Cornelison v. Kornbluth
125 Cal. Rptr. 557, 15 Cal.3d 590, 542 P.2d 981 (1975)
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Rule of Law:
When a lender at a nonjudicial foreclosure sale makes a full credit bid for the property, the lender's security interest is extinguished, and the lender is precluded from bringing a subsequent action for waste because the full credit bid establishes that the lender's security was not impaired.
Facts:
- On July 15, 1964, Mary Comelison sold a single-family dwelling to Maurice and Leona Chanon, taking back a promissory note secured by a first deed of trust on the property.
- The deed of trust contained covenants that the Chanons would pay property taxes, maintain the property, and that the full balance would be due upon resale.
- On December 10, 1964, the Chanons conveyed the property to John Kombluth, who did not assume in writing the indebtedness secured by the deed of trust.
- On September 6, 1968, Kombluth sold the property to Richard Larkins.
- In January 1969, the county health department condemned the house as unfit for human habitation.
- The Chanons subsequently defaulted on the promissory note.
Procedural Posture:
- Mary Comelison, the beneficiary, caused the property to be sold at a nonjudicial trustee's sale due to the Chanons' default.
- Comelison purchased the property at the sale for $21,921.42, which was a full credit bid equal to the balance due on the note plus foreclosure costs.
- Comelison then filed suit in a state trial court against John Kombluth, a successor in interest, alleging breach of contract and waste.
- Kombluth moved for summary judgment in the trial court.
- The trial court granted summary judgment in favor of Kombluth, finding he owed no duty to Comelison.
- Comelison (appellant) appealed the summary judgment to the Supreme Court of California.
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Issue:
Does a lender's full credit bid at a nonjudicial foreclosure sale extinguish the underlying debt and thereby preclude a subsequent action for waste against the property's owner or their successor in interest?
Opinions:
Majority - Sullivan, J.
Yes. A lender's full credit bid at a trustee's sale extinguishes the underlying debt and lien, leaving no security to be impaired. Where an indebtedness secured by a deed of trust has been satisfied by the trustee’s sale of the property for the full amount of the underlying obligation, the lien is extinguished. The court reasoned that the measure of damages for waste is the amount of the impairment of the security. By making a full credit bid, the lender establishes the value of the security as being equal to the outstanding indebtedness, which means there is no impairment. Therefore, the lender cannot subsequently recover damages for waste, as the full credit bid has satisfied the debt and nullified the security interest.
Analysis:
This case establishes the 'full credit bid rule' as a complete defense to a post-foreclosure action for waste. It forces lenders to be strategic at foreclosure sales; if they believe the property's value has been diminished by waste, they must make a bid below the full value of the outstanding debt to preserve their claim. By underbidding, the lender establishes that the security was impaired, leaving a deficiency for which a waste action might provide recovery. This decision prevents lenders from obtaining a double recovery by acquiring the property for the full debt value and then suing for additional damages for the property's condition.
