Bank of New York Mellon v. Peter Campbell, et al, N o. 229-4-10 Wrcv (Teachout, J., Dec. 3, 2013)

[The text of this Vermont trial court opinion is un official. It has been reformatted from the origina l. The accuracy of the text and the accompanying data included in the Vermont trial cou rt opinion database is not guaranteed.] STATE OF VERMONT

SUPERIOR COURT CIVIL DIVISION

Windsor Unit

THE BANK OF NEW YORK MELLON Docket No. 229-4-10 Wrcv

v. PETER CAMPBELL, CINDY J. CAMPBELL, S.T. GRISWOLD & COMPANY, INC. and SARASOTA CCM, INC.

__________________________

BANK OF AMERICA, N.A. Docket No. 78-2-12 Wrcv

v. GREGORY P. BAILEY and

LAURA E. BAILEY

__________________________

DEUTSCHE BANK NATIONAL Docket No. 568-10-11 Wrc v TRUST

v. GARRY CARLSON

__________________________

BANK OF AMERICA, N.A. Docket No. 319-5-12 Wrcv

v. STEPHEN E. PAUL and

NANCI L. PAUL

DECISION
JUDICIAL SALE PROCEDURES

These four cases came before the court on motions f or confirmation of foreclosure sales. After a preliminary hearing in each case, a consolidated evidentiary hearing was held on October 8, 2013. Attorney Richard Volpe re presented the plaintiffs in all four cases. One defendant, Peter Campbell, appeared by telephone and represented himself. Attorney Volpe filed a memorandum of law following the hearing.

In each case, the plaintiff was the only bidder at the judicial sale and is seeking

confirmation of the sale. All sales were conducted with the same documentation and in

the same manner. The issue is whether the sales we re conducted in accordance with the requirements of law. For the reasons stated below, the court concludes that they were not, and the motions are denied. New sales may be held in accordance with the guidelines set forth herein.2 Background

Vermont Foreclosure Law, set forth in Title 12 of the Vermont Statutes Annotated, provides for two types of foreclosure sa les: judicial and non-judicial. 1 The type available for a particular foreclosure depends on the nature of the loan and property. 2
At the time these cases were filed, judicial sales were for residential and farm properties upon the request of either a plaintiff or defendant

. 3 Judicial sales occur in cases which require the filing of a court proceeding and issuan ce of a judgment and decree of foreclosure by the court, and the sale takes place pursuant to the terms of the judgment and decree. The statute requires that the person w ho conducts the sale must file a report

of sale with the court. A motion for confirmation must also be filed, whereupon the court reviews whether all requirements of law are met and if so, confirms the sale and issues an order providing for the disposition of sale proceed s. Title passes upon the recording of

the order of confirmation.

Non-judicial sales, permitted for commercial loans and non-residential property foreclosures, are conducted by plaintiffs on their own without court oversight. 12 V.S.A. § 4531a(b) under prior law; 12 V.S.A. § 4961 et seq . under current law. There is no requirement to file a court proceeding. By statute the mortgagor and mortgagee determine the location of the sale, and the plainti ff is entitled to conduct the sale. There is no court case, no requirement of filing a report of sale with the court, no need for the court to review whether legal requirements have bee n met, and no need to determine whether the sale should be confirmed. Title passes upon the recording of the deed and an

affidavit.

In all four cases, the plaintiffs filed actions an d requested judicial sale foreclosures. The plaintiff’s attorney was responsi ble for serving and publishing notices of sale with terms defined by statute. The content required in a notice of sale includes: a description of the premises, specification of the d ate and time of sale (which must by law be held on the subject premises without a specific court order otherwise), specification of the terms of sale, and a statement of the mortgagor ’s statutory right of redemption up to

the time of sale.

Based on the evidence admitted at the hearing, the court makes the following findings of fact.

1 While the statutory provisions of foreclosure law were significantly reorganized in Title 12 in 2012, and all of the four cases were filed under prior law, t he 2012 amendments did not change the fundamentals of the conduct of judicial and non-judicial sales.

2 Strict foreclosure is also available for all proper ties if a plaintiff proves that there is no equity in the property. 12 V.S.A. § 4941(c). No sale takes plac e in a strict foreclosure.

3 Under current law, a judicial sale may occur in an y foreclosure affecting real property on the reque st of any party or at the discretion of the court, whethe r or not the mortgage includes a power of sale prov ision. 12 V.S.A. § 4954.3 Findings of Fact

In all four cases, the notices of sale were properl y and timely served on the defendants and published as required. The notices of sale included the required content. They also included the following sentence: “Proof of financing for the balance of the purchase to be provided at the time of sale.”

The same licensed auctioneer conducted all four sa les. Following each sale, he completed an affidavit constituting a report of sal e, which was filed with the court. In each case, the auctioneer affiant stated: “I conduc ted a judicial sale of property which is the subject matter of this foreclosure action.” He further stated that “There were/was 1 potential bidding party(ies) in attendance, includi ng myself, who bid on behalf of the mortgagee.” Each report of sale thus showed that h e was acting both on behalf of the court and on behalf of the plaintiff, who was not p resent.

The auctioneer testified that the procedure in the se cases was identical to those in nearly all the sales he has conducted. He has been licensed as an auctioneer since 1988. The number of foreclosures increased dramatically i n conjunction with the financial crisis, and the auctioneer estimates that he curren tly conducts 30-40 foreclosure sales per month in Vermont. He initially described himself a s working on behalf of plaintiffs and their attorneys, and he sees himself as being paid by plaintiffs. 4 He also stated that he worked for the court, and he commented that his rol e can be confusing. When asked about the difference between judicial and non-judic ial sales, he said that there was no

difference and that he conducts all sales the same way.

He testified that the terms of the notice of sale govern for a particular sale, and

that he follows the notice of sale’s terms. The au ctioneer described that the procedures that took place in these sales are the same as for all sales. He receives an email from a paralegal in the office of the plaintiff’s attorney asking him to book a date for a particular case, which he does and responds by email. In the Bank of New York Mellon v. Campbell case, Plaintiff’s attorney sent him a lett er on September 27, 2012 enclosing the Notice of Sale for a sale date of November 29, 2012 and stating planned publication dates. The letter also states, “Please plan to han dle this foreclosure as auctioneer for The Bank of New York Mellon FKA The Bank of New York, a s Trustee for the Certificateholders, CWABS, Inc., Asset-Backed Certi ficates, Series 2007-10.” There is a parallel provision in the letters from plaintiff’s attorney to the auctioneer in the three

other cases.

Approximately two days before the sale, he receive s an email confirming that the sale is to proceed. He also receives an email with “bidding instructions” from the plaintiff’s lawyer. These include a cover sheet wi th instructions of the amount of the bid

4 Under the statute, the expenses of sale, including the auctioneer’s fee, are paid out of the proceeds of the sale. If a plaintiff is the successful bidder such that no cash actually changes hands, it is the pla intiff who is likely to send payment to the auctioneer.4

to enter on behalf of the plaintiff, a blank purcha se and sales agreement, and a blank report of sale form to be filled out following the sale. He is instructed to accept no bid less than the plaintiff’s bid. In all four of the cases, he was given a specific bid to enter on behalf of the plaintiff.

In the case of Bank of New York Mellon v. Campbell , the bidding instructions letter included the following:

“Please enter maximum bid of $387,450.00 . Please state [sic] bidding at lowest allowable by state and, if competitive bidding is e ngaged bid in increments of $1000.00 up to the maximum bid.

. . . “ UNDER NO CIRCUMSTANCES IS THE PROPERTY TO BE SOLD T O A THIRD PARTY FOR LESS THAN $387,450.00.

. . . “If there are any issues or questions that arise a t the sale, please contact us immediately.”

The bidding instructions letters from plaintiff’s a ttorney to the auctioneer in the three other cases include the same provisions.

The auctioneer goes to the property location at th e appointed time for the sale. Usually, no one attends on behalf of the plaintiff. In the past, an attorney for the VHFA used to come to sales in its cases, but has not don e so recently. Sometimes in the past, an attorney representative from a plaintiff came to th e sale, and brought bidding instructions, which the auctioneer used in conducting the sale. No one attended on behalf of the plaintiff in these four cases.

If anyone else appears at the time of sale and seek s to bid, he “qualifies” the

bidders based on the content of the notice of sale. If the notice of sale requires a cash deposit, as in these cases, he makes sure a bidder can pay it before allowing the bidder to participate.

If the notice of sale requires proof of financing f or the purchase, as in all four of these cases, he requires proof of sufficient credit for the difference between the amount of any deposit and the amount of the bid, but this is only needed if the amount of the bid is going to be greater than the plaintiff’s bid. Suff icient proof is a letter from a bank stating that there is credit or a financing commitment larg e enough to cover the bid. He gave an example of a sale in which the plaintiff’s bid was $128,500 and proof of financing ability was required. The proof of financing was a bank co mmitment letter for an amount lower than $128,500 (and also included conditions), so th e bidder was not qualified to submit a bid. He has been told by several attorneys that a bank statement is sufficient proof of credit. He takes his direction from the plaintiff’ s attorney regarding what is sufficient to show proof of financing ability.5

Sometimes he receives an email or a phone call fro m a plaintiff’s representative telling him that the sale is to be cancelled. He k nows that it can be for a variety of reasons, such as bankruptcy or a payoff or settleme nt, but he is not told the reason. He accepts that the sale is to be cancelled without kn owing the reason. Sometimes he receives an email or phone call telling him that th e sale is to be postponed; again, he is not told the reason. When that happens, he goes to the location at the date and time of sale and announces that the sale is postponed to a new date and time.

Sometimes he is sent bidding instructions by a pla intiff’s attorney, and then is told by telephone that the amount of the bid is incorrec t, and that “you need to bid such-andsuch an amount instead.” When that happens, he req uests that the instruction to bid a different amount be put in writing, and he follows the instruction.

Once bidders are qualified, he shows them the purc hase and sales agreement and tells them that they will be required to sign it if they are the high bidder. The form of purchase and sales agreement used in these four cas es did not include the name of the plaintiff. It is entitled “Purchase Agreement” and uses the term “Transferor” in the body of the document but otherwise does not name the pla intiff. It provides for the “Purchaser” to sign the document, and, in parallel layout, provides for it to be signed:

“By:_______________ [Name of auctioneer] Agent for Transferor”

The same form was used in all four cases.

The auctioneer opens the bidding with the plaintiff ’s bid. He has been instructed not to accept any bids lower than the plaintiff’s b id, and does not do so. He does not use the terms of the bidding instructions letter that i nstruct him to start the bidding at the

lowest allowable bid in the state and increase in i ncrements of $1,000 to meet competitive bids up to the plaintiff’s bid. Instea d, he opens the bidding pursuant to the instructions not to accept any bid less than the ‘n ot to be sold less than_____’ provision in the bidding instructions letter.

In all four of these cases, there were no other bi dders and no one present on behalf of the plaintiffs. All four bids were entered by t he auctioneer on behalf of the plaintiffs in the amounts included in the pre-sale written instru ctions. In all four cases, he submitted a report of sale showing the properties were sold to the plaintiffs as high bidders for the

amount of the instructed bids.

If a non-plaintiff bidder is the high bidder at a sale, the auctioneer requires that person to sign the purchase and sales agreement. N o one is present from the plaintiff to sign on behalf of the plaintiff or require the high bidder’s signature; the auctioneer does that pursuant to the instructions that he has recei ved. Assuming he signs the form provided to him by plaintiff’s attorney, the auctio neer signs the form as “Agent for

Transferor.”6 Analysis

The issue is whether the manner in which the sales were conducted is consistent with requirements of law. More specifically, is it permissible for an auctioneer 5 to set a minimum bid at plaintiff’s direction, enter a bid o n behalf of an absent plaintiff pursuant to pre-sale instructions, determine financial abili ty to pay a bid price as a precondition for a bidder to participate based on instructions from the plaintiff, require a successful bidder to sign a purchase and sales agreement, and sign su ch agreement as agent for a plaintiff? 6

After judgment and the expiration of the redemption period, it is the plaintiff’s attorney who is responsible for initiating the sale process by engaging an auctioneer and preparing, serving, and publishing the notice of sa le. It is the auctioneer who is responsible for conducting the sale and preparing t he report of sale. Then the plaintiff’s attorney files a motion for confirmation. It is at that time that the court reviews what has occurred and determines whether all legal requireme nts have been met so that the sale

can be confirmed and title can transfer. The court also then issues an order for the disposition of the sale proceeds. Thus, accountabi lity for compliance with legal requirements takes place at the time the court cons iders the motion for confirmation.

The legal requirements are established by statute ( currently Title 12, Chapter 172, Subchapter 3; previously Chapter 163, Subchapter 6) and applicable case law. Because statutory provisions on the conduct of sale are not detailed, and the case law is not readily available to non-attorney auctioneers, it may be di fficult for both attorneys and auctioneers to determine the legal requirements. I t is the function of the court at the time

of confirmation to address such issues. These case s provide the opportunity to review procedures in common use and analyze compliance wit h legal requirements.

The rule is well established in Vermont that an in dividual conducting a judicial sale cannot also “act as the agent, with full discr etionary power, of an absent person in the purchase of property.” Caswell v. Jones , 26 A. 529, 530 (Vt. 1893). In that case, the

sheriff conducted a sale and bid on behalf of an ab sent bidder who had given bidding instructions. The Court reversed a judgment that h ad treated the sale as valid.

It reasoned from established law that an individual conducting a judicial sale “cannot make a valid purchase for himself at such s ale,” id., 7 and quoted an opinion in a

5 The word “auctioneer” in this analysis refers to a ny person who is qualified under the terms of a foreclosure judgment to conduct the sale, regardles s of their title or qualifications.

6 While not all of these circumstances occurred duri ng the sales under review, there was detailed testi mony that they occur frequently, and could occur when ne w sales are conducted in these cases. Therefore th ey are addressed to maximize compliance with legal req uirements in the new sales.

7 The Vermont Supreme Court has also held that a she riff cannot sell property to his own agent at a jud icial

sale. Downing v. Lyford , 57 Vt. 507, 508 (1885). The Vermont Supreme Cour t first established the governing rule in Woodbury v. Parker , 19 Vt. 353 (1847), in which it states that the in junction against an officer having other than an independent role “shou ld be stern and inflexible. To hold otherwise woul d be to place him under constent [sic] temptation to rel ax and violate his duty, in furtherance of selfish objects.”

Id.7

prior case in which it had stated that an officer c onducting a sale, “in addition to his character as a minister of the law, is regarded as a sort of a trustee and agent, both for the creditor and debtor. The two characters place him on higher and more responsible ground than a mere private trustee or agent.” Woodbury v. Parker, 19 Vt. 353 (1847). The Court explained that an individual conducting a judicial sale canno t purchase the property as an agent for another entity because “th e duty which he assumes as agent for the buyer is incompatible with the duty which he ha s assumed as agent for the seller.”

Caswell v. Jones

, 26 A. at 530. 8 In other words, he has a duty of neutrality and fai rness to both bidders and plaintiffs, as well as to the cour t, and cannot engage in conduct that compromises those duties.

While the holding in Caswell v. Jones is clear where the person conducting the sale has “full discretionary powers” on behalf of t he absent bidder, the bidding

instructions in these cases were more limited. Mor eover, Vermont statutes establishing the procedure for judicial sales recognize that pla intiffs may exercise certain powers typically exercised by sellers who may contract wit h an auctioneer to hold a sale for their

own benefit. See, e.g. , 12 V.S.A. § 4952(b) (allowing the plaintiff to pu blish the notice of sale); 12 V.S.A. § 4952(e) (authorizing the plainti ff to draft the notice of sale). One states that “the plaintiff shall sell the mortgaged property. . .” 12 V.S.A. § 4952(a). Thus an argument can be made that if an auctioneer has l imited authority to bid for a plaintiff at a sale, an auctioneer should be able to act in l imited ways on behalf of a plaintiff.

Despite some similarities between a plaintiff and a private property seller, the court’s supervisory role in a judicial sale circums cribes the plaintiff’s authority to within specific parameters, which limits it significantly compared with the discretionary authority of a private seller. The sale cannot occ ur without a court order, requiring the filing of a court case that subjects the proceeding to the court’s equitable jurisdiction. The notice of sale must meet specific requirements (prior law 12 V.S.A. § 4532(f) applicable to this case; 12 V.S.A. § 4952(c) under current law), and the sale must take place on the terms in the order. 12 V.S.A. § 4946. The sale must take place at the property unless the court orders otherwise. 12 V.S .A. § 4953. The price is determined by the high bid. Further, the court must approve t he sale, and ensure that all presale requirements for notice were met. 12 V.S.A. § 4954 (a). Title to the foreclosed property does not pass until the court’s confirmation order is recorded. 12 V.S.A. § 4954(b).

Accordingly, while a plaintiff in a judicial sale i s a ‘seller’ in a limited sense, the role is severely limited and does not carry with it the discretionary authority held by a seller in a private contract sale. A judicial sale is a court’s sale, and not a plaintiff’s sale, i.e., not the sale of a private seller in which the auctioneer is agent of the seller by private

contract. The auctioneer acts on behalf of the cou rt and with an obligation of fairness

8 While the case is old, there is a well-developed b ody of law both in Vermont and nationally regarding the principles of court oversight of judicial sales, an d it has not changed over the years despite interve ning statutory revisions to other provisions of foreclos ure law. See the cases cited later in this Decisio n. Moreover, statutory changes have been made to Vermo nt foreclosure law over the years, including a majo r revision in 2012, without any changes that would al ter the case law regarding conduct of judicial sale s.8

equally to both plaintiffs and bidders, as describe d in Woodbury v. Parker . As noted in the 1982 Reporter’s Notes when V.R.C.P. 80.1 was am ended and expanded to provide procedures for foreclosure by sale, the “’whole pro ceeding, from the beginning to the final confirmation of the reported sale’ is ‘under the supervision and control of the court,’” citing Blossom v. Milwaukee & C.R. Co., 70 U.S. 196, 18 L. Ed. 43 (1866). 9

The Vermont rule limiting the auctioneer from simu ltaneously acting on behalf of others is consistent with long-standing case law fr om other jurisdictions that has also not changed over time. See, e.g.

, Barber v. Barber , 349 P.2d 198, 200 (Wyo. 1960) (confirmation of sale reversed due to irregularitie s in the conduct; Court noted that “it is universally agreed that a person participating in t he handling of a judicial sale should not be a purchaser”); Kellner v. Kellner , 8 Neb.App. 316, 336 (1999) (plain error for trial court to authorize a sale conducted by purchaser; C ourt ruled that “[t]he purchaser [at a judicial sale] may not be the officer conducting th e sale,” and noted that “[J]udicial sales have a well-established procedure in common law.”); Jones v. Deposit & People’s Bank

, 202 S.W. 907, 909-10 (Ky. App. Ct. 1918) (affirmed confirmation on basis of law that “[t]he general rule is that no person can become a purchaser at a judicial sale who has a duty to perform in reference thereto which is incon sistent with the character of purchaser,

or who is so connected with the sale that his indiv idual interest as a purchaser might be inconsistent with his duty”). 10

Other jurisdictions also acknowledge that an indiv idual conducting a judicial sale cannot purchase the property as an agent for anothe r entity. See, e.g.

, Faivret v. First

Nat’l Bank in Richmond , 160 F.2d 827, 831 (9th Cir. 1947) (stating that “ an officer making a sale cannot, either directly or indirectly , become a purchaser, nor can he bid for the property for himself or as the agent of another ,” but Court upheld the sale despite irregularities because of conduct of the appellant ratifying the sale); Coleman v. Malcolm

,

9 While this court cannot locate the specific quote, the opinion of the Court includes a general descri ption of the nature of judicial sales: “Judicial sales m ade under the decretal orders of courts of chancery , are also, in this country, governed substantially by th e same rules, except that such sales are usually ma de by the marshal, or a master in chancery acting as an o fficer of the court, and are always regarded as und er the control of the court, and subject to the power of t he court to set the sale aside for good cause shown , or open it any time before it has been confirmed, if t he circumstances of the case require the exercise o f that power. Doubtless such sales are usually conducted u nder the advice of the solicitor of the complainant , and it is sometimes said that the solicitor, in all que stions arising between the vendor and purchaser, mu st be considered as the agent of all the parties to the s uit; but it is believed that the remark must be rec eived with some qualification. Suppose it to be so, however, i n a qualified sense; still it is true that the mars hal or master, as the case may be, is the officer of the c ourt, and that as such his acts and proceedings are subject

to the revision and control of the court. In sales directed by a court of chancery, says Judge Story, the whole business is transacted by a public officer, under t he guidance and superintendence of the court itself . Even after the sale is made, it is not final until a rep ort is made to the court and it is approved and con firmed.”

Id. at 207.

10 American Jurisprudence explains that “[a] court ma y designate or appoint any competent person as its agent to make the sale, but it should not appoint a person to sell real estate in a judicial sale when that person is interested in the suit or the property .” See 47 Am. Jur. 2d Judicial Sales § 67. (emphasis added). An agent acting on behalf of a plaintiff q ualifies as a person “interested in the suit or the property.” It is telling that this is the only restriction Ame rican Jurisprudence identifies regarding a court’s authority to appoint the auctioneer at a judicial sale.9

28 S.E. 861, 862 (Ga. 1897) (nullifying a sale by a sheriff who bid for the creditor under authority to bid if the property sold for less than the amount of the creditor’s execution, explaining that “[a] sheriff cannot purchase at his own sale, either for himself or as the agent of another”); Trank v. Gysling , 1904 WL 2693, at *1 (Pa. Com. Pl. 1904) (sheriff denied “poundage” on the $4,000 sale price where sh eriff bid on property for a person who was not present but who had authorized him to b id $4,000 on his behalf, noting that

a “sheriff entrusted with an execution should act o nly as the officer of the law without any other conflicting interests, either for himself or as an agent for others”).

In the four cases at issue, the facts show that th e auctioneer acted in a dual role: to the extent he followed the terms of the judgment and permissible terms in the notices of sale, he was acting on behalf of the court, but to the extent he followed the bidding and other instructions of the plaintiffs and acted for them at the sales, he was acting as an agent for the plaintiffs. This duality is inconsist ent with the required principle of neutrality of the auctioneer. Specifically, the au ctioneer:

• acted on instructions from each plaintiff in settin g a minimum bid, and

• allowed the plaintiff to bid without being present by placing the plaintiff’s bid himself on behalf of the plaintiff.

These acts compromise the neutrality that the law r equires of the auctioneer and

are not consistent with the well-established case l aw in Vermont and other jurisdictions nationwide that an auctioneer in a judicial sale re presents the neutrality of the court, and cannot simultaneously further the interests of a pa rticular bidder, including the plaintiff.

The requirement that an auctioneer cannot bid on be half of a bidder who is not present is inherent in the requirement that the auc tioneer must conduct the sale pursuant to the terms of a notice of sale, see 12 V.S.A. § 4946(a), and by statute the sale must take place on the premises at a specific date and place and time set forth in the duly noticed notice of sale. 12 V.S.A. § 4532 (g) (prior law app licable to these sales; 12 V.S.A. § 4953 under current law). If a plaintiff is not there to enter the bid, and a pre-communicated bid is entered on the plaintiff’s behalf by the auction eer, the auctioneer is acting on behalf of

an absent bidder on the basis of a bid not submitte d at the proper time and place. This

results in different treatment for different bidder s, contrary to the requirement that all bidders be treated equally except as provided by st atute. 11

The notice of sale does not authorize the auctionee r to accept a pre-sale bid from anyone in advance. The effect of the auctioneer ac ting on the plaintiff’s instructions is to give the plaintiff an advantage not available to ot her bidders. While a plaintiff may bid at the sale, that fact does not mean that the plaintif f controls the sale. Being able to enter a

11 The statute is specific where a plaintiff mortgage e may be treated differently. In 12 V.S.A. § 4953( c) of the current statute, a mortgagee plaintiff or desig nee may bid at the sale without meeting the require ments in the notice of sale applicable to other bidders. This court interprets this provision to mean that a cash deposit is not necessary; but not that the mortgage e is authorized to bid in advance or in absentia or set a reserve price. The statute specifies that the plaintiff may be a b idder “ at the sale. ” Id. (emphasis added)10

bid that establishes a reserve price without having to send a person to be physically present represents an advantage not available to ot hers in the marketplace, who may wish to do the same but are required to incur the transa ction costs of attendance in order to participate at a sale.

This court cannot discern any provision of either statutory or case law that supports allowing a plaintiff to set a reserve pric e or minimum bid prior to the commencement of bidding. The statutory provisions are designed to accommodate the consequences of the successful (highest) bid, wheth er it is higher or lower or the same as the amount due the plaintiff. They do not specifica lly authorize either the plaintiff or the auctioneer to set a reserve price. The law require s that the property be sold “in accordance with this section,” 12 V.S.A. § 4952(a). The “section” requires bidding and requires the sale to take place on the premises 12 (unless otherwise ordered by the court). These terms are not consistent with allowing the pl aintiff to either bid without being present, or preset a reserve price.

An argument may be made that without the ability to set a reserve price, the property may sell way below its value—e.g., it may be that the only bidder on a property the plaintiff thinks is worth $60,000 offers $9,000 . However, a plaintiff has the opportunity to protect its interest in several ways :

• First and simplest is to send a representative to t he sale to bid on the plaintiff’s behalf. It may increase cost, but it i s necessary for several reasons: for the sale to take place at the time and place designated, for plaintiff to participate as a bidder on equal terms with all other bidders, and for the neutrality and integrity of the judicia lly supervised sale process to be maintained.

• Second is to seek strict foreclosure if the propert y is worth less than the amount due. Again, it may increase cost to pro ve that there is no equity, which is required to qualify for a strict f oreclosure, 12 V.S.A. § 4941(c), but it assures the plaintiff of acquiring control over the property at a value known to the plaintiff.

• Third is to accept a deed in lieu of foreclosure an d hold a private sale. In sales such as those at issue here, it is very ra re for plaintiffs to seek a deficiency judgment. In many cases, a defendant has offered a deed in lieu early on in the foreclosure process which a plaintiff declines to accept for its own reasons, yet the plaintiff enter s a bid at a judicial sale through the auctioneer, as was done in these c ases, and then declines to pursue deficiency. This outcome has t he same effect as a deed in lieu except that there is additional court process, delay, and perhaps resulting cost for the defendant in maintai ning the property for a longer period of time, in addition to the risk th at interest continues to

12 This is not required in a non-judicial foreclosure sale.11 accrue and the plaintiff may decide to seek a defic iency judgment. In such cases, economic efficiency, as well as fairnes s to cooperating defendants, would be promoted by plaintiffs taking a deed in lieu of foreclosure and selling the property privately. 13

With these available means of protecting their inte rests, 14 plaintiffs cannot legitimately argue that fairness to them compels a compromise of the fundamental principles that all bidders at a judicial sale are to be treated equally and that the auctioneer is required to maintain neutrality with respect to all bidders and require all bidders to be present at the time and place of the sale and enter bids on their own behalf.

An argument may also be made that these sales shoul d be confirmed because there has been no harm. For example, in these four cases, no one has opposed

confirmation and no individuals can be identified w hose interests have been prejudiced, as plaintiffs have waived any claims for deficiency judgments, resulting in dismissal with prejudice of any liability of defendants beyond los s of the property. It is, however, the court’s responsibility, at confirmation, to ensure that the integrity of this judicially supervised process is maintained, and the way of do ing this is to deny confirmation where the requirements of a fair and legal process have not been met. Denial of confirmation of substandard sales promotes future c ompliance, thereby assuring that all sales are conducted in conformity with required leg al standards.

Moreover, while no individual harm is apparent in t he facts of these four cases, there is likely a cumulative effect of the fact tha t 30-40 foreclosure sales take place every

month in Vermont on the terms set forth in the find ings of fact. If prospective homeowners, investors, defendants, or others intere sted in purchasing at foreclosure sales know that the plaintiff institutions routinely set a minimum price without being present and rely on the auctioneer to act as their agent, t hen that fact probably has an effect on the likelihood of potential buyers participating in the market. Judicial sales will be perceived as sales in which the plaintiffs, and not the court , are in charge. Thus, it is reasonable to expect that the result of a failure of the court to monitor compliance with the legal requirements of judicial sales has a chilling effec t on market activity on the one hand, and, on the other, gives advantages to plaintiffs i n the form of influence over terms and reduced costs not available to other interested buy ers.

The court is aware from motion practice that plain tiffs sometimes file motions seeking to cancel or postpone an already-noticed sa le on the grounds that they have not

13 In New York Bank Mellon v. Campbell, the court gra nted plaintiff’s motion to delay the sale to give t he parties time to do a deed in lieu of foreclosure, w hich did not happen. The plaintiff initially indic ated it would pursue a deficiency judgment but withdrew the request just before seeking confirmation, resultin g in dismissal with prejudice of any deficiency claim. Mr. Campbell’s only question at the hearing was how the plaintiff determined the amount of the bid it enter ed.

14 A plaintiff also has the option of pursuing a defi ciency judgment if it believes the high bid was unreasonably low, but this would be unnecessary if the plaintiff had sent a representative to the sale to enter a bid at the price it wishes to bid.12

yet prepared their bid. No other person seeking to bid at a judicial sale would have

access to file a motion to seek such relief. The c ourt is also aware that plaintiffs sometimes cancel (or postpone) sales for the same r eason without filing a motion. Since it is the auctioneer’s job to conduct the sale on b ehalf of the court once the sale has been properly noticed, the auctioneer should not cancel or postpone unless he knows and is satisfied that the reason for a cancellation or pos tponement is authorized by law, and that statutory time limits and other requirements are ob served. Otherwise, if the auctioneer simply takes the plaintiff’s direction to cancel or postpone, he is acting for the benefit of the plaintiff without knowing whether he is upholdi ng legal requirements, which he is obliged to do on behalf of the court. 15 Again, his role is to carry out the sale on behal f of the court rather than on terms convenient for the p laintiff as bidder.

For the foregoing reasons, the motions for confirma tion in these four cases are denied. Plaintiffs are required to initiate new sa les to be conducted consistently with this Decision. In order to assist plaintiffs’ counsel a nd the auctioneer in conducting new sales that are likely to be confirmed, the court will add ress practices about which there was testimony, even though they did not occur at the ti me of the sales that took place in these four cases. They are pertinent if, at the new sale s, there is a non-plaintiff who wishes to

bid.

The evidence showed that where a non-party appears at the sale and seeks to bid, the auctioneer accepts instruction from plaintiffs to qualify bidders as to their creditworthiness by reviewing bank statements or financin g commitment letters. The instructions are sometimes partially contained in t he notice of sale, which states, in these cases: “Proof of financing for the balance of the p urchase to be provided at the time of sale.” Such instructions are also given in writing or orally to the auctioneer in the form of what type of documentation is acceptable to show cr edit worthiness. This raises the question of whether it is permissible for the notic e of sale prepared by plaintiffs’ attorneys to include as a term of sale that only pe rsons who meet certain credit qualifications will be permitted to bid.

In 2009, after the financial crisis had precipitate d a huge increase in the number of

foreclosure cases filed in the civil courts and it became apparent that foreclosure judgments were being prepared by attorneys and issu ed by judges with widely varying terms, the Civil Division Oversight Committee of th e Vermont Judiciary (the “Committee”) 16 analyzed the terms in various versions of foreclos ure judgments and developed a recommended standard form of Judgment of Foreclosure by Judicial Sale with terms that were consistent with statutory requ irements and represented an equitable

15 Under 12 V.S.A. § 4953(b) (current law), adjournme nts are allowed for up to 30 days without further court order or new publication or service as long a s certain proclamation and service requirements are met. An adjournment for a period longer than 30 days req uires either agreement of the mortgagor and mortgag ee or court order.

16 The Committee operates under a Charge and Designat ion of the Vermont Supreme Court and includes judges, clerks, administrators, attorneys, and a li aison Supreme Court Justice. The undersigned has been Chair of the Civil Division Oversight Committee sin ce its organization began in 2006.13

balance of the interests of plaintiffs, defendants, and bidders. 17 The Committee obtained extensive input from attorneys representing both pl aintiffs and defendants about terms affecting sales, specifically, terms that would be included in the judgment that would then carry over to be included in the notice of sale. A ttorneys noted that it was important that bidders at judicial sales be persons with a credibl e ability to make a serious bid, and have reasonable financial capacity to complete a purchas e; otherwise, the process would not succeed in providing a fair opportunity to maximize the benefit to both plaintiffs and

defendants in an efficient manner.

In recognition of this legitimate interest, the Co mmittee included in its recommended form of judgment two provisions that ar e not provided for explicitly in the statute, but were deemed by the Committee to be con sistent with and reasonable in relation to the overall statutory purpose: a requir ement that a bidder at a judicial sale pay the auctioneer a deposit of at least $10,000 or 10% of the bid, whichever is greater, and a provision that the plaintiff is authorized to requi re a bidder to sign a purchase and sales agreement with the plaintiff. Without such provisi ons, persons could make ill-considered bids and walk away without completing the purchase and without facing any consequences for having wasted the time and resourc es of plaintiffs, defendants, the court, and other bidders. Some attorneys advocated requiring higher deposits or more demanding demonstrations of credit-worthiness. Aft er analyzing alternative proposals, the Committee determined that additional requiremen ts, beyond those approved, went beyond terms that struck a reasonable balance betwe en the interests of plaintiff creditors and the purpose of a judicial sale in equitable for eclosure proceedings, and declined to adopt them. 18

This court will follow the standards adopted by the Committee and confirm sales made pursuant to a notice of sale that includes the recommended provisions of the Committee, but will not confirm sales where the not ice of sale includes additional preconditions to qualification for bidding unless t hey are specified in the judgment. The additional terms appear to inherently involve plain tiffs or their representatives giving guidance to the auctioneer, and thus have the effec t of making the auctioneer an agent of the plaintiff in reviewing credit worthiness of pot ential purchasers and making decisions for the benefit of the plaintiff which exclude some persons from even being able to participate at a judicial sale. Where such terms w ere not authorized in the judgment but were included in the notice of sale, they place the auctioneer in a role that is inconsistent with his or her obligation of neutrality in acting on behalf of the court. They contribute to a subtle conversion of a judicially supervised sale into a sale with the characteristics of a

17 After the Legislature substantially revised the fo reclosure statute in 2012, the Committee revised th e recommended form in accordance with the statute’s r evisions.

18 An additional provision that the Committee approve d and included in its recommended form is that a plaintiff who makes a bid need not pay the $10,000 or 10% deposit at the sale. This is reasonable, as it would not make sense to require a plaintiff who has an outstanding loan that is unpaid to front additi onal

cash in order to bid at the sale. This is now in t he current statute at 12 V.S.A. § 4953(c).14

private sale in which the auctioneer acts as plaint iff’s agent to exercise discretion on behalf of the plaintiff in limiting eligibility to bid. 19

The judgments in these cases authorized the plainti ffs to require a successful bidder to undertake a contractual obligation to com plete the purchase by executing a purchase and sales agreement. The effect is to give the plaintiff a contract-based private cause of action against the high bidder in the even t the bidder refuses to complete the sale. While the Committee approved the inclusion o f such a term in the recommended form of judgment, 20 that does not mean that the auctioneer’s role incl udes the obligation to require the high bidder to execute such a contra ct for the benefit of the plaintiff. When the auctioneer does so, he is acting on behalf of and for the protection of the plaintiff, and not on behalf of the court or with n eutrality to both plaintiffs and bidders. The plaintiff has the opportunity to appear at the sale through a representative and obtain

an executed contract on its own behalf.

Vermont trial courts have considerable responsibil ity in upholding standards of sales and other aspects of foreclosure cases, as th e opportunity for appeal is limited, 12 V.S.A. § 4939, and rare. As recognized by a three justice panel of the Vermont Supreme Court in an unpublished decision, judicial sales mu st be “procedurally sound” and are subject to court oversight. Catamount/Infill Springfield, LLC v. UPS Capital Bu s. Credit

, 2007 WL 5319750, at *3 (Vt. Mar. 2007).

Allowing the auctioneer discretion to limit access to bidding on any terms other than those included by the court in the judgment a nd incorporated in the notice of sale would be inconsistent with the principles of judici al sale law reflected in case law regarding altering the terms of a judicial sale. See, e.g.

, Quinn v. S.S. Jian , 235 F. Supp. 975, 977 (D. Md. 1964) (explaining that “the office r by whom the sale is conducted may not depart from or add to the terms set forth in th e order of sale,” the Court reviewed the officer’s timing of accepting the deposit and ruled that it did not have the effect of “converting it into a private sale” 21 ); Fine Acres, Inc. v. Whitehurst , 206 Va. 66, 69 (1965) (ruling that the commissioner could not depa rt from the judicial order and noting

that the court and not the commissioner is the real seller at a judicial sale and the individual conducting a judicial sale “is merely th e ministerial agent of the court and the medium through which the purchaser makes an offer o f purchase to the court.”); Frank

Nat’l Bank v. DeGiacomo , 253 N.Y.S.2d 819, 821 (N.Y. Sup. Ct., Nassau Coun ty 1964) (stating that the individual conducting a judicial sale “may not by his terms of sale limit

19 In concept, there may be cases which it would be j ustifiable to require some level of credit-worthine ss as a qualification for bidding. There does not appear to be any reason why a court could not choose to i nclude such authorization in a specific judgment in respon se to a motion. In residential property sales, suc h as in these cases, the Committee’s recognized terms provi de a reasonable level of protection for plaintiffs.

20 “Plaintiff is authorized to require the purchaser to sign a Purchase and Sales Agreement.” This term is in the Judgments in all four of these cases.

21 The Court began its analysis by stating that the “ applicable principles” regarding judicial sales “ar e clear, although most of the authorities are of anci ent vintage.” Quinn

, 235 F. Supp. at 977.15

the scope of the judgment, lessen the number of pro spective bidders, diminish the amount of possible bids, or interfere with equities establ ished by the court”).

In summary, to aid in identifying provisions and p ractices that will result in

confirmation of the new sales to be held in these f our cases and in other cases that come before this court, the court notifies counsel that the following guidelines will be applied by this court in reviewing motions for confirmation :

• The notice of sale shall not include requirements o r conditions limiting bidders’ qualifications to bid other than those set forth in the judgment.

• An auctioneer is not authorized to enter a bid on b ehalf of a plaintiff or any absent bidder. A plaintiff or other bidder who seeks to enter a bid must send a representative to bid on the plaintiff’ s behalf.

• An auctioneer is not authorized to require executio n of a purchase and sales agreement by a high bidder and/or execute a p urchase and sales agreement on behalf of a plaintiff; a representativ e of the plaintiff who appears at the sale may do so.

• If there has been a cancellation or postponement of a noticed sale, the

auctioneer should describe the circumstances and th e reason in the report of sale with sufficient information so that the court can determine that legal requirements were satisfied.

Under a statutory change that went into effect as a result of the 2012 amendments to Vermont foreclosure law, confirmation can take p lace without a court hearing. 12 V.S.A. § 4954(a). It is the hope and expectation o f the undersigned to be able to grant motions for confirmation without hearings in order to maximize efficiency for both the parties and the court, and only hold hearings where there is an issue that calls for explanation. In order to do that, reports of sale and supporting material filed with motions for confirmation will need to be complete a nd well-organized, and should include sufficient facts to provide assurance that the above guidelines have been met. 22

For example, it would be helpful if the report of s ale included the following

information:

• The names of persons present to bid and on whose be half they entered a bid (e.g., showing that a representative of the pla intiff or any other bidder were physically at the sale on the time and date an d on whose behalf a bid was entered);

22 It is recommended that motions for confirmation tr ack the organization of the Confirmation Checklist prepared by the Committee for the convenience of la wyers, judges and clerks in order to expedite court review and maximize the likelihood of approval of c onfirmation without a hearing. See https://www.vtbar.org/UserFiles/files/Webpages/Atto rney%20Resources/foreclosure/forms/Foreclosure%2 0Confirmation%20Checklist%20April%202013%20%284%29. pdf16 • Whether a plaintiff’s representative was present an d required the high bidder to sign a purchase and sales agreement, and the name of the person who signed it on behalf of each party, including th e plaintiff; and

• A description of any postponement or cancellation t hat took place from

the time the sale was first noticed and the reason for it.

The court is aware that many sales that have taken place in the manner of the four at issue here have previously been confirmed. This decision is not intended as a basis for undoing confirmations of previously confirmed sales , but to define acceptable practices for conducting future sales. Its effect is intende d to be prospective only.

ORDER

The motions to confirm these four sales are denied . Plaintiffs shall conduct new sales within 90 days.

Dated at Woodstock, Vermont, this 2 nd day of December, 2013.

Honorable Mary Miles Teachout Superior Court Judge