Opinion ID: 1158283
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Heading: Foreclosure and Antideficiency Statutes

Text: California has an elaborate and interrelated set of foreclosure and antideficiency statutes relating to the enforcement of obligations secured by interests in real property. Most of these statutes were enacted as the result of the Great Depression and the corresponding legislative abhorrence of the all too common foreclosures and forfeitures [which occurred] during that era for reasons beyond the control of the debtors. (Hetland & Hansen, The Mixed Collateral Amendments to California's Commercial Code  Covert Repeal of California's Real Property Foreclosure and Antideficiency Provisions or Exercise in Futility? (1987) 75 Cal. L.Rev. 185, 187-188, fn. omitted.) Pursuant to this statutory scheme, there is only one form of action for the recovery of any debt or the enforcement of any right secured by a mortgage or deed of trust. That action is foreclosure, which may be either judicial or nonjudicial. (Code Civ. Proc., §§ 725a, 726, subd. (a).) (1) In a judicial foreclosure, if the property is sold for less than the amount of the outstanding indebtedness, the creditor may seek a deficiency judgment, or the difference between the amount of the indebtedness and the fair market value of the property, as determined by a court, at the time of the sale. ( Roseleaf Corp. v. Chierighino (1963) 59 Cal.2d 35, 43-44 [27 Cal. Rptr. 873, 378 P.2d 97].) However, the debtor has a statutory right of redemption, or an opportunity to regain ownership of the property by paying the foreclosure sale price, for a period of time after foreclosure. (Bernhardt, Cal. Mortgage and Deed of Trust Practice, supra, § 3.54, p. 143; id., § 3.76, p. 173; id., § 3.77, p. 174.) (2) In a nonjudicial foreclosure, also known as a trustee's sale, the trustee exercises the power of sale given by the deed of trust. (Bernhardt, Cal. Mortgage and Deed of Trust Practice, supra, § 1.28, p. 37; id., § 2.1, p. 51.) Nonjudicial foreclosure is less expensive and more quickly concluded than judicial foreclosure, since there is no oversight by a court, [n]either appraisal nor judicial determination of fair value is required, and the debtor has no postsale right of redemption. (Sheneman, Cal. Foreclosure: Law and Practice (1994) § 6.01, p. 6-3.) However, the creditor may not seek a deficiency judgment. ( Roseleaf Corp. v. Chierighino, supra, 59 Cal.2d at pp. 43-44.) Thus, the antideficiency statutes in part serve to prevent creditors in private sales from buying in at deflated prices and realizing double recoveries by holding debtors for large deficiencies. ( Commonwealth Mortgage Assurance Co. v. Superior Court (1989) 211 Cal. App.3d 508, 514 [259 Cal. Rptr. 425].) The price at a foreclosure sale is not deemed the equivalent of the property's fair market value. As the United States Supreme Court recently observed, An appraiser's reconstruction of `fair market value' could show what similar property would be worth if it did not have to be sold within the time and manner strictures of state-prescribed foreclosure. But property that must be sold within those strictures is simply worth less. No one would pay as much to own such property as he would pay to own real estate that could be sold at leisure and pursuant to normal marketing techniques. ( BFP v. Resolution Trust Corp. (1994) 511 U.S. ___ [128 L.Ed.2d 556, 565, 114 S.Ct. 1757, 1762], italics in original.) (3) However, it is settled that Where there is no irregularity in a nonjudicial foreclosure sale and the purchaser is a bona fide purchaser for value, a great disparity between the sales price and the value of the property is not a sufficient ground for setting aside the sale. ( Moeller v. Lien (1994) 25 Cal. App.4th 822, 832 [30 Cal. Rptr.2d 777]; see BFP v. Resolution Trust Corp., supra, 511 U.S. ___ [128 L.Ed.2d at pp. 566-567, 114 S.Ct. at pp. 1763-1764] [So long as the state's requirements for conducting a foreclosure sale have been met, mere inadequacy of the foreclosure sale price is no basis for setting the sale aside, though it may be set aside ... if the price is so low as to `shock the conscience or raise a presumption of fraud or unfairness.'].) A bid at a trustee's sale is deemed by statute to be an irrevocable offer by that bidder to purchase the property for that amount. (§ 2924h, subd. (a).) However, [i]t is the general rule that courts have power to vacate a foreclosure sale where ... the sale ... is tainted by fraud.... ( Bank of America etc. Assn. v. Reidy (1940) 15 Cal.2d 243, 248 [101 P.2d 77]; Karoutas v. HomeFed Bank (1991) 232 Cal. App.3d 767, 774-775 [283 Cal. Rptr. 809].) The doctrine of caveat emptor does not apply to nonjudicial foreclosure sales. ( Karoutas v. HomeFed Bank, supra, 232 Cal. App.3d at p. 774.) (4) The antideficiency statutes have been broadly interpreted to protect the debtor. It is settled, however, and defendants here concede, that the antideficiency statutes do not preclude an action against a borrower for fraud in the inducement of a loan. (See, e.g., Guild Mortgage, supra, 193 Cal. App.3d at p. 1511 [it has long been recognized that antideficiency statutes do not preclude a fraud suit]; Manson v. Reed (1986) 186 Cal. App.3d 1493, 1501 [231 Cal. Rptr. 446] [recognized exception to the antideficiency statute is a suit for fraud]; Glendale Fed. Sav. & Loan Assn. v. Marina View Heights Dev. Co. (1977) 66 Cal. App.3d 101, 138-139 [135 Cal. Rptr. 802] [antideficiency statutes not available to trustor as a defense to an action by beneficiary for fraud; action for fraud is not action for deficiency judgment]; Fin. Code, §§ 779, 7460, 15102.) There are several reasons for this exception. First, [a] suit for fraud obviously does not involve an attempt to recover on a debt or note. As such, it stands separate and apart from any action which the antideficiency legislation seeks to preclude. ( Guild Mortgage, supra, 193 Cal. App.3d at p. 1512; Manson v. Reed, supra, 186 Cal. App.3d at p. 1501 [The distinction is that a suit for fraud is a completely separate remedy than a suit on the promissory note secured by the deed of trust.].) Furthermore, the antideficiency laws were not intended to immunize wrongdoers from the consequences of their fraudulent acts. Finally, assuming that the court applies a proper measure of damages, fraud suits do not frustrate the antideficiency policies because there should be no double recovery for the beneficiary. (Sheneman, Cal. Foreclosure: Law and Practice, supra, § 6.18, p. 6-80, fn. omitted.)