In addition, where a lender bids at a foreclosure sale the full amount of the debt owed (a "full credit bid"), the debt is effectively satisfied as if paid in full and the lender may be barred from seeking further monetary remedies.
While the lender may be barred from seeking a deficiency judgment, it is not necessarily precluded from seeking a money judgment for other kinds of damages arising from foreclosure. One example involves whether a lender may pursue its unlicensed broker and its escrow agent for the amount of the broker's commission received in a fraudulent sale transaction.
In that regard, in June 1995 the California Court of Appeal issued its decision in the case of Romo v. Stewart Title of California.
In that case, Endolia Romo retained James Rabb as her real estate agent to represent her in the purchase of a home in Valley Springs. Romo's purchase was dependent on the sale of her home in Daly City. Rabb offered to buy Romo's Daly City home through his realty company. Escrow was opened for both transactions with Stewart Title.
The purported buyers of Romo's Daly City home were a Mr. and Mrs. Dews, who agreed to pay $123,000.00 in a transaction in which Romo agreed to take back two notes for $12,300.00 and $18,470.00 secured by second and third trust deeds. Great Western Bank made a purchase money loan secured by a first deed of trust.
After the close of both transactions, Romo moved into her Valley Springs home. The Dews made no payments on Romo's notes, and she foreclosed her interest in the third note/trust deed.
At her foreclosure sale, Romo entered a "full credit bid" of $20,363.00 (unpaid principal on the third note with interest and costs) and became the buyer of the property. The Dews, however, failed to make the payments on the first note, and Great Western foreclosed.
Romo filed a lawsuit against Rabb, his realty companies, the Dews, and Stewart Title, alleging that Rabb was not a licensed real estate broker and that the sale of her Daly City home "was a fiction engineered by Rabb" to non-existent buyers whose signatures were forgeries. Romo alleged against Stewart Title fraud and concealment, conversion, and negligent performance of fiduciary duties.
Stewart Title moved for summary judgment (a request that the court find the facts to be undisputed and enter judgment in its favor as a matter of law). The trial court granted the motion, finding that all of Romo's claims were barred because she made a full credit bid at her foreclosure sale. Romo appealed.
The Court of Appeal reversed and remanded for further proceedings limited to Romo's entitlement to recover the real estate commission and punitive damages; in all other respects the Court affirmed the trial court's judgment.
The Court of Appeal noted that Romo's full credit bid established the value of the security property as equal to the amount of the debt; Romo was thus prevented from showing that she suffered any impairment of her security. Therefore, Romo could not recover damages arising from non-payment of either of the two notes she took in connection with the sale.
However, the anti-deficiency laws did not preclude Romo from seeking to recover the $7,380.00 real estate commission she paid to an allegedly unlicensed broker on a fictitious sale as well as punitive damages arising from the fraudulent transaction. This monetary loss was unrelated to the unpaid loans and was not barred by the full credit bid rule.
Furthermore, Romo's allegations that Stewart Title had aided in the consummation of the fictitious escrow were sufficient to permit the case to move forward to trial.
The Romo v. Stewart Title case demonstrates that lenders are not necessarily barred from all remedies following non-judicial foreclosure. To the contrary, specific types of relief may be available depending on the circumstances of the case.
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