Debtor May Be Entitled to Credit for “Reasonable Value” of Property Purchased by Lender at Mortgage Foreclosure Sale

by Stoel Rives LLP

Stoel Rives LLP

In Idaho, it has long been understood that a secured creditor that has foreclosed a mortgage may be able to also get a judgment against the debtor for the remainder of the debt, if the proceeds of the foreclosure sale are not enough to satisfy the debt. The amount of the judgment, sometimes called a deficiency judgment, is limited. The secured creditor cannot get a deficiency judgment for more than the amount of the debt minus the reasonable value of the property sold. That result is clearly mandated by Idaho Code Section 6-108. That statute protects the debtor in the event that the mortgaged property is sold for less than its reasonable value.

Until recently, however, Idaho’s appellate courts had not addressed whether the debt is also considered to be reduced by the reasonable value of the property sold, if that amount is more than the sale proceeds. In the recent case of Agstar Financial Services v. Northwest Sand & Gravel, Inc., Docket No. 42932 (Idaho 2017), a sharply divided Idaho Supreme Court ruled that, in certain common circumstances, the debt will be considered reduced by the reasonable value of the property, even if the price paid at the foreclosure sale is much less. This has important implications if the secured creditor has other sources of security for the debt.

In Agstar, the debt was secured by three main sources of security: mortgages on real estate, security interests in equipment, and personal guaranties. The lender first foreclosed on the mortgages, then purchased the land at the foreclosure sale for a sales price that was several million dollars less than the amount of the debt, and then sought a deficiency judgment against the debtor for the balance of the debt. The trial court denied the lender’s request for a deficiency judgment, ruling that the reasonable value of the mortgaged land was actually several million dollars more than the amount of the debt. The lender did not appeal the trial court’s determination of the reasonable value of the mortgaged property, but instead sought to sell some of the equipment it had previously repossessed.

On appeal, the Idaho Supreme Court looked at the situation and essentially ruled that, although no Idaho statute demands the result, it would simply be unfair to let the lender continue to pursue its other sources of security when the trial court had already determined that the lender received mortgaged property worth millions of dollars more than the amount of the debt.

The Court appears to have limited its holding to situations where (1) the lender was the buyer at the foreclosure sale; and (2) the trial court determined the reasonable value of the mortgaged property. Both of those situations are fairly common. It is quite typical for lenders to purchase at the foreclosure sale through a credit bid (i.e., a reduction in the debt) and then to ask the trial court for a deficiency judgment, necessitating that the trial court determine the reasonable value of the mortgaged property. A creditor will now have to think twice about pursuing a deficiency judgment before pursuing its other sources of security because, if the trial court determines that the property is worth more than the debt, the creditor will no longer be able to pursue its other security.

The Agstar case leaves us with a lot of questions:

  1. Could the creditor have avoided this result, and added to what the Court considered to be a multimillion-dollar windfall, simply by pursuing the personal property collateral and the personal guarantors before, or instead of, pursuing a deficiency judgment against the debtor?
  2. To protect against such expanded windfalls, will courts now let debtors present evidence of the reasonable value of mortgaged property even when the creditor has not sought a deficiency judgment?
  3. What happens if the property is redeemed? Idaho permits foreclosed debtors and foreclosed junior lienholders to buy the property from the initial purchaser at a mortgage foreclosure sale for a period of time after the sale. The redemption price is based on the foreclosure sale price (not on a higher reasonable value of the mortgaged property). Hopefully, in that scenario, where the creditor must give up the mortgaged property in return for the sale price, the court will not require the creditor to still give the debtor credit for a higher reasonable value of the mortgaged property. Unfortunately, the creditor may now have to wait until the end of the redemption period to find out if it can and should go after its other sources of security. Worse yet, the lender’s other sources of security may diminish in value before the redemption.
  4. What if the secured creditor has already recovered on some of its other sources of security before foreclosing the mortgage? For example, what if the creditor already sold some of its personal property security? Will the creditor be forced to disgorge its other recoveries?
  5. Will this same equitable theory apply to foreclosures under deeds of trust, if the creditor buys at the trustee’s sale and then pursues a deficiency judgment?

Interestingly, two of Idaho’s five justices dissented from the majority opinion in Agstar, noting, among other things, that:

The mortgagor has a statutory remedy if the mortgaged property is sold for significantly less than its fair market value. Pursuant to Idaho Code section 11-401, the mortgagor has a right of redemption. If the mortgagor could find a purchaser who was willing to pay what the mortgagor claims the property is worth, the mortgagor could sell its right of redemption to that purchaser.

If just one more justice agreed with the two dissenters, creditors would not be left with so many unanswered questions.

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.

© Stoel Rives LLP | Attorney Advertising

Written by:

Stoel Rives LLP

Stoel Rives LLP on:

Readers' Choice 2017
Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
Sign up using*

Already signed up? Log in here

*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Custom Email Digest
Privacy Policy (Updated: October 8, 2015):

JD Supra provides users with access to its legal industry publishing services (the "Service") through its website (the "Website") as well as through other sources. Our policies with regard to data collection and use of personal information of users of the Service, regardless of the manner in which users access the Service, and visitors to the Website are set forth in this statement ("Policy"). By using the Service, you signify your acceptance of this Policy.

Information Collection and Use by JD Supra

JD Supra collects users' names, companies, titles, e-mail address and industry. JD Supra also tracks the pages that users visit, logs IP addresses and aggregates non-personally identifiable user data and browser type. This data is gathered using cookies and other technologies.

The information and data collected is used to authenticate users and to send notifications relating to the Service, including email alerts to which users have subscribed; to manage the Service and Website, to improve the Service and to customize the user's experience. This information is also provided to the authors of the content to give them insight into their readership and help them to improve their content, so that it is most useful for our users.

JD Supra does not sell, rent or otherwise provide your details to third parties, other than to the authors of the content on JD Supra.

If you prefer not to enable cookies, you may change your browser settings to disable cookies; however, please note that rejecting cookies while visiting the Website may result in certain parts of the Website not operating correctly or as efficiently as if cookies were allowed.

Email Choice/Opt-out

Users who opt in to receive emails may choose to no longer receive e-mail updates and newsletters by selecting the "opt-out of future email" option in the email they receive from JD Supra or in their JD Supra account management screen.


JD Supra takes reasonable precautions to insure that user information is kept private. We restrict access to user information to those individuals who reasonably need access to perform their job functions, such as our third party email service, customer service personnel and technical staff. However, please note that no method of transmitting or storing data is completely secure and we cannot guarantee the security of user information. Unauthorized entry or use, hardware or software failure, and other factors may compromise the security of user information at any time.

If you have reason to believe that your interaction with us is no longer secure, you must immediately notify us of the problem by contacting us at In the unlikely event that we believe that the security of your user information in our possession or control may have been compromised, we may seek to notify you of that development and, if so, will endeavor to do so as promptly as practicable under the circumstances.

Sharing and Disclosure of Information JD Supra Collects

Except as otherwise described in this privacy statement, JD Supra will not disclose personal information to any third party unless we believe that disclosure is necessary to: (1) comply with applicable laws; (2) respond to governmental inquiries or requests; (3) comply with valid legal process; (4) protect the rights, privacy, safety or property of JD Supra, users of the Service, Website visitors or the public; (5) permit us to pursue available remedies or limit the damages that we may sustain; and (6) enforce our Terms & Conditions of Use.

In the event there is a change in the corporate structure of JD Supra such as, but not limited to, merger, consolidation, sale, liquidation or transfer of substantial assets, JD Supra may, in its sole discretion, transfer, sell or assign information collected on and through the Service to one or more affiliated or unaffiliated third parties.

Links to Other Websites

This Website and the Service may contain links to other websites. The operator of such other websites may collect information about you, including through cookies or other technologies. If you are using the Service through the Website and link to another site, you will leave the Website and this Policy will not apply to your use of and activity on those other sites. We encourage you to read the legal notices posted on those sites, including their privacy policies. We shall have no responsibility or liability for your visitation to, and the data collection and use practices of, such other sites. This Policy applies solely to the information collected in connection with your use of this Website and does not apply to any practices conducted offline or in connection with any other websites.

Changes in Our Privacy Policy

We reserve the right to change this Policy at any time. Please refer to the date at the top of this page to determine when this Policy was last revised. Any changes to our privacy policy will become effective upon posting of the revised policy on the Website. By continuing to use the Service or Website following such changes, you will be deemed to have agreed to such changes. If you do not agree with the terms of this Policy, as it may be amended from time to time, in whole or part, please do not continue using the Service or the Website.

Contacting JD Supra

If you have any questions about this privacy statement, the practices of this site, your dealings with this Web site, or if you would like to change any of the information you have provided to us, please contact us at:

- hide
*With LinkedIn, you don't need to create a separate login to manage your free JD Supra account, and we can make suggestions based on your needs and interests. We will not post anything on LinkedIn in your name. Or, sign up using your email address.