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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.
