Court Upheld A Waiver Of Property Code Rights And Affirmed A Deficiency Judgment Based On The Foreclosure Price


In New Millennium Homes, Inc. v. Texas Community Bank, NA, a debtor appealed a summary judgment granted to a lender based on a deficiency claim. No. 09-12-00073-CV, 2013 Tex. App. LEXIS 1598 (Tex. App.—Beaumont February 21, 2013, no pet. history). The lender was the sole bidder at the foreclosure sale and purchased the property for $465,000. The loan was $800,000. The trial court used the foreclosure sales price in determining the deficiency. The debtor argued that the trial court erred in failing to calculate the deficiency using the fair market value of the property. The deed of trust had provision that stated:

"In the event and 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, 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 the deficiency is sought."

The guaranty agreements at issue also contained similar provisions waiving Texas Property Code provisions. The court of appeals noted that in several other cases, its sister courts had 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. The court concluded that because the debtor waived its statutory right to a judicial determination of fair market value, the deficiency "is calculated by subtracting the foreclosure sale price, not the fair market value, from the amount owed under the debt." Id. The court affirmed the judgment for the bank.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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