Opinion ID: 1719022
Heading Depth: 2
Heading Rank: 1

Heading: Whether BancorpSouth Was Entitled to a Deficiency Judgment.

Text: ¶ 8. The trial court held that BancorpSouth was precluded from obtaining a deficiency judgment because it breached its fiduciary duty to the McInnises. The trial court found that BancorpSouth's agreement to tender to the McInnises the excess from the payments on the Ronson note, which was assigned to BancorpSouth, created a fiduciary relationship. The trial court further found that BancorpSouth acted in derogation of its fiduciary duty when it refused the McInnises' request to collect rent. The McInnises made the request due to their discovery of Ronson's failure to collect rent and consequent inability to make the loan payments. ¶ 9. The McInnises assert that a fiduciary-duty relationship was created when BancorpSouth imposed as conditions of the sale the wraparound mortgage and assignment of the Ronson note. BancorpSouth argues that it had no fiduciary duty to the McInnises since the relationship was simply an arms-length business transaction involving a normal debtor-creditor relationship. ¶ 10. This Court has stated: [O]rdinarily a bank does not owe a fiduciary duty to its debtors and obligors under the UCC. Peoples Bank & Trust Co. v. Cermack, 658 So.2d 1352, 1358 (Miss.1995), overruled on other grounds by Adams v. U.S. Homecrafters Inc., 744 So.2d 736 (Miss.1999). This Court has never held that the relationship between a mortgagor and mortgagee is a fiduciary one. Hopewell Enters., Inc. v. Trustmark Nat'l Bank, 680 So.2d 812, 816 (Miss.1996). An arms length business transaction involving a normal debtor-creditor relationship does not establish a fiduciary relationship. Id. This Court has repeatedly held that the power to foreclose on a security interest does not, without more, create a fiduciary relationship. Gen. Motors Acceptance Corp. v. Baymon, 732 So.2d 262, 270 (Miss.1999). Simply put, a mortgagee-mortgagor relationship is not a fiduciary one as a matter of law. Hopewell Enters., 680 So.2d at 816. Burgess v. Bankplus, 830 So.2d 1223, 1227-28 (Miss.2002). Also, the party asserting the existence of a fiduciary relationship bears the burden of proving its existence by clear and convincing evidence. AmSouth Bank v. Gupta, 838 So.2d 205, 216 (Miss.2002) (citing Smith v. Franklin Custodian Funds, Inc., 726 So.2d 144, 150 (Miss.1998)). ¶ 11. This Court considers a number of factors in determining whether a fiduciary relationship exists in a commercial transaction, including: whether (1) the parties have shared goals in each other's commercial activities, (2) one of the parties places justifiable confidence or trust in the other party's fidelity, and (3) the trusted party exercises effective control over the other party. Id. (citing Smith, 726 So.2d at 151). The mere fact of dealings with a lender does not meet these criteria. Id. These factors must exist beyond those features common to every free-market transaction, such as the hope by both parties that the transaction is profitable, trust of the lender in handling the loan, and the lender's greater familiarity with the loan process. Id. ¶ 12. As BancorpSouth contends, the burden lies with the McInnises to establish, by clear and convincing evidence, the existence of a fiduciary relationship. AmSouth Bank v. Gupta, 838 So.2d at 216. The McInnises contend the test is met. They state: On the first prong, both the McInnises and the Bank had a shared goal in entering the agreement that the loans of the McInnises to Bancorp would be paid. On the second, the McInnises clearly relied on Bancorp to enforce all of the rights they had under the note and deed of trust when they assigned it to Bancorp, giving up their own rights to do so in favor of the presumably more able bank. On the third, Bancorp had not just effective, but total control over the McInnises' rights under the assignment which it requires as part of the November 14th (sic), 2003 agreement. ¶ 13. The McInnises describe features common to every free-market assignment between a creditor and debtormutual hope that the loan would be paid, trust of BancorpSouth in handling the loan, and the tender of collateral, including control of that collateral, in exchange for the loan. This Court has issued no precedent which establishes that an assignee/assignor relationship, as a matter of law, is a fiduciary one. As in AmSouth v. Gupta , we find the merely common features presented in the case at bar to be insufficient to create a fiduciary relationship. ¶ 14. In the present case, the record is devoid of facts which would take the relationship between BancorpSouth and the McInnises out of the scope of the generally non-fiduciary mortgagor/mortgagee relationship. No evidence was presented or precedent provided to support a finding that the relationship was anything other than an arms-length business transaction involving a normal debtor-creditor relationship where, as is common, the debtor tendered to the creditor collateral security, the assignment of a promissory note. Accordingly, this Court should find that the assignor/assignee relationship, like the mortgagor/mortgagee relationship, is not as a matter of law a fiduciary relationship. Therefore, since the McInnises failed to put forth sufficient evidence of a fiduciary relationship, the trial court erred in finding that a fiduciary relationship existed and in barring BancorpSouth from relief on the basis thereof.
¶ 15. The trial court also found that BancorpSouth failed to establish the fair market value of the Ronson properties, which was necessary to determine whether a deficiency existed after the foreclosure sale.
¶ 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 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 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.
¶ 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.