Mt. Carmel Estates, Inc. v. Regions Bank

• Decision Date: 13 December 2002
• Citation: 853 So.2d 160
• Parties: MT. CARMEL ESTATES, INC., et al. v. REGIONS BANK.
• Court: Alabama Supreme Court

853 So.2d 160

MT. CARMEL ESTATES, INC., et al. v. REGIONS BANK.

1011357.

Supreme Court of Alabama.

December 13, 2002.

Stephen V. Hammond of Chenault, Hammond & Hall, P.C., Decatur, for appellants.

Robert P. Reynolds of Reynolds, Reynolds & Duncan, L.L.C., Tuscaloosa, for appellee.

MADDOX, Retired Justice.

The sole legal question presented in this case is whether a lending institution that foreclosed on a mortgage and then was the only bidder at the foreclosure sale breached its duty of fairness and good faith to the borrowers, when its bid at the foreclosure sale was an amount less than the amount due under the terms of the note secured by the mortgage and was so inadequate, the borrower and the guarantors contend, as to shock the conscience.

Facts

The basic facts are not disputed. Regions Bank foreclosed on a mortgage given as security for a promissory note executed on May 12, 1999, in the amount of $2,000,000 by Mt. Carmel Estates, Inc. ("Mt. Carmel"), and guaranteed by Charles M. Sisco, David Wall, Mychiallyn Wall, and Myron Wilson (hereinafter referred to collectively as "the guarantors").

At the foreclosure sale, Regions Bank, the only bidder, bid $1,242,000, an amount less than the unpaid balance on the note, creating a deficiency. Regions Bank sued Mt. Carmel and the guarantors to collect the deficiency and demanded a judgment against the defendants, jointly and severally, for the sum of $375,122.16, attorney fees in the amount of $30,000, and interest "at the Index rate plus .50% until paid [in] full and costs." After the defendants answered, Regions Bank filed a motion for a summary judgment. Mt. Carmel and the guarantors opposed the motion, contending that there was a genuine issue of material fact presented in that the fair market value of the foreclosed property so greatly exceeded the amount of Regions Bank's bid at the foreclosure sale as to shock the conscience. The trial court entered a summary judgment in favor of Regions Bank, and against Mt. Carmel and the guarantors, with the exception of Myron Wilson, who had entered into a pro tanto release before the judgment was entered. We affirm.

As security for the $2,000,000 promissory note, Mt. Carmel mortgaged two parcels of real property: one parcel had been subdivided into 61 lots; the other parcel consisted of 18.23 acres of undeveloped land. After executing the note, Mt. Carmel sold 13 lots from the first parcel and reduced the amount of the note, including principal, interest, and late fees, to $1,611,686. Mt. Carmel then defaulted. On April 28, 2000, Mt. Carmel and the guarantors entered into a contract with Enfinger Development to sell the 48 remaining lots of the first parcel and the second parcel of land to Enfinger for $1,205,985; however, this sale was not consummated.¹ Regions Bank foreclosed on the mortgage, and on July 10, 2000, held a foreclosure sale. Regions Bank offered for separate bids each lot in the first parcel and the second parcel, and then offered for bid all of the real property as a whole. Regions Bank, the only bidder at the sale, offered the highest bids on each individual lot and the second parcel and offered the highest bid on the property as a whole. The sum of the separate bids was slightly less than the bid for the property as a whole, which was the sum of $ 1,242,000.²

On July 14, 2000, Regions Bank sued Mt. Carmel and the guarantors for the alleged deficiency of $375,122.16, plus interest and attorneys fees and costs. Wilson, one of the guarantors, answered on August 15, 2000. The remaining defendants answered and asserted as an affirmative defense that Regions Bank's claim was barred because, the defendants alleged, Regions Bank had breached its duty of good faith and fairness in conducting the foreclosure. On February 8, 2001, Regions Bank filed its motion for a summary judgment. On March 6, 2001, Sisco filed his response in opposition to the motion for a summary judgment. On March 8, 2001, Regions Bank filed a motion seeking the dismissal of Wilson, with whom it had entered into a pro tanto release. On March 19, 2001, Regions Bank filed its amended motion for a summary judgment, stating that Wilson had been dismissed in exchange for Wilson's payment to Regions Bank of $130,000. Regions Bank stated that, after application of Wilson's payment to interest, attorneys fees, and principal, there remained a deficiency of $278,640.18. In a supplemental response to Regions Bank's motion for a summary judgment, Mt. Carmel and the remaining guarantors (hereinafter referred to collectively as "the defendants") stated:

"There are disputed issues of material fact in this litigation involving the amount of the deficiency and the fair market value of the land as of the date of foreclosure. Defendants maintain there is no deficiency other than the one artificially created by [Regions Bank] when it intentionally underbid the property at the foreclosure sale on July 10, 2000. [Regions Bank] breached its duty of good faith and violated its fiduciary duty to the defendants to obtain the highest and best price for the subject property at the foreclosure sale."

On May 22, 2001, the defendants filed a counterclaim, followed on May 23, 2001, by an amended counterclaim, in which they alleged that the price Regions Bank paid for the land—$1,242,000—was far below the reasonable fair market value of the land and violated the duty of good faith and fairness, which the defendants alleged Regions Bank owed them. The defendants then demanded compensatory and punitive damages and further asked that the foreclosure sale be set aside.

On November 5, 2001, the trial court entered a summary judgment in favor of Regions Bank in the sum of $311,013.20.³ In addition, the trial court rendered a judgment in favor of Regions Bank as to the defendant's counterclaim. On appeal, the defendant's raise three issues:

"1. Did Regions [Bank] breach its duty of fairness and good faith owed [the defendants] by not bidding in the amount of the debt at the foreclosure sale, thus creating a false or sham deficiency?

"2. Did the trial court err in granting a summary judgment to Regions [Bank] before the correct amount of the deficiency was known? "3. Did the trial court err in granting Regions [Bank] a judgment on [the defendants'] counterclaim?"

(Defendants' brief, p. 7.)

Standard of Review

This Court's standard for reviewing a summary judgment has been stated many times, most recently in Potter v. First Real Estate Co., 844 So.2d 540 (Ala.2002), in which this Court stated:

"We review a summary judgment de novo. American Liberty Ins. Co. v. AmSouth Bank, 825 So.2d 786 (Ala.2002).

"`We apply the same standard of review the trial court used in determining whether the evidence presented to the trial court created a genuine issue of material fact. Once a party moving for a summary judgment establishes that no genuine issue of material fact exists, the burden shifts to the nonmovant to present substantial evidence creating a genuine issue of material fact. "Substantial evidence" is "evidence of such weight and quality that fair-minded persons in the exercise of impartial judgment can reasonably infer the existence of the fact sought to be proved." In reviewing a summary judgment, we view the evidence in the light most favorable to the nonmovant and entertain such reasonable inferences as the jury would have been free to draw.'

"Nationwide Prop. & Cas. Ins. Co. [v. DPF Architects, P.C.], 792 So.2d [369] at 372 [(Ala.2001)], quoted in American Liberty Ins. Co., 825 So.2d at 790."

844 So.2d at 545.

I.

The defendants state that Regions Bank's alleged lack of good faith and fairness constitutes a defense to Regions Bank's claim, and they also say that Regions Bank's lack of good faith and fairness supports their counterclaim, in which they demanded compensatory and punitive damages.

In their counterclaim, the defendants stated:

"[Regions Bank], as the mortgagee in the mortgage foreclosure proceeding, owed the Defendants a duty of good faith and fairness in the mortgage foreclosure proceeding and was a trustee with respect to the debtors. [Regions Bank's] claims are barred because [Regions Bank] breached its duty of good faith and fairness owed to the Defendants by intentionally underbidding the value of the property at the foreclosure sale, thus creating a false or sham deficiency.

"Wherefore the Defendants ... demand judgment against [Regions Bank]... for general compensatory damages, consequential damages and punitive damages in an mount to sufficiently compensate the Defendants ... and to deter [Regions Bank] ... and others from such wrongful conduct in the future and that the foreclosure sale which was held on July 10, 2000, be set aside and that the Defendants ... be granted such other remedies or relief which a jury and/or the Court may deem appropriate."

To support their contention that the trial court erred in deciding their counterclaim adversely to them, the defendants argue:

"[Regions Bank], as trustee for the debtors, owed a duty to obtain the highest and best price for the property at the foreclosure sale in order to reduce or eliminate the debt. In view of the market value of the property securing the debt, [Regions Bank] could have easily bid in the amount of the debt and eliminated any deficiency. Instead, [Regions Bank] created an artificial deficiency by intentionally bidding in an amount for the property that was far below its fair market value. [Regions Bank] breached its duty of fairness and good faith with the debtors by not bidding in the amount of the debt at the foreclosure sale."

(Defendants' brief, p. 17.) In support of their position that Regions Bank owed them a duty of fairness and good faith, the defendants cite Wood River Development, Inc. v. Armbrester, 547 So.2d 844 (Ala.1989). In Wood River Development this Court stated:

"When a mortgagee forecloses a mortgage pursuant to a power, the mortgagee becomes

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