Wilhelm v. Johnston

• Decision Date: 30 July 2001
• Docket Number: No. 25796.,25796.
• Citation: 30 P.3d 300,136 Idaho 145
• Parties: M. Wayne WILHELM and Randie Wilhelm, husband and wife, Plaintiffs-Respondents, v. W. James JOHNSTON, Defendant-Appellant, and David Packer and Does I-IV, Defendants. W. James Johnston and Karen Johnston, husband and wife, Plaintiffs-Appellants, v. M. Wayne Wilhelm and Randie Wilhelm, husband and wife, Defendants-Respondents.
• Court: Idaho Court of Appeals

30 P.3d 300

136 Idaho 145

M. Wayne WILHELM and Randie Wilhelm, husband and wife, Plaintiffs-Respondents, v. W. James JOHNSTON, Defendant-Appellant, and David Packer and Does I-IV, Defendants.

W. James Johnston and Karen Johnston, husband and wife, Plaintiffs-Appellants, v. M. Wayne Wilhelm and Randie Wilhelm, husband and wife, Defendants-Respondents.

No. 25796.

Court of Appeals of Idaho.

July 30, 2001.

Jones, Chartered, Pocatello, for appellant. Thomas J. Holmes argued.

Curtis N. Holmes, Pocatello, for respondent.

LANSING, Judge

This appeal arises from a deficiency action brought by the beneficiaries of a deed of trust following a trustee's foreclosure sale. Based on a determination that the fair market value of the property sold at the trustee's sale exceeded the secured debt, the district court denied the beneficiaries' claim for a deficiency and, in addition, awarded the debtors a judgment for the surplus of the fair market value in excess of the debt. On appeal, the deed of trust beneficiaries assert that the district court committed several errors in denying their claim for a deficiency and in rendering a judgment in favor of the debtors.

FACTS AND PROCEDURAL HISTORY

In 1983, W. James Johnston and Karen Johnston, husband and wife, sold a house to Wayne and Randie Wilhelm, husband and wife. The Johnstons financed the transaction, taking from the Wilhelms a promissory note secured by a deed of trust on the house. The Wilhelms defaulted on their payments, and in May 1995, the Johnstons filed a notice of default and notice of trustee's sale to foreclose the deed of trust. Pursuant to Idaho Code § 45-1506(12), the Wilhelms had 115 days after the filing of the notice of default within which to cure the default and thereby avoid a foreclosure, but they did not do so. On September 9, 1995, the day of the scheduled trustee's sale, the Wilhelms filed an action to stay the sale. This proceeding, which we will refer to as "the first state court action," turned out to be only the first of several state and federal court proceedings spawned by the disputes between these parties. While the first state court action was pending, the Wilhelms filed a bankruptcy petition in federal court, which effectuated an automatic stay of the foreclosure. Nevertheless, the Wilhelms continued to periodically make payments to the Johnstons in 1996 in an apparent attempt to bring their payments up to date. The last of these payments was made in December 1996, but it brought the Wilhelms current on their obligation only up to May 1996. Later, the Wilhelms voluntarily dismissed the bankruptcy petition.

Contemporaneous with the bankruptcy dismissal, the parties reached a settlement agreement which called for the Wilhelms to pay the Johnstons $25,000 in a lump sum, make regular monthly payments as provided in the original promissory note for April through July 1997, and assume a first mortgage on the house. To procure the $25,000, the Wilhelms sought a home equity loan from a third-party lender. At the request of the lender, a professional real estate appraiser, Charlene Tovey, appraised the property. Ms. Tovey valued the property at $63,400, and the lender made the requested $25,000 loan. The Wilhelms then paid $24,996.40 to the Johnstons, but the Wilhelms did not perform their remaining obligations under the settlement agreement. After the settlement agreement failed, the district court in the first state court action ordered that the trustee's sale could proceed and that the parties should return to each other any part of the settlement agreement performance that had been tendered. Despite this, the Johnstons retained the $24,996.40. The property was sold at a trustee's sale on November 3, 1997, at which time the unpaid principal of the secured debt exceeded $40,000. The Johnstons were the only bidders. They purchased the property for a credit bid of $10,000 and were issued a trustee's deed. On December 4, 1997, the Wilhelms brought a second state court action to set aside the sale. Relief was denied in that case.

Before the trustee's sale, the Wilhelms moved out of the residence but left many items of personal property. They later claimed that this property was removed or destroyed by the Johnstons, and the Wilhelms filed a third action against the Johnstons seeking damages for conversion of their personalty. Thereafter, the Johnstons filed the present action against the Wilhelms for a deficiency judgment under I.C. § 45-1512. The deficiency action was consolidated with the Wilhelms' conversion action. For purposes of the deficiency action, the Johnstons hired an appraiser, Scott Watson, to conduct an appraisal. He appraised the property at a value of $33,000.

Following a two-day court trial, the district court denied the Wilhelms' claim for damages for conversion of their personal property. With respect to the Johnstons' deficiency action, the district court found Tovey's appraisal of the property to be more credible than Watson's appraisal, and thus determined the fair market value of the property to be $63,400 at the time of the trustee's sale. The district court found that the debt secured by the deed of trust totaled $53,493.89, including principal of $40,664.67, interest accrued through the date of the trustee's sale, and unpaid taxes and insurance premiums that had been the Wilhelms' obligation. Based upon the finding that the property value exceeded the debt owed, the district court held that the Johnstons were not entitled to a deficiency judgment, and, further, that the Johnstons owed to the Wilhelms the "surplus" of $9,906.11, representing the amount by which the property value exceeded the secured debt. The judgment also ordered the Johnstons to repay the Wilhelms the $24,996.40 from the failed settlement agreement, this part of the judgment being a reiteration of the order that had been rendered by a different district judge in the first state court action.¹ The Johnstons appeal.

ANALYSIS

The rights of the parties following the nonjudicial foreclosure of a deed of trust are governed by I.C. § 45-1507, et seq. Section 45-1512 provides that a beneficiary of a deed of trust may obtain a deficiency judgment for the amount by which the secured indebtedness exceeds the fair market value of the property at the time of the trustee's sale or the amount by which the secured debt exceeds the sale price, whichever yields a smaller deficiency.² In other words, if the fair market value of the property exceeded the price for which it was sold by the trustee, the deficiency is measured against the fair market value, not against the amount realized from the sale. Accordingly, to determine whether there is a deficiency, a trial court must first determine the fair market value of the property at the time of the foreclosure sale. The court must also determine the entire amount of indebtedness secured by the deed of trust. The Johnstons contend that the district court made several errors in determining these two figures and in making a "surplus" award to the Wilhelms.

When a court trial has been conducted, we will not set aside the lower court's findings of fact unless they are clearly erroneous. I.R.C.P. 52(a); Schiewe v. Farwell, 125 Idaho 46, 50-51, 867 P.2d 920, 924-25 (1993); Christensen v. Nelson, 125 Idaho 663, 665, 873 P.2d 917, 919 (Ct.App.1994). We do not weigh the evidence, nor do we substitute our view of the facts for that of the trial court. Id. Rather, we defer to the trial court's opportunity to judge the credibility of witnesses appearing personally before it. Id. However, we exercise free review over the trial court's conclusions of law to determine whether the court correctly stated the applicable law, and whether the legal conclusions are sustained by the facts found. Conley v. Whittlesey, Whittlesey, 133 Idaho 265, 269, 985 P.2d 1127, 1131 (1999); Burns v. Alderman, 122 Idaho 749, 752-53, 838 P.2d 878, 881-82 (Ct. App.1992).

A. Fair Market Value

The Johnstons first complain that the district court erred in relying upon the valuation of the property given by the Wilhelms' expert witness, Charlene Tovey, rather than the considerably smaller value assigned by the Johnstons' appraiser, Scott Watson.

The weight to be given the testimony of an appraiser or other expert witness is a question for the trier of fact. Roemer v. Green Pastures Farms, Inc., 97 Idaho 591, 593, 548 P.2d 857, 859 (1976); Farber v. Howell, 111 Idaho 132, 134, 721 P.2d 731, 733 (Ct.App.1986). As discussed above, a trial court sitting without a jury has broad discretion in weighing the credibility of witnesses, and the trial court's decisions in that regard will be disturbed on appeal only when they are clearly erroneous. Sun Valley Shamrock Res., Inc. v. Travelers Leasing Corp., 118 Idaho 116, 118, 794 P.2d 1389, 1391 (1990). This deference is given because the trial court is in a better position to weigh the demeanor, credibility, and testimony of witnesses and the persuasiveness of all the evidence. I.R.C.P. 52(a); Hinkle v. Winey, 126 Idaho 993, 1000, 895 P.2d 594, 601 (Ct.App. 1995).

The Johnstons point out that Tovey's appraisal of $63,400 was done about six months before the foreclosure sale and that Tovey did not observe points of destruction and damage within the house that led Watson to come to the lower valuation of $33,000. The district court, however, found Tovey's appraisal to be more credible because it was done for the benefit of a disinterested thirdparty lender whereas Watson's appraisal was done for purposes of the present litigation. The court also found Watson's opinion to be subject to question because the comparable home sales that he used were great distances from the subject property and because Watson had an ongoing professional relationship with Mr. Johnston, performing several appraisals per year for Mr. Johnston or the real estate company that Mr. Johnston worked for. The court also found that photographs of...