The Condo Group v. Bank Of America

IN THE COURT OF APPEALS FOR THE STATE OF WASHINGTON
LINDEN PARK HOMEOWNERS No. 72659-5-
ASSOCIATION, a Washington
Non-Profit Corporation, c--t
C3
Plaintiff,
DIVISION ONE
DUSTIN M. MEARS, an individual and
JANE DOE or JOHN DOE MEARS,
an individual, Spouses or domestic
partners, and the marital or quasi marital
community composed thereof; and
BANK OF AMERICA, N.A., a federally
chartered banking association,
Defendants. UNPUBLISHED OPINION
CONDO GROUP, LLC,
Intervening Plaintiff/Appellant
v.
BANK OF AMERICA, N.A., a federally
chartered banking association, and
DOES 1 through 10,
Intervening Defendants/Respondent FILED: October 19. 2015
Spearman, C.J. —The issue in this case is whether the successful bidder at a
foreclosure auction is a bona fide purchaser ("BFP") when he is an experienced investor
and the opening bid is substantially lower than the judgment amount. The trial court
found that the discrepancy between the amount ofthe judgment and the opening bid
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created a duty of inquiry and, because the purchaser failed to satisfy that duty, he was
not a BFP. Finding no error, we affirm.
FACTS
The Linden Park Condominium Owners' Association ("Linden Park") held a lien
on a condominium for unpaid homeowner's dues and assessments. A portion of Linden
Park's lien had super priority over two deeds of trust previously recorded by Bank of
America. Chapter 64.32 RCW. Linden Park filed a complaint to foreclose its lien and
joined Bank of America.
Bank of America did not answer or appear. The trial court entered an order of
default against the homeowner, a default judgment against Bank of America, and a
foreclosure order. The court declared a principal judgment against the homeowner of
$11,419.14.1 The judgment stated that Bank of America's interest "will be forever and
fully extinguished" at the foreclosure sale. Clerk's Papers (CP) at 61. The foreclosure
sale was set for January 25, 2013 and the notice of sheriff's sale was duly published.
Condo Group, LLC, (Condo Group) purchases about 20 properties a year, and
specializes in condominiums sold at judicial foreclosure sales under super priority liens.
Ray Stevenson, a principal of the Condo Group, saw the notice of foreclosure sale for
the Linden Park condominium. Condo Group investigated by driving by the property,
reviewing the court records, checking the grantors index and the tax assessments, and
making sure that Bank of America had not filed a notice of appearance. Condo Group
was aware that the total amount due Linden Park was $11,419.14 and that the super
priority portion of the lien was about $1,800. Stevenson estimated that the opening bid
The super priority portion of the lien was approximately $1,800.
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would be somewhat higher than the judgment amount, perhaps around $13,000. Condo
Group concluded that the property would be a good investment and decided to bid on it.
The day before the foreclosure sale, Bank of America paid Linden Park the
amount of the super priority lien. Bank of America took no action to notify the court of its
payment or postpone the sale. Linden Park sent an email to the sheriff's office
requesting that notice be given at the sale that Bank of America had paid the super
priority lien and that a stipulation to that effect would be filed within the next several
days.
Immediately before the sale, Stevenson reviewed the docket and confirmed that
no amendments, stipulations, or notices of appearance had been filed. The sheriff's
deputy did not give notice to those attending the foreclosure sale of the payment to
Linden Park. The deputy announced an opening bid of $1,000. Stevenson was
surprised that the opening bid was so low. He bid $2,000. No other bids were entered
and the deputy declared the property sold to Condo Group.
Following the sale, Stevenson delivered Condo Group's cashier's check to the
sheriff's office and spoke with the administrative head of the civil unit, Eva Cunio.
Stevenson referred to the sale and said "Hey, what went on here? That's an odd one."
Cunio told him that Linden Park had requested that the sheriff announce that the lender
had preserved its interest. She stated that she had discussed the request with some of
her associates and decided that they could not make the announcement because they
hold sales pursuant to orders from the court, not according to instructions from the
parties.
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On February 26, 2013, Linden Park filed a motion to confirm the Sheriff's Sale.
Condo Group intervened and sought a declaration that the sale took place according to
the foreclosure order and that Bank of America's interest had been extinguished at the
sale. Bank of America filed a motion to vacate the default order and judgment. The trial
court granted Bank of America's motion to vacate the default judgment. The parties
agreed to a stipulated order confirming the foreclosure sale but leaving open the
question of whether Condo Group was a BFP and took free of Bank of America's
interest.
Condo Group and Bank of America filed cross motions for summary judgment.
The trial court found that Condo Group had actual knowledge of the judgment amount
prior to the Sheriff's Sale and, given that the foreclosed property is sold to satisfy the
judgment, the discrepancy between the judgment amount and the opening bid would
have caused an ordinarily prudent person to inquire further. It thus found that Condo
Group was not a BFP and granted summary judgment for Bank of America. Condo
Group appeals.
DISCUSSION
This court reviews a summary judgment order de novo. Camicia v. Howard S.
Wright Constr. Co., 179 Wn.2d 684, 693, 317 P.3d 987 (2014). Summary judgment is
appropriate if the evidence in the record demonstrates that there are no genuine issues
of material fact and the moving party is entitled to judgment as a matter of law. CR
56(c); Becker v. Washington State Univ.. 165 Wn. App. 235, 245-46, 266 P.3d 893(2011). We consider all facts in the light most favorable to the nonmoving party and
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review all questions of law de novo. Erickson v. Chase, 156 Wn. App. 151, 156, 231
P.3d 1261 (2010).'
The Trial Court's Ruling Should Be Affirmed
A BFP is one who purchases property for valuable consideration in good faith,
without notice of another's claim of right to the property. Albice v. Premier Mortg. Servs.
of Washington. Inc., 174 Wn.2d 560, 573, 276 P.3d 1277 (2012). Notice of another
party's claim of right may be actual or constructive. Id. A buyer receives constructive
notice when the facts and circumstances surrounding the sale "would cause an
ordinarily prudent person to inquire further." jd. See also. Paganelli v. Swendsen, 50
Wn.2d 304, 308-09, 311 P.2d 676 (1957) (discussing constructive notice). A
circumstance that creates a duty of inquiry provides "'only notice of what a reasonable
inquiry would reveal.'" Albice, 174 Wn.2d at 577 (quoting Paganelli. 50 Wn.2d at 309).
A buyer's experience as a real estate investor carries "substantial weight" in
determining whether the events surrounding the sale created a duty to inquire into
possible defects in the title or sale of the property. See Albice. 174 Wn.2d at 573;
Miebach v. Colasurdo. 102 Wn.2d 170, 176, 685 P.2d 1074 (1984). Whether a
purchaser is a BFP is a mixed question of law and fact, as "[wjhat a purchaser knew is a
factual question but the legal significance of what he knew is a legal question." South
Tacoma Way. LLC v. State. 146 Wn. App. 639, 652-53, 191 P.3d 938 (2008) rev'd on
other grounds. 169Wn.2d 118, 233 P.3d 871 (2010) (citing Peoples Nat'l Bank of
Wash, v. Birnev's Enters.. Inc.. 54 Wn. App. 668, 674, 775 P.2d 466 (1989).
The parties do not dispute that the foreclosure order declared that Bank of
America's interest would be extinguished at the sale or that Bank of America failed to
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enter a stipulation, request a postponement, or give notice to the court after it paid
Linden Park. They also do not dispute that Condo Group, as a sophisticated investor,
diligently investigated the property prior to the sale and knew that Linden Park's total
lien was over $11,000, of which the super priority portion was about $1,800. There is no
dispute that the opening bid was $1,000 and that Stevenson was surprised that the
opening bid was so low. The issue is the legal significance of these facts.
Bank of America argues that, given Condo Group's knowledge of the judgment
amount and its experience with foreclosure sales under super priority liens, the opening
bid, which was lower than even the super priority portion of Linden Park's lien, triggered
a duty of inquiry. Condo Group argues that it reasonably relied on the court records,
which declared that Bank of America's interest would be extinguished at the sale. We
agree with Bank of America. While we do not condone Bank of America's apparent
negligence in protecting its rights, Condo Group's argument fails because its presale
diligence does not mean it can turn a blind eye to the circumstance that arose when the
opening bid was called. Because the foreclosed property is sold to satisfy the judgment,
the discrepancy between the judgment and the opening bid, particularly for the
sophisticated real estate investor, was a circumstance that "would cause an ordinarily
prudent person to inquire further." Albice, 174 Wn.2d at 573.
Condo Group also asserts that it had no information indicating that the opening
bid was low because Bank of America had made a payment. Condo Group states that,
in its experience, opening bids may be low for many reasons and sales are customarily
postponed when payment has been made. However, the duty of inquiry does not
require actual knowledge that a third party has a claim of right or a circumstance that
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can only be explained by a third party's claim. All that is required to trigger the duty of
inquiry is "'information ... which would excite apprehension in an ordinary mind and
prompt a person of average prudence to make inquiry." Paganelli, 50 Wn.2d at 308(quoting Daly v. Rizzutto. 59 Wash. 62, 65, 109 P. 276 (1910)). In the circumstances
present here, we hold that the discrepancy between the opening bid and the judgment
amount was information that would prompt a prudent investor to make inquiry.
Condo Group next argues that, even ifthe opening bid triggered a duty of inquiry,
it could not reasonably or diligently conduct an investigation to determine why the
opening bid was low in the context of an auction in progress. A circumstance that
creates a duty of inquiry provides "'only notice of what a reasonable inquiry would
reveal.'" Albice. 174 Wn.2d at 577 (quoting Paganelli. 50 Wn.2d at 309). Condo Group
relies on Hendricks v. Lake, 12 Wn. App 15, 22, 528 P.2d 491 (1974), to assert that the
time frame must be considered, and contends that no reasonable inquiry is possible in
the "minutes, if not seconds" between opening bid and purchase. Brief of Appellant at
15-16. Hendricks, however, merely points out that for a circumstance to trigger a duty of
inquiry, it must be known to the buyer before he purchases the property. Hendricks, 12
Wn. App. at 22. Here, there is no dispute that the discrepancy between the opening bid
and the judgment amount was known to Condo Group before it purchased the property.
Moreover, in this case a reasonable inquiry would have involved only a question
to the deputy calling the sale. The sheriff's office had information that the opening bid
was low because the lender had paid the super priority lien. Had Stevenson asked,
there is no reason to believe that the deputy would have withheld that information.
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Accordingly, we conclude that on the facts of this case Stevenson had a duty to inquire
and a reasonable inquiry would have revealed Bank of America's interest.
The judgment of the trial court is affirmed.
WE CONCUR:
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