For the prior video in this series covering the trustee’s acceptance of the final and highest bid from the successful bidder at a nonjudicial foreclosure sale, click here.

Bids by the beneficiary

The beneficiary is frequently the only bidder at the trustee’s sale. Thus, the beneficiary automatically becomes the successful bidder.

The beneficiary may bid without tendering funds up to an amount equal to the debt secured by the property being sold, plus trustee’s fees and foreclosure expenses. This amount is called a full credit bid. [Calif. Civil Code §2924h(b)(2)]

If the beneficiary is the successful bidder under a full credit bid, the trustee retains possession of the beneficiary’s note (or other evidence of the mortgaged debt) in exchange for the trustee’s deed to the property.

The beneficiary is not required to bid the full amount of the indebtedness to acquire the property at the trustee’s sale. The beneficiary can bid an amount below the full amount of the debt, called an underbid.

Conveyance by a trustee’s deed

On the completion of a trustee’s sale, the trustee uses a trustee’s deed to transfer title to the property on to the successful bidder at the auction.

When a buyer other than the beneficiary purchases the property for value and without notice of title or trustee’s sale defects, the buyer is considered a bona fide purchaser (BFP).

The BFP’s interest in the property sold is perfected as of 8 a.m. on the date of the trustee’s sale, if the trustee’s deed conveying the property to the BFP is recorded:

  • within 15 calendar days after the date of the trustee’s sale; or
  • the next business day following the 15th day after the sale if the county recorder is closed on the 15th day. [CC §2924h(c)]

The title received by the third-party BFP is clear of any interest claimed by the owner, mortgage holders or tenants whose interests are junior to the foreclosed mortgage. [ Hohn v. Riverside County Flood Control and Water Conservation District (1964) 228 CA2d 605]

However, upon completion of the trustee’s sale, the new owner needs to honor an existing residential lease if it has a fixed-term. If the home is to be occupied as a principal residence, the new owner may serve the tenant with a 90-day eviction notice. [CC §2924.8(a)(1); see RPI Form 573]

More importantly, title is taken clear of any unrecorded prior interests or claims in the property held by others not in possession of the real estate. However, to take clear title free of claims, the BFP needs to have no constructive notice or actual knowledge of any existing priority claims when acquiring title to the property at the trustee’s sale. [CC §§1107, 1214]

A lis pendens recorded against the real estate prior to the trustee’s sale places bidders on constructive notice of a lawsuit involving a claim to a right in title or to possession of the real estate. If the claim has priority to the foreclosed mortgage, the lis pendens destroys the BFP status of the successful bidder.

Surplus funds

Occasionally, the price paid for property by the successful bidder at a trustee’s sale exceeds the amount of debt and costs due under the foreclosed mortgage. The excess amounts are called surplus funds. [See RPI Form 479]

The trustee has a duty to distribute the surplus funds to the junior mortgage holders and the owner(s).

The gross proceeds from the trustee’s sale are distributed in the following order:

  • to pay the costs and expenses of the trustee’s sale, including trustee’s fees or attorney fees;
  • to pay the indebtedness secured by the property in default, including advances made by the mortgage holder;
  • to satisfy the outstanding balance of junior mortgage holders of the  property, distributed in the order of their priority; and
  • to the owner, the owner’s successor-in-interest or the vested owner of record at the time of the trustee’s sale. [CC §2924k(a)]