The links below are to fee-based law library available to attorneys • Source: Westlaw ©
Contact an Attorney to obtain legal representation.

NOD Notice of Sale Trustee Sale FAQ

Bookmarks |
Conduct of Sale | Effect of Sale | Disposition of Sales Proceeds | Setting Aside Sale

Notice of the time and place of sale is a prerequisite to a sale under a power of sale. The notice may not be given, however, until at least 3 months have elapsed after recordation of the notice of default. [Civ. Code, § 2924] The notice of sale must be published, posted, and mailed as required by statute at least 20 days before the sale, and it must be recorded at least 14 days before the sale. [Civ. Code, § 2924f, subd. (b)]

A sale of property under a power of sale must be by public auction to the highest bidder. Sale must be held in the county where the property or some part of it is located, on a business day, Monday through Friday, between the hours of 9 a.m. and 5 p.m. [Civ. Code § 2924g(a)]

When a bankruptcy petition precedes the third successive notice of the trustee's sale, the beneficiary is not required to give additional notice of the sale after obtaining relief from automatic stay and state law applies to continuance by oral postponement. [Tully v. World Sav. & Loan Ass'n (1997) 56 Cal.App.4th 654, 65 Cal.Rptr.2d 545] Civ. Code, § 2924g subd. (e) as amended effective 2002 provides that where a sale is postponed because of a bankruptcy stay, the sale can be conducted no sooner than the expiration of the stay and that the seven day stay required by Civ. Code, § 2924g, subd. (d)does not apply.

When the property consists of several known lots or parcels, they must be sold separately unless the security instrument provides otherwise, and, if present at the sale, the trustor or mortgagor may generally direct the order of sale, unless the deed of trust or mortgage otherwise directs. Where a third person claiming a portion of the secured property requires it to be sold separately, it may be thus sold. [Civ. Code § 2924g(b)]

Each bid at the auction is an irrevocable offer to purchase the property. [Civ. Code § 2924h(a)] A bid is cancelled by a subsequent bid for a higher amount or by a postponement or discontinuance of the sale proceeding. [Civ. Code § 2924h(a) and (e)] If the last and highest bidder on completion of the sale has not previously deposited payment, he or she must do so on demand. Failure to do so subjects the bidder to liability for damages sustained as a result of the refusal to pay, and willful failure is a misdemeanor subject to fine. [Civ. Code § 2924h(d)] It is also a misdemeanor to offer to accept or accept from another consideration not to bid, or to fix or restrain bidding. [Civ. Code § 2924h(g)]

Payment may be by cash, a cashier's check drawn on a state or national bank, a check drawn on a state or federal credit union, or a check drawn by a state or federal savings and loan association, savings association, or savings bank authorized to do business in the state, or a cash equivalent that has been designated in the notice of sale as acceptable to the trustee. [Civ. Code § 2924h(b) and (c); Fin. Code § 5102] The creditor may offset his or her bid to the extent of the total amount due on the debt, together with the trustee's fees and expenses. [Civ. Code § 2924h(b)] However, a junior lienor may not credit bid the amount of the obligation secured by his or her lien at a foreclosure sale of a senior lien, even if the surplus would otherwise be paid to him or her. [Nomellini Constr. Co. v. Modesto Sav. & Loan Asso. (1969, 3rd Dist) 275 Cal App 2d 114, 79 Cal Rptr 717] Civil Code § 2924 has been amended to exclude a trustee from being subject to the debt collection procedures re CC §§ 1788 et seq. when performing the acts required of a trustee under Civil Code § 2924.

The trustee or other person conducting the sale has the duty to conduct it fairly and openly, with due diligence and sound discretion to protect the rights of the debtor and others, including prospective bidders, and using all reasonable efforts to obtain the best possible or most reasonable price for the benefit of the secured party. [Bank of Seoul & Trust Co. v. Marcione (1988, 2nd Dist) 198 Cal App 3d 113, 244 Cal Rptr 1] The trustee is not liable for failing to allow a junior lienholder to reinstate the load during the last five business days before the sale. [Civ. Code § 2924c(e)] Additionally the trustee is not liable for a good faith error resulting in reliance on information provided by a beneficiary in good faith. [Civ. Code § 2924]

The successful bidder at a nonjudicial foreclosure sale cannot prevail against a trustee's refusal to deliver the trustee's deed where the trustee learned after the sale that the trustor and the beneficiary had previously agreed to postpone the sale. The Court so held even though the parties had e-mailed notice to the trustee before the sale. The bidder's sole remedy is to recover sums paid together with interest. [Residential Capital v. Cal-Western Reconveyance Corp., 108 Cal. App. 4th 807, 134 Cal. Rptr. 2d 162 (4th Dist. 2003]

Practice Note:

Although the law presumes prima facie the fair and proper conduct of the sale, other evidence can overcome that presumption. [Wolfe v. Lipsy (1985, 2nd Dist) 163 Cal App 3d 633, 209 Cal Rptr 801] While mere inadequacy of price, standing alone, will not justify setting aside a trustee's sale, gross inadequacy of price coupled with even slight unfairness or irregularity is a sufficient basis of setting the sale aside. Bank of Seoul & Trust Co. v. Marcione (1988, 2nd Dist) 198 Cal App 3d 113, 244 Cal Rptr 1

Sale proceedings may be postponed at any time prior to the completion of the sale in the trustee's discretion or on instruction by the beneficiary or mortgagee. Civ. Code, § 2924g permits any number of postponements of the sale; however, unless specified exceptions apply, the sale must be completed within 365 days from the date set forth in the notice of sale. If postponed for periods totaling more than 365 days, a new notice of sale is required. The trustee must postpone the sale on the order of any court of competent jurisdiction, where the sale is stayed by operation of law, or by mutual agreement between the trustor or mortgagor and the beneficiary or mortgagee. [Civ. Code, § 2924g, subd. (c)] Postponements must be announced at the time and place last noticed for the sale. [Civ. Code, § 2924g, subd. (d)] If multiple sales have been scheduled for the same time and place by one trustee, any postponement must be announced at the time published in the notice of sale prior to any sales. [Civ. Code, § 2924g, subd. (a)] The notice of postponement must be by a public declaration by the trustee, setting forth the new date, time, and place of the sale, with the place required to be the same as originally fixed. [Civ. Code, § 2924g, subd. (d)] Civil Code, § 2943 was amended in 2000 to provide that the preparation and delivery of a beneficiary statement or a payoff demand statement pursuant to § 2943 will not change the date of sale under Civil Code, § 2924g. [Civ. Code, § 2943, subd. (f)]

In the case of enforcement of a lien on a single-family owner-occupied residence securing an obligation under the Unruh Retail Installment Sales Act (Civ. Code §§ 1801 et seq.), the trustee may receive offers during the 10-day period prior to the sale, and if an offer is accepted by both the debtor and the creditor, the sale must be postponed to a date certain in order to allow the debtor to sell in accord with the offer, at which time the notice of sale is deemed revoked. [Civ. Code § 2924f(c)(4)]

§ 4:100. Effect of sale TOP

On completion of a trustee's sale, the deed of trust or mortgage ceases to exist. [Civ. Code § 2910; Streiff v. Darlington (1937) 9 Cal 2d 42, 68 P2d 728]

Even though the property is sold for less than the outstanding indebtedness, the creditor is generally barred from seeking a deficiency. [Code Civ. Proc. § 580d; for discussion of availability of deficiency judgment after private sale, see § 4:75] However, the creditor may recover amounts that do not constitute a deficiency judgment, such as damages for waste committed in bad faith. [Cornelison v. Kornbluth (1975) 15 Cal 3d 590, 125 Cal Rptr 557, 542 P2d 981]

If the full amount of the underlying obligation is satisfied by the sale, the creditor may not subsequently recover compensation from any other source, such as insurance proceeds payable for damage to the property, net rents and profits, or damages for waste. [Cornelison v. Kornbluth (1975) 15 Cal 3d 590, 125 Cal Rptr 557, 542 P2d 981] A beneficiary who makes a full credit bid at non judicial sale is precluded from obtaining presale fire damage insurance proceeds despite also being the named beneficiary on the insurance policy. Norwest Mortg., Inc. v. State Farm Fire & Casualty Co., 118 Cal. Rptr. 2d 367 (App. 4th Dist. 2002), review denied and ordered not to be officially published, (July 24, 2002).

The court may grant equitable relief and award excess sale proceeds to the purchaser under an oral land sale contract. [Rogers v. Davis (1994, 4th Dist.) 28 Cal.App.4th 1215, 34 Cal.Rptr.2d 716] Based on the provisions of a standard form trust deed, the court held that although the description set forth in the trust deed did not contain a description which included the lot line adjustment, the fact that the lot line adjustment had been made is sufficient to include it as part of the security. [Hellweg v. Cassidy (1998) 61 Cal.App.4th 806, 71 Cal.Rptr.2d 798]

§ 4:101. Disposition of sales proceeds TOP

The trustee, or the clerk of the superior court on order of the court, must distribute the proceeds of a trustee's sale in the following order of priority [Civ. Code § 2924k(a)]:

(1) to the costs and expenses of exercising the power of sale and of sale, including permitted trustee's fees and attorney fees (underCiv. Code §§ 2924d(b), 2924k(b)).
(2) to payment of the secured obligation.
(3) to satisfy junior liens or encumbrances in order of priority.
(4) to the debtor or his or her successor in interest. In the event the property is transferred, payment should be to the owner of record at the time of sale.

An improper payment may subject the trustee to liability. [Atkinson v. Foote (1919) 44 Cal App 149, 186 P 831; for discussion of interpleader, see PROCEDURE Parties Ch 3]

If there is a surplus after payment of the secured obligation, a trustee who does not file an interpleader must serve by mail a prescribed notice of such surplus on all persons entitled to notices of default under Civ. Code § 2924b(b) and (c). [Civ. Code § 2924j(a) and under Civ. Code § 2924j(a)(4)the trustee may give written notice to all persons with recorded interests and require same to provide proof of beneficial interest in the obligation and the security interest;; for discussion of notice of default, see § 4:86] If a conflict exists that the trustee cannot resolve with due diligence, the trustee may, on additional notice, file with the court a declaration of the unresolved claims and deposit into court the amount remaining in dispute. [Civ. Code § 2924j(b) and (c)] A summary procedure is provided for the court's resolution of the claims, which must be heard within 90 days of the deposit. [Civ. Code § 2924j(c) and (d)] In lieu of this statutory procedure, the trustee may file an interpleader action. [Civ. Code § 2924j(e); for discussion of interpleader, see PROCEDURE Parties Ch 3]

In Azadozy v. Nikoghosian, 128 Cal. App. 4th 1369, 27, 27 Cal. Rptr. 3d 811 (5th Dist. 2005), review denied, (July 13, 2005), the court held that the holder of an unrecorded title to real property was not "a party in interest" under Rev. and Tax. Code, § 4675; therefore, she could not claim excess proceeds from the tax sale.

A deed of trust does not create a lien on the sale proceeds. [In re Ehrle, 189 B.R. 771, 28 U.C.C. Rep. Serv. 2d 691 (B.A.P. 9th Cir. 1995); see Smith v. James A. Merrill, Inc., 64 Cal. App. 4th 94, 75 Cal. Rptr. 2d 108 (4th Dist. 1998) (although judgment lien is recorded prior to deed of trust, junior deed of trust could have partial priority over judgment lien where homestead exemption pertains)] In CTC Real Estate Services v. Lepe, 140 Cal. App. 4th 856, 44 Cal. Rptr. 3d 823 (2d Dist. 2006), the court of appeal held that a victim of identity theft whose identity was used to acquire property and a loan secured by the property had an equitable interest and was entitled to recover foreclosure surplus proceeds where there were no other claimants.

A prior recorded bond assessment lien prevails over a subsequently recorded deed of trust regarding entitlement to excess proceeds even where the bona fide purchaser at the tax sale obtains an assignment of the bond. [Marion Drive, LLC v. Saladino, 136 Cal. App. 4th 1432, 39 Cal. Rptr. 3d 695 (2d Dist. 2006), review denied, (May 24, 2006)]

§ 4:104. Setting aside sale TOP

A completed private sale may be attacked, in proper circumstances, by an action to set aside the sale. [Wolfe v. Lipsy (1985, 2nd Dist) 163 Cal App 3d 633, 209 Cal Rptr 801; for form of complaint to set aside nonjudicial sale, see § 4:101; for general discussion of setting aside trustees' sales, see CEB, California Mortgage and Deed of Trust Practice (2nd ed), Debtor Strategies §§ 6.38 et seq.] The sale may be set aside, for example, on the ground that the security instrument under which the sale was conducted was itself invalid [Stirton v. Pastor (1960, 4th Dist) 177 Cal App 2d 232, 2 Cal Rptr 135], that there was no actual default [Hauger v. Gates (1954) 42 Cal 2d 752, 269 P2d 609], or that the sale proceedings themselves failed to comply with requirements set forth in the statutes or the security instrument [Whitman v. Transtate Title Co. (1985, 4th Dist) 165 Cal App 3d 312, 211 Cal Rptr 582]

A foreclosure sale of property belonging to a bankrupt is not a fraudulent conveyance if the sale complies with applicable state law. [Lindsay v. Beneficial Reinsurance Co. (In re Lindsay) (1995, CA9 Cal) 59 F.3d 942 (sale valid under Texas law)] Where potential bidders agreed not to compete and acquired the subject property with a joint bid, the court set aside the sale. Lo v. Jensen, 88 Cal. App. 4th 1093, 106 Cal. Rptr. 2d 443 (2d Dist. 2001), review denied, (July 11, 2001).

Civil Code § 3275 allows relief from forfeiture but only as between the parties in contract and not between the trustor and a bona fide purchaser. When the trustee's deed contains recitals that a sale was properly conducted, even though there are irregularities and a grossly inadequate price is paid, a conclusive presumption arises that the sale is valid and the sale cannot be set aside. [Moeller v. Lien (1994, 2nd Dist.) 25 Cal.App.4th 822, 30 Cal.Rptr.2d 777; but see, contra, Estate of Yates (1994, 4th Dist.) 25 Cal.App.4th 511, 32 Cal.Rptr.2d 53and Staples v. United States (1994, US) 128 L.Ed.2d 608, 114 S.Ct. 1793]

The particular irregularity must be shown to have injured or prejudiced the plaintiff. [California Trust Co. v. Smead Invest. Co. (1935) 6 Cal App 2d 432, 44 P2d 624]

Also, the plaintiff must offer to do equity through redemption of the property, that is, must tender the outstanding indebtedness. [Karlsen v. American Sav. & Loan Asso. (1971, 2nd Dist) 15 Cal App 3d 112, 92 Cal Rptr 851] Tender is required whoever the plaintiff may be, trustor (mortgagor) or junior lienor. [Arnolds Management Corp. v. Eischen (1984, 2nd Dist) 158 Cal App 3d 575, 205 Cal Rptr 15]

Practice Note:

Due to mounting overdue installment payments, tax assessments, or other obligations, the debtor may lack sufficient funds to tender. If, however, the debtor can also obtain a money judgment against the creditor, he or she may be able to use it as an offset. [For discussion of recovery of damages, see § 4:105]

A purchaser at a non-judicial foreclosure sale who acquires title, does not prevail over a trustor whose tender is accepted to reinstate the loan prior to the sale. Here, the court concluded, the beneficiary did not have the right to proceed to sale because the loan had been reinstated. [Bank of America, N.A. v. La Jolla Group II, 129 Cal. App. 4th 706, 28 Cal. Rptr. 3d 825 (5th Dist. 2005), as modified, (June 15, 2005) and review denied, (Sept. 7, 2005)] When a borrower and lender agree to reinstatement, whether less than five days before the sale or not [Civ. Code, § 2924, subd. (c)], the buyer at a trustee sale does not receive good title. [Bank of America, N.A. v. La Jolla Group II, 129 Cal. App. 4th 706, 28 Cal. Rptr. 3d 825 (5th Dist. 2005), as modified, (June 15, 2005) and review denied, (Sept. 7, 2005)] However, in Melendrez v. D & I Investment, Inc., 127 Cal. App. 4th 1238, 26 Cal. Rptr. 3d 413 (6th Dist. 2005), review denied, (June 22, 2005), the court held that the foreclosure sale purchaser took good title despite the fact that the trustor had a disputed repayment agreement with the lender. Although the terms of the agreement had not been completed prior to the sale (three periodic payments were required, the sale was to be postponed after each of the first two payments and after the third payment, the loan was to be reinstated). Although the trial court found that the sale did not violate the repayment agreement, the appellate court based its decision on the procedural aspects of the sale and did not adequately discuss the effect of the agreement unlike the court in Bank of America, N.A. v. La Jolla Group II, supra.

Since the action to set aside is equitable in nature, there is ordinarily no right to a jury trial. [Raedeke v. Gibraltar Sav. & Loan Asso. (1974) 10 Cal 3d 665, 111 Cal Rptr 693, 517 P2d 1157]

Probate Code § 9391, providing that the holder of a lien on a decedent's estate may commence an action to enforce the lien without first filing a creditor's claim if the complaint waives recourse against other property in the estate, does not apply to a nonjudicial foreclosure proceeding. The beneficiary may foreclose without filing a claim or waiver of recourse with the estate of a decedent trustor. [Cosentino v. Coastal Construction Co. (1994, 2nd Dist.) 30 Cal.App.4th 1712, 36 Cal.Rptr.2d 444]

Pursuant to Civ. Code § 1799.91, if proper notice is not given to a trustor in relation to a consumer credit contract which includes a broker negotiated loan, the beneficiary can be precluded from enforcing its security interest. [Engstrom v. Kallins (1996, 2nd Dist.) 49 Cal.App.4th 773, 56 Cal.Rptr.2d 842].

A fiduciary duty cannot be waived. [BT-I v. Equitable Life Assurance Society of the United States (1999) 75 Cal.App.4th 1406, 76 Cal.App.4th 684e, 89 Cal.Rptr.2d 811] Despite the fact that the limited partnership agreement permitted the general partner to purchase the partnership's property after first being offered to the limited partners, the general partner was held to have violated its fiduciary duty when it purchased and foreclosed the partnership's property.

Paul E. Stansen, A Professional Law Corporation.
Mailing Address: 25600 Agoura Road # 545, Calabasas, California 91302
© 1993-2007 | All rights reserved. | email: PESAPC@Stansen.com