Opinion ID: 1719022
Heading Depth: 4
Heading Rank: 2

Heading: Whether the Foreclosure Sale Price Represented the Fair Market Value of the Properties.

Text: ¶ 20. The trial court found that BancorpSouth failed to establish that the foreclosure bids represented the fair market value of the Ronson properties. BancorpSouth argues that the chancery court erred in precluding the foreclosure sale from serving as a determinant of fair market value of the properties sold when it presented sufficient evidence to establish fair market value. Thus, the second question is whether the sale price was representative of the fair market value of the properties. ¶ 21. [T]he creditor has no right to a deficiency judgment until he satisfies the court that it would be equitable, in the light of the sale price, to authorize a deficiency judgment. Wansley, 566 So.2d at 1225; Federal Land Bank v. Wolfe, 560 So.2d 137, 141 (Miss.1989); Lake Hillsdale Estates, Inc. v. Galloway, 473 So.2d 461, 466 (Miss.1985). [S]omething more than a difference between the price paid at the foreclosure and the amount of the indebtedness must be demonstrated before the mortgagee is entitled to a deficiency judgment. Wansley, 566 So.2d at 1224 (quoting Lake Hillsdale, 473 So.2d at 466). ¶ 22. The mortgagee's right to a deficiency decree usually depends on the facts and circumstances of each case, and, since the mortgaged premises constitute the primary fund for the payment of the mortgage debt, it is only where the mortgagee has endeavored to collect it out of the land that a just judgment for deficiency can be entered. Id. Thus, the mortgagee first must show that it has endeavored to collect the indebtedness out of the land. Lake Hillsdale, 473 So.2d at 466 (citing Mississippi Valley Title Ins. Co. v. Horne Constr. Co., 372 So.2d 1270, 1272 (Miss.1979)). ¶ 23. Then, the mortgagee must show whether the value of the property satisfies the debt of the mortgagor or creates a surplus. Id. Where the foreclosing creditor buys at foreclosure, it must give the debtor fair credit for the commercially reasonable value of the collateral. Wansley, 566 So.2d at 1221-22, 1224-25. To determine the adequacy of the purchase price in satisfying the debt, the mortgagee must establish the fair market value of the property. Allied Steel Corp. v. Cooper, 607 So.2d 113, 118-19 (Miss. 1992) (citing Haygood v. First Nat'l Bank, 517 So.2d 553, 556; Lake Hillsdale, 473 So.2d at 465); Wansley, 566 So.2d at 1224. Fair market value is defined as [t]he amount at which property would change hands between a willing buyer and a willing seller, neither being under any compulsion to buy or sell and both having reasonable knowledge of the relevant facts. Black's Law Dictionary 414 (6th ed.1991). The determination of the fair market value is a question for the trier of fact, and this Court will respect the trial court's findings of fact when they are supported by reasonable evidence in the record and are not manifestly wrong. Allied Steel v. Cooper, 607 So.2d at 118-19 (citing Newsom, 557 So.2d at 514; Myles v. Cox, 217 So.2d 31, 34 (Miss.1968)). ¶ 24. BancorpSouth contends that it provided sufficient evidence of fair market value and cites Allied Steel, 607 So.2d 113, for the type of evidence this Court considers sufficient at trial to support the trial court's finding with regard to determination of fair market value. The evidence in Allied Steel presented for fair market value consisted of testimony by representatives of the parties as well as by two licensed real estate appraisers, whose valuations of the property were made a part of the record. Id. at 119. In Allied Steel, Cooper appealed this Court's ratification of the sheriff's foreclosure sale of the property to the lienholders. Id. The lienholder's appraisal estimate was explained in detail in his comprehensive appraisal analysis as well as in more than forty pages of testimony. His appraisal also took into consideration material factors such as zoning, the area's surplus of commercial space, and the depressed economy of the community and its impact on local real estate values, which had declined significantly since [Appellants] purchased the property in 1984. Id. at 120. Contrastingly, the court found that the Cooper's appraisal lacked support and detail in that the appraiser submitted a brief letter appraisal in which he reiterated that he had used a replacement cost approach, less depreciation, but did not explain what sort of depreciation allowance he had factored in, merely acknowledging that the building was in dire need of repairs and that the floor was in pretty bad shape, and he further did not take into consideration factors such as the monthly income the property had been generating or the potential uses of the building. Id. at 119. In choosing between the two vastly different opined fair market values, the trial court ruled in favor of the lienholders' appraisal. Id. at 118, 120. This Court agreed, finding the lienholders' appraisal sufficient to support the trial court's findings. Id. at 119-20. ¶ 25. The burden is on the mortgagee to establish fair market value from which it can be determined whether a deficiency exists. This Court has not promulgated specific requirements for establishing fair market value. However, simply looking at the property, making vague notes regarding the physical condition of the property and issuing a value therefrom are insufficient to meet the mortgagee's burden. ¶ 26. BancorpSouth contends that through the trial testimony of Zeke Powell, a BancorpSouth loan officer, it clearly established that its bid amounts represented fair market value. Powell testified that he and Carol Daniel, the senior credit officer of the bank, inspected the properties the day before foreclosure. Powell and Daniel drove to each individual parcel but did not enter each rental property or each apartment within a unit. They also took pictures of most of the properties. Neither was designated as an expert. ¶ 27. Powell and Daniel reviewed the appraisals for the properties on file at BancorpSouth titled Desktop Underwriter Quantitative Analysis Appraisal Report and dated June 2004, approximately one year prior to the foreclosure sale, in which the suggested value of the fourteen properties totaled $297,500. For each property, these appraisals included a report providing, inter alia, a detailed description of the location of the property, means for ascertaining the physical characteristics interior and exterior inspection, exterior inspection from the street, etc.and comparable sales values of three other properties within a half mile in proximity deemed similar in neighborhood classification, age, physical condition and gross living area. [1] ¶ 28. Powell, on the other hand, provided BancorpSouth a figure for each property referred to as officer's evaluation, which was Powell's estimate of the worth of the property. These evaluations included comments, such as need minor repairs, house has deteriorated since June 2004 appraisal, and [d]rive-by appraisal could not detect problems found on inside of house. Powell testified that BancorpSouth's total bid of $199,900 on the properties was a commercially reasonable amount without explaining how BancorpSouth arrived at its bid price or providing the process by which he calculated depreciation from the values in the appraisals on file. Powell testified [a]ll I was asked to do was to look at the appraisals that Mr. Lightsey had made [in June 2004]. And I took those and went to the properties and kind of looked with Carol and we kind of eyeballed it as to see if there were any deterioration or other problems. ¶ 29. In addition to BancorpSouth's self-inspection, the court had an indication of fair market value from the price at which BancorpSouth sold two of the properties during the five months between the foreclosure sales and the trial. The property at 129 Saucier Drive, Hattiesburg, Mississippi, was appraised in June 2004 for $40,000; estimated on May 2, 2005, by Daniel and Powell to be worth $36,000; sold at the foreclosure sale on May 3, 2005, to BancorpSouth for $25,200; and sold to a third party for $29,000. Another property at 1005 Mamie Street, Hattiesburg, Mississippi, was appraised in June 2004 for $35,000; estimated on May 2, 2005, by Daniel and Powell to be worth $24,500; sold at the foreclosure sale on May 3, 2005, to BancorpSouth for $24,500; and sold to a third party for $28,000. ¶ 30. While these numbers provide an indication of the price an informed, willing buyer would pay for these two properties, there is no such indication for the remaining twelve properties by sale, appraisal, adequate inspection or otherwise. BancorpSouth merely engaged in eyeballing properties, without providing an explanation on how the value was deduced or even entering all the properties for which a value was estimated. For lack of evidence, this Court is unable to determine whether the foreclosure sale price represented fair market value and thus, whether the difference between the sales price and the indebtedness accurately represents the deficiency. ¶ 31. BancorpSouth claims the trial court erred in not recognizing that it was due a deficiency after the foreclosure sale. Ronson's promissory note for the fourteen properties at the time of purchase on November 14, 2003, was for $664,683.90. Both parties stipulated that the total indebtedness on these properties outstanding at the time of the foreclosure sale was $456,169.05. BancorpSouth asserted that, with the expenses of publication and trustee's fees, the total foreclosure sale price of $199,900 resulted in a deficiency of $259,711.91. As previously stated, to ascertain the accuracy of this purported deficiency, BancorpSouth must have established that its bids at the foreclosure sale represented the fair market value of the property. ¶ 32. The trial court found that no deficiency which may be ascertained with certainty has been determined in that BancorpSouth neither provided proper determination of the fair market value prior to the foreclosure sale by appraisal or otherwise nor demonstrated willing seller-willing buyer sales when BancorpSouth had sold only two of fourteen properties it purchased. We agree. The trial court correctly found that BancorpSouth failed to establish fair market value of the properties, and thus, the amount of deficiency could not be determined. ¶ 33. Also with regard to the calculation of the deficiency in the present case, it also should be noted that the trial court found that BancorpSouth's interests under the McInnis deeds of trust and the Ronson deeds of trust merged. As Mississippi has yet to provide instruction on calculating a deficiency for a wraparound mortgage, and the creation of such guidance is unnecessary for this Court's decision, this Court declines to address that issue here.