Confirmation Conundrum

Well, maybe. 
HSBC Bank v. McAllister, 2018 VT 9

By Elizabeth Kruska

This’ll be quick. A property in Windham County went into foreclosure, and after the six-month redemption period an auction was held. The only people who showed up for the auction were the auctioneer and the appellant. The auctioneer was hired by the bank, but the bank didn’t send a personal representative. The bank sent a bid to the auctioneer to be entered at the time of auction. When the bidding started, the appellant bid $10,000. The auctioneer opened the bank’s bid, which was for $57,000. The appellant didn’t bid again, so the auctioneer issued a report of sale for the bank.

The bank filed in superior court to confirm the bid and to waive the deficiency between the amount owed and the bid price. The appellant, one Mr. Riley, intervened and asked to have the property sale confirmed to him. He argued that the auctioneer wasn’t independent because the bank had hired the auctioneer and sent its bid directly to the auctioneer to enter on its behalf.

The court agreed with Mr. Riley and reasoned that because the auctioneer entered a bid on behalf of the bank, and nobody from the bank was physically present it couldn’t confirm the sale. The court also said, though, that it wouldn’t be equitable to enter a sale for Mr. Riley because his bid was only $10,000, and the mortgage deficiency on the property was over $100,000. The court’s move was to order a new judicial foreclosure sale.

The bank didn’t appeal, but Mr. Riley did. Mr. Riley sought a de novo review, reasoning this was a pure question of law. He also argued the court ordering a new auction was an error because the bank should have known Vermont’s rules on foreclosure sales, and now the court basically laid out a map for how the bank could show up and do it right this time. Related to this, he argued it’s against public policy to give the bank a second bite at the apple by holding another auction. He argued that the court’s concerns about the deficiency were unfounded. He also argued the superior court was in error in noting in its order the lack of a clear requirement of in-person bidding.

SCOV narrows this a bit and determines the actual questions on appeal are whether the superior court has the authority to decline to confirm a sale on equitable grounds, and whether the superior court was within its discretion in exercising that authority here. The answer, as it turns out, is yes. The superior court was just fine in what it did.

First, yes, the superior court had the authority to decline to confirm the sale. There’s a statute and it says the court may issue an order of confirmation. The second thing you learn in law school is that “may” means something can happen or not. It’s not required. (The first thing you learn in law school is that “shall” means something is required, just in case you were wondering.) If the court determines the sale procedure did not follow the statute or foreclosure judgment requirements, or if the court has another reason to be concerned with the integrity of the sale, it can decline to confirm the sale and order another sale.

Second, SCOV examines whether the superior court acted within its discretion. SCOV concludes that the superior court acted fully within its discretion. It didn’t issue its order for untenable reasons or to an untenable extent.

In this case, the superior court had some concerns about the integrity of the foreclosure sale. It noticed Mr. Riley’s bid was low. It also noticed the foreclosure judgment itself didn’t have a clear requirement that the bids had to be placed in-person. There was also a concern about the bank’s bid. For all these reasons, the court felt it was most appropriate to refuse to confirm the initial sale and order a new one.

SCOV doesn’t get to the argument about it being bad public policy to allow the bank to have two bites at the apple. Since this was a discretionary action by the trial court, the Supreme Court leaves it alone and doesn’t wade into whether this is good or bad public policy to allow.