SETTING ASIDE FORECLOSURE SALES….
IS THE DUAL-PRONG TEST A THING OF THE PAST?
By Michael W. Leonard
Traditionally, it has been generally understood by practitioners that, in order to set aside a foreclosure sale, a complaining party needed to establish that: (1) the foreclosure sale bid was grossly or startlingly inadequate; and (2) the inadequacy of the bid resulted from some mistake, fraud or other irregularity in the sale. See Arlt v Buchanan, 190 So. 2d. 575, 577 (Fla. 1966); see also Blue Star Investments, Inc. v Johnson, 801 So. 2d. 218, 219 (Fla. 4th DCA 2001) and Mody v Cal. Fed. Bank, 747 So. 2d. 1016, 1017-18 (Fla. 3d DCA 1999).
Historically speaking, for a party to be successful in setting aside a foreclosure sale, that party was required to prove each prong described above. With the onslaught of foreclosure filings, it is clear that the pendulum has swung, and this rigid two-prong test has been substantially eroded in both the Second and the Fourth District Courts of Florida. See Ingorvia v Horton, 816 So. 2d. 1256 (Fla. 2d DCA 2002) and Arsali v Chase Home Finance, LLC, 79 So. 3d. 845 (Fla. 4th DCA 2012).
The Arlt decision, which has been principally relied upon by attorneys and cited by appellate courts for a number of years for the proposition that there must be a showing of both a grossly inadequate foreclosure sales price coupled with some irregularity in the foreclosure sale process, has come under fire by both the Second District Court of Appeals (see Ingorvia) and Fourth District Court of Appeal (see Arsali). Interestingly enough, a Florida Supreme Court decision issued prior to Arlt, and which Arlt arguably overruled, is the case being cited to support the change in the foreclosure sale test. See Moran-Alleen Co. v. Brown, 98 Fla. 203, 123 So. 561 (Fla. 1929).
The Ingorvia decision and the Arsali decision, attempt to provide a universe in which both Arlt and Brown can survive. In reviewing Arsali and Ingorvia, it becomes clear that the basis to allow Brown and Arlt to live in harmony finds its roots in the idea that when inadequacy of a bid price is at issue, a party contesting the sale must prove both test prongs, ala Arlt. Conversely, when inadequacy of sale price is not an issue, a party need only prove the second prong, meaning some inadequacy in the sale procedure, ala Brown. See Ingorvia, 816 So. 2d. at 1258.
Respectfully, this distinction, in order to allow both the earlier Brown decision and the subsequent Arlt decision to live in harmony, is a distinction without a significant difference. In each instance, whether there was an inadequacy of the bid price, a party is still required to show some irregularity in the sale process (mistake, fraud or other irregularity in the sale). Interestingly enough, although the Ingorvia decision was certified to the Supreme Court by the Second District Court of Appeals, there is no evidence that the Supreme Court ever considered discretionary jurisdiction to decide the case. However, the most recently decided Arsali decision, which also certified to the Supreme Court the question of whether the test to set forth in Arlt for vacating a foreclosure sale applies when adequacy of the bid price is not an issue, was recently accepted by the Supreme Court. See the unpublished Arsali v Chase Home Finance, 86 So. 3d. 1112 (unpub.op).
Until the Supreme Court resolves this issue, from a practitioner standpoint, the most conservative position, when contesting a foreclosure sale, would be to address both prongs of the foreclosure sale set aside test, when the facts support same. Alternatively, if there is no evidence of an inadequate foreclosure sales price, at least in the Second and Fourth Districts, a party need only exhibit some irregularity in the foreclosure sales process.