American Federal Sav. & Loan Ass'n of Tacoma v. McCaffrey

• Decision Date: 13 November 1986
• Docket Number: No. 52565-0,52565-0
• Citation: 728 P.2d 155,107 Wn.2d 181
• Court: Washington Supreme Court
• Parties: AMERICAN FEDERAL SAVINGS & LOAN ASSOCIATION OF TACOMA, a Washington corporation, Appellant, v. Joseph A. McCAFFREY, and Lucille B. McCaffrey, husband and wife; McCaffrey Corporation, a Washington Corporation; and Rivers End Estates Condominium Association, a condominium association, Respondents.

Page 181

107 Wn.2d 181

728 P.2d 155

AMERICAN FEDERAL SAVINGS & LOAN ASSOCIATION OF TACOMA, a Washington corporation, Appellant, v.Joseph A. McCAFFREY, and Lucille B. McCaffrey, husband and wife; McCaffrey Corporation, a Washington Corporation; and Rivers End Estates Condominium Association, a condominium association, Respondents.

No. 52565-0.

Supreme Court of Washington En Banc.

Nov. 13, 1986.

Schweinler, Lowenberg & Lopez, David Schweinler, Tacoma, for appellant.

Casey & Wiley, Kevin Casey, Bellevue, Hennings, Maltman, Weber & Reed, Douglass North, Seattle, for respondents.

DORE, Justice.

This action concerns the rights and obligations of the parties in the process of mortgage foreclosure sales.We hold that the mortgage creditor has exercised the option to accept the sale of the mortgaged property at the upset price by withdrawing the funds paid into the court registry to satisfy the deficiency judgment.This course of conduct precludes the mortgage creditor from demanding resale of the mortgaged property.

FACTS

On April 24, 1980, the McCaffreys executed a promissory note in the amount of $625,000 to American Federal Savings and Loan Association in exchange for a loan to finance the construction of an 18-unit condominium complex.To secure the indebtedness, the McCaffreys executed a mortgage covering both the planned condominium and the McCaffreys' lakefront home.An additional loan of $103,000, secured in the same fashion, was advanced to complete construction.Ten of the condominium units were sold during 1981, with American releasing its security interest in these units at the time of sale.The remaining eight units remain unsold.The McCaffreys were unable to make the scheduled loan payments.Consequently, American brought suit on the notes and foreclosure on the unsold units.American also requested a deficiency judgment if the proceeds of the sale did not satisfy the McCaffreys' indebtedness.The McCaffreys brought counterclaims, alleging damages due to American's conduct in financing the venture.American obtained partial summary judgment for $417,972.72 with judgment of foreclosure as to the unsold condominium units.This judgment was later reduced to $390,050.11 by a partial satisfaction of the indebtedness due to a postjudgment sale of one of the condominium units.

On July 15, 1983 a judicial sale was conducted at which American was the sole bidder.American bid $288,000 ($36,000 per unit).American then moved to confirm the sale.The McCaffreys objected, contending that the remaining units were worth $60,000 per unit, and moved for the establishment of an upset price.The motion judge denied American's motion for confirmation, and granted the McCaffreys' motion to establish an upset price.The case was remanded for trial.

McCaffreys' expert testified that the property had a "current market value" of $432,000 ($54,000 per unit) as of August 8, 1983."Current market value" was defined as "what a willing buyer would pay to a willing seller" under market conditions at that time.This appraiser assumed that competitive bidding at a sheriff's foreclosure sale would produce the same current market value between a willing buyer and a willing seller.His appraisal was based upon comparable sales.

American's expert appraiser testified that the market value of $355,000 ($44,437 per unit) must be severely discounted because competitive bidders would consider the nature of the sale and the possibility of a redemption.The $355,000 figure only applied if there were eight separate, individual, willing buyers, in the context of a competitive market on July 15, 1983, at a market other than a sheriff's sale.

At the conclusion of the hearing, the trial judge entered an order which provides in pertinent part:

At the hearing on October 24, 25 and 26, 1983, pursuant to R.C.W. 61.12.060 and the applicable case law, the court assumed the position of a competitive bidder in determining a fair bid for the property under normal conditions, considering the usefulness of the property under normal conditions and potential or future value, the type of property involved, the potential future economy, as well as the court's own personal view of the property during the course of the hearing, and other factors which the court believes a competitive bidder would consider in determining the fair value to bid for the property.Based upon consideration of the foregoing factors, the court finds that a fair value of the property is $45,000 per unit for a total fair value of the property of $360,000.

Clerk's Papers, at 118.

The court further ordered, on McCaffreys' motion to confirm, and over American's objection, that the sale was confirmed in the amount of the upset price as of July 15, 1983.The order also provided that the upset price would be applied against American's judgment, also as of July 15, 1983.A deficiency judgment of $37,284.56 was entered after application of the upset price against the judgment.The McCaffreys deposited funds in this amount into the court registry to satisfy the deficiency.

The Court of Appeals granted American's motion for discretionary review on the sole issue of whether the trial court had authority to confirm a judicial sale under the circumstances presented.In a per curiam unpublished opinion the court held that confirmation may be had upon motion of the judgment creditor or successful purchaser on notice to the other parties.RCW 6.24.100.Nothing in the statutory scheme authorizes the trial court to sua sponte confirm a sale over the objection of the judgment creditor/purchaser.Confirmation of the sale was error.The court reversed and remanded for further proceedings.

Prior to the filing of the Court of Appeals opinion, American withdrew on April 27, 1984 the funds the McCaffreys had deposited in the court registry to satisfy the deficiency judgment and applied these funds as a partial satisfaction of its judgment.

The McCaffreys then moved for reconsideration.American moved for an award of attorneys fees as provided for in the mortgage agreement.The motion for reconsideration was denied and the case was remanded for the fixing of attorneys fees incurred at trial and upon appeal.

Upon remand to the trial court, the judge entered a second order, providing in pertinent part:

ORDERED, ADJUDGED AND DECREED, that an upset price is established for the condominium units described above in this Order of Forty-five Thousand Dollars ($45,000.00) per unit for a total upset price of Three Hundred Sixty Thousand Dollars, ($360,000.00).

IT IS FURTHER ORDERED, that Plaintiff has a Deficiency Judgment against DefendantsMcCaffrey Corporation, Joseph A. McCaffrey and Lucille B. McCaffrey, individually and against their marital community, pursuant to its Judgment of Foreclosure, and after application of the upset price established herein, of $37,284.56, as of July 15, 1983, with interest at the statutory rate from July 15, 1983, until paid.

IT IS FURTHER ORDERED, that the Court will not confirm the sale of the mortgaged property held July 15, 1983, unless Plaintiff agrees to bid the upset price amount for the mortgaged property of Forty-five Thousand Dollars ($45,000.00) per unit for a total bid of Three Hundred Sixty Thousand dollars, ($360,000.00).

IT IS FURTHER ORDERED, that the Clerk of the Court shall enter a full satisfaction of the Foreclosure Judgment entered in this action against Defendants, forthwith, upon payment by Defendants of the costs levied against them in the Court of Appeals in the amount of $334.50, plus interest thereon; and it is further

ORDERED that this decision is a final judgment and adjudication of the rights of all parties as to all matters and decisions made during the course of the upset price proceedings herein and this judgment is entered herein as a final judgment thereon and there is no just reason for delay.

Clerk's Papers, at 17-18.Although this order does not confirm the sale, it nonetheless credits the upset price against American's judgment and holds that there has been full satisfaction of the judgment.The court determined that the deficiency had been satisfied by the withdrawal from the court registry of the funds deposited by the McCaffreys to satisfy the deficiency.

The court also entered an award of attorney fees.The court found that the McCaffreys had substantially prevailed at trial and American substantially on appeal.The court offset awards to both parties and found a net award of $5,899.45 should be awarded the McCaffreys.

American again appealed to Division One of the Court of Appeals.Subsequent to the trial court's refusal to supersede that portion of the March 6, 1985 order satisfying American's judgment in full, the Court of Appeals entered an order vacating the trial court's order and reinstating American's foreclosure judgment nunc pro tunc to the date of its original entry.An additional order was entered staying American's right to execute on its judgment pending appeal.

The case was then transferred to this court.

PROPRIETY OF THE UPSET PRICE

American initially contends that the McCaffreys did not establish the necessity for fixing an upset price.

Prior to the enactment of the upset price provisions, a trial court in Washington could not refuse to confirm an execution sale on the grounds of mere inadequacy of price.Mellen v. Edwards, 179 Wash. 272, 37 P.2d 203(1934)(depression);Johnson v. Johnson, 66 Wash. 113, 119 P. 22(1911).

The first paragraph of RCW 61.12.060 reads, in pertinent part:

The court, in ordering the [foreclosure] sale, may in its discretion, take judicial notice of economic conditions, and after a proper hearing, fix a minimum or upset price to which the mortgaged premises must be bid or sold before confirmation of the sale.

(Italics ours.)

Subsequent to the enactment of the upset provisions, this court in Lee v. Barnes, 58 Wash.2d 265, 273-74, 362 P.2d 237(1961) held that...