Seth M. Rotenberg: Your presence is (not necessarily) requested at foreclosure sales

In the recent case of Fisher v. Ward, et al., the Maryland Court of Special Appeals held that a foreclosure trustee need not be physically present at a foreclosure sale, and that the trustee’s “constructive” presence would suffice.  Additionally, the court held that actual prejudice to the party objecting to the foreclosure sale must be shown in order for the sale to be set aside.

Fisher involved a residential foreclosure sale that was conducted by an auctioneer whom the trustees retained. None of the trustees attended the auction, but one of the trustees was in telephone contact with the auctioneer during the auction. The property was sold at the auction to the secured party for $308,000, which the borrower conceded was more than the property’s fair market value.

The borrower filed exceptions to the sale on the grounds that the failure of the trustee to physically attend the foreclosure auction violated Maryland law. The circuit court dismissed the mortgagor’s exceptions and ratified the foreclosure sale, and the borrower appealed to the Court of Special Appeals.

The court noted that, while no Maryland statute or procedural rule requires the trustee to attend a foreclosure auction, Maryland case law does impose such a requirement. The court reasoned, however, that this does not necessarily require physical presence.

The court cited the 1883 case of Wicks v. Westcott, in which the trustee was not physically present at the foreclosure auction. In that case, the Court of Appeals introduced the concept of a trustee’s “constructive presence” at the auction, which referred to a trustee who, while not physically present at the auction, “was in town, near at hand and readily accessible if needed for any purpose.” The holding in Wicks effectively condoned a trustee’s constructive, rather than physical, presence at an auction. Based on that, the Court of Special Appeals held in Fisher  that “absence of the trustee from the sale is merely a circumstance to be considered by the court in its ultimate decision of fairness of the proceedings.”

Given the advances in modern communication since the 19th century, and the ease with which a foreclosure trustee can monitor and participate in a sale without being physically present, the court stated that the determination of what constitutes “constructive presence” will depend on the facts in each case. In Fisher, only one bid was made at the auction, there were no questions asked of the auctioneer, and there were no objections voiced by anyone attending the sale. Additionally, the court noted that it was undisputed that the trustee was “in communication contact with the auctioneer via cell phone [sic]” throughout the auction. The court held that, therefore, the trustee was “readily accessible,” as defined by the Wicks decision, and was, thus, constructively present at the auction.

Showing prejudice

The court then noted that simply proving that an irregularity occurred at a foreclosure sale is not sufficient to set aside the sale. The party excepting to the sale must “show further that the claimed irregularities caused prejudice.” Here, the mortgagor did not assert any prejudice and did not challenge the sufficiency of the price brought at the auction. Therefore, the court held that, although the trustee’s absence from the auction may be a factor in determining the validity of the sale, setting aside the sale was unwarranted without a showing of prejudice.

As a practical matter, if a trustee is in communication with the auctioneer and available to answer questions during the auction, it is difficult to envision how the trustee’s physical absence could result in prejudice to the borrower. For example, questions regarding the lien position being sold or the rights of tenants in the property could be answered by the trustee without being present, and the trustee’s presence would not provide any additional clarification of such issues. The types of issues that the trustee would most likely be able to address if present, which the trustee would not be able to address if absent, would be issues related to the visible characteristics of the property being sold.

However, many trustees would avoid answering such questions and simply refer to the description of the property in the advertisement. Moreover, most foreclosure auctions are conducted at the courthouse, rather than at the property, so such questions would not arise in any event.

Therefore, it seems highly unlikely that a trustee’s physical absence from a foreclosure auction, so long as the trustee is in contact with the auctioneer during the auction, could result in prejudice.  Because a showing of prejudice is a necessary prerequisite to setting aside a sale, it seems improbable that a sale could be set aside on the grounds that the trustee was not physically present.

Practice tips

1. It is important to note that the Court of Special Appeals required the trustee to be present, either physically or constructively, at the foreclosure auction. In terms of constructive presence, in certain places the court noted that the trustee was “ready and available” for consultation by cellphone, and in others noted that the trustee was in fact in contact with the auctioneer throughout the auction.  Therefore, if a foreclosure trustee chooses to rely on constructive presence at a foreclosure auction, there should be an open phone line between the auctioneer and the trustee throughout the auction.

2. Because the court considered the circumstances of the auction (e.g., number of bids received, whether objections were raised by parties in attendance) in evaluating whether the trustee was “readily accessible,” a trustee who foresees complexities in a foreclosure sale should carefully consider whether to rely upon constructive presence. It may be preferable for the trustee to physically attend such auctions.

3. In a routine foreclosure sale conducted at the courthouse, a trustee should seriously consider not physically attending, but calling in to the auctioneer during the sale – that, is relying on “constructive presence” – given the improbability of the trustee’s physical absence resulting in prejudice.

Seth M. Rotenberg is a member of the Real Estate Practice Group at Gordon Feinblatt LLC in Baltimore. He may be reached at [email protected] or 410-576-4179.