This article is an excerpt from the UTA QUARTERLY
Is The Trustee Liable For Proceeding To Sale On A Void Deed of Trust?
By T.Robert Finlay, Esq., Wright, Finlay & Zak, LLP and Kathy Shakibi, Esq., Wright, Finlay & Zak, LLP
“Can a foreclosure trustee possibly be held liable for proceeding with foreclosure sale at the instruction of the beneficiary, when the borrower has filed complaint alleging that the deed of trust is ‘void?’ The answer is yes.”
California law holds that a trustee of a deed of trust is a common agent for all parties. (Miller & Starr, California Real Estate (2000 3rd Ed.) (Robert Finlay & Kathy Shakibi, Is the Trustee Liable for Proceeding to Sale on a Void Deed of Trust, UTA Quarterly, Spring, 2008.
An agent has the duty to use reasonable skill and diligence and if he violates this duty, he is liable for any loss which his principal may sustain as the result of his negligence. (Kerivan v. Title Ins. And Trust Co. (1983) 147 Cal.App. 3d 225, 229.
Moreover, a trustee or mortgagee may be held liable to the trustor for damages resulting from an illegal, fraudulent or willfully oppressive foreclosure sale. ((Munger v. Moore (1970) 11 Cal.App.3d 1,7.
This creates a dilemma for the trustee. On one hand, the trustee has a duty to act according to the terms of the deed of trust, and protect the interest of the beneficiary by completing the foreclosure sale. On the other hand, the trustee has to use reasonable skills, and diligence, and protect the interest of the borrower, and if the deed of trust is void, there is nothing to foreclose on.
Adding to the trustee’s problem is that there is generally not enough time or information between first learning of the complaint, and the scheduled foreclosure sale. Plus, if the beneficiary is non-responsive, or does not have the time to give the complaint serious consideration, the beneficiary’s automated systems may instruct the trustee to proceed with the sale. What is the trustee to do?
See entire article at: UTA Quarterly, Spring 2008.