Morton v. Resolution Trust Corp.

• Decision Date: 29 September 1995
• Docket Number: 2:89-CV-134WS.,Civil A. No. 2:88-CV-196WS
• Citation: 918 F. Supp. 985
• Parties: Larry and Sandra MORTON, Plaintiffs, v. RESOLUTION TRUST CORPORATION, as Receiver for Evangeline Federal Savings and Loan Association, and D. Jene Whitecotton, Defendants. RESOLUTION TRUST CORPORATION, as Receiver for Evangeline Federal Savings and Loan Association, Third Party Plaintiff, v. SOUTHERN LAND TITLE SERVICE COMPANY, INC., Defendant. RESOLUTION TRUST CORPORATION, as Receiver for Evangeline Federal Savings and Loan Association, Plaintiff, v. Larry and Sandra MORTON, Defendants.
• Court: U.S. District Court — Southern District of Mississippi

918 F. Supp. 985

Larry and Sandra MORTON, Plaintiffs, v. RESOLUTION TRUST CORPORATION, as Receiver for Evangeline Federal Savings and Loan Association, and D. Jene Whitecotton, Defendants.

RESOLUTION TRUST CORPORATION, as Receiver for Evangeline Federal Savings and Loan Association, Third Party Plaintiff, v. SOUTHERN LAND TITLE SERVICE COMPANY, INC., Defendant.

RESOLUTION TRUST CORPORATION, as Receiver for Evangeline Federal Savings and Loan Association, Plaintiff, v. Larry and Sandra MORTON, Defendants.

Civil A. Nos. 2:88-CV-196WS, 2:89-CV-134WS.

United States District Court, S.D. Mississippi, Hattiesburg Division.

September 29, 1995.

COPYRIGHT MATERIAL OMITTED

James W. Newman, IV, Newman & Newman, Jackson, MS, for Larry Morton, Sandra Morton.

W. Rodney Clement, Jr., John E. Wade, Jr., Brunini, Grantham, Grower & Hewes, Jackson, MS, Lori Williams Holland, Lori Williams Holland, Jackson, MS, for Resolution Trust Corporation, Receiver for Evangeline Federal Savings and Loan Association.

Carey R. Varnado, Frank D. Montague, Jr., Montague, Pittman & Varnado, Hattiesburg, MS, for D. Jene Whitecotton.

Jay L. Jernigan, Jay L. Jernigan, Attorney, Hattiesburg, MS, for Southern Land Title Service Co., Inc.

MEMORANDUM OPINION AND ORDER

WINGATE, District Judge.

On an earlier day, this case was tried to the court sitting without a jury. During the course of the trial, the court received evidence by way of live witnesses and documentary exhibits. Now, pursuant to Rule 52, Federal Rules of Civil Procedure, this court announces its findings of fact and conclusions of law.

Plaintiffs Larry and Sandra Morton (hereinafter "the Mortons") seek from this court a declaratory judgment and other relief as a result of the defendants' alleged negligence and harm in carrying out a substituted trustee's foreclosure sale of their previously-owned property, once known as the Best Western Peddler's Inn located in Hattiesburg, Mississippi (hereinafter "Peddler's Inn"). Former mortgage debtors, the Mortons contend that the defendants' foreclosure sale of this property was valid and final and, resultedly, that on account of the amount brought by the sale, they (the Mortons) do not owe their mortgagor (Evangeline Federal Savings and Loan Association) any deficiency. Defendant Evangeline Federal Savings and Loan Association disagrees, contending that the Mortons do owe a deficiency based upon a second and subsequent foreclosure sale which brought a lower final bid. According to this defendant, the second foreclosure sale was necessary because of fatal procedural defects which attended the first foreclosure.

Persuaded that the facts and the law favor the Mortons' view, this court finds that defendants' initial foreclosure sale of the Peddler's Inn was valid and final and that the Mortons do not owe any deficiency based upon a second foreclosure sale. Accordingly, this court finds for the Mortons and against Evangeline Federal Savings and Loan, which now in receivership is represented by the Resolution Trust Corporation.

The court further finds the defendants D. Jene Whitecotton and Southern Land Title Service Company to be without liability to the Mortons. These defendants conducted the first foreclosure sale. The Mortons' claim of negligence against these defendants was predicated upon the possibility that this court might find the initial foreclosure sale invalid. Since this court has found otherwise, this court dismisses the Mortons' claims against these defendants.

PARTIES AND JURISDICTION

The Mortons are resident citizens of the State of Arkansas. The defendant D. Jene Whitecotton (hereinafter "Whitecotton" or the "substituted trustee") conducted the foreclosure sale as the substituted trustee on behalf of defendant Evangeline Savings and Loan (hereinafter "Evangeline"), holder of a second mortgage on the Peddler's Inn. Evangeline's bidding agent at the foreclosure sale conducted by Whitecotton was the defendant Southern Land Title Service Company, Inc. (hereinafter the "SLTSC"). During the time in question, the SLTSC was owned and operated by Scott Wheeler. Whitecotton and the SLTSC are residents of Mississippi. Evangeline's principal place of business is in Louisiana and, according to the Mortons, Evangeline was doing business in Mississippi during the time in question. The Resolution Trust Corporation (hereinafter "RTC") took over as receiver for Evangeline on August 18, 1989, and has been substituted as the real party in interest in this lawsuit. The Peddler's Inn, the property in question, was located at all times relevant to this matter on Broadway Drive in Hattiesburg, Mississippi.

According to the plaintiffs' complaint, jurisdiction over this cause is predicated on diversity of citizenship pursuant to Title 28 U.S.C. § 1332.¹ However, inasmuch as the RTC is an agent for the United States pursuant to Title 12 U.S.C. § 1819,² jurisdiction of this court is also based upon Title 28 U.S.C. § 1345.³

PERTINENT FACTS

The parties agree that on December 29, 1983, in order to purchase the Peddler's Inn, the Mortons executed two valid promissory notes, one to Evangeline in the principal amount of $1,800,000.00, and another in the principal amount of $500,000.00 to Deposit Guaranty National Bank, escrow agent for David T. DeBerry, the former owner of Peddler's Inn. This was a "no-cash" transaction. Both notes were secured by a valid deed of trust and a security agreement executed by the Mortons covering real and personal property at the Peddler's Inn. Additionally, the court finds that exhibit P-3 is the Mortons' personal guaranty of the Evangeline $1,800,000.00 loan.

It is undisputed that the Mortons defaulted on the $1,800,000.00 note; that thereafter, one Cordell White, the president of Evangeline at the time in question, executed an "appointment of substitute trustee" document on December 17, 1987; that Cordell White was authorized and had the power to so appoint the defendant Whitecotton to be the substituted trustee; and that a foreclosure sale of the Peddler's Inn was conducted by Whitecotton on January 27, 1988. The parties agree that during this foreclosure sale the defendant Whitecotton accepted a bid for $1,988,857.78 made by Scott Wheeler, owner of SLTSC, the agency Evangeline hired to conduct the January 27, 1988, foreclosure.

According to the Mortons, SLTSC drafted and recorded all of the foreclosure documents regarding the January 27, 1988, foreclosure sale of Peddler's Inn, including the appointment of substituted trustee and the notice of sale. The pertinent land records show that a trustee's deed to Evangeline was filed in the Office of the Chancery Clerk of Forrest County on February 3, 1988. According to the testimony of Larry Morton, an Evangeline ledger card dated February 19, 1988 (exhibit P-23), was stamped "paid" on its front and back, thereby reflecting no further indebtedness by the Mortons. The parties agree that after this foreclosure sale Evangeline took possession of and maintained control over all property at Peddler's Inn, both real and personal, which secured both the $1,800,000.00 and $500,000.00 notes on January 27, 1988.

Then, say the Mortons, on August 17, 1988, W. Rodney Clement, another substitute trustee appointed by Cordell White, purported to conduct a second foreclosure on the same real property described in the Evangeline deed of trust which stood as collateral for the $1,800,000.00 Evangeline note. According to the RTC, on June 27, 1988, a second substitution of trustee appointing W. Rodney Clement was acknowledged by Cordell H. White on behalf of Evangeline, and the second foreclosure sale was conducted allegedly to correct the discrepancies in the first foreclosure sale. Though hotly contested by the Mortons, Whitecotton and the SLTSC, the alleged discrepancies in the first foreclosure sale according to RTC include an invalid acknowledgement in the first substitution of trustee appointing the defendant Whitecotton, an invalid notice of sale, and a sale conducted in an improperly described location.

This second foreclosure sale also resulted in the Peddler's Inn being resold to Evangeline. But, under this second sale, the real property associated with Peddler's Inn was sold to Evangeline for only $805,000.00. According to the testimony of W. Rodney Clement, this amount represented the value of the Peddler's Inn property less the David T. DeBerry $500,000.00 note.

Thereafter, say the Mortons, on October 7, 1988, Evangeline conducted a public sale of certain personal property pursuant to a September 26, 1988, notice of sale. The parties agree that the notice of sale dated September 26, 1988, lists all of the personal property at the Peddler's Inn subject to the security agreement given as collateral for Evangeline's $1,800,000.00 note. According to the Mortons, the only bid received was that of Evangeline in the amount of $240,000.00. This bid was accepted, and a bill of sale dated October 7, 1988, purporting to convey this personal property to Evangeline was executed.

It is also undisputed that on December 14, 1988, Evangeline transferred a portion of the real property at Peddler's Inn to the Sunburst Bank for $160,000.00. According to the testimony of David T. DeBerry, $112,000.00 of this sale price was applied to his $500,000.00 note, while $48,000.00 of the sale price was applied to property taxes due and owing. The parties agree that title to the real property securing the $500,000.00 DeBerry note was vested in Evangeline prior to or by December 20, 1988. This is so, say the parties, because Evangeline purchased at the foreclosure sale the real property associated with Peddler's Inn which secured the DeBerry $500,000.00, subject to David T. DeBerry's first mortgage. Then, say the parties, on December 30, 1988, David T. DeBerry executed a document that purported to assign to Evangeline the security agreement and deed of trust DeBerry held as collateral for his...