Mortgages

The Alabama Supreme Court has held that a foreclosure sale is invalid if the foreclosure price is unconscionably low. In Collins v. W. Ala. Bank & Trust, 2025 WL 2627910 (Ala. Sept. 12, 2025), it held that sale for 10% of fair market value is, by itself, a sufficient reason to undo the sale. However, sales for 30% or less (meaning for 10% up to 30%) are valid unless there is other evidence of “unfairness, misconduct, fraud, or even stupid management.” Since the sales were were for 47.5% and 26.4% of its fair market value, they were valid because the owners could not show “other circumstances” that would justify setting aside the foreclosure. Collins v. W. Ala. Bank & Trust, 2025 WL 2627910 (Ala. Sept. 12, 2025). While this case reflects the prevailing law, it seems to violate the legislative intent behind foreclosure statutes and arguably wrongfully strips owners of …

Foreclosure at 10% of fair market value shocks the conscience and justifies setting aside the foreclosure sale, but sale under 30% is valid unless is evidence of unfairness other than inadequacy of price Read More »

Another court holds that a foreclosure sale at a very low value (10% of fair market value) is not a problem, does not “shock the conscience” and is not enough to set aside the sale. This case is by the District of Columbia Court of Appeals (the supreme court of D.C., not the federal court with a similar name). Flagstar Bank v. Advanced Fin. Invs., LLC, 333 A.3d 851 (D.C. 2025). The court approved a sale for $26,000 of property worth $256,632.00. The court explained its reasoning by noting that at the time of the foreclosure sale, the law was unclear as to whether the property was subject to an undischarged mortgage held by a third party. If that were so, the total debts of the homeowner would exceed the value of the property, and the homeowner would have been entitled to nothing in any event. In that light, $26,000 …

Foreclosure price of 10% of market value not so unconscionable as to set aside the sale, given legal uncertainties about which mortgage had priority Read More »

The Alabama Supreme Court has stopped the ejection of an owner by the mortgagee who bought the property at foreclosure because there was a serious question of whether the foreclosure was valid given the fact that the foreclosure price was only $1 more than the outstanding debt and was only 15% of the market value of the property. Martin v. Scarborough, 2024 Ala. LEXIS 195, 2024 WL 4863866 (Ala. 2024). The court cited Alabama precedents suggesting that a price less than one-third of fair market value is presumptively “grossly inadequate” and “shocks the conscience.”

In a demonstration of the broken nature of our foreclosure system, the Alaska Supreme Court held in Thomas v. Joseph P. Casteel Trust, 496 P.3d 403 (Alaska 2021), that a foreclosure was lawful even though the buyer at foreclosure paid a mere nine percent (9%) of the fair market value of the property. Only if there were procedural irregularities could the foreclosure be set aside. This type of case makes the owner’s equity vanish into thin air and is inconsistent with the historical policies that limited strict foreclosure.

The Ninth Circuit held, in Barnes v. Routh Crabtree Olsen PC, 963 F.3d 993 (9th Cir. 2020), that judicial foreclosure is not a form of “debt collection” covered by and regulated by the Fair Debt Collection Practices Act (FDCPA), 15 U.S.C. §§ 1692e-g. The court relied on the Supreme Court’s decision in Obduskey v. McCarthy & Holthus LLP, 139 S. Ct. 1029 (2019) that a law firm that brings nonjudicial foreclosure proceedings is not a debt collected under the FDCPA.