The bankruptcy court eventually lifted the automatic stay, allowing the foreclosure to move forward. At the nonjudicial foreclosure sale, Sandton Credit acquired the property with a $20 million credit bid. The land was then transferred to Sandton Agriculture Investments III, LLC. But the legal battle didn’t end there. Sandton sought a court declaration that all rights to the groundwater passed with the land at foreclosure. 4-S Ranch continued to argue that the groundwater was personal property and should not have transferred with the land.
The trial court ruled in Sandton’s favor, holding that, under California law, water in its natural state – such as groundwater that has not been pumped out or stored separately – is part of the land. It only becomes personal property if it is physically severed from the real estate and placed in containers or otherwise removed. Since the groundwater in question had not been severed from the land, all rights to it passed to Sandton with the foreclosure.
On August 8, 2025, the Fifth District Court of Appeal affirmed the trial court’s decision. The appellate court made it clear that water in its natural state is real property, and cannot be claimed as personal property simply because an owner intends to sell it in the future. The court also noted that 4-S Ranch did not meet the legal requirements to challenge the foreclosure, as it had not paid off the debt or shown any serious procedural errors in the foreclosure process.
For mortgage professionals, this case is a significant reminder about the importance of understanding what constitutes collateral in secured lending. In California, groundwater remains with the land unless it has been physically removed, which is a critical consideration for structuring loans, managing risk, and handling foreclosures involving agricultural or resource-rich properties. The decision also highlights the need for precise language in loan documents regarding what assets are included as collateral.
The bottom line: in California foreclosures, what’s under the ground can be just as important as what’s on top. This ruling gives lenders, investors, and mortgage professionals clear guidance and greater confidence when dealing with high-value, complex assets tied to land and natural resources.