February 5, 2013
California Court of Appeal Upheld Beneficiary’s Demurrer to Plaintiff’s First Amended Complaint
In Arnolds Mgmt. Corp. v. Eischen, 158 Cal. App. 3d 575, 205 Cal. Rptr. 15 (Ct. App. 1984), the California Second District Court of Appeal held that before Arnolds Management Corporation (AMC) could set aside a non-judicial foreclosure under a deed of trust because of irregularities in the sale, AMC must first tender the full amount owing on the senior obligation.
Hicks executed a promissory note secured by a first deed in favor of Safeco as trustee and Eischen as beneficiaries. Two years later, Hicks executed a second deed in favor of Reliable Reconveyance Corporation as trustee and all plaintiffs except AMC as beneficiaries. In 1982, Hicks defaulted under the first deed. But Safeco failed to give AMC statutory notice of sale so the sale was postponed. Later, Safeco incorrectly told AMC that the foreclosure sale would be on July 28, 1982, when instead the sale took place on May 27, 1982. As a result, Safeco conducted the foreclosure sale, the Eischens were the highest bidders, and AMC did not attend or participate. AMC, as junior lienors, wanted to set aside the non-judicial foreclosure sale under a senior lien based on the alleged defect in notice of the sale.
AMC claimed that the rule requiring a tender of the full obligation prior to suit is applicable only to trustor litigants and not to junior lienors who are not personally responsible for the senior obligation. The Court disagreed and held: 1) that a junior lienor, such as AMC, must allege tender of the senior obligation as an essential element of any cause of action based upon irregularities in the sale procedure. Otherwise, AMC could state a cause of action without the necessary element of damage to themselves. 2) AMC’s action must fail because their tender of payment was not an unconditional offer to pay all of the sums necessary to cure the default. AMC’s offered Eischens more favorable terms, but the Court held that their offer did not meet the amount due under the senior obligation. And finally, 3) AMC is not a real party in interest because it did not allege that it had an interest in the property or was a prospective bidder at the trustee’s sale prepared to pay the senior obligation. Thus, the Court ultimately held that AMC did not allege any facts which would allow it to maintain its action.
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