Nancy and Stjepan Sostaric v. Sally Marshall
234 W. Va. 449
| W. Va. | 2014Background
- In 2006 the Sostarics borrowed $200,000 from Sally Marshall secured by a deed of trust on their Berkeley Springs residence; interest-only payments were required until a balloon due in 2013.
- The Sostarics defaulted in 2010; Marshall gave cure and trustee-sale notices and purchased the property at the trustee sale on October 17, 2012 for $60,000.
- Marshall applied sale proceeds against the debt and later sued the Sostarics for a deficiency (seeking the unpaid balance), also claiming attorneys’ fees.
- The Morgan County Circuit Court granted summary judgment to Marshall, awarding a deficiency judgment and fees based on the unpaid note balance and the trustee-sale credit.
- The Sostarics appealed, arguing the foreclosure sale price was below fair market value and that the deficiency should be adjusted to reflect fair market value.
Issues
| Issue | Plaintiff's Argument (Marshall) | Defendant's Argument (Sostaric) | Held |
|---|---|---|---|
| Whether a deed-of-trust grantor may defend a deficiency action by asserting the trustee-sale price was below fair market value | The trustee sale complied with statute; the sale price is conclusively presumed fair and sale price should be used to compute deficiency | Grantors may challenge sale price and seek a fair-market-value-based offset because sale price can be deflated and cause lender windfalls | Overruled prior absolute rule from Lilly; grantors may request a fair market value determination and obtain an offset if FMV > sale price |
| Who bears the burden to invoke FMV inquiry in a deficiency action | Not specifically argued below; summary judgment relied on lender’s affidavit of indebtedness | Defendants must be allowed to request FMV determination as an affirmative defense | Court holds deficiency defendant must request FMV determination; absent request, sale price controls |
| Measure of offset if FMV exceeds sale price | Marshall: use foreclosure sale price to compute deficiency | Sostaric: offset deficiency by amount FMV (less non-extinguished liens) exceeds sale price | If FMV > sale price, defendant gets offset equal to (FMV - liens not extinguished by foreclosure - sale price) |
| Whether Lilly v. Fayette County National Bank remains controlling precedent | Marshall relies on Lilly (precluding FMV challenge) | Sostaric asks court to follow majority rule and Restatement permitting FMV challenge | Court finds sufficient cause to depart from Lilly and adopts majority/Restatement approach |
Key Cases Cited
- Fayette Cnty. Nat’l Bank v. Lilly, 199 W.Va. 349, 484 S.E.2d 232 (1997) (previously held grantor may not assert FMV challenge after trustee sale — overruled)
- Bank of Chapmanville v. Workman, 185 W.Va. 161, 406 S.E.2d 58 (1991) (permitted FMV challenge for consumer-goods collateral sold in a commercially unreasonable manner)
- Dailey v. Bechtel Corp., 157 W.Va. 1023, 207 S.E.2d 169 (1974) (stare decisis standard — appellate court should not overrule prior decision without compelling reasons)
- First Bank v. Fischer & Frichtel, Inc., 364 S.W.3d 216 (Mo. 2012) (discusses FMV approach and criticizes measuring deficiency by foreclosure sale price as producing lender windfalls)