Summary of Murphy v. Financial Development Corp., Supreme Ct. of NH (1985)
Parties: PL-Appellant: home buyers/mortgagor; DF-Appellee: mortgagee who foreclosed on home and sold to self
Cause of action/remedy sought: The following is a cause of action to set aside a judicial court order to foreclose PL/Appellant’s property, or in the alternative, a legal action for damages. This court remands on the damages calculation, and reverse on attorney’s fees award to PL’s as well.
Procedural History: At trial, DF’s contention was that PL should have filed for an injunction to stop the suit. Master denied the motion. Master ruled for PL’s b/c DF failed to exercise good faith and due diligence in obtaining a fair price for the home at the foreclosure sale. Master also ruled Southern was a BFP for value, and thus acquired title to the house. Damages to PL’s based on fair market value of the home minus what Southern paid ($27K) Superior Court entered judgment for PL with damages on recommendation from trial court master.
Facts: 1966: Murphys buy home; secure with mortgage
March 1980: PL’s refinance mortgage, executing new note & power of sale mortgage with DF as mortgagee, which was later assigned to Colonial Deposit Company (the lenders)
February 1981: PL husband loses job
September 1981: PL’s 7 months in arrears on mortgage, taxes
October 1981: notice of intent to foreclose
following weeks: PL’s paid all the mortgage money owed, but failed to pay some legal fees
Lenders still scheduled foreclosure in November
After paying the fees, debts, etc., DF demanded PL pay for another appraisal of their home
Property sold at foreclosure sale to bank, who resold it to Home Traders, Inc. (Southern)
Issue(s): Under MI property law, did master err in concluding that the lender had failed to comply with the often-repeated rule that a mortgagee executing a power of sale is bound by both statutory procedural requirements and by a duty to protect the interests of the mortgagor through the exercise of good faith and diligence?
Holding: No to notice and due diligence, no to the damages. When a mortgagee fails to exercise due diligence, the proper assessment of damages is the difference between the fair price for the property and the price obtained at the foreclosure sale.
Court’s Rationale/Reasoning: Based on the rules, there’s insufficient evidence to support master’s ruling lenders acted in bad faith. Lenders complied with the statute and postponed the sale once to accommodate the PL’s, and at no time did DF’s ever act so as to discourage another buyer.
Before asking for a second appraisal, lenders failed to exercise due diligence in obtaining a fair price by turning around to the first buyer after it bought the house (at a price much smaller than the appraisal $27K, and sold it for $38K).
Mortgagee was required in this case to secure a portion of the mortgagor’s equity, as the lenders knew PL’s had sunk a lot into their home, the DF’s knew how much the place was worth, and DF’s could have obtained a proper upset price to get a decent bid. Testimony from a corporate officer essentially agreed with this theory, saying that DF’s only wanted to make themselves whole again.
Statutory efforts were complied with, but not to the court’s liking. More notice was required than once a week for three weeks in a local paper. The only other notice was a sign at PL’s home, and signs at city hall and a post office. Not enough. This is also in violation of 3-508 of the Uniform Land Transaction Act, which requires reasonable efforts to advertise.
Rule: A mortgagee must exert every reasonable effort to obtain a fair and reasonable price under the circumstances, even to the extent, if necessary, of adjourning the sale or of establishing an upset price below which he will not accept any offer. Fair price is determined on a case-by-case basis, but a “shock the conscience” test is applied. Bad faith requires an intentional disregard of duty or a purpose to injure.
Did court avoid issues?: No./Dicta: No.