Court Opinion

ID: 7876634
Source: CourtListenerOpinion
Date Created: 2022-09-08 21:13:57.208041+00
Date Added: 2024-06-11T16:31:25.172171
License: Public Domain

MILLER, Justice (on reassignment).
This is an appeal from an amended judgment of foreclosure and deficiency. We reverse, holding that the trial court did not properly require the mortgagee (a junior lienholder) to bid the fair market value of the mortgaged property at the foreclosure sale.

Facts

Even though the factual and procedural scenario is somewhat detailed and complicated, it need not be totally recited here because of the limited issues addressed in this decision.
Robert B. Marx (Marx) is the owner and sole shareholder of South Dakota Farmers Oil Company of Britton, South Dakota (Company). Company entered into a distributorship contract with Sinclair Marketing, Inc. (Sinclair) in 1980. Marx personally guaranteed payment of Company’s indebtedness to Sinclair.
In 1981, Sinclair discontinued delivery of oil products to Company because of unpaid accounts. Marx made a substantial payment on the debt owed and executed a promissory note supported by ten real estate mortgages as part of an agreement whereby Sinclair agreed to forbear enforcing Marx’ personal guarantee and to resume financing oil products. At that time, Marx was indebted to Sinclair for over $181,000. Further, at that time the property was subject to two previous mortgages (one mortgage in favor of the First National Bank of Aberdeen, Britton Branch, in the amount of $20,000 and the other in favor of Frank L. Farrar in the amount of $708,500). Although the record is not clear as to the value of the property in 1981, its total fair and reasonable value at the time of trial, in September, 1985, was $126,000. Later, Company again defaulted on payment and, on February 22, 1985, Sinclair initiated foreclosure proceedings against five of the ten mortgages.* Marx filed an answer and counterclaim. The trial court granted judgment for Sinclair and dismissed Marx’ counterclaim.
*311The real estate was foreclosed and sold at a sheriffs sale on February 12, 1986. Sinclair was the purchaser. Sinclair applied for a deficiency judgment on March 17, 1986. Marx objected and Sinclair’s application was denied on the ground that Sinclair had failed to bid the “fair and reasonable value” of the mortgaged premises as required by SDCL 21-47-16.
Sinclair filed motions to vacate the court’s order (which denied the application for a deficiency judgment), to vacate the judicial sales of the foreclosed property, and to amend the judgment. Sinclair asserted that the original judgment had omitted the fair and reasonable value of the interests upon which Sinclair was foreclosing. The motions were granted. The amended judgment reflected the fair and reasonable value of Marx’ net equity in the property, rather than the fair market value of such encumbered property. The trial court held that Sinclair could foreclose upon only that which had been mortgaged to Sinclair (Marx’ net equity).
A second judicial sale was held and again Sinclair was the purchaser. Sinclair again applied for a deficiency judgment and the trial court found in Sinclair’s favor, granting deficiency judgment in the amount of $289,250, plus prejudgment interest.
To summarize, the following is an itemization of the salient tracts of property, together with their full, reasonable, and fair value, the net equity of Marx, and the sales price at the second auction:
Tract Tract 1 Tract 2 Tract 3 Tract 4 Tract 5 Fair & Reasonable Value $ 2,600.00 26,000.00 3,600.00 76,000.00 20,000.00 Marx' Net Equity $ 0 26,000.00 0 0 10,284.00 Sales Price at Second Auction $ 10.00 25,010.00 10.00 10.00 10,295.00
ISSUE PRESENTED
UNDER OUR DEFICIENCY JUDGMENT STATUTES, MUST A JUNIOR LIENHOLDER BID THE FULL FAIR AND REASONABLE VALUE OF THE PROPERTY AT A FORECLOSURE SALE IN ORDER TO BE ENTITLED TO A DEFICIENCY JUDGMENT? We hold that they must.
DECISION
This decision requires an analysis and interpretation of our deficiency judgment statutes, SDCL 21-47-15 and -16. Both statutes were adopted by Chapter 146 of the 1939 Session Laws and read as follows:
SDCL 21-47-15 provides:
In any foreclosure of a mortgage upon real estate by action, the mortgagee, his assigns or their legal representatives, may purchase the premises, or any part thereof, at such foreclosure sale, providing he bids fairly and in good faith, and bids the fair and reasonable value thereof. (Emphasis added.)
SDCL 21-47-16 reads:
If the holder of such mortgage is not willing at such sale to bid the full amount of the judgment debt, it shall be the duty of such mortgage holder to establish at the time of the trial by competent proof to the satisfaction of the court, the fair and reasonable value of the mortgaged premises, and the court shall determine the same in its decree; and if the court shall find such fair and reasonable value to be less than the sum due on said mortgage, with costs and expenses of sale, it may by such decree authorize such mortgage holder to bid not less than the fair and reasonable value as thus determined, and if a deficiency remains after the foreclosure sale, such mortgagee, or his assigns, shall be entitled to a general execution for such deficiency only upon application to the court in which the judgment was rendered. (Emphasis added.)
Sinclair argues that the term “mortgaged premises” is not the specific real property covered by the mortgage, but rather the mortgagor’s net equity in said property. It cites no authority for that position. In fairness to Sinclair, however, we, too, have been unable to find any au*312thority which defines "mortgaged premises” in the context used in these cases.
It is the settled law of statutory construction that words are to be understood in their ordinary sense and are to be given their plain meaning and intent. See SDCL 2-14-1 and the many annotations thereunder.
Webster’s Third New International Dictionary (Unabridged) defines “premises” as:
3(a) property that is conveyed by bequest or deeds; (b) a specified piece or tract of land with the structures on it; (emphasis added)
It is important to recognize the purpose of deficiency judgment statutes. In Miners & Merchants Bank v. Braden Forestry, 374 N.W.2d 123, 125 (S.D.1985), we held that these statutes “are designed to prevent a mortgage holder from obtaining a deficiency judgment without regard to the fair value of the mortgaged property.” (Emphasis added.) See also Wolken v. Bunn, 422 N.W.2d 417 (S.D.1988); Federal Land Bank v. Carlson, 411 N.W.2d 415 (S.D.1987) aff'd on reh’g 422 N.W.2d 99 (S.D.1988).
Justice Henderson in his special writing in Miners & Merchants Bank, 374 N.W.2d at 127, emphasized that:
Lending and financial institutions must not circumvent the law in obtaining or in attempting to obtain deficiency judgments; without regard to the establishment of the value of the mortgaged property in foreclosure actions, you have a runaway horse on your hands.
Further, in writing for this court in Todd v. Winkelman, 320 N.W.2d 525 (S.D.1982), Justice Morgan reiterated our prior holding in Perpetual National Life Ins. Co. v. Brown, 85 S.D. 330, 182 N.W.2d 216 (1971), wherein we set forth mandatory procedures to be followed under the deficiency judgment statutes. It is clear from reading the Todd and Perpetual National Life cases that the statutory terms “mortgaged premises” and “mortgaged property” were therein considered as synonymous. So that there will be no doubt in the future, we now specifically so hold.
Therefore, following the specific language of the statutes, any mortgage holder seeking a foreclosure and deficiency judgment has the obligation to establish the fair and reasonable value of the mortgaged property and the court must make such a determination in its decree. Federal Land Bank, supra. The mortgage holder then, in order to obtain a deficiency judgment, must bid the fair and reasonable value of the property.
We recognize that the practical effect of this holding is to require a junior lienholder to jump through the hoops mandated by a foreclosure action and, in effect, pay off part (or in some cases all) of a superior lienholder’s debt in order to be entitled to a deficiency judgment. As absurd as it may seem, and although we appreciate that Sinclair’s position has some practical merit, we are convinced that they and others similarly situated must look to the legislature, rather than to this court, for relief. There simply is no specific, or even implied, procedure in our statutes which affords junior lienholders the right to bid anything less than the fair market value of the property covered by the mortgage and still be entitled to a deficiency judgment. (Of course, this does not mean that they have to bid the value of the property plus the value of all of the superior encumbrances thereon.)
Our deficiency judgment statutes may be antique and arguably do not contemplate or address modem financing practices. However, by the same token, we must observe that at the time it took the mortgages here Sinclair had to be aware that the value of the property was significantly less than the encumbrances thereon and it therefore entered into the transaction and took the mortgages with its eyes open.
In view of this holding, we need not address the other issues which were raised in this appeal.
Reversed.
MORGAN and HENDERSON, JJ., concur.
WUEST, C.J., and SABERS, J„ dissent.

 Sinclair later initiated foreclosure proceedings against the remaining five mortgaged properties.