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You can search the entire site. or go to the recent opinions, or the chronological or subject indices. Baskurt v. Beal (11/26/2004) sp-5848

Baskurt v. Beal (11/26/2004) sp-5848

     Notice:   This opinion is subject to correction  before
     publication  in  the  Pacific  Reporter.   Readers  are
     requested to bring errors to the attention of the Clerk
     of  the  Appellate  Courts, 303  K  Street,  Anchorage,
     Alaska 99501, phone (907) 264-0608, fax (907) 264-0878,
     e-mail corrections@appellate.courts.state.ak.us.


            THE SUPREME COURT OF THE STATE OF ALASKA

SARAH A. BASKURT, ROBERT N.    )
WAINSCOTT, and ALLEN           )   Supreme Court No. S-11060
ROSENTHAL,                     )
               Appellants,     )
                               )   Superior Court No.
     v.                        )   3AN-00-7211 CI
                               )
ANNETTE J. BEAL and DAVID D.   )   O P I N I O N
BEAL,                          )
                               )
               Appellees.      )   [No. 5848 - November 26, 2004]
                               )


          Appeal  from the Superior Court of the  State
          of    Alaska,   Third   Judicial    District,
          Anchorage, William F. Morse, Judge.

          Appearances:  Mark  A.  Sandberg,   Sandberg,
          Wuestenfeld    &   Corey,   Anchorage,    for
          Appellants.   Sean  Halloran,  Hartig  Rhodes
          Hoge  &  Lekisch, PC, Anchorage, for Appellee
          Annette  Beal.  Robert H. Hume,  Jr.,  Landye
          Bennett   Blumstein,  LLP,   Anchorage,   for
          Appellee David Beal.

          Before:   Bryner,  Chief  Justice,  Matthews,
          Eastaugh,  and  Fabe,  Justices.  [Carpeneti,
          Justice, not participating.]

          MATTHEWS, Justice.

I.   INTRODUCTION

          Annette   Beal  purchased  two  adjoining  parcels   of

property in 1991 for $95,000 and $135,000.  The promissory  notes

on  the  two  parcels  were secured by a  single  deed  of  trust

covering  both  parcels.  In 1994 Annette paid  off  the  $95,000

note.  In 1999 Annette defaulted on the $26,780.81 debt remaining

on  the  other  note.   The  trustee  under  the  deed  of  trust

foreclosed on both parcels.  Sarah Baskurt, Robert Wainscott, and

Allen  Rosenthal  purchased the property at the foreclosure  sale

for  $26,781.81,  one  dollar over  the  remaining  debt  on  the

property.  The trial court set aside the sale on the grounds that

it was void and voidable.  We affirm.

II.  FACTS AND PROCEEDINGS

     A.   Facts

          This case involves two parcels of land originally owned

by  Marion  and Mortimer Moore.  In 1953 Mortimer was  granted  a

homestead patent to a forty-acre parcel which he conveyed to  his

wife,  Marion,  in 1959.  The following year, Marion  acquired  a

second  parcel to the north of the homestead property, Parcel  1.

In  1974 the majority of the homestead property was sold, leaving

Parcel  2, which adjoined Parcel 1 to the south.  The two parcels

were  never replatted or otherwise legally merged into  a  single

parcel.

          The   Moores   divorced  in  1976.   In   the   divorce

settlement,  Mortimer  received Parcel  1,  and  Marion  received

Parcel 2 and retained a life estate in Parcel 1.  Marion formed a

revocable  trust that became the owner of her interests  in  both

parcels with Marion as trustee of the trust.

          In  1991 Mortimer and Marion simultaneously sold  their

respective  parcels  to  Charles McAlpine.   The  following  day,

McAlpine conveyed the parcels to Annette Beal by quitclaim  deed.

These transactions were financed by two separate promissory notes

signed by McAlpine:  Note A for $95,000 payable to Mortimer;  and

Note  B for $135,000 payable to Marion.  Each note was to be paid

to the respective seller through its own separate escrow account.

           The two promissory notes were secured by a single deed

of  trust covering both parcels containing the following  special

condition:  This deed of trust is covered by 2 Promissory  Notes,

and  Trustor is aware that default on either of the 2 Note [sic],

will constitute default under the other Note and foreclosure laws

of  the  State  of Alaska shall apply.  The deed  of  trust  also

provided  that  [u]pon  default by  Trustor  in  payment  of  any

indebtedness  secured hereby . . . Trustee . . .  shall,  at  the

option of the Beneficiary, sell said property[,] . . . either  as

a  whole  or  in  separate parcels and in such order  as  it  may

determine,  at  public  auction to the highest  and  best  bidder

. . . .

          In 1994 Annette paid off the $95,000 owed on Note A for

Parcel  1  to Mortimer.  At that time, there was some  discussion

regarding paying off Note B, but Marion preferred to continue  to

receive  monthly payments rather than being paid off in a  single

lump  sum.  Marion did agree to a reduction of the interest  rate

on  Note  B.  The 1991 deed of trust was modified to reflect  the

payoff of the note to Mortimer and the change in interest rate on

Marions note.

          In  the fall of 1999, after an erratic payment history,

Annette fell behind in her payments.  Sarah Baskurt,1 the  Moores

daughter,   took   steps   to  commence  foreclosure,   including

contacting  attorney  Jim  Christie to conduct  the  foreclosure.

Christie  and  Land  Title  Company of  Alaska,  Inc.,  made  the

arrangements  for  the foreclosure.  At that time,  Annette  owed

$26,780.81 on Parcel 2, having paid approximately eighty  percent

of the original $135,000 purchase price.

          The foreclosure sale was held on April 26, 2000, inside

the   main  entrance  of  the  Nesbett  Memorial  Courthouse   in

Anchorage.  Prior to arriving at the sale, Baskurt, who wanted to

bid  on  the  property  but  believed she  lacked  the  financial

strength  and knowledge of property development to do so  on  her

own,  contacted  friends to see if they would  be  interested  in

bidding  on  the  property  as her  partner.   Robert  and  Joyce

Wainscott  agreed  and  Baskurt  and  Joyce  Wainscott  formed  a

partnership  for  the  purpose  of acquiring  and  developing  or

reselling  the property.  Baskurt, who believed the property  was

worth  at  least  $250,000, brought a check for $151,000  to  the

sale.   The Wainscotts brought a check for $100,000 to the  sale.

The  trio  had  at  least $251,000 available to  put  toward  the

          purchase price of the property.

          At  the  sale  Baskurt recognized her  neighbor,  Allen

Rosenthal,  whom Baskurt knew to have considerable experience  in

home construction.  Rosenthal had learned of the foreclosure sale

about  a  week earlier and had contacted Land Title, who referred

him  to  Christie.   Christie  provided  Rosenthal  with  general

information  about the property and the foreclosure.   Rosenthal,

who   believed  the  property  could  be  subdivided  for  family

residences or condominiums, thought that if he could purchase the

land for under $160,000 he would have gotten a good deal.  He had

with him cashiers checks for $60,000 and $100,000.

          Baskurt  approached Rosenthal and asked why he  was  at

the  sale.   Rosenthal  testified that he  told  Baskurt  he  was

interested  in bidding on the property but denies  that  he  told

Baskurt how much he was willing to bid.  Baskurt claims Rosenthal

told  her  he  would  be  willing to bid up  to  $95,000  on  the

property.   Baskurt asked Rosenthal to join her partnership  with

Joyce,  and  Rosenthal tentatively agreed.   Baskurt  spoke  with

Joyce,  and  the  three  cemented their partnership.   There  was

little discussion regarding bidding strategy or tactics, and  the

three   assumed   that   each  would  be  a  one-third   partner,

contributing  an  equal portion to the sale  price.   Immediately

following  the expansion of the partnership, Leslie Plikat,  Land

Titles  agent, inspected Baskurts and Rosenthals cashiers checks.

Plikat registered two bidders, Baskurt and Rosenthal.

          The  foreclosure  sale, conducted by Christie,  was  by

public  outcry.   Baskurt  made the  opening  and  only  bid  for

$26,781.81,  a  dollar  over  the  remaining  debt  owed  on  the

property,  on  behalf of the partnership.  There  were  no  other

bids,  and the property was sold to Baskurt, Joyce, and Rosenthal

via a trustees deed.

     B.   Proceedings

     On   May   17,  2000,  Annette  filed  a  complaint  against

Baskurt,  Wainscott, Rosenthal, McAlpine, and Land Title  seeking

to  have the foreclosure sale set aside.2 Baskurt, Wainscott, and

Rosenthal   (collectively  Purchasers)  subsequently  moved   for

summary  judgment, arguing there was no basis for  setting  aside

the  sale.   Purchasers motion for summary  judgment  was  denied

because  a question of fact remained whether the parties intended

for both parcels to be subject to foreclosure upon default of one

note  when  the other note had been satisfied.  After a three-day

bench trial, the superior court set aside the foreclosure sale as

both  void  and  voidable.   Final  judgment  setting  aside  the

foreclosure sale and awarding attorneys fees and costs to Annette

was entered on February 28, 2003.3  Purchasers appeal.

III. DISCUSSION

     A.   Standard of Review

          Purchasers  do  not appeal the trial  courts  extensive

findings of fact; rather they adopt the trial courts findings  as

their  statement  of the case on appeal.  Therefore  whether  the

sale  was void or voidable are questions of law requiring  us  to

apply  legal  principles  to  undisputed  facts.   We  apply  our

independent  judgment to such questions of law.4   We  adopt  the

rule  of  law  that  is  most persuasive in light  of  precedent,

reason, and policy.5

     B.   The Foreclosure Sale Was Voidable

          Pursuant  to  AS 34.20.070 a trustee under  a  deed  of

trust  executed  as security for the payment of  an  indebtedness

may,  in  the case of default or noncompliance with the terms  of

the  deed, foreclose and sell the property according to the terms

provided in the deed.6  However, defects in the mechanics of  the

trustees  exercise  of  the  power to foreclose  may  render  the

foreclosure sale voidable.7 Generally, mere inadequacy  of  price

is   not  sufficient  by  itself  to  require  setting  aside   a

foreclosure sale.8   However, if the inadequacy of the sale price

is  (1)  so  gross  as  to  shock  the  conscience  and  raise  a

          presumption of fraud or unfairness, or (2) is coupled with other

irregularities in the sale procedures, then invalidation  of  the

sale may be justified.9

          Gross  inadequacy is measured by reference to the  fair

market  value  of the property at the time of the  sale.10   Fair

market value for these purposes has been defined as

          not  the  fair forced sale value of the  real
          estate, but the price which would result from
          negotiation and mutual agreement, after ample
          time  to  find a purchaser, between a  vendor
          who  is  willing, but not compelled to  sell,
          and  a  purchaser who is willing to buy,  but
          not  compelled to take a particular piece  of
          real estate.[11]
          
          Courts  determine  adequacy of price by  comparing  the

fair  market value to the purchase price of the property  at  the

foreclosure sale.  Jurisdictions vary on what percentage of  fair

market  value  renders  the  purchase price  grossly  inadequate.

Foreclosure  sale prices of fifty percent or more of fair  market

value  are  routinely upheld.12  Even prices garnering less  than

fifty  percent of fair market value are often upheld.13  However,

several courts have upheld the invalidation of a foreclosure sale

that  produced a price of twenty percent of fair market value  or

less.14  The New Mexico Supreme Court has enunciated the standard

that when the price falls into the ten to forty percent range, it

should not be confirmed absent good reasons why it should be.15

          The  Restatement  adopts  the  position  that  although

  gross  inadequacy  cannot be defined in  terms  of  a  specific

percentage of fair market value, generally, a court is  warranted

in  invalidating  a  sale where the price  is  less  than  twenty

percent  of  fair  market  value and,  absent  other  foreclosure

defects,  is  usually not warranted in invalidating a  sale  that

yields in excess of that amount.16

          Even  where  the foreclosure sale price is not  grossly

inadequate,  a low price coupled with some other irregularity  in

the  foreclosure proceeding can be sufficient to render the  sale

voidable.   As  explained by the United States Supreme  Court  in

          Schroeder v. Young17 and noted by this court in McHugh:

          While  mere  inadequacy of price  has  rarely
          been  held  sufficient in itself  to  justify
          setting  aside a judicial sale  of  property,
          courts  are  not  slow to  seize  upon  other
          circumstances impeaching the fairness of  the
          transaction,  as  a cause  for  vacating  it,
          especially if the inadequacy be so  gross  as
          to  shock  the conscience.  If the  sale  has
          been  attended  by  any irregularity,  as  if
          several  lots  have been sold in  bulk  where
          they  should  have been sold  separately,  or
          sold  in  such manner that their  full  value
          could  not be realized; if bidders have  been
          kept  away; if any undue advantage  has  been
          taken  to the prejudice of the owner  of  the
          property, or he has been lulled into a  false
          security;   or,   if  the   sale   had   been
          collusively,   or   in  any   other   manner,
          conducted  for the benefit of the  purchaser,
          and  the  property has been sold at a greatly
          inadequate price, the sale may be set  aside,
          and the owner may be permitted to redeem.[18]
          
           Other  commentators agree.  Professor Nelson  explains

that problems connected with foreclosure sales, including

          problems  associated with the notice  of  the
          sale, sale by parcel or in bulk, and adequacy
          of  the  foreclosure price . . .  have  their
          greatest impact in a cumulative sense.  While
          one  of  these  problems may  not  always  be
          sufficient to set aside a sale, the  more  of
          them  that are present in one fact situation,
          the  greater the likelihood that a  new  sale
          will be ordered.[19]
          
The Restatement adopts a sliding-scale approach to the cumulative

effect  that price and irregular procedures have on the  fairness

of the sale:

               Even  where  the foreclosure  price  for
          less   than  fair  market  value  cannot   be
          characterized as grossly inadequate,  if  the
          foreclosure  proceeding  is  defective  under
          local  law in some other respect, a court  is
          warranted  in invalidating the sale  and  may
          even be required to do so.  Such defects  may
          include, for example, . . . selling too  much
          or  too  little of the mortgaged real estate.
          For  example,  even a slight irregularity  in
          the  foreclosure process coupled with a  sale
          price that is substantially below fair market
               value  may  justify or even  compel  the
          invalidation of the sale. . . . On the  other
          hand,  even  a sale for slightly  below  fair
          market   value  may  be  enough  to   require
          invalidation  of the sale where  there  is  a
          major defect in the foreclosure process.[20]
          
          In McHugh, we considered the effect of selling property

in bulk as opposed to by parcel.21  Though we declined to adopt a

flat rule requiring the trustee to sell real property in separate

lots or parcels, rather than as a whole unit,22 we recognized that

a  trustee under a deed of trust is a dual fiduciary owing duties

to both the trustor and the beneficiary.23  Among the duties owed

by  the  trustee  is the duty to take reasonable and  appropriate

steps to avoid sacrifice of the debtors property and interest.24

          Bearing these principles in mind, we turn to the  facts

of  this case.  Purchasers contend that there was no basis to set

the  foreclosure sale aside as voidable.  They argue, among other

things, that the sale should not have been set aside on the basis

of an inadequate price since under McHugh, an inadequate price is

an  insufficient  basis  for setting aside  a  foreclosure  sale.

Further,  they  contend that the sale should not  have  been  set

aside  on the ground that the parcels were sold together  because

under  McHugh, the trustee was under no duty to sell the  parcels

separately.

          We  are not convinced by Purchasers argument.  The test

for  whether  a  sale  is voidable based on price  inadequacy  is

whether  the  price paid was grossly inadequate when compared  to

the  fair  market  value  of the property  on  the  date  of  the

foreclosure  sale.   The trial court found that  the  1991  sales

price  of  $225,000 was the best indicator of fair market  value.

The  fact  that the foreclosure purchase price of $26,781.10  was

less  than fifteen percent of the sale price indicates  that  the

gross  inadequacy standard was met.25  The trial court so  found,

and  Purchasers  identify no circumstances indicating  that  this

finding is erroneous.

          The  superior court also found that the sale of  either

          parcel alone would likely have generated sufficient proceeds to

satisfy  the  amount due.  By conducting the sale in bulk  rather

than  selling only one parcel, the court found that  the  trustee

failed  in its duty to act reasonably to protect Beals interests.

This  finding  is supported by the evidence and is in  accordance

with  our observation in McHugh that a trustee has a duty to take

reasonable steps to act impartially and in such a way as  not  to

sacrifice  the  debtors  property.26   When  coupled   with   the

inadequacy  of  the price, the trustees unreasonable  failure  to

sell only one parcel initially justifies invalidating the sale.27

          We  conclude that the superior court properly set aside

the  sale  based  on the grossly inadequate sale  price  and  the

trustees failure to sell only one parcel in breach of its duty to

act reasonably to protect Beals interests.

IV.  CONCLUSION

          For  the  above reasons we conclude that the  sale  was

voidable and AFFIRM the decision of the superior court.

_______________________________
     1     Baskurt had become the trustee of the Marion E.  Moore
Revocable Trust in 1998 after Marion died.

     2     McAlpine and Land Title filed disclaimers of  interest
in the property and are not parties to this appeal.

     3    Prior to trial, David Beal, Annettes husband, with whom
she  was  going through a divorce, was conditionally  allowed  to
intervene  so  long  as the trial was not continued  and  no  new
issues were raised.

     4    Guttchen v. Gabriel, 49 P.3d 223, 225 (Alaska 2002).

     5    Guin v. Ha, 591 P.2d 1281, 1284 n.6 (Alaska 1979).

     6    AS 34.20.070(a) provides in pertinent part:

               If a deed of trust is executed conveying
          real  property  located in  the  state  to  a
          trustee  as  security for the payment  of  an
          indebtedness  and the deed provides  that  in
          case  of  default or noncompliance  with  the
          terms of the trust, the trustee may sell  the
          property  for condition broken, the  trustee,
          in  addition to the right of foreclosure  and
          sale,  may execute the trust by sale  of  the
          property,  upon  the conditions  and  in  the
          manner  set  forth  in  the  deed  of  trust,
          without   first   securing   a   decree    of
          foreclosure and order of sale from the court,
          if  the  trustee has complied with the notice
          requirements of (b) of this section.
          
     7    See Rosenberg v. Smidt, 727 P.2d 778, 784 (Alaska 1986)
(distinguishing   void and voidable sales;  in  case  of  latter,
alleged defect goes not to the trustees right to proceed with the
foreclosure  but only to the mechanics of exercising that  power)
(internal citations omitted).

     8     See  McHugh v. Church, 583 P.2d 210, 213 (Alaska 1978)
(holding  mere  inadequacy  of price insufficient  to  set  aside
foreclosure sale in context of judicial sale); see also Grant  S.
Nelson  & Dale A. Whitman, Real Estate Finance Law  7.21, at  672
(4th  ed. 2002) (All jurisdictions adhere to the recognized  rule
that  mere  inadequacy of the foreclosure  sale  price  will  not
invalidate   a   sale,   absent  fraud,   unfairness   or   other
irregularity.).

     9    McHugh, 583 P.2d at 213-14.

     10    Restatement 3d of Property (Mortgages)  8.3 cmt. b, at
584, 593 (1997).

     11    Id. at 584; see also BFP v. Resolution Trust Corp., 511
U.S.  531,  537-38 (1994) (The market value of . . . a  piece  of
property  is  the price which it might be expected  to  bring  if
offered  for sale in a fair market; not the price which might  be
obtained  on  a  sale at public auction or a sale forced  by  the
necessities of the owner, but such a price as would be  fixed  by
negotiation  and mutual agreement, after ample  time  to  find  a
purchaser, as between a vendor who is willing (but not compelled)
to  sell  and a purchaser who desires to buy but is not compelled
to  take the particular . . . piece of property.) (citing  Blacks
Law Dictionary 971 (6th ed. 1990)).

     12     See, e.g., Fed. Deposit Ins. Corp. v. Villemaire, 849
F.  Supp. 116 (D. Mass. 1994); Kurtz v. Ripley County State Bank,
785 F. Supp. 116 (E.D. Mo. 1992); Danbury Savings & Loan Assn  v.
Hovi,  569  A.2d 1143 (Conn. App. 1990); Moody v.  Glendale  Fed.
Bank,  643  So. 2d 1149 (Fla. Dist. App. 1994); Guerra v.  Mutual
Federal  Savings  &  Loan Assn, 194 So. 2d 15  (Fla.  Dist.  App.
1967);  Long  Island Sav. Bank v. Valiquette,  584  N.Y.S.2d  127
(N.Y.  App.  Div.  1992); Glenville & 110 Corp. v.  Tortora,  524
N.Y.S.2d 747 (N.Y. App. Div. 1988); Zisser v. Noah Indus.  Marine
&  Ship Repair, Inc., 514 N.Y.S.2d 786 (N.Y. App. Div. 1987); S &
T  Bank  v. Dalessio, 632 A.2d 566 (Pa. Super. 1993); Cedrone  v.
Warwick Fed. Sav. & Loan Assn, 459 A.2d 944 (R.I. 1983).

     13    See, e.g., Moeller v. Lien, 30 Cal. Rptr. 2d 777 (Cal.
App.  1994)  (25%  of fair market value); Shipp  Corp.,  Inc.  v.
Charpilloz, 414 So. 2d 1122 (Fla. Dist. App. 1982) (33%  of  fair
market value); Hurlock Food Processors Inv. Assocs. v. Mercantile-
Safe  Deposit & Trust Co., 633 A.2d 438 (Md. 1993) (35%  of  fair
market  value);  Frank Buttermark Plumbing  &  Heating  Corp.  v.
Sagarese,  500 N.Y.S.2d 551 (N.Y. App. Div. 1986)  (30%  of  fair
market value).

     14     See,  e.g., Ballentyne v. Smith, 205 U.S. 285  (1907)
(14%  of  fair market value); Crown Life Ins. Co. v.  Candlewood,
Ltd., 818 P.2d 411 (N.M. 1991) (15% of fair market value); United
Oklahoma  Bank v. Moss, 793 P.2d 1359 (Okla. 1990) (approximately
20%  of fair market value); Rife v. Woolfolk, 289 S.E.2d 220  (W.
Va. 1982) (14% of fair market value).

     15     Armstrong  v. Csurilla, 817 P.2d 1221, 1234-35  (N.M.
1991).

     16    Restatement  8.3 cmt. b, at 584.

     17    161 U.S. 334, 337-38 (1896).

     18     McHugh  v.  Church, 583 P.2d 210, 213  (Alaska  1978)
(quoting Schroeder, 161 U.S. at 337-38).

     19    Grant S. Nelson & Dale A. Whitman, Real Estate Finance
Law  7.16, at 657 (4th ed. 2002).

     20    Restatement 3d of Property (Mortgages)  8.3, at 587.

     21    See McHugh, 583 P.2d at 213-18.

     22    Id. at 218.

     23    Id. at 214.

     24    Id. at 218.

     25    See discussion supra pp. 7-9.

     26    McHugh, 583 P.2d at 218.

     27    Id.  Our conclusion should not be read as implying that
the  gross  inadequacy of the sale price alone  would  not  be  a
sufficient ground to set aside the sale.  It is not necessary  to
reach  that question in this case because of the additional  flaw
in the sale process.