Opinion ID: 1431961
Heading Depth: 1
Heading Rank: 2

Heading: c. 45-1503.

Text: By its decision, the court judicially engrafts upon the statute a third option; namely, the option to sue on the note. The problem with creating this third option is that it permits a creditor to accomplish indirectly what the Act directly prohibits. It is clear that under the Trust Deeds Act a creditor may not first sell the property, either judicially or nonjudicially, and then obtain money judgment for more than the difference between the amount of the debt and the value of the property. A double recovery of this nature is expressly prohibited by I.C. 45-1512. However, under the decision in this case as it now stands creditors will henceforth be able to avoid the prohibition of that statute and obtain double recoveries simply by reversing the order of the remedies. Instead of first selling the real property and then obtaining a judgment for the balance, a creditor can obtain a judgment and then sell the property. There is no restriction on the sale and no requirement that the value of the property be applied to the debt. By bidding an unreasonably low amount at execution sale, the creditor can obtain a windfall. For illustration, let us examine the facts of the case at bar. The creditor in this case is owed approximately $150,000, which is secured by a deed of trust on real property which the creditor claims is worth $80,000. The debtor contends that the property is worth much more, but for the sake of argument the creditor's contentions will be accepted. If the creditor were to foreclose on the property, either judicially or by exercise of the power of sale, he would be required to credit the value of the property against the debt, leaving a balance owing of $70,000. He could then obtain a deficiency judgment for $70,000, which could be satisfied from other assets of the debtor. On the other hand, utilizing the method now sanctioned by the court, the creditor could first sue for and obtain a money judgment for the full amount of $150,000. He could then cause a writ of execution to be issued and could levy upon and sell the real property covered by the deed of trust. At the sheriff's sale, the creditor could purchase the property for a relatively nominal amount, say $10,000. Applying this amount against his judgment, that creditor would still have a judgment for $140,000, which he could satisfy from other assets of the debtor. In the first hypothetical, the creditor would receive assets worth $150,000, an amount equal to the debt. Under the second hypothetical and simply by inverting the procedure, the creditor would receive assets worth $220,000. But why should there be a difference? The reality of the situation in each case is that the encumbered real property is sold and other assets are then seized to satisfy the debt. What logical reason can be advanced for permitting a creditor to recover a far larger amount merely by inverting the procedure? Why should the creditor be entitled to recover more if he sues first and then sells the property, as opposed to selling the property and then suing? The injustice of the result which has been reached is further demonstrated by the fact that the debtor is helpless to minimize or eliminate his damages. He cannot require the creditor to foreclose against the encumbered real property, nor can he sell it to a third party. A creditor intent upon gaining a windfall may simultaneously retrain his deed of trust against the property while suing for a money judgment. Because of the encumbrance on the property, the debtor is unable to sell the property to the third parties and apply the proceeds to the debt. In the case at bar, if the creditor were at least required to release his deed of trust, the debtor could market the property and use the proceeds of any sale to reduce his liability. However, it would be impossible for the owner of property worth $80,000 to sell it if the holder of a deed of trust securing a debt of $150,000 refused to release the encumbrance. In enacting the Trust Deeds Act, the Idaho Legislature included a safeguard which was designed to prevent a creditor from taking unfair advantage of a debtor in the manner described above. Idaho Code § 45-1513 precludes the entry of a money judgment in excess of the difference between the amount of the debt and the fair market value of the encumbered property. In its decision, the court entirely failed to consider the effect of that statute or to discuss its application. Section 45-1512 provides in pertinent part that: The court may not render judgment for more than the amount by which the entire amount of indebtedness due at the time of sale exceeds the fair market value at that time, with interest from date of sale, but in no event may the judgment exceed the difference between the amount for which such property was sold and the entire amount of the indebtedness secured by the deed of trust. (Emphasis added.) No logical reason suggests itself why Section 45-1512 should apply where the property is sold before money judgment is entered and should not apply where entry of judgment precedes the sale. In effect, the prohibition of I.C. § 45-1512 has been subverted. The creditor can sidestep the prohibition of the statute simply by selecting a different procedure. Surely, this is an anomalous result. The policy of Idaho law is or should be to prevent a creditor from doubly impairing his debtor's credit by holding an encumbrance against the debtor's property and at the same time proceeding against him for a personal judgment. See Jeppesen v. Rexburg State Bank, 57 Idaho 94, 62 P.2d 1369 (1936). That policy is destroyed by the holding of the case at bar. The plain and specific language of the Trust Deeds Act should be given effect. Under the Act the creditor may liquidate the collateral by exercising the power of sale, or he may foreclose his deed of trust judicially in the same manner as a mortgage. Under either alternative, he should be required to credit the fair market value of the property against the debt and should have money judgment only for the difference. The appellant's efforts have produced a modification of the majority opinion, albeit that the majority continues tinkering with the legislature's statutes. The majority opinion stays as it was first issued through Slip Opinion p. 6, and a new page 7 has been added. [5] The majority on the revised Slip Opinion page 7, continues its bent on allowing Court action on the debt independent of the security. The slight modification it has made does not respond to the appellant's concerns, nor to mine earlier expressed. Somehow the members comprising the majority with magnificent hindsight are able to perceive that the legislature contemplated a suit on the debt independent of the foreclosure provisions. This remarkable judicial modification is accomplished without one citation of authority from anywhere, nor is it founded on any claimed need which it can defend by logical explanation. No other court of the fifty states having similar trust deed statutes has been so devilishly innovative. Although the majority cites no authority for its novel and unprecedented decision, I have, in vain, attempted to find some support for it in other jurisdictions with the help of computer aided research. To my knowledge, all states that have addressed the issue uniformly conclude that the holders of a promissory note secured by a deed of trust may NOT waive the security initially required from the borrower and instead obtain a money judgment for the amount due on the note. See, Utah Mortgage and Loan v. Black, 618 P.2d 43 (Utah 1980); Keever v. Nicholas Beers Company, 96 Nev. 509, 611 P.2d 1079 (1980); Ross Realty Co. v. First Citizens Bank & Trust Co., 296 N.C. 366, 250 S.E.2d 271 (1979); Bank of Italy National Trust & Savings Assoc. v. Bentley, 217 Cal. 644, 20 P.2d 940 (1933), cert. denied, 290 U.S. 659, 54 S.Ct. 74, 78 L.Ed. 571 (1933). Just last month the Supreme Court of Arizona addressed the question of whether the beneficiary of a deed of trust was allowed to waive the security and sue on the promissory note. Baker v. Gardner, Ariz. (Ariz. 1988) (Slip Op. CV-0104-PR; Dec. 20, 1988). The court, typical of all tribunals that have encountered the question, answered thusly: The holder of the note and security device may not, by waiving the security and bringing an action on the note, hold the maker liable for the entire unpaid balance. On more than one occasion I have argued that sound jurisprudence is not offended merely because the newly adopted rule rejects a view held by a majority of courts. When a minority view is adopted, however, it is incumbent upon the court to clearly explain its reasons for so doing. Thus, I respectfully dissent because the majority opinion: (1) undermines the legislative intent of the trust deed statutes; (2) unknowingly rejects the unanimous thunder of sister states; and (3) provides no sound rationale for its holding. Luckily, under Idaho's tripartite system of government, our legislative body has the prerogative to mend the wound rendered today on our bleeding deed of trust act.