Ninth Circuit Court of Appeal Affirms Judgment In Favor of Lender on Foreclosure Disclosure Issue

A third party purchaser at a non-judicial foreclosure sale filed a State Court action against Attlesey | Storm, LLP’s client, the foreclosing beneficiary, for fraud, negligent misrepresentation, rescission and restitution, under Karoutas v. HomeFed Bank (1991) 232 Cal.App.3d 767, claiming the foreclosing beneficiary failed to disclose a utilities easement issue (i.e., an alleged material defect) prior to the trustee’s sale.The third party purchaser sought to rescind the trustee’s sale and demanded over $800,000 in damages.Attlesey | Storm, LLP removed the case to United State Federal District Court.

After a hearing on the parties’ cross Motions for Summary Judgment, in July of 2013, the Federal District Court Judge denied the third party purchaser’s motion and granted Attlesey | Storm, LLP’s Motion for Summary Judgment.The Court thereafter entered judgment in favor of Attlesey | Storm, LLP’s client, finding the third party, a sophisticated purchaser with over a decade of experience purchasing properties at trustee’s sales, could have reasonably discovered the utilities easement issue prior to the foreclosure sale through the publicly available records.

More specifically, the Court found that had the third party conducted a search of the City’s records to determine if a certificate of occupancy had been issued, it would have discovered the utilities easement issue prior to the foreclosure sale.As a result, the foreclosing beneficiary had no duty to disclose the allegedly material defect prior to the trustee’s sale.In addition, the Court held that even if it had found the foreclosing beneficiary had a duty to disclose, summary judgment in favor of the beneficiary was still appropriate pursuant to the equitable doctrines of waiver and laches because Plaintiff waited over two years to file its lawsuit all the while reaping the benefits of the Property. Read the Court’s opinion here.