Sostaric v. Marshall

• Decision Date: 14 November 2014
• Docket Number: No. 14–0143.,14–0143.
• Citation: 766 S.E.2d 396,234 W.Va. 449
• Court: West Virginia Supreme Court
• Parties: Nancy SOSTARIC and Stjepan Sostaric, Defendants Below, Petitioners v. Sally MARSHALL, Plaintiff Below, Respondent.

234 W.Va. 449

766 S.E.2d 396

Nancy SOSTARIC and Stjepan Sostaric, Defendants Below, Petitioners

v.Sally MARSHALL, Plaintiff Below, Respondent.

No. 14–0143.

Supreme Court of Appeals of West Virginia.

Submitted Oct. 14, 2014.

Decided Nov. 12, 2014.

Nov. 14, 2014.

Nancy Sostaric, Stjepan Sostaric, Falls Church, Virginia, pro se.

Sally Marshall, Berkeley Springs, WV, pro se.

Opinion

Justice KETCHUM :

Petitioners, Nancy Sostaric and Stjepan Sostaric (“Mr. and Mrs. Sostaric”),¹ who are appearing pro se, appeal from an order entered January 16, 2014, by the Circuit Court of Morgan County. The circuit court granted summary judgment to respondent, Sally Marshall (“Ms. Marshall”), who is also appearing pro se, awarding her a deficiency judgment against Mr. and Mrs. Sostaric and attorney's fees.²

On appeal, Mr. and Mrs. Sostaric contend that summary judgment was improper because there exist genuine issues of material fact. They contend that the amount of the deficiency judgment awarded was too high and that it should have been adjusted to reflect the fair market value of their property when it was sold at the trust deed sale. They argue the property was sold for less than its fair market value at the trustee's foreclosure sale.

Upon review, we find that Mr. and Mrs. Sostaric may assert, as a defense in the lawsuit seeking a deficiency judgment, that the property was sold for less than its fair market value at the trust deed foreclosure sale. In so finding, we overrule Syllabus Point 4 of Fayette County National Bank v. Lilly, 199 W.Va. 349, 484 S.E.2d 232 (1997). We therefore reverse the circuit court's summary judgment order and remand this matter for further proceedings consistent with this Opinion.

I.FACTUAL AND PROCEDURAL BACKGROUND

Mr. and Mrs. Sostaric signed a “Secured Balloon Promissory Note” on December 26, 2006, whereby Ms. Marshall lent them $200,000.00. The loan was “secured by a first deed of trust on real property owned by Borrowers [Mr. and Mrs. Sostaric]” in Berkeley Springs, West Virginia.³ THE NOTE'S PAYMENT terms required that

[t]he full amount of the note is due and payable December 30, 2013. Interest only payments will be made on a monthly basis. The first interest only payment of $1208.00 will be due on January 30, 2007 and will continue to be paid monthly thereafter. The full payment of Two Hundred Thousand Dollars ($200,000.00) will be due on December 31, 2013.

Additionally, the note included a “DEFAULT AND ACCELERATION CLAUSE,” which provided:

If Borrowers [Mr. and Mrs. Sostaric] default in the payment of this Note or in the performance of any obligation, and the default is not cured within fifteen days after Lender [Ms. Marshall] has given to Borrowers written notice of the default and time to cure, then Lender may declare the unpaid principal balance and earned interest on this Note immediately due. Borrowers and each surety, endorser, and guarantor waive all demands for payment, presentation for payment, notices of intentions to accelerate maturity, protests and notices of protest, to the extent permitted by law.

Finally, the note allowed for the recovery of attorney's fees incurred in the collection or enforcement of the note:

If this Note is given to an attorney for collection or enforcement, or if suit is brought for cancellation or enforcement, or if it is collected or enforced through probate, bankruptcy or other judicial proceeding, then Borrowers [Mr. and Mrs. Sostaric] shall pay to Lender [Ms. Marshall] all costs of collection and enforcement, including reasonable attorneys fees and court costs in addition to other amounts due.

While Mr. and Mrs. Sostaric made the required monthly interest payments for a period of time after signing the promissory note, they stopped making their monthly payments in October 2010 and subsequently defaulted on their obligation. On July 17, 2012, Ms. Marshall sent Mrs. Sostaric⁵ a “NOTICE OF RIGHT TO CURE DEFAULT,” which “serve[d] as formal notice that the default outline[d] below must be satisfied within thirty (30) days. Failure to cure the default by the date indicated shall result in the acceleration of the balance owing on the deed of trust and sale of collateral involved.” The property sought to be sold was the residence of Mr. and Mrs. Sostaric that had served as collateral for the promissory note. The notice further provided:

YOU HAVE THE RIGHT TO CURE THE FOLLOWING DEFAULT:

Total amount of payments in default (including all charges): $25,911.00 and any other payments or fees that may become due prior to the curing of the default.

Other Required Performance Which is in Default: Show proof that 2011 real estate taxes have been paid. ($1,050.73 if paid by July 31, 2012)

Date by which payment must be made or other required performance accomplished in order to cure the default: August 17th, 2012.

(Emphasis in original.)

Despite this notice, Mr. and Mrs. Sostaric did not cure their default. Therefore, on September 21, 2012, counsel for Ms. Marshall sent Mrs. Sostaric⁶ notice of a trustee's sale of the property securing their promissory note. The notice served to

1. Accelerate and declare all sums secured by said Deed of Trust to be immediately due and payable without further demand, subject to the terms of said deed of trust and applicable law; and2. Invoke the power given by said Deed of Trust to sell the above-described real estate at public auction on Wednesday, October 17, 2012, at 11:36 AM, at the front door of the Morgan County Courthouse, Berkeley Springs, West Virginia.

(Emphasis in original.)

On October 17, 2012, Ms. Marshall purchased the subject property at the trustee's sale for $60,000.00. Of this amount, $58,260.75⁷ was distributed to “Sally Marshall, the holder and owner of the note secured by said deed of trust to apply on principal and interest of said note⁸ and obligations set forth in said deed of trust,” while the remaining sum of $1,739.25 was applied to the costs of the sale. (Footnote added.)

Thereafter, on December 13, 2012, Ms. Marshall, by counsel, filed the instant lawsuit against Mr. and Mrs. Sostaric seeking a deficiency judgment for the unpaid balance of their promissory note. By order entered January 16, 2014, the circuit court awarded summary judgment to Ms. Marshall, ruling as follows:

The Plaintiff [Ms. Marshall] has set forth evidence, by way of a sworn affidavit, of an outstanding debt in the amount of $175,407.45, the collection of which is supported by an exhibit to the Complaint, the Secured Balloon Promissory Note. Further, the Plaintiff has set forth evidence, by way of a sworn affidavit, of attorneys' fees in the amount of $1,749.25, the collection of which is supported by an exhibit to the Complaint, the Secured Balloon Promissory Note.

The court also awarded Ms. Marshall post-judgment interest on this award. From this adverse ruling, Mr. and Mrs. Sostaric now appeal to this Court.⁹

II.STANDARD OF REVIEW

Mr. and Mrs. Sostaric appeal from the circuit court's order granting summary judgment. We previously have held that “[a] motion for summary judgment should be granted only when it is clear that there is no genuine issue of fact to be tried and inquiry concerning the facts is not desirable to clarify the application of the law.” Syl. pt. 3, Aetna Cas. & Sur. Co. v. Fed. Ins. Co. of New York, 148 W.Va. 160, 133 S.E.2d 770 (1963). We afford a plenary review to a lower court's order awarding summary judgment: “[a] circuit court's entry of summary judgment is reviewed de novo.” Syl. pt. 1, Painter v. Peavy, 192 W.Va. 189, 451 S.E.2d 755 (1994).

III.ANALYSIS

This case involves a deficiency judgment. A deficiency judgment “is an imposition of personal liability upon a mortgagor for an unpaid balance of a secured obligation after foreclosure of the mortgage has failed to yield the full amount of the underlying debt.” Lawrence R. Ahern, III, The Law of Debtors and Creditors, § 8:20 (2014).¹⁰

In this appeal, Mr. and Mrs. Sostaric contend that the circuit court's award of summary judgment to Ms. Marshall was improper because the deficiency judgment award was not adjusted to reflect the fair market value of the property securing the debt. In addressing whether a defendant may challenge the sale price of foreclosed property in a deficiency judgment lawsuit and assert that the property was sold for less than its fair market value, we will examine and consider: (1) the majority view of other jurisdictions that permit the sale price of foreclosed property to be challenged in a deficiency judgment lawsuit; and (2) West Virginia's statutory law on trust deed foreclosure sales, as well as this Court's ruling in Fayette County National Bank v. Lilly, 199 W.Va. 349, 484 S.E.2d 232 (1997).

A. The Majority Rule

Our Court has recognized that “a majority of jurisdictions permit the sale price of foreclosed property to be challenged in a deficiency judgment proceeding[.]” Fayette Cnty. Nat'l Bank v. Lilly, 199 W.Va. at 356, 484 S.E.2d at 239. Whether by judicial decision or by statute,¹¹ the majority view “afford[s] the deficiency defendant the right to insist that the greater of the fair market value of the real estate or the foreclosure sale price be used in calculating the deficiency.” Restatement (Third) of Property: Mortgages, § 8.4 cmt. a (1997).

In one such judicial decision, the Montana Supreme Court determined that its real property foreclosure statute was silent on whether the fair market value of the property could be raised in a deficiency judgment proceeding. Because the statute was silent, the court used its inherent equitable powers to require that the fair market value of the foreclosed property be determined and form the basis of any deficiency judgment award.See Trustees of the Wash.–Idaho–Mont.–Carpenters–Emp'r Ret. Trust Fund v. Galleria P'ship, 239 Mont. 250, 265, 780 P.2d 608, 617 (1989) (“Courts sitting in equity are empowered to determine all the questions involved in the case and to do complete justice; this includes the power to fashion an...