Facts
- California law permits a beneficiary under a deed of trust to conduct a nonjudicial foreclosure sale if the trustor defaults, but only when the deed of trust grants a power of sale.
- The Legislature enacted detailed statutes regulating deeds of trust and the conduct of trustee’s sales, including notice and sale procedures, while allowing foreclosure to proceed without a court judgment.
- Susan Garfinkle and other petitioners owned residential real property subject to a deed of trust held by Wells Fargo Bank and associated parties.
- The deed of trust contained (1) a due-on-sale clause permitting acceleration upon an unapproved transfer and (2) a power-of-sale clause authorizing the trustee to sell the property upon default or specified title changes.
- Petitioners filed a petition for writ of mandate seeking a declaration that California’s nonjudicial foreclosure procedure violates due process guarantees of the Fourteenth Amendment and article I, section 7 of the California Constitution because it permits loss of property without a pre-sale hearing.
- The superior court rejected the challenge. After the California Supreme Court decided Connolly Development, Inc. v. Superior Court (mechanics’ lien/stop-notice state action), the superior court reconsidered but again ruled against petitioners, leading to renewed mandate proceedings in the Supreme Court.
- The central dispute was whether a trustee’s sale conducted under the statutory framework is “state action” so that constitutional due process protections apply.
Issues
- Does California’s statutory procedure for nonjudicial foreclosure under a deed of trust involve “state action” such that the Fourteenth Amendment requires procedural due process (including a pre-sale hearing)?
- Does the same procedure involve “state action” under article I, section 7 of the California Constitution, triggering state constitutional due process requirements?
Decision
- The California Supreme Court denied the petition for writ of mandate.
- The court held that nonjudicial foreclosure under a deed of trust, carried out by a private trustee under a privately created power-of-sale clause, is private conduct rather than state action.
- The court concluded that statutory authorization and regulation of trustee’s sales do not, by themselves, convert the sale into state action for purposes of the Fourteenth Amendment.
- The court also concluded that the challenged conduct failed the state action requirement under article I, section 7 of the California Constitution.
- The court distinguished Connolly, reasoning that the state involvement found in mechanics’ lien and stop-notice procedures did not mean that regulated private remedies like trustee’s sales become state action.
Legal Principles
- Due process protections under the Fourteenth Amendment apply only to governmental action; private conduct is not subject to constitutional procedural due process absent sufficient state involvement.
- A trustee’s sale under a deed of trust is a contract-based remedy: the power of sale originates in the parties’ agreement, and the trustee conducts the sale as a private actor.
- Detailed statutory regulation of how a private remedy is exercised—such as prescribing notices, timing, and sale mechanics—does not alone make the private remedy attributable to the state.
- State action generally requires meaningful governmental participation, compulsion, or use of governmental decisionmaking or enforcement machinery in effecting the deprivation.
- Article I, section 7 of the California Constitution also contains a state action requirement; a private trustee’s nonjudicial foreclosure sale does not satisfy that requirement.
Conclusion
In Garfinkle v. Superior Court, the California Supreme Court held that California’s deed-of-trust nonjudicial foreclosure process is carried out by private actors under private contractual authority and remains private conduct despite extensive statutory regulation; because there is no state action, neither federal nor state constitutional due process requires a pre-sale judicial hearing.