This is a case that arises out of Sacramento County. Petitioners filed an action to set aside a judicial foreclosure sale conducted by the Sacramento County Sheriff of 57 acres of undeveloped land in the southern part of the county. The property was sold pursuant to a judgment of foreclosure against the judgment debtor Winncrest Homes, Inc. (Winncrest). In that matter the trial court entered judgment allowing a sale of the property with a right of redemption, specifying the amount of the debt as slightly more than $17 million. Winncrest appealed and the court affirmed the judgment in 2003. (First Interstate Bank v. Winncrest Homes, Inc. (July 25, 2003, C035434, C036722) [nonpub. opn.]

The public auction was scheduled for February 24, 2004, at 10:00 a.m. Corinthian Homes (Rancho Murieta), L.P., RKB Communities, LLC, Bruce Palmbaum, and Winncrest Homes Inc. (collectively Palmbaum) arrived there with $10 million in available funds. The property was worth approximately $6.5 million, and Petitioners intended to place an opening bid of $6 million.

The sheriff commenced the sale around 10:00 a.m. (the exact time is the subject of intense dispute) and Palmbaum submitted an opening bid of $2,000. Palmbaum's bid turned out to be the only bid because Petitioner’s designated bidders got stuck in traffic on the morning of February 24 on their way from the Bay Area to Sacramento, arriving at the auction room sometime after 10:00 a.m. After the sheriff's gavel fell confirming a sale to Palmbaum for $2,000, the late-arriving bidders vociferously objected, demanding that the sale be rescinded. The officer replied that bidding was closed and the property had been sold to Palmbaum.

Petitioners filed suit to set aside the judicial foreclosure sale, cancel the sheriff’s deed and record a notice of lis pendens. Following discovery, Palmbaum filed a motion for summary judgment. In granting the motion, Judge Jeffrey Gunther found that Petitioner was barred from setting aside the sale, since (1) section 701.680, subdivision (a) of the California Code of Civil Procedure provides that a judicial foreclosure sale pursuant to article 6 “may not be set aside for any reason,” a statute that abolished equitable grounds for rescission; (2) the sheriff conducted the sale according to law and without irregularities; (3) Winncrest did not exercise its right of redemption; (4) an action to set aside a foreclosure sale for irregularities may be commenced by the judgment debtor only if the purchaser was the judgment creditor [Emphasis Added](neither of which applied here); and (5) the sheriff did not have discretion to postpone the sale absent a joint request from both the judgment debtor and judgment creditor, which did not occur here.

Several months after the judgment was entered, Palmbaum made a motion to expunge the lis pendens. Judge McMaster issued a tentative ruling granting the motion and directing Palmbaum to prepare a formal order. At that point, Petitioner filed the first of two petitions for writ of mandate (Amalgamated Bank v. Corinthian Homes (C050901)). The stated primary purpose of the petition was to preserve the court's jurisdiction by staying the expungement order. Petitioner’s claimed that if the lis pendens were allowed to be expunged, Palmbaum would be able to sell the property to a third party, thus rendering the summary judgment appeal essentially moot.

The Court considered the question of what an appellate court should do about an order expunging a lis pendens where a real property claimant is appealing from an adverse judgment in the trial court and files a writ petition asking the Court of Appeal to stay the expungement until the appeal is decided. The issue is complicated by a drastic change in lis pendens law enacted in 1992.

The new law places the burden on the party filing a lis pendens to show the “probable validity” of his or her real property claim before trial, but says nothing about what standard the trial court should apply when confronted with a motion to expunge the lis pendens after the claimant suffers an adverse judgment. Moreover, while the new legislation permits the aggrieved party to seek appellate review of an expungement order by petition for writ of mandate, it does not tell the reviewing court what standard to apply in deciding whether to issue the writ.

The Court concluded that the standard for deciding whether to issue a writ of mandate vacating a post-judgment expungement order is whether a petitioner's real property claim has probable validity. They do this by a “mini-review” assessing whether the petitioner has made out a prima facie case for reversal of the judgment, based on the record in the trial court and the arguments of the parties.

Applying this standard, The Court found no probable validity to petitioners' claim. This determination was based primarily on the Court’s conclusion that petitioners had no standing, under the statutory scheme, to set aside a judicial foreclosure on the ground of irregularities in the conduct of the sale. The Court therefore declined to interfere with the trial court's expungement order, and denied the writ.

One can only be left to wonder why the debtor didn’t redeem. The redemption price was $2,000.

Peter A. Kleinbrodt