Borrower’s Opinion of Property Value

Borrower’s Unsupported Opinion of Property Value Not Enough to Create Genuine Issue for Trial

The North Carolina Supreme Court dealt a major blow to consumer attempts to evade personal liability for a deficiency balance after a non-judicial foreclosure sale in United Community Bank (Ga.) v. Wolfe, No. 289PA15 (May 5,2017).  The Court held that a borrower’s unsupported opinion of the “true value” of the foreclosed property did not create a genuine issue of material fact sufficient to defeat a bank’s motion for summary judgment in a post-foreclosure deficiency action.

By way of background, North Carolina’s “anti-deficiency” statute, N.C. Gen. Stat. § 45-21.36, gives borrowers a statutory defense to a post-foreclosure deficiency action by allowing them to allege, and show, that the creditor’s high bid at the foreclosure sale was “substantially less” than the property’s true value.  In this case, the borrowers asserted this statutory protection and the bank moved for summary judgment based on a contemporaneous appraisal of the property and the resale value of the property in REO, which was markedly less than the amount it bid in at the foreclosure sale.  The borrowers mounted opposition to summary judgment through an unsupported affidavit, wherein the borrowers stated that they “verily believe” the property was worth the full amount of the debt, and that they “believe” the foreclosure sale bid was substantially less than the true value.  Unimpressed, the trial court granted summary judgment for the bank based on the lender’s evidence (e.g., the appraisal of the property and the low resale price) and found that the borrowers’ affidavit did not create a genuine issue of material fact.

The Court of Appeals reversed the trial court in a 2015 unanimous decision, holding that the borrowers’ conclusory affidavit did, in fact, create a genuine issue for trial.  In this decision, the Court of Appeals focused on whether the property owners were “competent” to testify about what they thought the property’s value was at the time of the sale.  The Court of Appeals rightly concluded that the homeowners were competent to testify as to the value, and remanded the decision for further proceedings.

The Supreme Court reinstated the trial court, noting that the Court of Appeals was correct that a homeowner could, of course, provide competent testimony regarding the value of the property.   The Court of Appeals, however, overlooked that this testimony must comprise substantial, competent evidence and not merely be the borrowers’ “belief”.  Here, the borrowers offered nothing to support their opinion, so the Supreme Court found that the bank had met its burden and reinstated the award of summary judgment.

From the lender’s perspective, the take away from the Supreme Court’s ruling in Wolfe is a sigh of relief.  Under the Court of Appeals’ paradigm, every deficiency action would be set for an automatic trial when a borrower opposed the action because their unsupported opinion of the property’s value would be enough to defeat summary judgment.  When the Court of Appeals' opinion was issued, this commentator advised bank clients desirous of deficiency to bring a judicial foreclosure action and obtain the money judgment and order for sale simultaneously.  Now with the Supreme Court's decision, lenders again can elect to proceed with the streamlined non-judicial foreclosure process and obtain its deficiency judgment by separate action filed - after the foreclosure sale - without facing the specter of a trial based solely on a borrower’s opinion.

Published by Jeffrey Bunda on May 19, 2017