Vermont National Bank v. Leninski

687 A.2d 890, 166 Vt. 577, 1996 Vt. LEXIS 131

• Court: Supreme Court of Vermont
• Decided: November 13, 1996
• Docket: 95-587
• Status: Published

Opinions

Following a strict foreclosure, plaintiff Vermont National Bank filed an action against defendants Steven and Patricia Leninski to recover an alleged deficiency between the mortgage debt and the value of the property as measured by its sale price at public auction. Relying upon an appraisal commissioned by the bank rather than the sale price, the superior court determined that the fair market value of the property exceeded the debt and therefore no deficiency was owing. The bank appeals, contending the trial court erred by declining to treat the sale price as conclusive evidence of fair market value. We affirm.

The bank filed a two-count complaint against the Leninskis, seeking judgment on a note and an order of foreclosure on the mortgage securing the note. The mortgage covered an undeveloped parcel of land in Hartford. The bank successfully moved for summary judgment on both counts, and in August 1994, a judgment order and decree of foreclosure was entered. The order provided that if the Leninskis did not redeem the property, the bank was to recover $58,108.25, representing the amount due under the note and mortgage plus court costs, fees, and expenses.

The redemption period expired in February 1995. In the same month, the bank employed a licensed appraiser to update a previous appraisal he had made of the property. His earlier appraisal, in May 1993, had estimated the fair market value to be $67,000. As of February 1,1995, he estimated the value to be $60,000. The appraiser was familiar with the county where the property was located and had done several hundred appraisals in the area. An expert witness who was an experienced appraiser and member of the State Board of Appraisers reviewed the bank’s appraisal report and concluded that it was done in accordance with accepted standards and methodology.

In March 1995, the bank listed the property for sale with a local realtor, who offered the parcel at $59,000. The asking price exceeded the estimated value of $50,460 ascribed to the lot by the listers for the Town of Hartford for the tax year 1995. The property remained on the market for three months, from March through May 1995; the average marketing time in the Hartford area during this period was more than six months.

In June, the Leninskis’ parcel was one of eighty-six properties offered for sale at a public auction administered by the bank. Nearly all of the properties, including the Leninskis’, were auctioned on an “absolute” basis, meaning that they were to be sold regardless of price. Streamlined financing was made available to bidders, who were invited to “buy at your own price.” The Leninski property was sold to an adjacent landowner for $36,400. There is no record of whether others bid on the property. The buyer had previously offered to purchase the property from the Leninskis for $50,000.

Shortly after the sale, the bank filed a request to establish the outstanding judgment amount by crediting the sale price of $36,400 against the monetary judgment of $58,108.25, for a deficiency balance of $21,708.25 including interest from the date of expiration of the redemption period. Following a hearing, the court concluded that the fair market value of the lot at the time of the foreclosure was $60,000, based on the estimate of value by the bank’s appraiser. The court acknowledged that sale price is commonly used to measure market value, but was unpersuaded that it represented a reliable measure under the circumstances. Specifically, as the court explained, “given the lack of information regarding the number of bidders, the ultimate purchase of the property by the adjacent landowner, but most importantly, the great disparity between the opinions of the bank officer, the real estate broker, the listers for the Town of Hartford, and the appraiser, we cannot rest on either the inference or the presumption that the sale price here was the fair market value.” Weighing the merits of the various opinions of value, the court chose that of the bank’s licensed appraiser as the most reliable. Accordingly, it found that the security was sufficient to cover the debt, and no deficiency was owing. This appeal followed.

In an action at law to recover an unsatisfied balance after foreclosure proceedings, the burden is on the mortgagee (here the bank) to show to what extent the mortgaged property was insufficient to pay the indebtedness. Hewey v. Richards, 116 Vt. 547, 551, 80 A.2d 541, 544 (1951); see also McClure Newspapers, Inc. v. Brown, 146 Vt. 180, 184, 499 A.2d 765, 768 (1985). In strict foreclosure actions, the deficiency is the difference between the fair market value of the premises and the debt. Bailey v. Groton Mfg. Co., 113 Vt. 288, 290, 34 A.2d 182, 183 (1943). The value of the property is to be determined as of the day the decree of foreclosure becomes absolute. Hewey, 116 Vt. at 551, 80 A.2d at 543.

Relying on several recent property tax decisions, the bank contends the court was required to adopt the sale price as the fair market value absent evidence that the sale was “rigged” to produce a skewed value. See Wilde v. Town of Norwich, 152 Vt. 327, 329, 566 A.2d 656, 657 (1989) (sale price is “strong, if not conclusive, evidence” of value of property for tax appraisal purposes); Royal Parke Corp. v. Town of Essex, 145 Vt. 376, 378-79, 488 A.2d 766, 768 (1985) (where the evidence proves an arms length sale between willing buyer and seller “market value is perforce established for appraisal purposes”). We do not read these decisions, however, as precluding the court from examining the totality of the circumstances to determine whether an auction sale provides the most reliable evidence of market value for purposes of calculating a deficiency judgment. The court is not limited in the manner of evidence or the means that may be considered for determining market value. As we observed in the tax appraisal context, although a bona fide sale may be persuasive, the law “does not prescribe the method nor limit the manner in which evidence of fail' market value may be presented to the Board.” Sondergeld v. Town of Hubbardton, 150 Vt. 565, 567, 556 A.2d 64, 66 (1988).

The court was thus within its discretion in finding that the circumstances of the auction sale made it a less reliable indicator of fair market value than the bank’s own appraisal, which was contemporaneous with the final foreclosure decree. We find no error, therefore, in its determination that the bank was not entitled to any deficiency.

Affirmed.