Preston Reserve LLC, Arthur A. Lancaster, Jr., Lacy C. Howe & Robert S. Peek, Jr. v. Compass Bank
373 S.W.3d 652
Tex. App.2012Background
- Compass Bank loaned $2.4 million to Preston Reserve LLC on Jan 31, 2008, secured by a deed of trust on 12.75 acres in Frisco, TX, with guaranties from Lancaster, Howe, and Peek.
- Preston Reserve bought the Frisco land for $3.2 million in Feb 2008 to develop an apartment project; the bank later reduced its loan commitment by 15% and construction stalled.
- Borrowers defaulted on Nov 30, 2008; the bank pursued loan workout efforts before determining the loan was unsalvageable; foreclosure occurred on May 5, 2009, with the bank as the sole bidder purchasing for $1.2 million.
- Compass Bank sued for a deficiency of $1,242,153.85 plus interest; Borrowers challenged the deficiency and sought a FMV determination under Tex. Prop. Code § 51.003.
- Bench trial held Nov 11, 2010; Scott (bank) valued FMV at about $1 million; Howe (Borrowers’ expert) valued FMV at $2.7–2.8 million; trial court found FMV $2.4 million and a deficiency of $129,172.64.
- On appeal, the court reversed the deficiency judgment, held FMV was at least $2.7 million, and rendered a take-nothing judgment for Compass Bank.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether a deficiency exists given FMV findings | Borrowers: FMV under $2.7M unsupported | Compass Bank: FMV supported by evidence | Deficiency reversed; FMV at least $2.7M; no deficiency |
| Whether the court should render take-nothing against Compass Bank | Borrowers: FMV > debt requires take-nothing | Compass Bank: evidence supports deficiency | Take-nothing judgment rendered for Borrowers |
| Proper evidentiary basis for FMV under Property Owner Rule | Scott’s testimony insufficient personal familiarity | Scott qualifies as owner-rule proxy | Scott’s testimony not sufficient; but other evidence supports FMV below $2.7M (in dissent)” |
| Use of unaccepted offers or post-foreclosure sales as FMV proof | Unaccepted offers not competent FMV evidence | Evidence admissible as corroborative | Unaccepted offer evidence exclude as FMV; but other evidence supports FMV below $2.7M |
| Effect of Integra appraisal on FMV determination | Appraisal supported lower FMV | Appraisal admitted only as operative document, not truth | Integra appraisal not alone supports FMV; court relies on other competent evidence |
Key Cases Cited
- Speedy Stop Food Stores, Ltd. v. Reid Road MUD No. 2, 337 S.W.3d 846 (Tex. 2011) (Property Owner Rule scope and personal familiarity)
- City of Keller v. Wilson, 168 S.W.3d 802 (Tex. 2005) (Standards for reviewing legal sufficiency of evidence)
- Exxon Corp. v. Middleton, 613 S.W.2d 240 (Tex. 1981) (Definition of fair market value)
- Porras v. Craig, 675 S.W.2d 503 (Tex. 1984) (Property Owner Rule limitations)
- Reid Road Municipal Utility Dist. No. 2 v. Speedy Stop Food Stores, Ltd., 337 S.W.3d 846 (Tex. 2011) (Entity-owner application of Property Owner Rule)
- Callejo v. Brazos Elec. Power Co-op., Inc., 755 S.W.2d 73 (Tex. 1988) (Valuation evidence standards)
- Huffstutler v. State, 871 S.W.2d 955 (Tex.App.-Austin 1994) (Credibility and range in valuation)
- Moore v. Bank Midwest N.A., 39 S.W.3d 395 (Tex.App.-Houston [1st Dist.] 2001) (Limits on post-foreclosure sale as FMV evidence)
- Westtex 66 Pipeline Co. v. Baltzell, No.01-01-00826CV, 2003 WL 21665312 (Tex. App.-Houston (1st Dist.)) (Remand vs. rendition standards (appellate review))