recited in the appellate decision.]

Not surprisingly, the tenant applied the judgment amount to offset future rent payments.  Thereafter, the property went into foreclosure and was sold to a third party, who then sought to enforce the lease against the tenant.  The new owner filed an unlawful detainer action, asserting that the property was held on a month-to-month tenancy, with rent payable amount of $3,500 per month.

The new owner lost at trial.  Specifically, the “the trial court sustained the [tenant’s] objection to the admission of the proof of service of the three-day notice and found that appellant failed to meet its burden to show that the notice was properly served.”

As discussed below, this decision was reversed on appeal.  The appellate court made the following observations regarding the unlawful detainer process in California.

“Unlawful detainer is a unique body of law and its procedures are entirely separate from the procedures pertaining to civil actions generally … An unlawful detainer action is a statutory proceeding and is governed solely by the provisions of the statute creating it.  As special proceedings are created and authorized by statute … the statutory procedure must be strictly followed.”

Cannon Beach, Oregon

Importantly, “proper service on the lessee of a valid three-day notice to pay rent or quit is an essential prerequisite to a judgment declaring a lessor’s right to possession under section 1161, subdivision 2.  A [landlord] must allege and prove proper service of the requisite notice.  Absent evidence the requisite notice was properly served pursuant to section 1162, no judgment for possession can be obtained.”

In the case on appeal, the three-day notice had been served by a registered process server.  The appellate court cited to Evidence Code section 647, which provides that “the return of a process server registered pursuant to Chapter 16 [] of Division 8 of the Business Professions Code upon process or notice establishes a presumption, affecting the burden of producing evidence, of the facts stated in the return.”

The court then reversed the trial court for the following reasons.  “Where service is carried out by a registered process server, Evidence Code section 647 applies to eliminate the necessity of calling the process server as a witness at trial.  This conclusion is consistent with the purpose of the unlawful detainer procedure to afford a relatively simple and speedy remedy for specific landlord-tenant disputes …

The trial court erred by failing to apply the evidentiary presumption afforded by Evidence Code section 647.  The excluded proof of service established that a registered California process server served the three-day notice

“As explained in Evidence Code section 604, ‘the effect of a presumption affecting the burden of producing evidence is to require the trier of fact to assume the existence of the presumed fact unless and until evidence is introduced which would support a finding of its nonexistence, in which case the trier of fact shall determine the existence or nonexistence of the presumed fact from the evidence and without regard to the presumption. Thus, the [tenants] were required to come forth with evidence – beyond their answer – in order to overcome the presumption …

“The [tenants] offered no evidence to show that they were not properly served and instead relied on their answer and appellant’s asserted failure to satisfy its burden of proof.  On retrial, they will have the opportunity to present evidence to rebut the presumption afforded by Evidence Code section 647 … [The landlord] is awarded its costs on appeal.”

Always be careful with your three-day notices.  Make sure they comply with the requirements established by law, and make sure that they have been properly served on the tenant.  Otherwise, the landlord will not prevail at trial.

Palm Property Investments, LLC v. Yadegar (2011) 194 Cal.App.4th 1419