MidFirst Bank v. Chase – 7/31/2012

August 29, 2012

Arizona Court of Appeals Division One Holds That A Bank’s Bid Price For a Property Sold in a Trustee Sale Is Not Evidence of the Property’s Fair Market Value for Purposes of Calculating a Deficiency Judgment.

In 2007, Palo Desert, LLC borrowed $1,620,000, with a repayment date of June 22, 2008. The loan was secured by a deed of trust on property. Mike and Linda Chase also executed unconditional guaranties to repay the loan. Palo Desert defaulted on the loan and the Chases failed to honor the guarantee. MidFirst sued Palo Desert and the Chases and then held a trustee sale on the property securing the loan. MidFirst purchased the property for $486,000 and then moved for summary judgment against the Chases for a deficiency of $1,325,044.09. The Chases argued that no deficiency existed because the property was worth more than was owed on the loan. The court granted judgment in favor of MidFirst, finding that “no reasonable juror could find for [the Chases] on the issue of fair market value based upon the record presented.” The Chases appealed.

The Court of Appeals reversed, holding that MidFirst was not entitled to judgment as a matter of law. The Court explained that “[b]ecause of the nature of a trustee’s sale, the statute does not contemplate that the purchase price will necessarily reflect the fair market value of the property. For this reason, the statute requires a determination by the court of the fair market value before a

deficiency judgment may be awarded.” (citations omitted). “Fair market value” is defined in A.R.S. § 33-814(A) as “the most probable price, as of the date of the execution sale . . . for which the real property or interest therein would sell after reasonable exposure in the market,” assuming that neither buyer nor seller “is under duress.” The Court pointed out that it has previously held that “absent the requisite foundation showing that the sale was made willingly, without coercion or compulsion, the purchase price at a trustee’s sale would not be admissible as evidence of the fair market value of the property.” MidFirst bore the burden to show that the price at the trustee sale equaled the fair market value. Because it only relied on the amount that it bid at the trustee sale, the Court held that MidFirst had failed to present evidence of the property’s fair market value. Because the Chases “were entitled to a determination of the fair market value of the property,” the Court reversed the trial court’s grant of summary judgment and remanded the case for further proceedings.

Judge Thompson authored the opinion; Judges Brown and Timmer concurred.