Pacific Inland Bank v. Ainsworth
Decision Date | 21 December 1995 |
Docket Number | No. G016526,G016526 |
Citation | 41 Cal.App.4th 277,48 Cal.Rptr.2d 489 |
Court | California Court of Appeals |
Parties | , 95 Cal. Daily Op. Serv. 9821, 95 Daily Journal D.A.R. 16,987 PACIFIC INLAND BANK, Plaintiff and Appellant, v. Charles AINSWORTH et al., Defendants and Respondents. |
Pacific Inland Bank (PIB) appeals from a judgment granting Charles Ainsworth and Ainsworth Appraisal Services' (Ainsworth) motion for summary judgment and dismissal of its complaint. The court concluded the full credit bid rule barred PIB from maintaining a negligence action against Ainsworth, a third party nonborrower. We agree and affirm.
Santiago Investors, wishing to develop two vacant parcels, approached PIB for a $300,000 loan. PIB retained Ainsworth to appraise the properties and determine, inter alia, whether applicable zoning restrictions permitted the proposed construction of a shopping center on one parcel and a gas station on the other.
The appraisals indicated the properties were zoned for commercial use and valued the shopping center site at $1,500,000 and the gas station site at $225,000. Based on this information, PIB loaned Santiago $300,000 secured by a first deed of trust.
All did not proceed as planned. Contrary to Ainsworth's appraisals, the properties were not zoned for commercial use. Santiago defaulted on the loan and PIB foreclosed on the lien, eventually acquiring both parcels at a nonjudicial foreclosure sale after tendering a full credit bid of $335,615.82.
PIB's attempts to resell the properties were unsuccessful; the highest offer it received for both parcels was $185,000. PIB filed the underlying suit alleging Ainsworth's breach of contract and its negligence in preparing the appraisals resulted in the loan being undersecured. The trial court granted Ainsworth's motion for summary judgment, concluding PIB's full credit bid established as a matter of law it had not suffered any damages.
Two appellate courts recently addressed a similar issue. In GN Mortgage Corp. v. Fidelity Nat. Title Ins. Co. (1994) 21 Cal.App.4th 1802, 27 Cal.Rptr.2d 47 and Western Fed. Savings & Loan Assn. v. Sawyer (1992) 10 Cal.App.4th 1615, 13 Cal.Rptr.2d 639, the courts concluded a full credit bid lender cannot establish damages resulting from a defendant's alleged fraud in seeking a loan because the credit bid conclusively establishes lack of impairment to the security. 1 However, in Alliance Mortgage Co. v. Rothwell, supra, 10 Cal.4th 1226, 44 Cal.Rptr.2d 352, 900 P.2d 601, our Supreme Court held otherwise. Lenders' "full credit bids do not as a matter of law bar [their] fraud claims...." (Id. at p. 1251, 44 Cal.Rptr.2d 352, 900 P.2d 601.) In this appeal, we consider whether the Supreme Court intended that a full credit bid should bar other tort actions. For reasons we now explain, we conclude Alliance is limited to fraud claims and does bar the causes of action stated here.
When a debtor defaults on a secured real property loan, the lender-beneficiary may institute nonjudicial foreclosure proceedings triggering a trustee's sale of the property to satisfy the obligation. (Civ.Code, § 2924 et seq.) The beneficiary, like any other party, may bid cash for the property, offering more or less than the balance on the debt. However, unlike other buyers, a lender-purchaser may credit bid all or any portion of the outstanding debt because it would be useless to require the lender to tender cash to itself. (Central Sav. Bank of Oakland v. Lake (1927) 201 Cal. 438, 447-448, 257 P. 521.) Once made, there is no distinction between lender-purchasers' credit bids and other buyers' cash bids. (Civ.Code, § 2924h, subd. (b).)
A cash or credit bid extinguishes the debt owing on the property by the amount bid. Therefore, when a lender acquires the property either by cash or on a credit bid, for the full amount due by terms of the note and deed of trust, it is no longer the creditor or mortgagor of the borrower because there is no longer any debt to be enforced. As explained by our Supreme Court almost 100 years ago, "whatever interest [it] had[,] ... ceased with the extinguishment of the indebtedness." (Reynolds v. London etc. Ins. Co. (1900) 128 Cal. 16, 22, 60 P. 467.)
(Brown v. Critchfield (1980) 100 Cal.App.3d 858, 869, 161 Cal.Rptr. 342.)
Like any other purchaser, a lender has no obligation to bid any particular amount. It should assess the property's value at the time of the trustee's sale and bid accordingly. (Cornelison v. Kornbluth (1975) 15 Cal.3d 590, 608, 125 Cal.Rptr. 557, 542 P.2d 981; Sumitomo Bank v. Taurus Developers, Inc (1986) 185 Cal.App.3d 211, 225, 229 Cal.Rptr. 719.) Any subsequent decrease in the property is deemed the result of the purchaser's bad business judgment or a severe market downturn. (GN Mortgage Corp. v. Fidelity Nat. Title Ins. Co., supra, 21 Cal.App.4th 1802, 1809, 27 Cal.Rptr.2d 47.) "[A]fter full credit bid, [a] lender cannot pursue any other remedy regardless of [the] actual value of the property on the date of sale[.]" (Alliance Mortgage Co. v. Rothwell, supra, 10 Cal.4th 1226, 1238, 44 Cal.Rptr.2d 352, 900 P.2d 601.)
Our Supreme Court discussed the effect of a lender's full credit bid in a nonjudicial foreclosure sale in Cornelison v. Kornbluth, supra, 15 Cal.3d 590, 125 Cal.Rptr. 557, 542 P.2d 981. There, the plaintiff sold a single family dwelling, taking back a promissory note secured by a first deed of trust on the property. (Id. at p. 594, 125 Cal.Rptr. 557, 542 P.2d 981.) After the property was condemned as unfit for human habitation and the purchasers defaulted on the note, the plaintiff purchased the property at the trustee's sale by making a full credit bid. (Id. at pp. 594, 606, 125 Cal.Rptr. 557, 542 P.2d 981.) Plaintiff then sued a third party nonborrower for waste. (Id. at p. 594, 125 Cal.Rptr. 557, 542 P.2d 981.)
The Supreme Court recognized a lender's claim for bad faith was not precluded by the antideficiency statutes. However, it ... (Cornelison v. Kornbluth, supra, 15 Cal.3d 590, 606, 125 Cal.Rptr. 557, 542 P.2d 981, fn. omitted.)
The Supreme Court in Alliance revisited the full credit bid issue but this time in a slightly different context. The court limited its consideration to whether such a bid "bars the lender [as a matter of law] from maintaining a fraud action [against] ... third part who fraudulently induced the lender to make the loans." (Alliance Mortgage Co. v. Rothwell, supra, 10 Cal.4th 1226, 1241, 44 Cal.Rptr.2d 352, 900 P.2d 601, original italics.) The court concluded it did not, rejecting contrary holdings in GN Mortgage Corp. v. Fidelity Nat. Title Ins. Co., supra, 21 Cal.App.4th 1802, 27 Cal.Rptr.2d 47 and Western Fed. Savings & Loan Assn. v. Sawyer, supra, 10 Cal.App.4th 1615, 13 Cal.Rptr.2d 639.
Alliance held the full credit bid is not a bar to a fraud cause of action against a third party nonborrower when the lender can establish it was "intentionally and materially misled by its own fiduciaries or agents as to the value of the property prior to even making the loan...." (Alliance Mortgage Co. v. Rothwell, supra, 10 Cal.4th 1226, 1246, 44 Cal.Rptr.2d 352, 900 P.2d 601, fn. omitted.) (Alliance Mortgage Co. v. Rothwell, supra, 10 Cal.4th at p. 1247, 44 Cal.Rptr.2d 352, 900 P.2d 601.)
The Supreme Court in Alliance made its intentions very clear from the inception of its opinion. ...
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