What is the New California Non-Judicial Foreclosure Statute?
In the recent California Court of Appeal decision in Applegate v. Carrington Foreclosure Services, LLC, Plaintiff Conner Applegate sued defendants Carrington Foreclosure Services, LLC (CFS) and Wilmington Savings Fund Society, FSB, as Trustee of ACM Stanwich Alamosa 2020 Trust (WSF), asserting various claims based on his allegation that CFS and WSF violated California Civil Code section 2924m in their handling of a foreclosure sale.
Applegate appealed the judgment entered after the trial court granted defendants’ motion for summary judgment, and the Court of Appeal affirmed the judgment.
The Legislature added Civil Code section 2924m to California’s comprehensive statutory scheme on nonjudicial foreclosure sales effective January 1, 2021, to prescribe an alternative process for foreclosures involving residential properties of one to four units.
Section 2924m was part of a series of measures intended to mitigate against blight, vacancy, and the transfer of residential property ownership from owner-occupants to landlord investors in the event that California experiences a wave of foreclosures.
Generally, a trustee’s sale (that is, a foreclosure sale) is deemed complete and final when the last and highest bid is accepted at the trustee’s public auction of the property subject to foreclosure.
The sale is deemed complete, for most purposes, when the auctioneer accepts the final Bid, and the trustee’s sale shall be deemed final upon the acceptance of the last and highest bid.
Under section 2924m, however, for “real property containing one to four residential units,” a foreclosure sale will be deemed final at the conclusion of the public auction only if a prospective owner-occupant is the last and highest bidder.
The last and highest bid at the public auction does not signal the completion of the foreclosure sale, and, instead, there is a brief period following the auction during which certain individuals and entities may submit bids matching or exceeding the amount of the highest bid from the auction.
For purposes of the statute, prospective owner-occupant means a natural person who presents to the trustee an affidavit or declaration, that: (a) they will occupy the property as their primary residence within 60 days of the trustee’s deed being recorded, and (b) they will maintain their occupancy for at least one year.
In 2007, Charles and Anna Utzman (Borrowers) executed a deed of trust for a single-family home in Mill Valley (Property) securing a loan for $1,365,000. At all relevant times, CFS was the trustee and WSF was the beneficiary of the deed of trust.
Borrowers failed to pay their loan, and in August 2021, CFS recorded a “Notice of Default and Election to Sell Under Deed of Trust” for the Property.
On December 2, 2021, CFS recorded a “Notice of Trustee’s Sale” for the Property, which specified the “unpaid balance and other charges” amounted to $2,096,064.11.
On May 12, 2022, CFS held a public auction, and the beneficiary, WSF, won the auction with a bid of $100. However, the sale was not completed because, according to CFS, the sale was cancelled and unwound on May 18, 2022, at the request of the beneficiary, WSF.
On May 23, 2022, Applegate mailed a “Notice of Potential Intent to Bid”. Applegate’s notice did not comply with section 2924m as it did not include an affidavit or declaration stating every requirement for a “prospective owner-occupant” specified in subdivision (a)(1) of the statute.
On or about June 1, 2022, CFS informed Applegate that the Property had been pulled from the market and that CFS was not accepting bids for the Property.
Nonetheless, on June 13, 2022, Applegate sent CFS a letter titled “Notice of Bid” with a cashier’s check in the amount of $575,000. Again, Applegate’s bid did not include an affidavit or declaration that complied with section 2924m.
On June 17, 2022, CFS returned Applegate’s check. In its enclosure letter to Applegate, CFS explained there would be no post-auction bid process and we cannot accept your Notice of Intent to Bid or your post- auction bid. Your funds in the amount of $575,000.00 are returned herewith.
On February 17, 2023, CFS recorded another “Notice of Trustee’s Sale” for the Property. CFS conducted a trustee’s sale and subsequently recorded a “Trustee’s Deed Upon Sale” on April 14, 2023. WSF was the winning bidder, purchasing the Property for $2,301,746.98, the amount of the unpaid debt.
In the operative complaint, Applegate alleged that CFS attempted to wrongfully rescind the post-foreclosure section 2924m bidding window for eligible bidders, in violation of the civil code and “improperly rejected his bid.”
He further alleged, upon information and belief, that he submitted the highest bid for the Property within the 45-day period following the public auction held May 12, 2022.
Applegate asserted claims for (1) violation of Civil Code section 2924m, (2) violation of Business and Professions Code section 17200, (3) quiet title, (4) declaratory relief, and (5) injunctive relief.
CFS and WSF successfully moved for summary judgment.
In its written order granting defendants’ motion, the trial court explained that Applegate’s first cause of action for violation of section 2924m failed for three independent reasons.
First, the court concluded the Legislature did not intend to create a private right of action for a violation of section 2924m.
Second, even assuming Applegate could bring a claim under section 2924m, the undisputed facts show that the May 12, 2022, Trustee sale was rescinded and unwound before it became a final sale at the request of the beneficiary, and Applegate failed to provide any authority to support his claim that the rescission or unwinding was unlawful.
Third, Applegate failed to submit a notice of intent to bid or bid which satisfied the mandatory provisions of section 2924m, and only compliance with these mandatory provisions would create the duties and obligations that Defendants are alleged to have breached.
The trial court found Applegate’s failure to show a viable claim under section 2924m disposed of his remaining claims, which were premised on or derivative of the alleged violation of section 2924m.
The entire basis for Applegate’s claim of violation of section 2924m was his allegation that CFS attempted to wrongfully rescind the post-foreclosure 2924m bidding window for eligible bidders, in violation of the civil code.
As the trial court explained, Applegate failed to provide any authority for the proposition that it is unlawful for a trustee to rescind or cancel a foreclosure sale before the sale is deemed final.
A trustee under a deed of trust has discretionary authority to postpone a foreclosure sale to protect either the trustor’s or the beneficiary’s interest.
In addition, Civil Code section 2924g, subdivision (c)(1) expressly grants the trustee authority to postpone the sale upon request of the beneficiary. Once the sale is postponed, all bids are automatically cancelled.
A trustee under a deed of trust is not a true trustee, and owes no fiduciary obligations; it merely acts as a common agent for the trustor and beneficiary of the deed of trust. The trustee’s duties are: (1) upon default to undertake the steps necessary to foreclose the deed of trust; or (2) upon satisfaction of the secured debt to reconvey the deed of trust.
In the present case, the trustee, CFS, had the discretion and authority to continue the sale after bids had been received but before the sale had become final, and CFS acted on that authority at the request of the beneficiary (that is, the creditor), WSF.
There was no evidence in the record that a foreclosure sale for the Property was completed in May or June of 2022, and there is evidence that a foreclosure sale was subsequently completed in April 2023.
Under section 2924m’s alternative process, after the public auction, only persons and entities that meet certain statutory requirements are eligible to submit post-auction bids to the trustee.
It seems apparent that an objective of section 2924m’s declaration requirement is to provide proof to the trustee that a person submitting a post-auction bid is in fact eligible to do so under the statute.
A trustee need not, and indeed should not, accept post-auction bids from persons who are not eligible to submit such bids.
LESSONS:
1. Generally, a trustee’s sale (that is, a foreclosure sale) is deemed complete and final when the last and highest bid is accepted at the trustee’s public auction of the property subject to foreclosure.
2. The sale is deemed complete, for most purposes, when the auctioneer accepts the final Bid, and the trustee’s sale shall be deemed final upon the acceptance of the last and highest bid.
3. The Legislature did not intend to create a private right of action for a violation of section 2924m.
4. A trustee under a deed of trust has discretionary authority to postpone a foreclosure sale to protect either the trustor’s or the beneficiary’s interest.
5. In addition, Civil Code section 2924g, subdivision (c)(1) expressly grants the trustee authority to postpone the sale upon request of the beneficiary. Once the sale is postponed, all bids are automatically cancelled.