The Digital Dead Parrot: When Foreclosure Notice Fails, Title Vanishes

The following is a case update written by Hale Andrew Antico, Chief Counsel of Antico Law Firm, analyzing Spikes v. Quality Loan Service Corp. (In re Spikes), 662 B.R. 704 (Bankr. E.D. Cal. 2024), a recent case of interest:

Summary

In Spikes, the bankruptcy court denied dismissal of an adversary proceeding, finding that Defendants failed to satisfy California’s strict foreclosure notice requirements under § 2924m, thereby preserving title with the Debtor. The court held that a defective § 2924m notice invalidates the entire sale process, exposing how a failure to meet statutory transparency standards can unravel an entire foreclosure sequence.

To view the full decision, click here.

Facts

On June 15, 2023 at 2:00 PM, a foreclosure sale occurred after Ayanna Spikes (“Debtor”) fell behind on payments for her home in North Highland, California. The winning bid was from Breckenridge Property Fund (“Breckenridge”) for $320,000. One hour after the foreclosure sale, the Debtor filed her Chapter 13 petition. Weeks later, the trustee’s deed was recorded, and buyer Breckenridge sought relief from stay as Debtor remained in the property. Months later, Debtor filed an Adversary Proceeding (“AP”) against QLS, Breckenridge, and Shellpoint (“Defendants”) alleging violations of the automatic stay. Defendants filed a Motion to Dismiss the AP. Under the standard of Fed. R. Civ P. 12(b)(6), the court reviewed facts in the light most favorable to Debtors, found that a claim does exist, and denied Defendants’ motion.

With the factual record established, the court turned to the central legal question: what constitutes “deemed finality” under California’s post-2021 foreclosure regime?

Reasoning

The Illusion of Finality

California Civil Code § 2924m is a foreclosure statute enacted in 2021 which established new procedures for foreclosures involving one-to-four residential units. But here’s the catch: California didn’t just change foreclosure rules in 2021; it rewired finality itself.

Section 2924m was enacted to give prospective owner-occupants 45 days to match the highest bid after a foreclosure auction. In re Hager, 651 B.R. 873, 882 (Bankr. E.D. Cal. 2023), citing § 2924m(c).  Subsection (f) of § 2924m states that during this 45-day period, legal title remains with the mortgagor/trustor until the sale is “deemed final.” In other words, until notice meets these standards, the debtor remains the legal owner… regardless of how much Breckenridge paid at auction.

The court noted that the legislative intent was to promote owner-occupancy. Spikes at 709.  However, as the court remarked, “unintended consequences lurk in the corners.”  Id. at 708.

The Hidden Rules

This leads to the big question, or at least one of the big questions, that the court faced:  when is the foreclosure sale final? Breckenridge relied on § 2924h(c), which gives the trustee 21 days to record the deed for the sale to be final.

However, under § 2924m(h), the 21-day relation-back provision in § 2924h(c) does not apply when a sale involves one-to-four residential units, effectively nullifying its operation in such cases. Breckenridge did not invoke § 2924m or its notice requirements in its stay relief motion or supporting declarations, nor did it address compliance with § 2924m(e) notice requirements at any stage prior to the adversary proceeding. Id. at 707. But what truly sealed the fate of finality was not the delay or the lapse; it was the form of notice itself.

Turning to subsection (e) of § 2924m, the court noted that there are special notice requirements on one-to-four residential units. Id. at 708. Within 48 hours, the trustee has to post on the internet three pieces of information: the sale date, the amount of the last and highest bid, and the trustee’s mailing and overnight addresses “for a sale to be final.” Unless they could show they complied with the notice requirements, the sale was never final and title remained with the Debtor the entire time. Id. at 712.

The Evidence Code: Notice Must be Clear

The court asked Defendants to provide evidence of the required internet posting to show that it complied with the special notice requirements of § 2924m(e). What it got instead was a template cover sheet and a printout of an XML file.  Id. at 712.

For context, an XML file, when viewed or printed out, resembles computer code, replete with angle brackets and tags designed for machine readability rather than human comprehension (e.g., <?xml version=”1.0″ encoding=“UTF-8”?>, <salesinvoice>). Such formats, intended for automated systems, lack the transparency and accessibility required to fulfill the legislative intent behind § 2924m(e): to reach prospective owner-occupants who are neither technologists nor legal experts.  The legislature did not intend to create a digital gatekeeper for homeownership, but only a transparent pathway to redemption. An XML printout, no matter how internally consistent, does not fulfill that promise. “If the purpose of the legislature was to reach out to prospective owner-occupants, the information and its format does not seem to be in the nature of reaching out,” the court noted. Id. at 712. The court evaluated whether the posted notice satisfied each element of § 2924m(e) — trustee contact info, highest bid, address — and found them all lacking in what was presented. Id.

Cascading Consequences: How One Misstep Invalidates an Entire Sale

Judge Klein identified four critical issues arising from the defective notice under § 2924m(e). Id. at 710. First, the trustee’s declaration asserting compliance was false; the required posting had not occurred or been made publicly accessible. Second, because no valid public notice was given, the sale was never “deemed final” under state law, which undermines any claim of title transfer. Third, without finality, the relation-back provision of § 2924h cannot apply, rendering post-petition recordings ineffective. Fourth, since equitable title remained with the Debtor at filing, any recording of the deed during bankruptcy violated the automatic stay under § 362(a) — a violation that sustains the adversary proceeding. Each of these consequences flows directly from the initial failure to satisfy the statutory notice mandate.

Because notice was deficient, the sale wasn’t final. Because the sale wasn’t final, the title stayed with Debtor. Because title stayed with Debtor, deed recordation may have violated the automatic stay. And because there was evidence that Defendants violated the stay, the adversary proceeding alleging their stay violation survived dismissal.

Author’s Commentary

California under § 2924m is where digital silence echoes louder than any hammer strike on the auction block. Section 2924m is not just a procedural hurdle; it’s a substantive legal threshold designed to give rights to prospective owner-occupants. In an ironic twist, it’s like a Rube Goldberg machine where a law designed to enable prospective owner-occupants to step into a foreclosed home became an intricate trap for unwary trustees, leaving the original debtor in possession, and the winning bidder with nothing. The court did not just reject an XML file. It declared that in California, if no one sees it, it never happened.

Valid notice means posting clear, understandable, and actionable information on a public website for 45 days; not just uploading an XML file that reads like ancient runes. Here, instead of providing evidence that they posted a digital billboard inviting bidders, Defendants handed over what amounted to digital hieroglyphics. They showed the judge a template cover sheet and computer-code gibberish; these were less like an expected receipt and more like finding a dead parrot in a Shakespearean play.  It’s not only that this is jarringly unexpected and absurd; it’s that the inanimate bird is not evidence of a useful pet while being passed off as redeeming.

An insufficient notice is less a welcome mat than a digital dead-end; sufficient notice needs to be an invitation for the public in plain language, not cryptical ancient runes.  As highlighted in recent cases, when buyers fail to comply strictly with § 2924m, their bids may be canceled. Here, the court held that the same level of strict compliance with the statute is required from trustees, which leads to some practical takeaways. This ruling has clear implications for all parties involved in the process.

For foreclosure trustees, know that § 2924m is a strict compliance statute. Keep archived screenshots of § 2924m postings in human-readable format. Have all three pieces of required information posted for 45 days. Add a plain-English disclaimer: “this property is available for matching bids.” Know that the 21-day relation-back rule for 1-to-4 residential units is no longer the rule to make a sale final. Legal professionals representing trustors or purchasers should also scrutinize foreclosure procedures. One noncompliance can transform what seemed like a routine transfer into a contested proceeding.  Counsel for debtors should inspect the foreclosure trustee’s site for compliance. The homeowner isn’t eligible to bid under § 2924m, but if deficiencies are found, it can keep the debtor in the home a little longer and potentially create a violation of the automatic stay.

Beyond all of these procedural mechanics, Spikes exposes a systemic tension: statutes designed to enable owner-occupant bidders can, through poor drafting or enforcement gaps, empower strategic litigation by foreclosed homeowner debtors.  As Judge Klein noted with a sense of irony: “My, how things change.”

This case is not about whether the buyer wanted the house; it’s about remembering to hang the “Bids Welcome” sign. In California, if you skip the notice, even the deed is on probation. The automatic stay doesn’t care if your XML file looks like it was written in elvish script; it just wants proof title changed.  In California foreclosures, the real danger isn’t a bad bid, it’s the absence of a visible notice. Finality isn’t conferred by formality, but by public accessibility under § 2924m. When a trustee posts only an XML file wrapped in template code, devoid of plain language or human clarity, the law sees not compliance but concealment. If the average homeowner cannot discern the sale from a firewall error, then no notice was given at all. And without notice, there is no finality. Without finality, no title transfers. In bankruptcy court, a deed recorded under such conditions is not a transfer: it is a dead letter.

These materials were written by Hale Andrew Antico, Chief Counsel of Antico Law Firm, representing consumer debtors in the Central District of California, and President of the Central District Consumer Bankruptcy Attorneys Association, with editorial contributions by ILC member William E. Winfield of Nelson Comis Kettle & Kinney LLP, and the Hon. Meredith A. Jury (ret.).