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California Appeals Court Says Full Credit Bid at Foreclosure Sale Bars Recovery from Insurer for Property Damage – Glass & Goldberg | Financing, Property & Bankruptcy Law
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California Appeals Court Says Full Credit Bid at Foreclosure Sale Bars Recovery from Insurer for Property Damage

California Appeals Court Says Full Credit Bid at Foreclosure Sale Bars Recovery from Insurer for Property Damage The 2nd District Court of Appeal in Los Angeles has affirmed a lower court decision that a mortgage’s full credit bid at a foreclosure sale bars any recovery for damage to the property prior to foreclosure.

In Najah v. Scottsdale Insurance Company, plaintiffs Jamshid Najah and Mark Akhavain sold a commercial property to Orange Crest Realty Corp., which borrowed funds for a partial payment from a third party lender. A first deed of trust on the property secured that loan. In addition, plaintiffs took back a promissory note and second deed of trust and later bought the first deed of trust to prevent the lender from foreclosing on the property.

Plaintiffs subsequently visited the property and discovered approximately $500,000 in damages to the building. They submitted a claim to defendant Scottsdale Insurance Company. Later, plaintiffs foreclosed on the second deed of trust and then reacquired the property by entering a full credit bid at the foreclosure sale.

Plaintiffs brought suit against Scottsdale for failure to pay on the claim. However, a trial court found for defendant Scottsdale and the Second Appellate District concurred, holding that the plaintiff’s full credit bid at the foreclosure sale barred them from recovering under a claim for preforeclosure damage to the property.

As established by Cronelison v. Kornbluth in 1975, a full credit bid satisfies the debt as if full payment had been made. Since the debt has been satisfied, the mortgagee, whose only right against the policy is the amount of its security, can make no claim.

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