Third Party Bidder Failing to Complete Purchase Loses Deposit Despite Reduced Resale Bid by Foreclosing Creditor
When a substitute trustee holds a resale of the secured property following the failure of the highest bidder at the sale to comply with his bid, N.C.G.S. § 45-21.30(c) requires that “[t]he procedure for such resale shall be the same in every respect as is provided by this Article in the case of an original sale of real property….” In a published opinion, the Court of Appeals has held that the amount bid at the resale by the foreclosing noteholder is not part of the “procedure for such resale.” In re:Ballard, 2016 WL 1001600 (N.C. App. March 15, 2016).
In this case, U.S. Bank entered the initial bid at the sale in the amount of $424,263.20. However, appellant, Abtos, LLC, entered the winning bid of $424,264.20. When Abtos failed to complete its purchase of the property the trustee obtained an order for re-sale, at which the bank entered the winning bid of $400,300.00. The clerk denied Abtos’ motion to recover its bid deposit, instead ordered the deposit be paid to U.S. Bank following § 45-21.30(d), which provides, in part, that “[a] defaulting bidder… is liable on his bid, and in case a resale is had because of such default, he shall remain liable to the extent that the final sale price is less than his bid plus all the costs of the resale.” The Superior Court affirmed the clerk’s order.
On appeal to the Court of Appeals, Abtos argued that the procedure for the resale was not “the same in every respect as is provided by this Article in the case of an original sale…” because U.S. Bank reduced its bid amount from the first sale. Rejecting that argument, the Court observed Abtos had cited no authority for this position and that “[g]iven the vagaries of the real estate market, it would indeed seem strange to bind a party to the amount of its opening bid in a previous sale.” Id. at 4. The Court, relying on In re Foreclosure of Allan & Warmbold Constr. Co., 88 N.C. App. 693, 694-95, 364 S.E.2d 723, 724, disc. review denied, 322 N.C. 480, 370 S.E.2d 222 (1988), also found that the acceptance of a higher bid at a foreclosure sale necessarily releases the lower bidder from his bid, thus U.S. Bank could not be held to its opening bid at the first sale. In re: Ballard, at 4-5.
Two very different lessons can be learned from this decision. For the property speculator, make sure you have your funding or flip-sale purchaser lined up before bidding at a foreclosure sale. For the foreclosing noteholder, take advantage of the right to hold a winning third party bidder to its contractual obligation to complete the purchase or lose the purchase deposit to the noteholder. Hutchens Law Firm is experienced in securing purchase deposits from bidders who fail to complete their obligations to purchase secured property and is well positioned to assist any servicers finding themselves in this situation.
Published by Hutchens Law Firm on April 5, 2016