Tender rule and Credit bid

10 Apr


California Civil Code 2924h (b) provides:
(b) At the trustee’s sale the trustee shall have the right (1) torequire
every bidder to show evidence of the bidder’s ability todeposit with the
trustee the full amount of his or her final bid incash, a cashier’s
check drawn on a state or national bank, a checkdrawn by a state or
federal credit union, or a check drawn by a stateor federal savings and
loan association, savings association, orsavings bank specified in
Section 5102 of the Financial Code andauthorized to do business in this
state, or a cash equivalent whichhas been designated in the notice of
sale as acceptable to thetrustee prior to, and as a condition to, the
recognizing of the bid,and to conditionally accept and hold these
amounts for the durationof the sale, and (2) to require the last and
highest bidder todeposit, if not deposited previously, the full amount
of the bidder’sfinal bid in cash, a cashier’s check drawn on a state or
nationalbank, a check drawn by a state or federal credit union, or a
checkdrawn by a state or federal savings and loan association,
savingsassociation, or savings bank specified in Section 5102 of
theFinancial Code and authorized to do business in this state, or a
cashequivalent which has been designated in the notice of sale
asacceptable to the trustee, immediately prior to the completion of
thesale, the completion of the sale being so announced by the fall ofthe
hammer or in another customary manner. The present beneficiary ofthe
deed of trust under foreclosure shall have the right to offsethis or her
bid or bids only to the extent of the total amount due thebeneficiary
including the trustee’s fees and expenses.This provision provides for
the purchase options at a trustee’s sale.
The first type of bid at a trustee sale is a purchase money bid.
Purchase money bidders are by definition third parties who pay with cash
or a check. Unless there is a lis pendens or obvious title flaw which
puts them on constructive notice, PMBs are given the status of good
faith purchasers and the sale cannot be undone — even with tender.
Therefore, there can be two types of purchase money bidders:good faith
purchasers for value, and those on constructive notice of clouds or
flaws in title. Either type of purchase money bidder is required under
Civil Code 2924h to pay with cash or check,the actual cost of their
winning bid.
Lastly, the section provides for what is known commonly as a “credit
bid.” In a credit bid, the creditor on the note applies the amount of
indebtedness toward its bid on the property, therebyallowing it to take
title without paying a single dollar out of pocket at the sale. The
rationale is simple: the creditor has already lent the borrower/trustor
a sum of money in exchange for the trust deed For seemingly obvious
reasons, credit bidders are not allowed the status of a “good faith
purchaser for value” because they are deemed to be aware of any
improprieties of title which would undermine their title position.
Where a third party shows up to a trustee sale and without any notice of
title issues, comes out of pocket to purchase an auctioned home in good
faith, then simple fairness requires that he be paid back the moneyhe
spent prior to being divested of the title he purchased, prior to the
court allowing an action to proceed against that title, which he would
have to defend or forfeit. Tender is the general rule where it comes to
However, the law also provides exceptions to the tender requirement,
even in cases of PMBs. For instance, where the sale is void because
the trustee holding the sale is not empowered to hold a sale on a
property, then tender is not required to set aside the trustee’s deed
after sale because it is void and good title did not transfer in the
first instance. Bank of America v. LaJolla Group II. Tender is also
excepted in the case offraud, where the equities of the case favor the
victim, even over a good faith purchaser for value. (CITE) Such
exceptions are easily rationalized in light of the need for society to
depend on due process and fairness.
In these cases, the amount of tender required is the amount of the
winning bid.
However, where a credit bid is made, the bidder is not a good faith
purchaser. It is the creitor party. The trustee deed is a mere matter
of paperwork, without a penny out of pocket. All the tender that is
required to put a credit bidder in a pre-sale condition is 1) cost of
the trustee sale, 2) interest and fees, and 3) reinstate the preexisting
debt which would still be serviced by the creditor but for the sale.
Especially where it may be shown that a sale was knowingly wrongful,
without right, and carried out in spite of borrower’s preexisting claims
on the validity of the debt or recorded lis pendens, equity weighs
heavily against requiring the borrower to make a full tender of the
challenged debt rather than what is required to put the creditor in a
pre-sale position.
Defendants argue that the tender in these cases should be not the sale
price, not the amount required to put the defendant in a pre-sale
position, but the full amount of the debt! In so doing, Defendants are
conflating the idea of a RESCISSION tender with the concept of a SET
ASIDE TENDER. While sharing a common name, these are two very different
a. Court’s equitable discretion allows it great leeway in fashioning a
remedy appropriate to this case.
Court has equitable discretion (cite) etc. .
b. The creditor does not need tender of the full debt to be put in a
pre-sale condition.
Do the math — What has the creditor actually been displaced from its
pre-sale position?
c. A Credit Bidders Expectations do Not Require the Same Reconciliation
that a PMB’s Expectations Require.
The creditor was not expecting payment in full for 30 more years vs. a
PMB has immediate expectation of title for money and the deal the PMB
gets is title for money; the deal the bank had wasmonthly payments at
interest over 30 years.
In a public policy sense, the imposition of full debt tender on
borrowers as to credit bid grantees by many courts in this state has
caused the floodgates to open for massive abuse of the California
non-judicial foreclosure system. This effect has been caused because
banks view wrongful foreclosure as having no practical recourse where
the only penalty for a wrongful foreclosure is getting a 30-year debt
paid in full 25 years early — which is in reality not a penalty at all,
but rather an incentive to hold more foreclosure sales whether they are
wrongful or not.
If the sale was wrongful to begin with, and the title has not passed
beyond the pre-sale parties, no rationale exists for overburdening the
Plaintiff with a full-debt tender where the sale has been a matter of
paperwork rather than payment, and to require a tender bond in the
amount of the cost of the sale and fair marker rent going forward would
adequately protect the creditor from prejudice.

… Just a rough draft.
Any thoughts on the idea?
Any help in drafting?
I think it may help to go through some of the tender cases and look at
the equities, the status of the parties, and see if we can find some
strong exception cases where the court’s rationale is actually looking
at the equities rather than the word “tender”.


2 Responses to “Tender rule and Credit bid”

  1. David August 5, 2010 at 1:34 pm #

    Timothy I read in the california civil procedure something regarding title claim when you you use a quite title action regarding tender rule, I like what you posted but can you look that up. I went to the law library and I try to find out regarding that and I got confused. Thanks!

  2. Will Cutlip August 21, 2010 at 2:26 pm #

    I got into an option with Downey savings and soon after my mortgage was originated it was registered to MERS. the FDIC informed me via mail that my loan was sold to Greenwich just before Downey savings was seized it was sucuritized and pooled into the harbor view mortgage loan tust 2007-7 Wells Fargo is the master servicer , US Bank the primary servicer has replied to my request for information stating there are possible hundreds of owner/ investors of my loan . Ocwen is my servicer. I have tried to get a modification from my servicer Ocwen several times but have been unable for reasons not fully explained. and I have supplied full documentation three time for them. Since my loan reset reset I have been making negative amortization payments although technically current on my mortgage and have excellent credit I am adding $799 to the principal every month.I will be reaching the cap on my deferred payments soon and will undoubtedly become a foreclosure statistic if I cant find an avenue of relief..

    With recent decisions regarding MERS and the information I have regarding my loan being sold to Greenwich but never assigned do you think I have any angle to either force a modification or show improper assignment . Once the deed has been split from the note is there any legal ramification to this and can MERS transfer or assign the deed out of its name without recourse I pray that someone will have a suggestions or advise that could allow me to keep my home. If I could refinance at today’s rate it would be lower than I currently paying for negative amortization.

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