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Can Trustee Set Aside the Winning Bid Made at the Foreclosure Sale?

May 20, 2013

Posted in Real Estate Law

2013_02_16__4838In David Biancalana v. T.D. Service Company, the Supreme Court of California ruled that T.D. Service Company had the discretionary authority to set aside the winning bid after discovering that the auctioneer had accepted an incorrect opening bid of $21,894.17, instead of the correct amount of $219,105.00.

In this case, plaintiff David Biancalana filed a quiet title action to a property located at 434 Winchester Drive in Watsonville, California, alleging that he had been the highest bidder at a trustee’s sale that took place on September 10, 2008.  Hence, Biancalana contended that he was the rightful owner of the property.

Biancalana alleged that about one day before the trustee’s sale, he had contacted the trustee several times to verify the opening bid.  After the phone verifications, he then obtained a cashier’s check in the amount of $22,000.00 and attended the auction next day.  On the day of the auction, the auctioneer also called and spoke with two agents for the trustee and verified the opening bid.  When the auction started, the auctioneer announced that he had the authority to accept an opening bid of $21,894.17.  Biancalana bid $21,896.00 and no one made any further bid.  The auctioneer then declared that the property was sold to Mr. Biancalana for $21,896.00, and after the announcement, Biancalana gave the auctioneer the cashier’s check in the amount of $22,000.00.

About two days later, T.D. Service called Biancalana and told him that it would set aside the sale and declare it void because the starting bid had not been high enough.  T.D. Service then returned the cashier’s check to Biancalana.  He refused to accept it and demanded that T.D. Service tender the trustee’s deed of the property.  T.D. Service refused, and the lawsuit ensued.

At the trial court, T.D. Service filed a summary judgment motion arguing that it had the discretionary authority to set aside the foreclosure sale due to a significant procedural irregularity coupled with an inadequate sale price.  The motion was initially denied, but was later granted due to the discovery of a new law that had not been available at the time of the hearing.  Biancalana appealed.

The Court of Appeal reversed the previous judgment, holding that T.D. Service’s error was not a procedural one in the foreclosure process and thus T.D. Service had no discretionary authority to set aside the foreclosure sale.  T.D. Service then appealed to the California Supreme Court, which agreed to review the case.

The California Supreme Court ultimately sided with T.D. Service and ruled in its favor.  Its ruling was based on the fact that the trustee had discovered the mistake before the issuance of the deed.  If the mistake had been discovered after the delivery of the trustee’s deed, then Biancalana would have enjoyed the presumption that the trustee’s sale had been conducted properly and fairly, without procedural irregularities.

The California Supreme Court further reasoned that because the sale price was so inadequate—less than 10% of the intended opening bid—Biancalana basically would receive a substantial windfall due to someone else’s mistake, leaving the bank to recover the loss from T.D. Service.  Thus, when the trustee’s sale was set aside, Biancalana was not prejudiced.  In fact, the more efficient approach would be to permit the trustee to quickly correct the mistake and hold another sale properly.

A California quiet title action is a very complicated process, and you need to be represented by an experienced real estate litigation attorney to explain your rights and guide you through the process.  If you have any questions about how quiet title actions, call the Law Offices of Tony T. Liu and make an appointment.