Metropolitan News-Enterprise


Thursday, July 25, 2002


Page 4


High Court Depublishes Ruling on Rescission of Trustee’s Sales


By a MetNews Staff Writer


A Fourth District Court of Appeal ruling, holding that a lender had no right to rescind a foreclosure sale because its agent had mistakenly made a full credit bid that extinguished the lender’s right to collect insurance proceeds, was ordered depublished yesterday by the state Supreme Court.

Only Justice Joyce L. Kennard voted to review the March 18 decision in Norwest Mortgage, Inc. v. State Farm Fire and Casualty Company at yesterday’s conference. But the remaining justices, excluding the absent Kathryn M. Werdegar and Janice Rogers Brown, voted to preclude the citation of the opinion as precedent.

The court’s action leaves intact a summary judgment in favor of State Farm.

The appellate panel, in an opinion by Justice Judith McConnell, said the lender’s right to receive payment under its borrower’s insurance policy was limited to its security interest, and that there was no legal basis on which it could obtain relief from the rule that the right to payment is extinguished one a full credit bid is made and the sale is concluded.

The suit stemmed from Norwest’s foreclosure upon a home in Palmdale. The dwelling was used as a rental unit, and the owners had a State Farm policy identifying Norwest as the mortgagee.

The owners defaulted and filed for bankruptcy. Three days after the Bankruptcy Court lifted the automatic stay, a fire severely damaged the property.

The owners reported the loss to the insurer, but said they had no interest in pursuing the claim as the property was in foreclosure. Norwest also learned of the fire, and noted it in the company’s file.

The trustee hired by Norwest proceeded with the sale, Norwest—the sole bidder—made a full credit bid of nearly $82,000 and obtained the property. State Farm later notified Norwest it was denying the insurance claim because there had been a “full value foreclosure” on the property.

Norwest promptly notified State Farm that it was rescinding the sale. It hired a new trustee and instructed it to bid $11,500 for the property. The trustee, however, went ahead and made a full credit bid, resulting in another rescission by Norwest.

At the third trustee sale, Norwest bid $11,500, obtained a trustee’s deed to the property, recorded it, and demanded payment from State Farm on the fire claim. State Farm refused, leading to the lawsuit.

McConnell, writing for the Court of Appeal, said there was no “mistake” exception to a California Supreme Court ruling that a full credit bid is “a total satisfaction of the secured obligation” and extinguishes any claim for waste. The rule includes a claim for insurance proceeds, the justice said.

Norwest, she said, is bound as a matter of law by the actions of the trustees because they were its agents.


Copyright 2002, Metropolitan News Company