Opinion ID: 9029
Heading Depth: 4
Heading Rank: 2

Heading: Full-Debt Bid Argument

Text: 44 If City Federal intended to collect the proceeds of the mortgage insurance policy after foreclosure, Condition 10 required it to bid the amount due to [City Federal] under the terms of the policy. Palma contends that the amount due under the terms of the policy is to be determined by looking at the language contained in Condition 11, entitled Computation of Loss. If we were to adopt the reasoning preferred by Palma, we would be requiring lenders who entered into contracts prior to February 24, 1984, 6 to bid the entire amount due under the terms of the mortgage if they intended to collect mortgage proceeds after foreclosure. 45 The approach urged by Palma is contrary to the law as it existed at the time in question. If a debtor wanted to challenge the amount bid by the lender at foreclosure the law in Texas required the debtor to establish: (1) that the amount of proceeds received from sale at foreclosure was grossly inadequate, and (2) an irregularity in the foreclosure sale. Only after a finding of both gross inadequacy and irregularity would the court prohibit the proceeds from being used in calculating the deficiency. Thompson v. Chrysler First Business Credit Corp., 840 S.W.2d 25, 33 (Tex.App.--Dallas 1992, no writ). Although this approach was amended by statute in early 1991, 7 the amendment does not affect our decision concerning what amount the lender was legally obligated to bid prior to the statutory change. 46 Condition 10 requires the lender to bid either: (1) the full amount of the balance due on the note, as defined in Condition 11, or (2) no less than twenty-five percent of the balance. Either of these approaches was permitted under the terms of the contract for insurance, as long as the amount bid was not grossly inadequate and there had been no irregularity in the foreclosure sale. 47 By requiring the lender to bid a minimum of twenty-five percent of the total amount due before being entitled to collect insurance proceeds, the borrower was afforded some degree of assurance that he would be receiving a fair credit on his deficiency balance. The lender still had to bid an amount that complied with Texas law, and this amount might be more than the minimum twenty-five percent, but in no event should it have been less. The lender could also bid an amount that was both less than twenty-five percent and not violative of Texas law, as long as he did not intend to collect mortgage guaranty insurance proceeds. Only when the lender intended to collect insurance proceeds would he be obligated under the terms of the contract to bid a minimum of twenty-five percent, assuming that this amount was neither grossly inadequate nor the result of an irregularity in the foreclosure sale. 48 In the instant case, City Federal purchased the property at foreclosure for $30,800. 8 This amount was then credited against Palma's deficiency balance. The trial court found that the amount bid by City Federal was not grossly inadequate. It is not necessary for us to determine whether the trial court erred when it found that the amount bid by City Federal was not grossly inadequate because it is clear that the trial court erred when it found that there had been no violation of Condition 10 of the contract. 49 If the trial court had interpreted Condition 10 as written, it would have found that City Federal was required to submit a minimum bid of twenty-five percent, or $37,139.72. 9 The trial court's error in interpreting Condition 10 was compounded when it failed to properly credit the deficiency balance that would have remained after foreclosure. Palma was entitled to a credit of $37,139.72 in proceeds from the sale at foreclosure, leaving a deficiency balance of $111,447.16. 10 As discussed below the trial court further erred when it failed to credit this deficiency with the insurance proceeds received by City Federal. 50