Central Financial Services, Inc. v. Spears

Brief Fact Summary. A mortgage foreclosed on property, and then resold the property for a much higher price.

Synopsis of Rule of Law. A sale of mortgaged property within twelve days of the foreclosure sale at a price two and one-half times the bid of the mortgage is so inadequate that it shocks the conscience.

Facts. Marshall Spears (Plaintiff) borrowed money from Central Financial Services, Inc. (Defendant) and executed a promissory note and a deed of trust to secure the debt. The loan became delinquent, so Defendant sold the property to itself at a foreclosure sale where they were the only bidders. Defendant then sold the property for two and a half times the amount they paid for it to a third party. Plaintiff moved to have the second sale set aside.

Issue. Is an inadequate sale price of real property sufficient to set aside the foreclosure sale if the price is so inadequate as to shock the conscience of the court?

Held. Yes.
Generally, the mere inadequacy of price is not sufficient to set aside a foreclosure sale unless the price is so inadequate as to shock the conscience of the court.
A sale of mortgaged property within twelve days of the foreclosure sale at a price two and one-half times the bid of the mortgage is so inadequate that it shocks someone with common sense.
The windfall Defendant received as a result of the second sale was unjust.
However, the sale was an arms length transaction. There is no evidence of any conspiracy to defraud Plaintiff by fixing the sale price below market value. Defendant should not be required to suffer any pecuniary loss.

Discussion. When the mortgagee sells property he foreclosed on at a price significantly different from the price at the foreclosure sale, he will be found to have not acted in good faith.