Statutory right to a judicial determination of the fair market value of the properties sold at foreclosure can be waived; no set-off if sales proceeds are lower than fair market value when waiver applies.
DIFFERENCE BETWEEN FAIR MARKET VALUE AND AMOUNT FOR WHICH PROPERTY ACTUALLY SELLS MAY NOT MAKE A DIFFERENCE FOR PURPOSES OF DETERMINING DEFICIENCY AMOUNT
Debtor and Guarantors argue the trial court failed to determine the fair market value of the properties sold at foreclosure and then failed to calculate the deficiency using the fair market value of the properties sold. See Tex. Prop. Code Ann. § 51.003(b), (c) (West 2007).
 With respect to a foreclosure involving real property, section 51.003 of the Texas Property Code allows a lender to seek a deficiency judgment calculated by using the foreclosure sales price. See Tex. Prop. Code Ann. § 51.003 (West 2007). In proceedings governed by section 51.003, the borrower may request the trial court to determine the fair market value of the real property as of the date of foreclosure. Id. § 51.003(b). If the fair market value exceeds the sales price at the foreclosure sale, the borrower is entitled to an offset of the excess of the fair market value against the deficiency. Id.§ 51.003(c). If no competent evidence of fair market value is introduced, or if no request to determine the fair market value is made, the sales price at the foreclosure sale shall be used to compute the deficiency. Id.
Lender contends that the loan documents governing the 2009 note contain provisions that waive the right that Debtor and Guarantors claim they had to a statutory fair market value determination and offset of their deficiency.
The February 2009 Deed of Trust includes the following provision:
7.8 WAIVER OF DEFICIENCY STATUTE.
(a) In the event an interest in any of the mortgaged property is foreclosed upon pursuant to a judicial or nonjudicial foreclosure sale, grantor agrees as follows, notwithstanding the provisions of sections 51.003, 51.004, and 51.005 of the Texas Property Code (as the same may be amended from time to time), and to the extent permitted by law, grantor agrees that beneficiary shall be entitled to seek a deficiency judgment from grantor and any other party obligated on the note equal to the difference between the amount owing on the note and the amount for which the mortgaged property was sold pursuant to judicial or nonjudicial foreclosure sale. Grantor expressly recognizes that this section constitutes a waiver of the above-cited provisions of the Texas Property Code which would otherwise permit grantor and other persons against whom recovery of deficiencies is sought or guarantor independently (even absent the initiation of deficiency proceedings against them) to present competent evidence of the fair market value of the mortgaged property as of the date of the foreclosure sale and offset against any deficiency the amount by which the foreclosure sale price is determined to be less than such fair market value. Grantor further recognizes and agrees that this waiver creates an irrebuttable presumption that the foreclosure sale price is equal to the fair market value of the mortgaged property for purposes of calculating deficiencies owed by grantor, guarantor, and others against whom recovery of a deficiency is sought.
The Guaranty Agreements at issue also contain provisions stating that Guarantors waived, "any and all rights under Sections 51.003, 51.004 and 51.005 of the Texas Property Code and any amendments, recodifications, supplements, or any successor statute or law of or to any such statute or law."
In several appeals challenging deficiency judgments, our sister courts have enforced provisions contained in loan documents as a waiver of the debtor's right to a judicial determination of a property's fair market value, a right granted by the Property Code. See Interstate 35/Chisam Rd., L.P. v. Moayedi, 377 S.W.3d 791, 795-802 (Tex. App.-Dallas 2012, pet. filed); Tran v. Compass Bank, No. 02-11-00189-CV, 2012 Tex. App. LEXIS 323, **2-7 (Tex. App.-Fort Worth Jan. 12, 2012, no pet.) (mem. op.); Kelly v. First State Bank Cent. Tex., No. 03-10-00460-CV, 2011 Tex. App. LEXIS 10241, **21-27, *32 (Tex. App.-Austin Dec. 30, 2011, pet. granted, judgm't vacated w.r.m.); Segal v. Emmes Capital, L.L.C., 155 S.W.3d 267, 277-81 (Tex. App.-Houston [1st Dist.] 2004, pet. dism'd).
Although the Debtor's and Guarantors' response to Lender's motion for summary judgment asserts a right to a judicial determination of the fair market value in assessing their deficiency, they do not address the provisions of their respective contracts waiving those rights. Also, Debtor's and Guarantors' brief fails to address why the waiver provisions should not be enforced.
Although Debtor and Guarantors argue the deficiency judgment failed to account for the fair market value of the properties sold at foreclosure, if the sale was legally and fairly made, a claim that the consideration received was inadequate is generally not sufficient to justify a decision to set aside a trustee's sale. See Am. Sav. & Loan Ass'n v. Musick, 531 S.W.2d 581, 587 (Tex. 1975). Neither Debtor nor Guarantors question Lender's power or right to foreclose, nor do they suggest any irregularity in the foreclosure proceedings. Additionally, if the sale is conducted fairly and in accord with the deed of trust, a mortgagee may purchase the property at the sale. See Donaldson v. Mansel, 615 S.W.2d 799, 802 (Tex. Civ. App.-Houston [1st Dist.] 1980, writ ref'd n.r.e.); Skeen v. Glenn Justice Mortg. Co., Inc., 526 S.W.2d 252, 256 (Tex. Civ. App.-Dallas 1975, no writ). The deeds of trust at issue allowed Lender to purchase the properties at issue.
Because Debtor and Guarantors waived their statutory right to a judicial determination of the fair market value of the properties sold at foreclosure, the deficiency "is calculated by subtracting the foreclosure sale price, not the fair market value, from the amount owed under the note." See Provident Nat'l Assurance Co. v. Stephens, 910 S.W.2d 926, 929 (Tex. 1995). Debtor and Guarantors waived their statutory appraisal rights; thus, they were not entitled to a judicial determination of the fair market value of the properties sold at foreclosure. We overrule issue one.
SOURCE: BEAUMONT COURT OF APPEALS - No. 09-12-00073-CV - 2/21/2013
Texas Property Code addresses deficiency judgments.
Subsection (a) of 51.003 of the Property Code defines a deficiency suit as an "action brought to recover the deficiency" between the bid price at a foreclosure sale and the amount of the debt owed on a note. TEX. PROP. CODE ANN. § 51.003(a) (West 20007). Subsection (b) specifically provides that requesting a court to determine fair market value is a defense for reducing liability for a deficiency judgment, stating:
Any person against whom such a recovery is sought by motion may request that the court in which the action is pending determine the fair market value of the real property as of the date of the foreclosure sale.
Interstate 35/Chisam Rd., L.P. v. Moayedi, 377 S.W.3d 791, 797 (Tex. App.-Dallas 2012, pet. filed) ("Section 51.003 was designed to protect borrowers and guarantors in deficiency suits brought following the non-judicial foreclosure on realty."); Comiskey v. FH Partners, LLC, 373 S.W.3d 620, 643 (Tex. App.-Houston [14th Dist] 2012, pet. denied) (declining to apply section 51.003 to a declaratory judgment action).
SOURCE: DALLAS COURT OF APPEALS - No. 05-12-00653-CV – 2/21/2013