Placer Foreclosure, Inc. v. Aflalo
Facts: A homeowner obtains a mortgage from a lender, which is secured by the homeowner’s property. The homeowner experiences financial difficulties and defaults on the mortgage. The lender completes a trustee’s foreclosure sale of the property. The foreclosure sale results in surplus funds that exceed the homeowner’s debt owed to the lender. The homeowner files a wrongful foreclosure action to quiet title to the property.
Claim: The homeowner seeks the foreclosure sale surplus funds from the trustee, claiming they are entitled to the funds since homeowners are to receive any funds remaining from a foreclosure sale after all debt and foreclosure costs have been paid.
Counterclaim: The trustee claims they are not required to release the funds before the wrongful foreclosure action is resolved since multiple interests in the property subjects them to multiple liability claims from the homeowner and buyer.
Holding: A California court of appeals holds the homeowner is entitled to the surplus funds from the foreclosure sale since the buyer had no recorded interests in the property before the sale and thus does not open the trustee to multiple liability claims from the homeowner and buyer. [Placer Foreclosure, Inc. v. Aflalo (May 30, 2018)_CA5th_]
Editor’s note — The trustee’s insistence on retaining the surplus funds is misguided. Even if the wrongful foreclosure action invalidated the sale, the buyer would be entitled to a refund from the homeowner, including the surplus funds, and would have nothing to seek from the trustee. Further, the issue of the wrongful foreclosure action is not resolved in this case.