First Union Nat. Bank of Florida v. Goodwin Beach Partnership, 93-743

• Decision Date: 16 September 1994
• Docket Number: No. 93-743,93-743
• Citation: 644 So.2d 1361
• Parties: 19 Fla. L. Weekly D1989 FIRST UNION NATIONAL BANK OF FLORIDA, Appellant, v. GOODWIN BEACH PARTNERSHIP, et al., Appellees.
• Court: Florida District Court of Appeals

Page 1361

644 So.2d 1361

19 Fla. L. Weekly D1989

FIRST UNION NATIONAL BANK OF FLORIDA, Appellant, v. GOODWIN BEACH PARTNERSHIP, et al., Appellees.

No. 93-743.

District Court of Appeal of Florida Fifth District.

Sept. 16, 1994.

Rehearing Denied Dec. 1, 1994.

E. Lanny Russell and Mary E. McManus of Smith, Hulsey & Busey, Jacksonville, for appellant.

Frank D. Upchurch, III of Upchurch, Bailey and Upchurch, P.A., St. Augustine, and Stephen Stratford, Jacksonville, for appellees.

COBB, Judge.

This appeal concerns the denial of a deficiency judgment sought by a mortgagee on the basis of the trial court's determination that the fair market value of the realty securing the debt exceeded the judgment debt at the time of the foreclosure sale. See Ricard v. Equitable Life Assurance Society of U.S., 462 So.2d 592 (Fla. 5th DCA 1985); F.D.I.C. v. Circle Bar Ranch, Inc., 450 So.2d 921 (Fla. 5th DCA 1984). The decision below is flawed in several respects, necessitating reversal for a new trial on the deficiency issue.

In 1990, First Union's predecessor in interest, Southeast Bank, N.A., filed a foreclosure action against Goodwin Beach Partnership and other defendants, resulting in a final judgment which aggregated $4,986,487.00 as of the date of the foreclosure sale. First Union purchased the property at the foreclosure sale in November, 1991 for the nominal sum of $1,000.00 and thereafter moved for entry of a deficiency judgment. Jurisdiction to entertain deficiency proceedings was retained in the foreclosure judgment itself. Prior to commencement of the deficiency hearing, First Union sold the realty for $2,500,000.00 to a third party.

At the evidentiary hearing, First Union presented evidence of its sale of the property for $2,500,000.00; the tax assessment for 1991 of $3,106,500.00; and the expert opinion of an MAI based upon an income approach that the value of the property was $2,180,000.00. The defendants (hereinafter referred to as Goodwin) presented opinion evidence from three appraisal experts whose value estimates, based upon a comparable sale method, ranged from $5,000,000.00 to $5,200,000.00. One of these experts, Crenshaw, found the value to be $4,800,000.00 based on a discounted cash flow method. Crenshaw's appraisal was erroneously based upon an assumption that there were 69.13 acres involved rather than the correct acreage, as determined by the trial court, of 65 acres.

At the conclusion of the hearing, the trial judge declined to award a deficiency judgment, finding that "comparable sales were not helpful because of the special nature of this parcel." The trial court specifically rejected any consideration of unpaid real estate taxes of $124,953.00 extant as of the date of the foreclosure sale. The trial court found that any such tax consideration was barred by the doctrine of res judicata and cited to the case of Horne v. Smith, 368 So.2d 392 (Fla. 1st DCA 1979).

Initially, it should be noted that the trial court's judgment is intrinsically inconsistent in rejecting comparable sales as "not helpful" and thereafter relying on appraisals at trial utilizing that method of appraisal. The appraisals at trial utilizing a different method--i.e., discounted cash flow--did not exceed the amount of $4,800,000.00, an amount which would have justified a deficiency judgment of some $186,500.00, exclusive of the tax consideration.

More egregious, however, was the trial court's refusal to consider the amount of unpaid ad valorem taxes on the subject property as detracting from its value on the date of foreclosure on the theory that the plaintiff should have had the delinquent tax amount of $124,953.00 included in the final judgment of foreclosure it obtained. The trial court clearly misconstrued Horne, which involved two separate actions. That case held that mortgagees who foreclosed a second mortgage on property with outstanding ad valorem taxes due thereon, and who acquired title thereto without raising the issue of a deficiency in that action, could not thereafter seek to recover those unpaid taxes from the prior owners in a subsequent action. It is obvious that the doctrine of res judicata cannot apply where there is one continuing action. ¹ The court in Horne explicitly noted that "No deficiency judgment was ever entered in the foreclosure case." 368 So.2d at 393. Section 702.06, Florida Statutes, authorizes entry of a deficiency decree, should a deficiency exist, in all suits for the foreclosure of mortgages. The mortgagees here are simply seeking a deficiency judgment in connection with the foreclosure action. ²

The underlying theory that a purchaser at a mortgage foreclosure sale is presumed to have made allowances for prior liens in making his bid cannot logically apply to the instant situation where the token price of $1,000.00 paid by the mortgagee at foreclosure sale was totally rejected (and rightfully so) by the trial court as indicative of true market value. Whether or not First Union National Bank of Florida considered the tax indebtedness on the property in fashioning its successful bid at foreclosure sale is therefore irrelevant. It is obvious that real estate with an outstanding tax indebtedness against it is worth less than that same property free and clear of debt, and that should have been equally obvious to the trial judge. The amount of the delinquent taxes should have been considered in arriving at a fair market value. See Federal Deposit Ins. Corp. v. Morley, 915 F.2d 1517 (11th Cir.1990); City Savings Bank of Bridgeport v. Miko, 1 Conn.App. 30, 467 A.2d 929 (1983); First of America Bank-Oakland Macomb, N.A. v. Brown, 158 Mich.App. 76, 404 N.W.2d 706 (1987); McCrum v. Rubbert, 219 Iowa 454, 257 N.W. 766 (1934). If Horne actually stood for the proposition attributed to it by the trial court and the dissent herein, then we should simply reject it as illogical and inequitable.

REVERSED AND REMANDED FOR NEW TRIAL.

DAUKSCH, J., concurs.

W. SHARP, J., dissents with opinion.

W. SHARP, Judge, dissenting.

I respectfully dissent. There simply is no valid basis to overturn the trial judge's factual determination in this case. And the rule of law announced by the majority upsets established precedent, and creates a conflict with our sister courts, as well as this court's prior cases.

The First Union National Bank appeals from a final judgment which denied it a deficiency decree against Goodwin Beach Partnership, a Florida general partnership, which was the mortgagor in a foreclosure suit, various individuals, ¹ who were Goodwin's general partners, and the Ponce de Leon Utility Company of St. Johns County. After a non-jury trial, the court ruled that the fair market value of the property on the foreclosure date exceeded the total mortgage indebtedness. First Union argues that the court's finding is not supported by substantial evidence because the trial court expressly rejected the market approach or comparable-sales method of valuation, the trial court failed to discount the property's fair market value by unpaid real estate taxes due and unpaid on the date of the foreclosure sale, and the trial court erred by excluding First Union's "rebuttal" expert-appraiser witness from the courtroom during the trial. I would affirm.

The record in this case establishes that the Goodwin partnership acquired the real property involved in this lawsuit in 1984 for $4,125,000.00. It is (approximately) a 65-acre, narrow tract of land which runs from the ocean to the intercoastal waterway. It lies ten miles north of St. Augustine, and fifteen miles south of the Tournament Player's Club, near Ponte Vedra.

In 1986, Southeast Bank refinanced the property to provide additional financing to prepare the property for development. Highway A1A was relocated away from the oceanfront at a cost of $700,000.00. This created deep oceanfront property which permits building on it in full compliance with all coastal setback rules and avoids the costly variance and permitting process often necessary for building on other oceanfront properties in that area. The partnership also obtained approval for a P.U.D. for the property. A water and sewer treatment plant were installed, and a well-cistern and easement system established.

Unfortunately, the real estate market cooled, and Goodwin was unable to sell or refinance the property. It defaulted on the mortgage and Southeast Bank filed a foreclosure suit in September of 1990. In October 1991, a final judgment of foreclosure was rendered. It determined the total mortgage debt owed was $4,913,790.31. The amount of the final judgment plus interest until the date of the sale (November 15, 1991) amounted to $4,986,487.00.

By that time, First Union had merged with and acquired Southeast Bank's assets. First Union bought the property at the foreclosure sale for $1,000.00 in November of 1991. Outstanding at the time of foreclosure and sale was a tax certificate for 1990 real estate taxes totalling $68,937.88 and there were also unpaid taxes for 1991 totalling $56,015.58. Neither tax indebtedness was itemized nor included in the final mortgage debt determined in the foreclosure proceedings, and no attempt was made to amend or open those proceedings to include the real estate taxes.

Four months after the foreclosure sale, First Union sold the land to D.D.I., Inc. for $2,500,000.00. Pursuant to the sales contract, the Bank paid the 1990 tax certificate and the parties prorated the 1991 tax obligation. There was testimony that First Union considered the property had a "net realizable value" of $2,330,000.00. The Bank's witness testified this is not necessarily the same thing as "fair market value." It is more similar to liquidation value, or what the Bank could expect to sell it for, for cash, in a quick sale. For these reasons, the trial court rejected the $2,500,000.00 sales price as not indicative of the fair market value of the property at the time of the foreclosure sale.

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