>Daily Development for Wednesday, July 23, 2007
>by: Patrick A. Randolph, Jr.
>Elmer F. Pierson Professor of Law
>UMKC School of Law
>Of Counsel: Husch Blackwell Sanders
>Kansas City, Missouri
>dirt@umkc.edu
>
>MORTGAGES; DEEDS OF TRUST; PRIVATE FORECLOSURE:  A regularly conducted trustee's sale is final when the winning bid is accepted, even if, through trustee’s error, the permitted opening bid was dramatically lower than that required by lender and the sale was therefore for an inadequate price.

>
>Udall v. T.D. Escrow Services, 159 Wash. 203, 154 P. 2d 882 (Wash. 2007)
>
>Trustee instructed its auctioneer to open the bidding at $159,422.20.  The auctioneer (in error) opened the bidding at $59,421.20. Udall (collaborating with other potential bidders, was the only bidder at $59,422.20. The Trustee had a practice of withholding to deed in order to verify funds and to make sure that the debtor had not filed a last minute bankruptcy, and this policy was known to the foreclosure purchaser.

>
>On discovering the error (before the deed had been delivered), Trustee cancelled the sale and sent Udall a refund. He refused the refund and sued to quiet title.

>
>The Washington Court of Appeals upheld the Trustee’s position that the sale wasn’t final until the deed was delivered, and could be cancelled. 

>
>The Washington Supreme Court, however, reversed, based upon an analysis of the statutory language for Washington deeds of trust.  The court held that the sale was final upon the acceptance of the highest bid and the delivery of the trustee's deed to the successful bidder was a ministerial, not a discretionary, act.

>
>Although the trustee had not authorized its auctioneer to open the bidding or sell the property at the low price, the court held that the auctioneer was vested in apparent authority upon which Udall was entitled to rely. 

>
>The court noted that there was no ill consequence to the borrower because of the inadequate sale price, because under Washington law, there is no deficiency following a non-judicial foreclosure of a deed of trust.

>
>Comment 1: Compare this case to Household Bank, FSB v. Lewis, 2008 Westlaw 2132467 (Ill App. 5/22/08), the DIRT DD for 7/11/08, where the court permitted a lender to back away from a an accepted auction bid in a judicial foreclosure.  Local law law provided for judicial confirmation of the sale.  The lender decided, after the auction, to permit the borrower to complete a “short sale” of the property to avoid a deficiency, and withdrew its petition for confirmation.  The court specifically stated that, under Illinois, law, the foreclosure sale purchaser had no right to control whether the sale went through for confirmation.  (The foreclosure purchaser got its money back, of course.)  Certainly a different philosophy from here.

>
>Comment 2: In the instant case, should Udall, by all appearances a veteran foreclosure sale shopper, have been entitled to assume that there was no error when this huge bargain appeared on the foreclosure list?  The court certainly felt that Udall was entitled.  Compare the view of the same court in 1988 in Glidden v. Municipal Authority of Tacoma, 11 Wash. 2d 341, 758 P. 2d 487 (Wash. 1988), where the court dealt with the question of whether a bidder was a BFP as to a trustee’s error in notifying a junior lender of the sale.  Under the statute at the time, a BFP enjoyed a conclusive presumption that the sale is technically valid.  The court held that, even though the trustee insisted that she had notified the junior lienholder, it was still a question of fact whether the foreclosure purchaser should have accepted this at face value when the junior had a significant economic interest to protect at the sale.  It remanded for more factual analysis.

>The Reporter for this case was John Weaver of the University of Seattle Law School, although most of the text above was in fact substituted by the editor into John’s useful brief summary.

>
>Comment 3: According to Arizona lawyer, Michael Denious, in Arizona (also a trustee sale state), the sale is not deemed completed until actual payment of the bid price. See In re Benson, 293 B.R. 234 (D.Ariz.Bkr. 2003), which interpreted the Arizona trustee sale statutes to conclude that the sale of property was complete, so as to cut off a Chapter 13 debtor's statutory right to cure the prepetition default, only upon payment in full of the bid price. (NB: In Arizona the prevailing bidder must pay the bid price in full by 5 p.m. on the next business day following the auction; following that, the recordation of the trustee's deed is a ministerial act.)

>
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