TD performed a trustee’s sale to foreclose on the Elevation Chandler property. PCF owned the loan and gave a specific opening (credit) bid to TD as Trustee under the Deed of Trust. BT jumped the credit bid and was declared the prevailing bidder in June, 2009. The next day, in accordance with trustee’s sale statutes, BT tendered the payment of its bid, which tender was refused by TD. TD claimed the sale was void because of an alleged error “in communicating the correct bid instructions,” meaning TD didn’t make a sufficiently high credit bid. PCF ended up buying the property itself in a subsequent trustee’s sale in 2010.
In BT Capital LLC v. TD Service Company of Arizona, the Court of Appeals sorted out this mess and laid down some rules for the invalidation of sales. First, it pointed out that little in the way of mistakes can form grounds for invalidating a sale. Essentially, citing ARS 33-808, the Court reminded the reader that only an error in the description of the property being sold or in the date, time or place of the sale is sufficient to invalidate it. Since an error in the credit bid price is not an event noted in that statute, that was not grounds for TD to invalidate the June, 2009 sale. Specifically, the Court held that bidding errors made by a party doesn’t invalidated an otherwise valid sale even if the end result is an inadequate sales price. That makes sense, actually; since a lender seeking a deficiency judgment upon completion of a trustee’s sale against the original borrower is subject to the “fair market value” hearing described in the trustee’s sale statutes. The one puzzlement the opinion raises is the Court’s statement that a case called In re Krohn 52 P.3d 774 (2002).. The Court of Appeals apparently was concerned that an analysis of Krohn may be relevant due to the combination of “irregularity of proceedings plus inadequate price,” stating that it had “to consider actual fair market value in determining if equity requires a trustee’s sale to be set aside.” Here’s a few observations on that determination. First, if one seeking equity must “do equity,” as the maxim says, it’s hard to see where the putative owner and original lender PCF behaved in an equitable manner under the facts of the current case. First, it held another trustee’s sale the following year after the 2009 sale and made the winning bid without first getting a final adjudication of the effectiveness of the 2009 sale. Second, it did not file its own action in 2009 to contest the adequacy of the prevailing bid in the 2009 sale under this In re Krohn rule.
Third, what’s the procedural purpose of the “fair market value” hearing under ARS 33-814 if there’s a completely different avenue for determining the adequacy of the price bid? Granted, only the judgment debtor has the right under the cited statute to tee up that determination, and only in a deficiency judgment (contract) action. But aren’t all the other parties interested in the sale, chiefly junior lienholders, already protected by the process in ARS 33-811(C) – and aren’t they supposed to be vigilant during the Trustee’s sale process? They all have the right under the trustee’s sale statutes to know, in advance of the sale, what the opening credit bid is going to be. And they all had the ability to attend the auction in 2009. Only neighboring landowners whose land value might have been affected by an inadequate foreclosure price have any ax to grind. There’s no indication that any such neighboring landowner joined in the appeal or the underlying lawsuit.