If a secured creditor is authorized to foreclose by power of sale, after the debtor's default and upon compliance with the deed of trust or other instrument, the secured creditor may sell any or all of the real estate that is subject to the security interest in its then condition or after any reasonable rehabilitation or preparation for sale. Every aspect of the sale, including the method, advertising, time, place and terms, must be commercially reasonable. This is an objective standard.
The farmers executed deeds of trust conveying their interests in farm land to a trustee as security for their farm-related financing. The trustee was the bank's general counsel and served on its board of directors. The farmers were unable to pay even a substantial portion of what they owed, and the bank declared them in default. The bank directed the trustee to foreclose on the land. The land was sold at a public auction, and the trustee executed deeds and delivered them to the bank. The farmers filed a complaint to set aside the trustee's deeds. The bank filed a counterclaim to confirm its title and to enter deficiency judgments against the farmers. The trial court upheld the foreclosure sales and entered deficiency judgments against the farmers. The farmers appealed.
Was the foreclosure process commercially unreasonable?
The court invalidated the sales and deficiency judgments. However, the court affirmed the trial court's judgment on rehearing. The court reasoned that every aspect of the foreclosure sale, including the method, advertising, time, place, and terms, was commercially reasonable. Although the trustee had financial interests in the bank, the court found that nothing in the foreclosure process was inadequate.