Facts: In preparing for a nonjudicial foreclosure auction, the lender instructed the trustee to set an opening credit bid of $219,000 for the property in foreclosure. The trustee mistakenly substituted the amount past due of $21,000 for the opening credit bid. A buyer bid $22,000 on the property and the sale was closed. The trustee discovered the mistake before issuing a deed to the property to the buyer, and returned payment.

Claim: The buyer demanded the lender convey the deed to the property to them, claiming the lender set the erroneous opening credit bid through the trustee acting as their agent, and thus there was no procedural irregularity permitting the lender to void the sale.

Counter claim: The lender sought to void the sale and restart the nonjudicial foreclosure proceedings, arguing the trustee’s error was an irregularity in the statutory foreclosure process resulting in a grossly inadequate price less than 10% of the total indebtedness, thus authorizing the lender to void the sale.

Holding: The California Supreme Court found the lender was within its discretionary right to void the sale since the erroneous opening credit bid was a genuine procedural irregularity on the trustee’s part, occurring during the course of the statutory foreclosure process, and was discovered before the deed to the property was issued to the buyer. [Biancalana v. T.D. Service Company (2012) 13 C.D.O.S. 4862]

Editor’s note – The basis of the buyer’s claim hinges on when and by whom the erroneous opening credit bid was set. The buyer argued that since the trustee was acting as an agent of the lender, the opening bid communicated by the trustee at auction was effectively set by the lender.

Because of this, the buyer claimed, the error did not amount to an irregularity in the nonjudicial foreclosure process and therefore the sale was not voidable. The buyer supported this claim by citing a case where a low opening bid was set directly by a lender. In that case, the lender was barred from voiding the sale because the error did not constitute a procedural irregularity.

In this case, the lender set the opening bid at the correct amount — $219,000. It was the trustee who made the mistake of reporting the opening bid at $21,000.

The Supreme Court found this indeed was an irregularity in the statutorily prescribed nonjudicial foreclosure sale proceedings. That irregularity, combined with the unacceptable windfall the low bid would yield the buyer, rendered the sale voidable.

 This ruling reverses a 2011 California Appeals Court decision in the same case [Biancalana v. T.D. Service Co. (2011) 200 CA4th 527].