## Facts

- Linda Lorraine Krohn defaulted on payments secured by a deed of trust on her residence.
- After her first Chapter 13 bankruptcy case was dismissed, the property was sold at a nonjudicial trustee’s sale to Sweetheart Properties, Ltd.; CitiMortgage, Inc. was the deed-of-trust beneficiary.
- The sale complied with statutory trustee’s-sale procedures, and no fraud, collusion, or procedural irregularity was alleged.
- The property’s value was about $57,500, and the sole bid was about $10,304 (roughly 18% of fair market value).
- In a second Chapter 13 case, Krohn sought to vacate the trustee’s sale on the ground that the sale price was grossly inadequate.
- A federal bankruptcy judge certified to the Arizona Supreme Court whether a trustee’s sale may be set aside solely because the bid price was grossly inadequate.

## Issues

1. Under Arizona law, may a deed-of-trust trustee’s sale be set aside solely because the bid price is grossly inadequate, absent fraud, collusion, or procedural defect?
2. If so, what standard governs whether a price is “grossly inadequate” in this context?

## Decision

- The court accepted jurisdiction to answer the certified question.
- The court answered the certified question yes: a trustee’s sale may be set aside solely for a grossly inadequate sale price.
- The court held that a price may be deemed grossly inadequate when the disparity from fair market value is so extreme that it shocks the conscience.
- The court indicated that a bid around or below 20% of fair market value has commonly been treated as grossly inadequate, and that an approximately 18% bid could satisfy the standard.
- The court left application of the standard and any sale-vacatur remedy to further proceedings.

## Legal Principles

- Arizona courts retain equitable authority to set aside a trustee’s sale when the bid price is grossly inadequate, even if statutory procedures were satisfied and no other wrongdoing is shown.
- Mere inadequacy of price is insufficient; the inadequacy must be so extreme as to shock the conscience and be treated as unconscionable (or akin to constructive fraud).
- Deed-of-trust statutes making a trustee’s deed conclusive evidence of procedural compliance do not bar equitable relief based on unconscionable price.
- Whether a price is grossly inadequate is fact-specific and committed to the trial court’s discretion, guided by the conscience-shocking standard.

## Conclusion

The Arizona Supreme Court held that a nonjudicial trustee’s sale under a deed of trust may be invalidated solely because the bid price is grossly inadequate, applying an equitable “shocks the conscience” standard notwithstanding statutory compliance and the absence of other defects.


In re Krohn, 203 Ariz. 205, 52 P.3d 774 (Ariz. 2002)