Posting for

     Tuesday, May 8, 2001

 

     by:  Bert Rush

     brush@firstam.com

 

     SHERIFF'S SALES/FORECLOSURES/TITLE UNDERWRITING

 

     The Maryland Court of Appeals (its highest court) has held that a sheriff's sale was properly set aside (letting the successful bidder back out) where the sheriff volunteered title information in published notices, which information was not required by law and, in fact, was seriously inaccurate.

 

     The case is Goldberg v. Frick Electric Co., Inc., 2001 Md. LEXIS 135 (2001).  Here's what happened.

 

     Joan Goldberg obtained a stipulated judgment (i.e., with the debtors' consent) against William and Kelly Douglas, in the amount of $17,000.

 

     After the Douglases failed to pay, Ms. Goldberg obtained a writ of execution directing the Worcester County Sheriff's Office to sell property of the Douglases on Turtle Mill Road in Bishopville, to satisfy the judgment.

 

     As required by state statute, the sheriff undertook to "advertise" the sale by publishing a notice in The Maryland Times-Press.  Although governing statutes required only that the notice give the time, place and terms of the sale, the sheriff also included in the published notice a list of nine encumbrances affecting the property and the statement: 

 

          "MORTGAGES OR JUDGMENTS DUE:  $17,240.00 plus interest."

 

     Relying on this notice, a representative of Frick Electric Co. attended the sale and made the winning bid of $18,000.

 

     Within a month, Frick got a letter from Severn Savings Bank saying that the bank held a prior deed of trust against the property with a balance due of more than $100,000.

 

     Unhappy at this news, Frick filed a motion to intervene in the Goldberg v. Douglas action, in order to object to the sale and ask that the sale be set aside.  In this connection, Frick alleged it had relied on the inaccurate advertisement in making its bid.  Frick also said that if the advertised notice had not contained the inaccurate information, it would have hired an abstracter to determine the status of the title before bidding at the sale.

 

     Ms. Goldberg opposed Frick's motion, arguing that a sheriff's sale is done without representations or warranties (like buying a "pig in a poke"), and that Frick should have conducted its own investigation of the title before bidding.

 

     The trial court ruled in favor of Frick, and Ms. Goldberg appealed.  The Court of Special Appeals affirmed the trial court decision, and Ms. Goldberg appealed to the state high court.

 

     The Court of Appeal affirmed the lower court decisions, holding that where a sheriff provides more information about property than is required by state statutes, and where the volunteered information is "of a material nature," the volunteered information must be substantially accurate so as not to make the sheriff's sale unfair to a successful bidder or to others who rely on the information.

 

     In explaining its decision, the Court first distinguished the sheriff's sale from other types of

"forced sale of real property" under Maryland law, saying that a foreclosure of a mortgage or a deed of trust and a judicial sale are conducted under authority of the court, which must, in the end, ratify the sale; whereas a sheriff's sale is a ministerial act conducted after the court's authority has ended with the rendition of judgment.

 

     Notwithstanding this distinction, the Court said that a sheriff's sale "must be fairly and impartially exercised for the benefit of all concerned."  Specifically, the Court said the sheriff is "not merely the servant of the creditor," but also has duties to the debtor and, "in some circumstances," to the bidders.

 

     After reviewing cases in which sheriff's sales were attacked by debtors (as yielding inadequate prices), the Court said:

 

             "Although the cases and authorities

          indicate that a sale will not be set

          aside for mere inadequateness of price,

          they state that if the sale is so

          grossly inadequate as to shock the

          conscience of the court, or if there be

          but slight circumstances of unfairness

          in addition to great inadequateness of

          price, a sale will be set aside."

 

     The same rules, the Court said, should operate to protect the legitimate interests of bidders.  While it recognized the sheriff had no duty to provide title information, the Court said that where the sheriff does so "the information must be substantially accurate."  If it's not,  and if the result is a "material misrepresentation" making the sale "unfair," the sale may be set aside.

 

     Here, the Court held the volunteered info was a material misrepresentation, the sale was unfair to Frick, and the sale was properly set aside.

 

     Comment:  This case is interesting, but unlike cases where a sale is attacked by a disgruntled debtor or creditor (complaining of an inadequate price) the scenario played out in this case shouldn't be of much concern to title folk. 

 

     Typically, a title company would only become involved if asked to insure a successful bidder or a purchaser from the successful bidder, at which time any surprises in the chain of title would ordinarily show up as exceptions to coverage in the new title policy being issued.

 

     Still, it's interesting to see how this Court reacts to the presence of volunteered information--that turned out to be seriously inaccurate.