A bankruptcy trustee sued a mortgage lender to recover for defects in a prepetition non-judicial foreclosure sale. The lender brought a motion to dismiss for failure to state a claim. The primary focus of the court was on claims under the state Unfair and Deceptive Acts or Trade Practices (UDAP) law.
The alleged defects in the foreclosure sale included the following:
The published and recorded foreclosure notice announced that the sale would be held in the courtyard of the court building. It also said the sale could be postponed by public announcement. However: (1) Shortly before the sale the state court stopped allowing sales on the premises. So the lender made an oral announcement postponing the sale on a public sidewalk at the bottom of the steps to the entrance of the courthouse. (2) A person standing in the courtyard where the sale was supposed to take place could not see or hear the announcement. No notice of the new date and location was published.
According to the published terms of the sale: (1) the lender would only give a quit claim deed, (2) the buyer had to pay at least 10% of the bid price at the close of the auction, (3) a cashier’s check for the balance of the bid was due within 21 days, and (4) the buyer had to close within 30 days or forfeit the 10% down payment. However, the winning bidder (who had purchased other properties at sales conducted by the lender’s attorney) received a limited warranty deed and closed the sale nine months after the auction without losing its 10% down payment.
The winning bid was ~$112,000 (subject to the first mortgage). This was substantially less than market value. The buyer resold the house two years later for $535,000.
The trustee asserted three claims: (1) the lender violated UDAP by engaging in “unfair” and “deceptive” foreclosure practices; (2) it engaged in an unfair method of competition by deterring potential bidders; (3) it engaged in wrongful foreclosure by failing to comply with the foreclosure statute and the power of sale in the mortgage, and by violating its duty “to act reasonably and in good faith to get the best possible price when it sold the house.”