Real Property: Foreclosure Sales – Deficiency Judgments – Commercial Debtor

Where a real estate developer, which owed a deficiency after a foreclosure sale of its property, appealed a trial court’s grant of a new trial to the bank after the trial court found that the jury was erroneously instructed to measure the deficiency by the fair market value rather than by the foreclosure sale price, under longstanding Missouri precedent the foreclosure sale price is the proper measure for such a deficiency, and the new trial award is affirmed because the Supreme Court finds that the policy concerns presented by the developer do not apply to it as a sophisticated commercial debtor and the jurisdictions that have switched from foreclosure sale price to fair market value have done so through legislation

Windfall

Dissenting opinion by Teitelman, J.: “The purpose of a damage award is to make the injured party whole without creating a windfall. Accordingly, in nearly every context in which a party sustains damage to or the loss of a property or business interest, Missouri law measures damages by reference to fair market value. Yet in the foreclosure context, Missouri law ignores the fair market value of the foreclosed property and, instead, measures the lender’s damages with reference to the foreclosure sale price. Rather than making the injured party whole, this anomaly in the law of damages, in many cases, will require the defaulting party to subsidize a substantial windfall to the lender. Aside from the fact that this anomaly long has been a part of Missouri law, there is no other compelling reason for continued adherence to a measure of damages that too often enriches one party at the expense of another. Consequently, I would hold that damages in a deficiency action should be measured by reference to the fair market value of the foreclosed property.”

Judgment is affirmed.

First Bank v. Fischer & Frichtel, Inc. (MLW No. 63540/Case No. SC91951 – 22 pages) (Supreme Court of Missouri, Stith, J.; Russell, Breckenridge and Fischer, JJ., and Burkemper, Sp. J., and Parrish, Sr. J., concur; Teitelman, C.J., dissents in separate opinion filed. Price and Draper, JJ., not participating) Appealed from circuit court, St. Louis County, Kintz, J. (R. Thomas Avery, Robert D. Blitz and Jason K. Turk, St. Louis, for appellant) (Thomas B. Weaver, Matthew J. Reh and Sara Finan Melly, St. Louis, for respondent).