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Wrong Opening Bid? Tough. Bidder Gets Benefit of Trustee’s Error.

November 3rd, 2011 · No Comments · Foreclosures, Trust Deeds

By Julia M. Wei, Esq.

In the recent case of Biancalana v. T.D. Service Company, California foreclosure bidder Biancalana came out the winner on appeal.

In September of 2008, Biancalana bid at the trustee’s sale of a property on Winchester Dr. in Watsonville (Santa Cruz County). Lucky for him, the trustee (and possibly the loan servicer), T.D. Service Company, erroneously stated that $22k was the opening bid. That amount was in fact, merely the delinquency and the lender was actually seeking an opening bid of $220k. Whoops!

There were no other bids so Biancalana’s bid of $22k was the high bid. Later TD realized their error and refused to issue the Trustee’s Deed. Accordingly, Biancalana sued for specific performance.

TD brought a motion for summary judgment on the grounds that there was an error in the foreclosure process, and the sale was voidable. They lost but brought a motion for reconsideration due to “new law” from the case of Millenium Rock v. TD (yes, same defendant!) which came down November of 2009, just two months after TD had lost on their motion for summary judgment.

A quick review of Millenium – the trustee had instructed TD to submit an opening bid of $382k, which they did but the auctioneer misread the script and announced the opening bid and legal description for a different property but attributing it to a different street address. The confusion resulted in the bidder’s high bid of $51k being accepted. Accordingly, the Court in Millenium concluded that the auctioneer’s error was a fatal ambiguity which created a defect in the foreclosure process, which rendered the sale voidable.

Biancalana appealed. On appeal, the Sixth District concluded that the Trustee was the beneficiary’s agent, that the error was caused by the Trustee’s own negligence and that this negligence was not a procedural irregularity in the foreclosure sale. This ruling was in line with the case of 6 Angels, Inc. v. Stuart-Wright Mortgage, Inc. (2001). the lender/beneficiary intended to set the opening bid at $100,000.00, but the trustee mistakenly set the opening bid at $10,000.00.

Plaintiff, 6 Angels, was the successful bidder, paying a dollar more than the opening bid of $10k. The trustee refused to deliver the Trustee’s Deed, and 6 Angels sued. The Court held that a successful challenge to a sale requires evidence of a defect in the sale procedures, causing prejudice to the person attacking the sale. Mere inadequacy of the price without a procedural irregularity is insufficient to set aside the sale.

In 6 Angels, the mistake in the opening bid was the lender/beneficiary’s own negligence, and was totally outside of the foreclosure procedures (“dehors the sale proceedings”). The Trustee was ordered to deliver the Deed to 6 Angels.

Accordingly, TD’s motion for summary judgment was instructed to be vacated and Biancalana, the bona fide purchaser at sale was awarded the costs of this appeal. Ultimately, it looks like the lender will suffer the consequence for the trustee's error and the trustee will need to make the lender whole. [Biancalana v. T. D. Service Company, Oct. 31, 2011]

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