This Is Not an Interpleader

Pacer Foreclosure, Inc. v. Alfalo, No. B268589 (D2d6 May 30, 2018) 

Trustee conducts a foreclosure sale, which results in proceeds in excess of the loan. Borrower sues both Trustee and Buyer for wrongful foreclosure. Trustee then files an interpleader and deposited the excess funds with the court. But the trial court granted Borrower’s demurrer on the interpleader and dismissed the case. Its order permitted Trustee to apply for the release of funds, but it wouldn’t automatically release the funds to Buyer. Everyone appeals. 

While the appeal is pending, Borrower settles with Buyer. Buyer agrees it doesn’t have claim to the excess funds that that it won’t object to their release to Borrower. Buyer then argues that the appeal is moot.

But it isn’t. Because whether Trustee’s complaint was a proper interpleader affects whether Trustee can recover fees out of the res, obtain a discharge, and be dismissed from the underlying wrongful foreclosure case. 

In any event, the trial court was correct to grant the demurrer. This wasn’t a legit interpleader situation because Buyer never had a real claim against the excess funds. It just doesn’t make sense that a Buyer—who is actually paying the money in a foreclosure sale—would also have some claim to money it paid in excess of Borrower’s loan balance. Moreover Civil Code § 2924k literally required Trustee to disburse any proceeds net of the loan to the Borrower. This isn’t some situation where the res isn’t sufficient to satisfy competing liens by different lenders. Without a reasonable threat of double vexation, an interpleader doesn’t lie. And without an interpleader, Trustee has no claim for its fees.

And given the settlement, there is no doubt at all that nobody has any claim on the money except Borrower. So the trial court should give him his money.

Affirmed and remanded with instructions.