Federal Home Loan Mortg. Corp. v. Bates

• Court: Alabama Supreme Court
• Writing for the Court: INGRAM; HORNSBY
• Citation: Federal Home Loan Mortg. Corp. v. Bates, 644 So.2d 925 (Ala. 1994)
• Decision Date: 15 July 1994
• Parties: FEDERAL HOME LOAN MORTGAGE CORPORATION v. E. David BATES III, et al. E. David BATES, et al. v. FEDERAL HOME LOAN MORTGAGE CORPORATION. 1930487, 1930511.

Page 925

644 So.2d 925

FEDERAL HOME LOAN MORTGAGE CORPORATION v. E. David BATES III, et al.

E. David BATES, et al. v. FEDERAL HOME LOAN MORTGAGE CORPORATION.

1930487, 1930511.

Supreme Court of Alabama.

July 15, 1994.

Raymond P. Fitzpatrick, Jr. and R. Scott Clark of Johnston, Barton, Proctor, Swedlaw & Naff, Birmingham, for appellant/cross-appellee.

N. Lee Cooper and Melissa N. Ridgeway of Maynard, Cooper & Gale, P.C., Birmingham, for appellees/cross-appellants.

INGRAM, Justice.

The Federal Home Loan Mortgage Corporation ("Freddie Mac") held a first mortgage on certain apartments. After default by the mortgagor, Freddie Mac purchased the property at a foreclosure sale, on April 28, 1992, for $1,706,460.31. E. David Bates III, Thomas C. Clark, Jr., N. Lee Cooper, and James L. Hubbard (hereinafter referred to collectively as "Bates") purchased the second mortgage on this property and then, pursuant to Ala.Code 1975, § 6-5-253 et seq., and within the one-year period allowed for redemption, sought to redeem the property. Freddie Mac presented Bates with a statement of its asserted price for redemption. Bates disputed the classification of certain expenditures called "permanent improvements" and, further, contended that he was entitled to a credit for diminution in the value of the property.

On April 27, 1993, Bates paid $2,138,268.10 to the circuit clerk, the amount Freddie Mac had demanded. Upon a joint motion, the trial court entered an order distributing $1,525,000 to Freddie Mac and $3,003.10 to Bates. The trial court then conducted a hearing to determine the distribution of the remaining $610,265 held by the circuit clerk. After listening to the testimony of the witnesses and viewing pictures of the property, the trial court held that the proper amount of money owing to Freddie Mac was $181,460.31, ¹ "plus interest thereon at the rate and for the period derived from previous order in this case." Specifically, the trial court entered the following order:

"Testimony of record reveals this dispute involves income-producing property, received by defendant [Freddie Mac] in a condition needful of immediate repair and/or preservation so as to prevent even further deterioration.

"With some few exceptions, the bulk of [Freddie Mac's] expenditures and efforts were directed at keeping the flow of income (from rents) as sizable as possible.

"Indeed, most of the testimony from witnesses for both sides was directed to the character or nature of what components received repair or replacement.

"Carpets were cleaned or replaced, where necessary, in tenantable units. However, in some four units, which either 'slanted,' or had water damage, these units were 'cannibalized' to maintain livable units (i.e., with perhaps one exception, no slanting or water damaged units were structurally corrected and placed back on the lease market).

"The common parking and access areas were resurfaced and 'landscaping' was testified to as 'keeping the grass cut.' Such repairs or (improvements?) were, for example, typical of the visible, tenant-attracting efforts pursued by [Freddie Mac].

"....

"Examples, derived from the testimony and evidence, include: 'slanted' apartment units, rotted cornices under the eaves, rotted eaves, rotted studs behind rotted 4' X 8' sheets of exterior panels, rotted decks, stonework facades pulled loose from buildings and standing unattached.

"In all the above examples, [Freddie Mac] failed to perform needful measures to minimize the damage. And, in all of those above examples, it is elementary that rot progressively worsens, as slow oxidation occurs, spreading itself to other members and, ultimately, reducing wooden components to useless debris.

"The quid pro quo, of course, of adjudicating that [Freddie Mac] committed 'waste' is the receipt of some $600,000.00 in rental income.

"Under the applicable sections, Code of Alabama, § 6-5-253 and 6-5-254, plaintiffs have met their burden of proving a predominance of acts of waste with resultant diminution in the value and condition of the property. As to those items of expenditure that might well qualify as 'permanent improvements,' such amounts are insufficient to offset the resultant gross diminution in property value, occasioned by [Freddie Mac's] successful efforts reimbursing itself from the lucrative rental income. This oversimplification of...