Also known as:grossly inadequate · inadequate consideration
Written by attorneys — see sources below.
A standard governing challenges to foreclosure sales under which a price obtained in a regularly conducted proceeding does not render the foreclosure defective unless the price is so low that it shocks the conscience or indicates unfairness.
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How its tested
Common Examples
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Low Bid at Nonjudicial Sale
Greta Goldstein defaulted on a mortgage held by Golden Gate Logistics. The trustee conducted a nonjudicial foreclosure auction after satisfying every statutory notice and advertising requirement. Golden Gate Logistics submitted the only bid at roughly fifteen percent of the property's recent appraisal. Goldstein sued to set aside the sale on price grounds alone. The court upheld the sale because the proceeding was regular and the price did not meet the threshold of gross inadequacy.
Grossly Inadequate Contract Exchange
Buyer and Seller entered a contract for the sale of commercial equipment. The agreed price was less than one-fifth of the equipment's fair market value with no other indicia of unfair dealing. Buyer later sought specific performance. The court denied relief because the exchange was grossly inadequate, satisfying the standard under the Restatement.
San Antonio Independent School District v. Rodriguez411 U.S. 1, 93 S. Ct. 127, 36 L. Ed. 2d 16 (1973)
In the summer of 1968 Mexican-American parents whose children attended elementary and secondary schools in the Edgewood Independent School District in San Antonio Texas brought a class action. They sued on behalf of schoolchildren throughout the state who were members of minority groups or who were poor and resided in school districts having a low property tax base. Named as defendants were the State Board of Education the Commissioner of Education the State Attorney General and the Bexar County Board of Trustees. The complaint was filed in the United States District Court for the Western District of Texas. A three-judge court was impaneled in January 1969.
The Texas system of financing public education originated with the state's first constitution in 1845. It evolved through constitutional amendments permitting local school districts to levy ad valorem taxes for school buildings and maintenance. These local revenues were supplemented by distributions from the state's Permanent School Fund established in 1854 and the Available School Fund.
In the late 1940s the legislature enacted the Minimum Foundation School Program. Under the program the state supplies approximately 80 percent of the cost of teacher salaries operating expenses and transportation. Each district contributes the remaining 20 percent through a Local Fund Assignment. The assignment is calculated by an economic index reflecting relative taxpaying ability. Every district also levies additional local property taxes beyond the assignment to supplement its foundation grant.
For the 1967-1968 school year the Edgewood Independent School District had an average assessed property value of $5960 per pupil and a median family income of $4686. It raised $26 per pupil through local taxation at a rate of $1.05 per $100 of assessed valuation. It received $222 per pupil from the Foundation Program and obtained $108 in federal funds for a total of $356 per pupil. By comparison the Alamo Heights Independent School District had an assessed property value exceeding $49000 per pupil and a median family income of $8001. It raised $333 per pupil locally at a rate of $0.85 per $100 received $225 from the Foundation Program and $36 in federal funds for a total of $594 per pupil. Similar disparities in per-pupil expenditures existed throughout the state. They were largely attributable to differences in the amount of taxable property within each district.
In December 1971 the three-judge District Court rendered judgment holding the Texas school finance system unconstitutional under the Equal Protection Clause of the Fourteenth Amendment. The State appealed. The Supreme Court noted probable jurisdiction in 1972 to consider the constitutional questions presented.
When will a court set aside a foreclosure sale based solely on the price obtained?
A court will set aside a regularly conducted foreclosure sale for price alone only when the price is grossly inadequate. Mere inadequacy or a price below fair market value or the debt amount does not suffice. The standard requires a price so low that it shocks the conscience or raises a presumption of unfairness.
Supporting sources
Does a foreclosure price at fifty percent of appraised value automatically qualify as grossly inadequate?
No. A price at roughly half of a prior appraisal does not by itself establish gross inadequacy when the sale followed all required procedures. Courts recognize that foreclosure sales routinely produce discounted prices due to the forced nature of the transaction and distressed property conditions.
Supporting sources
What role does procedural regularity play in evaluating a claim of gross inadequacy?
Procedural regularity is central. When the foreclosure complied with all statutory notice, advertising, and bidding requirements, the sale stands unless the price crosses the high threshold of gross inadequacy. Compliance shifts the focus away from ordinary price complaints and toward finality of the sale.
Supporting sources
Can a borrower successfully challenge a foreclosure sale price that equals only the land value when equipment and buildings have additional appraised worth?
Not necessarily. If the sale was regularly conducted and market factors such as outdated equipment explain the bundled price, the result does not constitute gross inadequacy. The rule protects finality even when separate sales might have produced more in hindsight.
Supporting sources
411 U.S. 1, 93 S. Ct. 127, 36 L. Ed. 2d 16 (1973)
…"adequacy" of the education guaranteed by the Foundation Program. In my view, then, it is inequality—not some notion of gross inadequacy—of educational opportunity that raises a question of denial of equal protection of the laws. I find any other approach to the issue unintelligible and without directing principle. Here,…