Tools of Ignorance: An Appraisal of Deficiency Judgments

Table of ContentsI. Introduction 830II. The Toughest Man Alive 842III. An Historical Digression 847IV. Chesterfield of Dreams 859V. A Modest Proposal 875VI. Conclusion 895I. IntroductionThe national pastime of baseball, perhaps more than any other sport,1 has a rich and colorful language.2 Baseball fans of a certain age will remember when announcers and color commentators used the phrase "tools of ignorance" to describe the catcher's face mask, oversized mitt, chest protector, shin guards, and other padding and bumpering.3 The thought was that no sensible athlete would choose a position that required wearing an extra ten pounds of equipment and sitting in a crouch for nine innings during the dog days of summer.* * * 4 It was also a reminder that, by the premature end of his playing career, the typical major league catcher had broken most of the bones in both hands at least once and suffered post-concussion syndrome from foul balls, flying bats ricocheting off his mask, and collisions with base runners determined to reach home plate ahead of his tag.5 When it became apparent that the catcher's position produces a disproportionate number of major league managers,6 the phrase fell into desuetude.Mike Matheny, four-time Gold Glove-winning catcher and manager of the St. Louis Cardinals since 2012, is the most recent example of this phenomenon.* * 7 By the time he succeeded Tony La Russa as the Cardinals' manager, Matheny had lost his personal fortune8 in the 2008 financial crash.9 Following a mortgage foreclosure of commercial property that he was unable to develop or market during the Great Recession,10 Matheny had been held personally liable for a $4.2 million deficiency judgment.11 His family had been evicted from their home and was living with his in-laws.12 Matheny's failure to succeed in real estate was the proximate cause of his return to major league baseball as a manager.13"Every lawsuit is a potential drama: a story of conflict, often with victims and villains, leading to justice done or denied."14 Matheny's is a haunting and cautionary tale for those who seek to parlay success in an unrelated field into a second career in real estate development.15 His experience will be painfully familiar to the transactional practice attorneys who represent clients engaged in one of the riskiest of businesses.16Commercial real estate development is accomplished through the use of other people's money, typically by borrowing from an institutional lender.17 By entering into a mortgage transaction, a property owner incurs a dual risk-the risk of loss of title to the property through foreclosure and the risk of personal liability for the deficiency in the event that the property sells at foreclosure for less than the remaining balance of the debt.18Deficiency judgments were a frequent consequence of foreclosures in the period following the Great Depression of the 1930s, when fully half of home mortgages went into default.19 Foreclosing mortgagees made nominal bids at auction sales at which there were few buyers at any price,20 acquired their borrowers' properties, and claimed deficiency judgments for virtually the full amount of the debt.21 A rarity in subsequent decades,22 deficiency judgments returned with a vengeance to the dismay of investors like Matheny who borrowed to finance land development during the period before the bubble in property values, inflated by subprime mortgages, burst so spectacularly and unexpectedly in 2008.23Mike Matheny's story provides a backdrop for examining the method of calculating deficiency judgments. …