Buyers’ Joint Bid Unlawfully Restrained Competitive Bidding on Foreclosed Property

In Lo v. Jensen, 2001 WL 463298, the California Court of Appeal held that two individuals (hereafter called Buyers) violated Civil Code § 2924h(g), when they agreed to join together in one bid so that they could acquire property cheaply in a non-judicial foreclosure sale.

Both Buyers were in the business of purchasing property at foreclosure sales. Each intended to bid on a condominium that was being sold at a non-judicial foreclosure sale, and each valued the condominium at $150,000 or more and expected to bid approximately $100,000. However, the day before the sale, Buyers got together and decided to join in one bid to get the property cheaply. Ultimately, they purchased the property for $5,412.

In an action brought by the owners of the condominium, the trial court set the sale aside on the ground that it violated Civil Code § 2924h(g), which provides as follows: “It shall be unlawful for any person, acting alone or in concert with others, (1) to offer to accept or accept from another, any consideration of any type not to bid, or (2) to fix or restrain bidding in any manner, at a sale of property conducted pursuant to a power of sale in a deed of trust or mortgage.” The purpose of this statute is to ensure fair, open, and competitive bidding.

The Court of Appeal agreed with the trial court, holding that Buyers joined together to eliminate competition; benefited from the lack of competition by securing the property for very little money; and caused detriment to the owners. The Court rejected Buyers’ argument that they had formed a joint venture, wherein one Buyer would handle the repairs to the property and the other would provide legal expertise. Although the Court recognized that individuals may form partnerships, joint ventures, or other business entities to act together, the court looked beyond Buyers’ alleged agreement and concluded that Buyers were not co-owners of a business – they barely knew each other before the sale; they did not know how much repair the property needed; they had agreed on few details for their alleged joint venture; and, most importantly, they would have entered into the joint bid even if there had been no possibility of sharing expertise.

Thus, the Court affirmed the trial court’s decision to set aside the sale, focusing on the unfairness of the sale, coupled with the inadequate price. According to the Court, Buyers were “competitors, and when they agreed not to compete, they deprived [the owners] of the benefit of competition, a benefit they were entitled to under the law.”