Source: https://www.samuelson-law.com/purchase-price-challenges-to-a-commercial-foreclosure-sale-in-ma.html
Timestamp: 2019-04-21 20:13:59+00:00

Document:
The below addresses what challenges an owner may make to the purchase price obtained in a Maryland foreclosure sale of commercial real estate. Since this area of the law is changing rapidly, the reader needs to check statutes adopted, and cases rendered, after 10/21/08 and, particularly, not to assume that any of the below applies to residential property.
Subject: Maryland law, as to when a Maryland court may not accept the purchase price realized, at a Maryland foreclosure sale, because the court deems that purchase price to be too low.
I. Maryland State Foreclosure Law.
The Maryland rule seems to be that, assuming proper advertisement and no other irregularity in the sales procedures, even if the purchaser at a foreclosure sale is the lender, a low purchase price will be upheld unless it is so “grossly inadequate as to shock the conscience of the court”. How low that number is is questionable; however, it appears that a foreclosure purchase price that is around 40% or less, of the fair market value of the property, starts to get highly questionable based upon price alone.
“We turn now to examine Pizza’s contention that the sale should be set aside. Pizza contends that the property was sold for an inadequate price. The law is well settled that inadequacy of price alone, unless it indicates fraud, unfairness or some misconduct or mistake for which the purchaser should be held responsible, ordinarily is not a sufficient ground to set aside a sale. [Citations omitted.] Although inadequate price alone does not ordinarily necessitate setting aside a sale, when inadequate price is coupled with other evidence of irregularity the sale may be set aside, even if the price might not shock the conscience of the court. [Citations omitted.] Kauffman v. Walker, 9 Md. 229, 236 (1856) (holding that inadequacy of sale price–under 50% of fair market value–coupled with trustees failure to bring property fairly into the market due to deficient advertising, required vitiation of foreclosure sale); Hurlock, 98 Md. App. at 340-41, 633 A.2d at 451. “Inadequacy of price is a strong auxiliary argument in connection with circumstances which cast doubt or suspicion upon the correctness of the sale.” Walker, 218 Md. at 316, 146 A.2d at 205.
We are satisfied that the property was sold for an inadequate price–a sum well below the market value. The trial judge made an explicit finding that the amount received from the sale was not grossly inadequate. Indeed, Pizza has not urged this Court to find that the price received from the sale was grossly inadequate or that the sale price alone would furnish grounds to set aside the sale. Inadequacy of price, however, has been called “a strong auxiliary argument” in connection with circumstances which cast doubt or suspicion upon the fairness of the sale. [Citation omitted] The question then becomes: Does this inadequacy of price, when considered in connection with all the circumstances surrounding this sale, furnish sufficient grounds for setting aside the sale? We conclude that it does.
Similarly, although the exceptors bitterly complain that the foreclosure prices have only yielded 35% of their asserted fair market value, prices that yielded a similarly small percentage of the asserted fair market value have not been found inadequate. See Ed Jacobsen, Jr., Inc. v. Chapline, 253 Md. 70, 73, 251 A.2d 604 (1969) (foreclosure price of $ 60,000 only 40% of asserted fair market value of $ 150,000); Butler v. Daum, 245 Md. 447, 452, 226 A.2d 261 (1967) (foreclosure price of $ 2,400, only 30% of asserted fair market value of $ 7,950); de Tamble, 210 Md. at 420-21, 124 A.2d 276 (foreclosure price of $ 28,500, only 15% asserted fair market value of $ 185,000).
See, also, J. Ashley Corp v. Burson, 131 Md. App. 576, 750 A.2d 618, 2000 Md. App. LEXIS 71 (2000); Bennett Heating & Air Conditioning, Inc. v. Nationsbank of Maryland, 342 Md. 169, 674 A.2d 534, 1996 Md. LEXIS 39 (1996); PAS Realty, Inc. v. Rayne, 46 Md. App. 445, 418 A.2d 1222, 1980 Md. App. LEXIS 346 (1980); and Southern Maryland Oil, Inc. v. Kaminetz, 260 Md. 443, 272 A.2d 641, 1971 Md. LEXIS 1250 (1971).
The Maryland statutes recently enacted, in light of the current housing crisis, provide borrowers additional rights with respect to foreclosures of only residential property, which means “real property improved by four or fewer single family dwelling units”. Section 7-105.1(a), Real Property Article, Annotated Code of Maryland.
III. Maryland Cases under the Fraudulent Transfer Avoidance Powers of a Bankruptcy Court.
Fraudulent transfer law and foreclosure law enjoyed over 400 years of peaceful coexistence in Anglo-American jurisprudence until the Fifth Circuit’s unprecedented 1980 decision in Durrett. To our knowledge no prior decision had ever applied the “grossly inadequate price” badge of fraud under fraudulent transfer law to set aside a foreclosure sale.6 To say that the “reasonably equivalent value” language in the fraudulent transfer provision of the Bankruptcy Code requires a foreclosure sale to yield a certain minimum price beyond what state foreclosure law requires, is to say, in essence, that the Code has adopted Durrett or Bundles. Surely Congress has the power pursuant to its constitutional grant of authority over bankruptcy, U.S. Const., Art. I, § 8, cl. 4, to disrupt the ancient harmony that foreclosure law and fraudulent conveyance law, those two pillars of debtor-creditor jurisprudence, have heretofore enjoyed. But absent clearer textual guidance than the phrase “reasonably equivalent value” — a phrase entirely compatible with preexisting practice — we will not presume such a radical departure. [Citations omitted] . . .
For the reasons described, we decline to read the phrase “reasonably equivalent value” in § 548(a)(2) to mean, in its application to mortgage foreclosure sales, either “fair market value” or “fair foreclosure price” (whether calculated as a percentage of fair market value or otherwise). We deem, as the law has always deemed, that a fair and proper price, or a “reasonably equivalent value,” for foreclosed property, is the price in fact received at the foreclosure sale, so long as all the requirements of the State’s foreclosure law have been complied with.
This conclusion does not render § 548(a)(2) superfluous, since the “reasonably equivalent value” criterion will continue to have independent meaning (ordinarily a meaning similar to fair market value) outside the foreclosure context. Indeed, § 548(a)(2) will even continue to be an exclusive means of invalidating some foreclosure sales. Although collusive foreclosure sales are likely subject to attack under § 548(a)(1), which authorizes the trustee to avoid transfers “made . . . with actual intent to hinder, delay, or defraud” creditors, that provision may not reach foreclosure sales that, while not intentionally fraudulent, nevertheless fail to comply with all governing state laws. [Citations omitted] Any irregularity in the conduct of the sale that would permit judicial invalidation of the sale under applicable state law deprives the sale price of its conclusive force under § 548(a)(2)(A), and the transfer may be avoided if the price received was not reasonably equivalent to the property’s actual value at the time of the sale (which we think would be the price that would have been received if the foreclosure sale had proceeded according to law).
No subsequent decisions of the Fourth Circuit Court of Appeals, the U.S. District Court for the District of Maryland or the Maryland Bankruptcy Court has sought to limit Bfp. The main decision, rendered by those courts, construing Bfp is Whitney v. Newman, 2007 Bankr. LEXIS 2628 (2007). That case distinguishes Bfp since Whitney was a non-foreclosure case, thus not a situation in which the borrower received the protections provided by the Maryland foreclosure statutes and case law.

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