Passanisi v. Merit-Mcbride Realtors, Inc.

• Decision Date: 08 April 1987
• Citation: 236 Cal.Rptr. 59,190 Cal.App.3d 1496
• Court: California Court of Appeals Court of Appeals
• Parties: Gary PASSANISI, et al., Plaintiffs and Appellants, v. MERIT McBRIDE REALTORS, INC., et al. Defendants and Respondents. Civ. C000147.

Page 59

236 Cal.Rptr. 59

190 Cal.App.3d 1496

Gary PASSANISI, et al., Plaintiffs and Appellants, v. MERIT McBRIDE REALTORS, INC., et al. Defendants and Respondents.

Civ. C000147.

Court of Appeal, Third District, California.

April 8, 1987.

John D. Thomas, South Lake Tahoe, for plaintiffs and appellants

Williams, Kelly, Polverari & Skelton, Joseph Polverari and Steve DeFilippis, Redwood City, for defendants and respondents.

SPARKS, Associate Justice.

This case presents issues relating to the rights of trustors of a deed of trust when Following a trustee's sale of real property to satisfy a debt owed by plaintiffs Gary and Judy Passanisi to defendants Merit McBride Realtors, Inc., Jeannette Ceser, and Doris Betts (Merit-McBride), ¹ the plaintiffs filed a motion to compel Merit-McBride to acknowledge the satisfaction of a judgment for attorney's fees and costs awarded to it in an earlier action between the parties. In that action Merit-McBride had successfully defended against plaintiffs' attempt to enjoin a trustee's sale. The motion was denied and plaintiffs appeal asserting a plethora of claims. In essence, plaintiffs claim the trustee's sale either satisfied the judgment by operation of law or statutorily prevented its subsequent enforcement. We reject both of those contentions and hold instead that the judgment was neither automatically satisfied nor rendered unenforceable by the sale of the property at the trustee's sale. But we further conclude that there was a surplus from the proceeds of the trustee's sale which may be offset against the judgment. We shall therefore reverse and remand with directions for the trial court to determine the amount of the offset and to compel acknowledgment of satisfaction of the judgment to that extent.

the secured realty is sold at a trustee's sale and the beneficiary is the successful bidder. At issue is the right of the trustors to the satisfaction of an earlier judgment for attorney's fees awarded to the beneficiary in an unsuccessful suit to enjoin the sale.

FACTUAL AND PROCEDURAL BACKGROUND

The appellate record may fairly be described as skimpy. Nevertheless, the facts essential to a resolution of the issues on appeal are undisputed and may be gleaned from this fragmentary record.

It appears that plaintiffs desired to sell their house and move to another place. They attempted to sell their home in order to raise money for a down payment on a new home. Having difficulty finding a buyer for their old home, and in order to raise the money for the new home, plaintiffs borrowed in excess of $21,000 on the equity in their old home. Merit-McBride was the lender and it took a second deed of trust on the old home as security for its loan. Plaintiffs defaulted on the loan and Merit-McBride notified the trustee to exercise the power of sale in the deed of trust. Plaintiffs responded by bringing an action to enjoin the sale and succeeded in obtaining a preliminary injunction. Their success, however, was short-lived. Merit-McBride prevailed at the trial and the plaintiffs were denied any relief. Pursuant to a clause in the deed of trust, Merit-McBride sought an award of attorney's fees in the sum of $15,473.50, together with costs incurred in the action for injunctive relief. ² The trial court awarded attorney's fees in the amount of $9,500, and costs in the amount of $944.78. Judgment was entered on May 1, 1984, in Merit-McBride's favor for these amounts. No appeal was taken from this judgment and it became final.

The trustee's sale then took place on July 9, 1984. Merit-McBride was the successful bidder at the sale. It bid the total amount of $52,091.48 for the property. After an inquiry plaintiffs were advised that the amount of the bid at the trustee's sale reflected the following sums: principal, $21,160.00; accrued interest, $10,050.72; advances, $9,267.35; interest on advances, $91.80; attorney's fees, $10,523.52; and trustee fees and expenses, $998.09.

Plaintiffs labor under the belief the sale of the property at the trustee's sale had the effect of satisfying all of their debts to Merit-McBride, including the judgment for attorney's fees and costs awarded in the action for injunctive relief. Consequently, they moved for an order requiring Merit-McBride to acknowledge the satisfaction of the judgment, and for damages, sanctions, attorney's fees and costs. (See Code Civ.Proc. The trial court denied plaintiffs' motion to compel Merit-McBride to acknowledge the satisfaction of the judgment. This appeal followed.

                § 724.050.) 3  Merit-McBride replied with a declaration from its counsel which asserted that no part of the judgment had been included in the amount bid at the trustee's sale.  The attorney explained that the total amount of attorney's fees incurred by Merit-McBride in defending the action and in foreclosing on plaintiffs' property was $20,023.52, from which was subtracted the court-awarded attorney's fees of $9,500, leaving a balance of $10,523.52.  This balance was then used in the bid to reflect the amount of unpaid attorney's fees.  Counsel concluded:  "Thus, only the attorney's fees actually incurred by Merit-McBride and not covered by this Court's judgment were bid in at the sale."
                

DISCUSSION

The issues presented in this case are obfuscated by the failure of the parties to view the case from a proper legal perspective. Most of the confusion can be eliminated with a brief explanation of what occurs when a trustee under a deed of trust sells the subject property to satisfy the trustor's obligation to the beneficiary.

When a trustor defaults on the obligation, the beneficiary may elect, pursuant to statutory provision, to pursue a judicial sale of the property by filing a suit for foreclosure. ⁴ (Code Civ.Proc., § 725a; 3 Witkin, Summary of Cal.Law (8th ed. 1973) Security in Real Property, § 96, at p. 1567.) Alternatively, he can rely upon the power of sale in the deed of trust and pursue a private sale. (Carpenter v. Hamilton (1943) 59 Cal.App.2d 146, 148, 138 P.2d 353; see also Cal.Mortgage and Deed of Trust Practice (Cont.Ed.Bar 1979) Trustee's Sale, §§ 6.1-6.5, pp. 257-261.) Where the beneficiary elects to pursue a private sale, there are statutory requirements for notice and the manner in which a sale is to be conducted. (Civ.Code, § 2924, et seq.) Also by virtue of statute, the debtor is given the opportunity to cure his default and avoid the sale. (Civ.Code, § 2924c.) Where the debtor does not cure the default, and has not obtained an injunction prohibiting the sale, the trustee or his agent appears at the time and place set for the sale and may sell the property to the highest bidder. (Civ.Code, § 2924g, subd. (a).)

At the trustee's sale anyone may bid for the property, including the beneficiary. (Cal.Mortgage and Deed of Trust Practice, op. cit. supra, § 6.23, p. 280.) The sale "shall be made at auction, to the highest bidder...." (Civ.Code, § 2924g, subd. (a).) If the creditor-beneficiary chooses to bid for the property he is doing so in the capacity of a purchaser. The only distinction between the creditor-beneficiary and any other bidder is that the creditor-beneficiary is entitled to bid on credit up to the amount of the total obligation he is owed. "The present beneficiary of the deed of trust under foreclosure shall have the right to offset his or her bid(s) only to the extent of the total amount due the beneficiary including the trustee's fees and expenses." (Civ.Code, § 2924h, subd. (b).) If the creditor-beneficiary makes a "full credit bid" ⁵ for the property and is the After the sale the trustee has the duty of disbursing the proceeds of the sale. The proceeds are used first to pay the costs of the sale and to satisfy the obligation owed by the debtor to the creditor-beneficiary. In the event the proceeds are insufficient for this purpose there is a deficiency. Where the creditor has chosen to proceed by trustee's sale rather than by judicial foreclosure, he may not seek to obtain a deficiency judgment on the note. (Code Civ.Proc., § 580d.) If the amount paid for the property by the successful bidder is more than sufficient to satisfy the obligation and the costs of sale then there is a surplus. Since the creditor is only entitled to the repayment of his debt, in the event of a surplus the debtor is entitled to the surplus, either paid directly to him or used on his behalf, such as by payment to his other creditors. This result is required statutorily in a judicial sale, and has been imposed by judicial decision with respect to a private sale. (Code Civ.Proc., § 727; Nomellini Constr. Co. v. Modesto S. & L. Assn. (1969) 275 Cal.App.2d 114, 118, 79 Cal.Rptr. 717.) That requirement was also contained in a specific provision in the deed of trust involved in this case. With respect to the disbursement of the proceeds of the sale, the debtor is not required to accept the creditor's word for what is due on the obligation and costs of sale. The debtor may, by appropriate action, obtain judicial review of the amounts claimed by the creditor, and may establish the existence of a surplus in this manner. (de la Cuesta v. Superior Court (1984) 152 Cal.App.3d 945, 950, 200 Cal.Rptr. 1.)

                successful bidder, then the proceeds from the trustee's sale are exactly sufficient to satisfy the debt.  In that case, there is no deficiency and no surplus.  (See Brown v. Critchfield (1980) 100 Cal.App.3d 858, 868-869, 161 Cal.Rptr. 342.)   In short, "when the beneficiary bids the full amount of all principal, interest and costs due by the terms of the note and deed of trust, the full credit bid establishes the value of the property and the amount of the debt, the debt is fully satisfied, the lien is extinguished, and the beneficiary cannot pursue any other remedy regardless of the actual value of the property on the date of the sale."  (1 (Pt. 1) Miller & Starr (Rev. ed. 1975) Current Law of California Real Estate, Deeds of Trust and Mortgages, §

...