Is the Full Credit Rule Intended to Bring Wrong Doers Who Have Carried Out Fradulent Acts to Justice ?
In Alliance Mortgage Co. v. Rothwell (1995) 10 Cal. 4th 1226, 1238 44 Cal. Rptr. 2d 352, 900 P.2d 601, "the Supreme Court disapproved the holdings in GN Mortgage Corp. and Western Fed. Savings & Loan Assn., and carved out a limited exception to the full credit bid rule." (Michelson v. Camp, supra, 72 Cal. App. 4th at pp. 965-966.)
Alliance undertook review "solely on the issue of whether a lender's acquisition of security property by full credit bid at a nonjudicial foreclosure sale bars the lender from maintaining a fraud action to recover damages from nonborrower third parties who fraudulently induced the lender to make the loans." ( Alliance Mortgage Co. v. Rothwell, supra, 10 Cal. 4th at p. 1234.)
Specifically, the court considered whether as a result of its full credit bids, the lender "could demonstrate neither justifiable reliance nor actual damages" ( id., at p. 1246), both essential elements of fraud. (Id. at p. 1239.)
Alliance began by discussing reliance:
"As with any purchaser at a foreclosure sale, by making a successful full credit bid or bid in any amount, the lender is making a generally irrevocable offer to purchase the property for that amount.
The lender, perhaps more than a third party purchaser with fewer resources with which to gain insight into the property's value, generally bears the burden and risk of making an informed bid.
It does not follow, however, that being intentionally and materially misled by its own fiduciaries 2 or agents as to the value of the property prior to even making the loan is within the realm of that risk.
Most lenders, such as plaintiff in this case, are corporate entities, and rely on their agents to provide them material information. Here, the lender did obtain appraisals, and attempted to make informed loan decisions.
It alleges, however, that its appraiser . . . in conspiracy with defendants, fraudulently misrepresented the nature of the properties and the existence and qualifications of the buyers, and that it did not discover the fraud until after it acquired title to the properties.
The full credit bid rule was not intended to immunize wrongdoers from the consequences of their fraudulent acts." ( Alliance Mortgage Co. v. Rothwell, supra, 10 Cal. 4th at p. 1246).