A buyer at a nonjudicial foreclosure sale purchased a deed of trust believing it was in the first lien position. After purchasing the deed, he discovered the lien was in second position and sought to return the deed and recoup his funds.
When that didn’t work, he filed suit to rescind the sale.
The case is Matthew Matson et al. v. S.B.S. Trust Deed Network, et al. (California Fourth District Court of Appeal, No. D074442).
The subject deed of trust was recorded in 2007, securing a Small Business Administration loan for $475,000. It was in second position after a deed of trust recorded in 2004 and assigned to Bank of America in 2016.
S.B.S. Trust Deed Network, the trustee, recorded a notice of default and election to sell June 10, 2016. Bank of Southern California N.A. authorized a flat opening bid of $71,000. The sale was originally to happen on Feb. 1, 2017, but was continued until March 1, 2017. The notice of sale made bidders aware that they were bidding on a lien that might be a junior lien and encouraged them to investigate the lien through the county recorder’s office or a title company.
Matthew Matson learned about the property in January 2017 from Property Radar, which warned that users should not rely on its information rely on the site’s information as a replacement for professional, financial or legal advice.
Matson did no further investigation until the morning of the sale, when he saw the notice of sale on Property Radar again. It identified the loan as being in position 1, which Matson believed meant the loan was in first position, though the 2004 deed of trust and the assignment of that deed of trust to Bank of America were also on the description.
He obtained a 94-page profile of the property an hour before the sale, but only reviewed the notice of sale and verified the amount of the loan. He called Superior Default Services, believing it to be S.B.S. Trust Deed Network, and asked whether the property was cleared for sale, without confirming the position of the deed for sale. Matson’s bid of $502,000 was accepted and he provided cashier’s checks in that amount.
That evening, Matson contacted a real estate agent who had an active listing on the property and learned that the deed he purchased might be in second position. He tried to stop payment on the cashier’s checks the next day and signed a declaration stating that the checks had been stolen. The bank still paid all three cashier’s checks.
He sent a letter to the defendants informing them that he believed he had been defrauded and did not wish to purchase the deed of trust. The trustee mailed the trustee’s deed to Matson, which he returned with a notice of rejection. The trustee then recorded the deed and a preliminary change of ownership.
Matson filed suit for rescission of the sale and declaratory relief. The parties filed cross motions for summary judgment. The trial court granted summary judgment for the defendants. Matson appealed.
The appellate court affirmed the trial court’s decision, agreeing with the trial court that there was no irregularity, unfairness or fraud in the notice and procedural requirements for the foreclosure sale.
“We also conclude, after independent review, that plaintiffs produced no evidence demonstrating an irregularity in the notice and procedure of the sale,” the court stated. “Plaintiffs first contend that irregularity was shown by the trustee’s ‘forc[ing of] the trustee’s deed upon [plaintiffs] over Mr. Matson’s objection.’ Delivery of the trustee’s deed, however, is a ministerial act after the sale has been completed by accepting the highest bid. Although, plaintiffs notified the trustee that they were rejecting the deed of trust and returned the deed to the trustee, these actions had no legal effect, as the sale was completed upon acceptance of the final bid. Delivery of the deed by the trustee makes conclusive the presumption that the sale was properly conducted, and recordation of the deed perfects the title. Although the purchaser ordinarily records the trustee’s deed to perfect his title to the deed, the law does not specify who must record the deed. The employee of the trustee who had the most knowledge about the practices and procedures of the trustee stated that the trustee had recorded the deed numerous times.
“We further note that recording of the deed of trust by the trustee is not an irregularity in the notice or procedure of the sale because again, it occurs after the sale has been completed. Irregularities that are outside or ‘dehors’ the notice and procedure of the sale may not be used to set aside a nonjudicial foreclosure sale. Plaintiffs cited no authority in support of their claim that the recording of the deed of trust was part of the sale procedure in their opening brief, and cited only one case in their reply brief, the court stated, citing Schep v. Capital One Bank N.A. “Schep, however, was not an action for rescission but for slander of title. In that context, the court held that the trustee’s recording of a notice of sale, notice of default, and the trustee’s deed were within the privilege for communications made without malice. Schep did not define or identify the actions that are part of the sale procedure and does not support plaintiffs’ position. Recording of the trustee’s deed occurred after the sale was concluded and does not satisfy the requirement of an irregularity in the notice and procedure of the sale.”
Matson also argued that its claim should be reviewed under the common law contract principle of unilateral mistake of fact, citing California Golf LLC v. Cooper.
“We note plaintiffs are not pursuing a remedy for misconduct by defendants,” the court stated. “Rather, they are seeking to set aside their own irrevocable offer and the procedurally correct notice and sale, based on their own mistake. That is inconsistent with the policies behind the nonjudicial foreclosure statutes. Permitting a common law claim of mistake by the buyer to void the sale would deprive the beneficiary of a quick, inexpensive and efficient remedy. It would upend the finality of the sale and the statutory intent that a properly conducted sale be final among the parties. A buyer’s withdrawal from an irrevocable offer due to its own mistake would be inconsistent with the comprehensive and exhaustive statutory scheme regulating nonjudicial foreclosures to incorporate another unrelated cure provision into statutory nonjudicial foreclosure proceedings.
“Nonetheless, the trial court considered this argument at the hearing on the motion for summary judgment and found that plaintiffs could not rescind the nonjudicial foreclosure sale based on their own unilateral mistake,” the appellate court stated. “The trial court found that the plaintiffs bore the risk of mistake by engaging in the sale. It stated that Matson should have investigated the lien more closely. The court continued, ‘[T]he mistake can’t be the result of neglect of a legal duty. You can’t be careless and [Matson] was careless.’ The court emphasized the riskiness of purchasing deeds of trust at foreclosure sales, and the fact that Matson had a title report but did not take the time to read it. After independent review, we reach the same conclusion.”