Inadequacy of Sales Price at Judicially Ordered Sales of Real Property
| Publication year | 1983 |
| Pages | 1435 |
| Citation | Vol. 12 No. 9 Pg. 1435 |
1983, September, Pg. 1435. Inadequacy of Sales Price at Judicially Ordered Sales of Real Property
With recent economic conditions generating more and more public trustee and sheriff sales, and with the cooled-down real estate market making deficiency bids more and more common, the issue of the adequacy of the prices obtained at judicially ordered sales of real property is taking on added importance.(fn1) Unfortunately, neither debtors trying to set aside sales nor lenders trying to uphold them will find much guidance in the Colorado appellate decisions which have been rendered on the subject. What they will find, however, is an area of the law that seems to be in an unintentional state of flux, and one that may give the informed practitioner on either side of the issue a great deal of arguing room.
The general and often-stated rule is that inadequacy of sales price, whether at a public trustee's sale or sheriff's sale, is not in and of itself and without evidence of fraud or other impropriety a ground for setting the sale aside.(fn2) The equally often-stated exception is that the price may be so inadequate as to shock the conscience of a court sitting in equity, in which case the court may set aside the sale even though there is no showing of fraud or other impropriety.(fn3)
Colorado has long recognized the general rule(fn4) and purportedly embraced the exception in Chew v. Acacia Mutual.(fn5) The Chew case involved a court-ordered sale under a deed of trust at which the successful bidder, who was also the foreclosing creditor, bid $380,000 even though the full amount of its debt was approximately $560,000. In the same court foreclosure action, the creditor then requested and obtained a judgment against the debtor for the $180,000 deficiency.
The debtor objected to the sale, and unsuccessfully tried to introduce correspondence between the creditor and some of its local agents showing that the bid was based on the creditor's estimate of how much of a deficiency the debtor's other properties could absorb. There was also some evidence, which
the trial court did allow, showing the fair market value of the property to be somewhere between $500,000 and $525,000.
The Colorado Supreme Court, in an opinion written by Justice Day, reversed the trial court's exclusion of the incriminating correspondence and overturned the sale, holding:
It appeared that [the creditor] in making its bid determined that it could successfully collect a substantially large deficiency from [the debtors]. . . . This sale if allowed leads inevitably to the conclusion that double recovery is not only a distinct possibility, but was intended to be effectuated.(fn6)
Of the seven Supreme Court and Court of Appeals cases dealing with this issue since Chew, sales have been set aside in three cases.
In Tekai Corp. v. Transamerica Title Ins. Co.,(fn7) the Court of Appeals affirmed the trial court's setting aside of a mechanic's lien foreclosure sale, where the foreclosing mechanic's claimant purchased property with a stipulated value of between $168,000 and $178,000 by bidding in the full amount of his debt, $1,300.
In Sprechler v. Roper,(fn8) the Court of Appeals affirmed the trial court's overturning of a sheriff's sale of properties pursuant to an execution on a $79.13 judgment. Three separate properties were levied on and sold, and the judgment creditor, seeing that there were no other bidders at the sale, declined to bid on any of the three properties individually, forcing the sheriff to sell them together. As a result, the judgment creditor acquired three properties with an aggregate equity of approximately $40,000 in satisfaction of his debt of $169.62 (with interest and costs).
Finally, in the very recent case of Moreland v. Marwich, Ltd.,(fn9) the Colorado Supreme Court reversed the Court of Appeals(fn10) and reinstated the trial court's judgment...
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