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Midfirst Bank v. Graves

399 N.J. Super. 228, 943 A.2d 923 (Ch. Div. 2008)

FORECLOSURE; RESCISSION — A foreclosing lienholder has no obligation to maintain the property, and in the absence of a contractual provision obligating a foreclosing party to deliver the premises in a certain condition, bidders assume the risk of damage to the property before the foreclosure sale.

A successful bidder at a foreclosure sale sought to have the sale vacated and its deposit returned. The bidder argued that it believed that the bank had an obligation to deliver the property to it in the same condition it was in when advertised for sale. It claimed that when it visited the property several days after the sale was concluded, it discovered that the property had been “gutted.” The bank argued that it had no obligation to maintain the property, and further, that the bidder assumed the risk of loss based on the doctrine of equitable conversion.

A court may vacate a foreclosure sale based on considerations of equity and justice. In this case, the Court applied the doctrine of equitable conversion in concluding that there was no basis to void the sale. Under the doctrine of equitable conversion, the seller only holds title as trustee for the buyer. The buyer, who has equitable title to the property, bears the risk of loss. There is an exception to the doctrine of equitable conversion, in both private sales and foreclosures, where “it is apparent from the contract that the parties intended that it should not operate as an equitable conversion.” If the contract places an obligation on the seller to deliver the premises in a certain condition, or in a certain condition except for normal wear and tear, then the principle of equitable conversion would not apply. However, in this case, there was no contractual provision that obligated the bank to deliver the premises in a certain condition. Therefore, the bidder assumed the risk of damage. The Court also noted that since the bidder did not visit the property from two weeks before the closing until several days after the closing, there was no basis for concluding that the damage occurred before it assumed the risk as beneficial owner of the property.


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