Opinion ID: 865256
Heading Depth: 3
Heading Rank: 1

Heading: Whether the Foreclosure Sale Was Commercially

Text: Reasonable. ¶16. BancorpSouth decided to foreclose on the Ronson deed, which was junior to the McInnis deed. Accordingly, the trustee announced at the foreclosure sale that the sale would be subject to the liens of the McInnis deeds of trust, which BancorpSouth held. The trial 7 court found this announcement discouraged any potential bidders other than BancorpSouth; and therefore, the sale was not a determinant of the fair market value. ¶17. This Court has stated with regard to a creditor conducting a foreclosure sale of a debtor’s property: if the secured creditor is authorized to foreclose by power of sale, after the debtor’s default and upon compliance with the deed of trust or other instrument, the secured creditor may sell any or all of the real estate that is subject to the security interest in its then condition or after any reasonable rehabilitation or preparation for sale. Every aspect of the sale, including the method, advertising, time, place and terms, must be commercially reasonable. This is an objective standard. Wansley v. First Nat’l Bank, 566 So. 2d 1218, 1223 (Miss. 1990). Thus, the first question is whether, in consideration of the trustee’s statement, the sale was commercially reasonable. ¶18. “[A]bsent special circumstances, a foreclosure sale by the trustee in a junior deed of trust is made subject to prior liens on the property, and the trustee can sell and convey no better title than he acquired. Title vests in the purchaser subject to the prior lien.” Reese v. Ivey, 324 So. 2d 756, 757 (Miss. 1976) (citing Staunton Military Academy v. Dockery, 244 N.C. 427, 94 S.E.2d 354 (1956)). Announcing the amount due on a senior deed of trust enables bidders to take the prior lien into consideration in making bids, since the successful bidder buys subject to the prior lien. Reese v. Ivey, 324 So. 2d at 757. ¶19. The Agreement signed by BancorpSouth, the McInnises, Nelson, and Hartman provides that the parties agreed the Ronson deeds of trust would be junior to the McInnis deeds of trust. BancorpSouth asserts that the trustee’s statement that the properties were subject to BancorpSouth’s lien did not prohibit the foreclosure sale from being commercially 8 reasonable. This Court agrees. In this case, the mere announcement that the properties were subject to a lien is insufficient to refute the commercial reasonableness of the sale. Thus, the trial court erred in finding that announcement prevented the sale price from serving as fair market value. 2. Whether the Foreclosure Sale Price Represented the Fair Market Value of the Properties. ¶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 9 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 10 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 11 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 1 Apparently, each report was three pages in length, but only “page 1 of 3 of each report was provided in the record. 12 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 13 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 14 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. II. Whether the McInnises Were Entitled to a Deficiency Judgment. ¶34. The dispute concerning the McInnises’ entitlement to a deficiency judgment is essentially a question of whether the McInnises have standing to bring suit with regard to the cessation of payments on the Ronson note. ¶35. The McInnises contend that they have standing as third-party beneficiaries under Burns v. Washington Savings & Great Southern Savings & Loan Association, 251 Miss. 789, 171 So. 2d 322 (1965). However, the third-party beneficiary concept, as laid out in Burns, does not apply to this case. The McInnises are not third-party beneficiaries with respect to the Agreement or the assignment. Burns explains the concept of a third-party beneficiary, stating that “[a] third person may sue on a contract made for his benefit between others to the consideration of which he is a stranger.” Burns, 251 Miss. at 795 (emphasis added). The concept of gaining enforcement rights by way of third-party beneficiary status does not apply to the McInnises when they were parties, signatories, to the Agreement as well as the assignment. Thus, this argument is without merit. ¶36. The McInnises also contend that they have standing as parties to the Agreement in which BancorpSouth provides the conditions and terms of the sale, including that the McInninses would assign the Ronson note and deed of trust and that BancorpSouth would credit excess from Ronson’s payments to the McInnises. Hartman asserts that since the McInnises assigned the promissory note and the deed of trust, they do not own them and thus 15 may not sue under them. Hartman relies on EB, Inc. v. Allen, 722 So. 2d 555, 564 (Miss. 1998), and McKinley v. Lamar Bank, 919 So. 2d 918, 928 (Miss. 2005), for the premise that an unconditional assignment of a debt transfers all rights to receive debts due or becoming due under the contract to the assignor. ¶37. EB, Inc. v. Allen and McKinley v. Lamar Bank are pertinent. They each state: “Generally, the intention of the parties ascertained from the entire transaction, including conduct, determines whether the assignment is absolute or intended only as a collateral security.” .... “[A] valid assignment of a debt or contract conveys the entire interest of the assignor to the assignee, and thereafter the assignor has no interest therein.” .... “As a general rule, a valid and unqualified assignment operates to transfer to the assignee all the right, title, or interest of the assignor in the thing assigned, but not to confer upon the assignee any greater right or interest than that possessed by the assignor.” McKinley v. Lamar Bank, 919 So. 2d at 928 (quoting International Harvester Co. v. Peoples Bank & Trust Co., 402 So. 2d 856, 861 (Miss. 1981)); EB, Inc. v. Allen, 722 So. 2d at 564 (quoting International Harvester Co. v. Peoples Bank & Trust Co., 402 So. 2d 856, 861 (Miss. 1981) (emphasis added)). ¶38. Looking to the entire transaction, we will examine the assignment and then the Agreement. In International Harvester Co. v. Peoples Bank and Trust Co., this Court addressed whether, in assigning a debt as collateral, an assignor assigned all of its rights to collect on that debt to the assignee. Peoples Bank, 402 So. 2d 856. This Court stated “[i]t has long been held that a valid assignment of a debt or contract conveys the entire interest 16 of the assignor to the assignee, and thereafter the assignor has no interest therein. In this State this has been held true, even when the debtor might not have notice of the assignment.” Id. at 861. Upon discovery that the assignment terms were unconditional, lacking any indication of either a conditional or collateral assignment, this Court found the parties intended to assign all rights. Id. at 860-62. ¶39. The assignment in the case at bar, titled “ASSIGNMENT OF PROMISSORY NOTE AND DEED OF TRUST,” states: FOR AND IN CONSIDERATION of BancorpSouth Bank’s agreement not to exercise its option to accelerate the entire indebtedness due and owing it on property serving as collateral security for loans made by BancorpSouth Bank to the undersigned, the receipt and sufficiency of which is hereby fully acknowledged, we, the undersigned NED G. MCINNIS, JR., and wife, MARY DEANNE MCINNIS, do hereby assign, transfer and grant unto BANCORPSOUTH BANK, a Mississippi state banking corporation, all of our interest and right and title in and to that certain Promissory Note dated November 14, 2003, executed by Ronson Construction Systems, Inc., in favor of Ned G. McInnis, Jr., and wife, Mary Deane McInnis, in the original principal amount of $664,683.90, and for the same consideration, the undersigned does also hereby grant, bargain, sell, transfer and assign over unto BancorpSouth Bank all right, title and interest in and to that certain Deed of Trust dated November 14, 2003, executed by Ronson Construction Systems, Inc., in favor of Ned G. McInnis, Jr., and wife, Mary Deane McInnis, which serves as security for the above referenced Promissory Note being assigned hereunder and which Deed of Trust has been filed of record in the office of the Chancery Clerk of Forrest County, Mississippi and Land Deed of Trust Book _____ at Page ______. (Emphasis added). ¶40. The language in this assignment is strongly evident of the intent of the parties to assign all of the McInnises’ rights to the Ronson note and deed of trust. However, as “the intention of the parties [is] ascertained from the entire transaction,” this case is distinguished from McKinley v. Lamar Bank; EB, Inc. v. Allen; and International Harvester Co. v. 17 Peoples Bank & Trust Co. In those cases, the intent of the parties was primarily determined by the assignment. Here, in addition to the assignment, there is an Agreement, which provides the terms for Ronson’s payments as well as for the McInnises’ assignment in issue to BancorpSouth. ¶41. The Agreement is telling as to whether the parties intended to create an assignment which was absolute or intended only as collateral security. The Agreement, which was executed on the same day as the assignment, required that in consideration for BancorpSouth’s agreement to refrain from exercising its option to accelerate the remaining balance due by the McInnises on the properties, the Contract for Sale between the McInnises, Hartman, and Ronson would be carried out in accordance with certain terms and conditions. One such condition was that at closing, the McInnises would assign the Ronson note and deed of trust. Further, Ronson would make monthly payments to BancorpSouth, and BancorpSouth would tender any residue to the McInnises. Likewise, upon final payment or pre-payment of the promissory note, BancorpSouth would pay off loans due and owing BancorpSouth from the McInnises for which the Ronson properties served as collateral, releasing all outstanding deeds of trust on the collateralized property. The language of the Agreement, which calls for creation of the assignment and provides for the tender of excess funds from payments to the McInnises and release to the McInnises of the assigned note and deed upon satisfaction of the Ronson note, suggests that BancorpSouth and the McInnises intended the assignment to serve only as collateral security. ¶42. Concerning the collection of an unsatisfied debt assigned as collateral security, this Court stated in Peoples Bank that the creditor assignee has priority over the assignor in 18 collecting on the debt obligation. “[A]n assignment of a deed of trust due by a debtor to the assignor as collateral security for an indebtedness due by the assignor to the assignee vest[s] the assignee with full legal title to the deed of trust.” Peoples Bank, 402 So. 2d at 862. However, this title is limited, as the assignor has an “equity of redemption.” Id. at 863. “An assignment that is made as collateral security for a debt gives the assignee only a qualified interest in the assigned chose, commensurate with the debt or liability secured. . . .” Id. at 862. With regard to rights between the assignor and assignee to collect on the debt, “[b]efore the debt secured is paid, the assignee is, to the extent of his interest, the owner of the collateral as against the assignor and creditors or others claiming under him. . . .” Id. Thus, BancorpSouth, has priority over the assignor, the McInnises, in collecting on the unsatisfied debt of the Ronson note, which was assigned as collateral security the creditor assignee. ¶43. Hartman’s argument that the McInnises assigned away all their rights regarding the Ronson note is without merit. In consideration of the entire transaction, the assignment of the note was intended only as collateral security. As such, the McInnises do have standing to sue for collection of payments on the Ronson note. However, as the note was tendered to BancorpSouth as collateral security, BancorpSouth had an interest in the Ronson note to the extent of the amount of the loan which the note secured. Further, BancorpSouth’s interest was superior to the McInnises’ interest. Accordingly, BancorpSouth is entitled to collect first the amount of the secured debt owed to it, and upon satisfaction of that debt, the McInnises are entitled to collect any remainder due on the note. The trial court erred in awarding the McInnises any monies due on the note before the debt to BancorpSouth which the note secured was satisfied. 19