Mortgagee That Paid an Excessive Sum to Redeem Property Will Get Its Money Back
Court of Appeal Says Foreclosure Judgment Setting Amount Owed Bars the Exacting of Higher Amount Through Nonjudicial Process
By a MetNews Staff Writer
The First District Court of Appeal has held that once a judgment was entered in a judicial foreclosure action in which it was determined that the amount owed by the mortgagor was $243,627.75, any sums paid in excess of that amount to redeem the property—under a threat that a nonjudicial foreclosure sale would otherwise be held—were tendered under duress and a return of the funds was properly ordered by the trial court.
Friday’s unpublished opinion, by Justice Gordon B. Burns of Div. Five, was grounded both on the equitable doctrine of economic duress and the election of remedies doctrine.
Alameda Superior Court Judge Frank Roesch in October 2018 found that Wintrust Bank was entitled to a judicial foreclosure based on Transition Financial Services’s failure to make repayment on a mortgage-backed loan and set the amount of indebtedness. One month earlier, Wintrust had filed a notice of default, the first step in the nonjudicial foreclosure process.
Under the nonjudicial process, the mortgagee, after filing the notice of default, sets a trustee sale by recording a notice and posting a copy of that notice in a conspicuous place on the property and publishing it in a newspaper of general circulation. The advantage is simplicity but the drawback is that if the sale price at auction is less than the amount of the debt, a deficiency judgment may not be sought, as it could be under a judicial foreclosure.
Wintrust could have sought its attorney fees in the judicial foreclosure action but didn’t. However, it conditioned calling off a trustee sale under the nonjudicial process on payment of more than $500,000 in its fees.
Burns recited that after Burns ruled and after the notice of default was filed, “[t]wo things then happened,” noting that “the order in which they happened is important.” He said:
“First, the court entered judgment in the foreclosure action. Second, a few days later, facing the potential loss of the property at a nonjudicial sale, Transition paid Wintrust’s demands to release the mortgage, including the full amount of attorney fees and costs.”
Transition then sued to enjoin the holding of the trustee sale and to recover the excess funds. After a bench trial, Roesch found in favor of Transition, ordering that it recoup monies paid under duress.
In his opinion affirming that judgment, Burns wrote that Wintrust had “elected judicial foreclosure” as its remedy “by pursuing that claim to judgment,” saying that “its demands for more money in a separate process were inconsistent with its election and therefore wrongful.” He said Burns correctly found that Transition’s acquiescence in the demands was not voluntary, setting forth:
“There is plenty of evidence to support the trial court’s findings that Transition’s payments were coerced and made under protest.”
Addressing the coercion, he said:
“Requiring overpayment to secure the release of a mortgage is duress….Based on this doctrine, a mortgagor who disputes the amount demanded for redemption can pay the full demand and recover the excess.”
Election of Remedies
With respect to election of remedies, Burns wrote:
“[T]he modern approach to election of remedies requires us to consider the prejudice to the borrower caused by the lender’s belated change of remedy….Substantial evidence supports the trial court’s finding of prejudice. Transition was forced to tender a much larger payoff to avoid foreclosure than it was adjudged to owe in the foreclosure action, even while Wintrust preserved any right to a deficiency judgment….Transition had to pay the full amount without the benefit of a ruling on its arguments that the claimed fees were excessive and impermissible. It had to bring an otherwise unnecessary second lawsuit to protect its property from foreclosure and recover its overpayments….Wintrust’s change of course also undercuts the policy favoring finality of actions by forcing the trial court and the parties to revisit issues that were—or should have been—addressed in the prior action.”
Under the facts, it appears there would might have been a contrary result had Wintrust’s apparent greed not impelled it on Jan. 28, 2019, to spurn Transition’s offer to pay the full amount that had been demanded in return for cancelling the trustee sale, instead demanding an additional payment of $17,724.63 based on more recent costs. It was one day later that judgment was entered in the judicial foreclosure action which, under Burns’s opinion, cut off a reliance on an alternative remedy.
Burns’s statement that “the order in which” events transpired “is important” attributes significance to the Jan. 28 action by Wintrust.
The case is Transition Financial Services v. Wintrust Bank, A162930.
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