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).[2]
[2]
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[3]
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.
Id.
CASES:
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
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