Foreclosure Sale — Buyer’s Perspective
When people buy property at Foreclosure sales they often find that the house came with former owners still occupying the house. How do you get them out? In Alaska, you the new owner, must file an ejectment action, not a Forcible Entry and Detainer (FED) action. The cases are substantially similar. However, the FED matter provides very short statutory deadlines that normally is faster. It is the wrong type of action and will likely slow the process.
Important Issues in Foreclosure Sales
There are two significant issues that resolve these matters. First, does the buyer qualify as a Bona Fide Purchaser or just a purchaser. When the sale is to a BFP the sale may only be set aside if the sale itself is Void. If the purchaser fails to qualify for BFP status then a court may set aside the sale for any voidable reason.
Bona Fide Purchaser — Beware of Void Sales
Bona Fide Purchasers are third parties, wholly unrelated to the seller. They are purchasers that buy at the sale without notice of any defenses to the sale. Sometimes BFP is described as one that has an empty head and a white heart. The court protects these from all but the following six categories of sale problems:
- The foreclosing party never had the power of sale conferred on them.
- The debtor was not in default.
- The debt was fully paid before foreclosure.
- The time and place of sale was never published.
- The price was so inadequate that it shocks the conscience.
- The foreclosure sale proceeded despite a court order staying the sale, including an automatic bankruptcy stay.
If the sale is to the creditor in an offset bid, or to any party related to the creditor the sale may be subject to almost any attack that a debtor might find that would sound like it created an inequitable result.
Bank RESPA Violations
The recent changes in the Federal Real Estate Settlement Procedures Act, 12 U.S.C. 2605 (RESPA) have given rise to a host of new claims that the banks failure to follow RESPA regulations should invalidate sales. The regulations at 12 CFR 1024.41 gave rise to HUD letter 2013-10. Some debtors claim the banks violation of the regulations renders sales void. However, 12 U.S.C. 2605(f) only provides for a private right of action. The remedies are also limited to money damages, and costs against the loan servicer. There are no provisions providing for voiding a sale or a right of action against a BFP. The statute also addresses the scope of intended preemption — which they limit to only preemption of any conflicting state law notice periods.
The RESPA regulations creates many complicating requirements. The proof issue on some elements are subject to factual interpretation. Matters with subjective facts generally aren’t resolved short of trial. For example, creditors can’t take action after a timely and qualified request is received until it is resolved. A request is qualified if it has all the information necessary to evaluate the request. These two issues are fact intensive and subject to a fact finder’s consideration of reasonableness in the creditor’s interpretation. Debtors are using these issues to avoid tendering property when the bank buys the property.
Post Foreclosure Sale Representation
An Alaska Superior Court today joined both Alabama and Michigan courts in holding that RESPA violations do not state an adequate reason to find a sale void. Coleman v. BAC Servicing, 104 So. 3d 195, 201 (Ala. Civ. App. 2012) Servantes v. Caliber Home Loans, Inc. 2014 U.S. Dist LEXIS 170667 (E.D. Mich., Dec. 10, 2014). The debtor has an obligation to bring a preforeclosure action to enjoin a sale and cannot void the sale later. Wells Fargo Home Mort., Inc. v. Neal, 398 Md. 705, 922 A.2d 538 (2007); Lacy-McKinney v. Taylor, Bean & Whitaker Mort. Corp., 937 N.E.2d 853, 864 (Ind. Ct. App. 2010); Campbell v. Bank of Am., N.A., 141 So. 3ed 492 (Ala. Civ. App. 2012).
A BFP is entitled to possession as against any other person. A.S. 34.20.090(b). The trustee’s deed is conclusive evidence of sale compliance in a suit between a BFP and the prior owner. Id., Bauman v. Day, 892 P.2d 817 (Alaska 1995).
Real estate foreclosures, from either the debtor or creditor’s side, can be complicated by many things. Having a lawyer in your corner to help navigate these issues is always helpful. Our clients today were grateful for the outcome in their matter. At the end of the day, the facts marshaled for our client, the legal research extending across the nation and our written and oral presentation skills delivered.