Texas Supreme Court Enforces Waiver Of Post-Foreclosure Fair Market Value Hearing

On June 13, 2014, the Texas Supreme Court, consistent with its long-standing “respect for the strong public policy [in Texas] of respecting parties’ freedom to design contracts according to their wishes,” held that a broad, all-encompassing waiver of all possible defenses clearly indicates exactly which defenses are waived: all of them.

 In Moayedi v. Interstate 35/Chisam Road, L.P., a matter of first impression, Merhdad Moayedi guaranteed a loan with an original principal balance of $696,000.  Mr. Moayedi’s guaranty agreement included the following general waiver of defenses:

Guarantor further agrees that this Guaranty shall not be discharged, impaired or affected by . . . any defense (other than the full payment of the indebtedness hereby guaranteed in accordance with the terms hereof) that the Guarantor may or might have as to Guarantor’s respective undertakings, liabilities, and obligations hereunder, each and every such defense being hereby waived by the undersigned Guarantor. (Emphasis added.)

After the borrower defaulted on the loan, the lender conducted a non-judicial foreclosure sale, at which the lender purchased the real property collateral for approximately $487,200, the sole bid.  The lender later sued Mr. Moayedi for breach of the guaranty seeking to recover the deficiency.  Because Mr. Moayedi believed that the fair market value of the property exceeded the foreclosure purchase price, he moved the trial court for a fair market value hearing pursuant to Texas Property Code § 51.003, whereby the Court may reduce the deficiency by the difference between the judicially determined fair market value of the property and the foreclosure purchase price.

In response, the lender claimed that Mr. Moayedi waived a fair market value hearing by generally waiving all defenses in the guaranty.  Mr. Moayedi replied that the generic waiver of all defenses was not sufficiently specific to waive a Texas Property Code Section 51.003 fair market value hearing under Texas law, which requires a contractual waiver to be an intentional relinquishment of a known right. 

The trial court ruled for Mr. Moayedi.  The court of appeals reversed, holding, among other things, that Mr. Moayedi’s waiver of “any,” “each,” and “every” defense encompassed all possible defenses and was therefore sufficiently specific to waive the Section 51.003 fair market value hearing.

The Texas Supreme Court affirmed the court of appeals’ decision, noting that “Texans have long embraced the principle of freedom of contract.”  Mr. Moayedi could waive the Section 51.003 fair market value hearing, the Court reasoned, just as he could waive “statutory and even constitutional rights” in the absence of the Legislature expressly prohibiting such a waiver. 

Further, the Court held that Mr. Moayedi did waive a Section 51.003 hearing in his guaranty, reasoning that the provision’s breadth supported a waiver finding: “Just because the waiver is all encompassing does not mean that it is unclear or vague.  To waive all possible defenses seems to very clearly indicate what defenses are included: all of them.”  Because there was no way under the contractual language to distinguish between the two possible sets of defenses Mr. Moayedi waived—common law and statutory—the Court concluded that the general waiver eliminated both.  

Notably, in footnote 31 of the opinion, the Court characterized a waiver of “offset,” like the one at issue in the Fifth Circuit’s decision in LaSalle Bank Nat’l Ass’n v. Sleutel, 289 F.3d 837 (5th Cir. 2002), to be even more specific than the waiver in Mr. Moayedi’s guaranty, and thereby equally enforceable under Texas law. 

This opinion is favorable for those doing business in Texas, in general, and the Texas lending industry, in particular, because it confirms that Texas courts enforce agreements as drafted, thereby safeguarding “the principle of freedom of contract.”  A guarantor should not, after the fact, be able to avoid his contractual obligations simply because those obligations and his waiver of rights were broadly stated.  Simply stating that the guarantor waives any, each, and every defense sufficiently accomplishes just that.

            To view the opinion, please follow this link.  If you have questions about the information contained in this Client Alert, please contact any of the attorneys listed below or the Thompson & Knight attorney with whom you regularly work.

Topics:  Administrative Hearings, Fair Market Value, Foreclosure, Public Policy, Waivers

Published In: Civil Procedure Updates, General Business Updates, Finance & Banking Updates, Residential Real Estate Updates

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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