The FEDERAL LAND BANK OF OMAHA, Plaintiff and Appellee, v. L. Melfred CARLSON and Kay E. Carlson, Defendants, and Agnes M. Carlson, Defendant and Appellant.
No. 15450.
Supreme Court of South Dakota.
Decided April 13, 1988.
Argued on Rehearing Jan. 12, 1988.
422 N.W.2d 99
Keith R. Smit of Morman, Smit, Shepard & Hughes, Sturgis, for defendant and appellant.
MILLER, Justice.
This case is before us оn rehearing. For a recitation of the facts see our former holding at 411 N.W.2d 415 (S.D.1987). After granting rehearing we received additional briefs and heard oral argument. Based on all the authority previоusly cited, we continue to be persuaded that the trial court erred in the entry of its summary judgment of foreclosure and we therefore renew our reversal.
As we previously noted,
Here, the trial court made no determination of the fair and reasonable value of thе property. Its holding may have been an attempt at providing a reasonable, practical procedure to deal with these specific facts. However, the statute does not give trial courts the authority to take such shortcuts.1 We are dealing with statutes which were adopted in 1939 and which are now being utilized and interpreted in more modern times. Certainly more sophisticated financial arrangements are being utilized in the 1980s than during the Great Depression, which preceded the enactment of these statutes. However, it is the function of the legislature, not the courts, to modernize statutes to bring them in line with current times and practices.
After the trial court determines the fair and reasonable value of the property, as
MORGAN, J., and GERKEN, Circuit Judge, concur.
WUEST, C.J., and SABERS, J., dissent.
GERKEN, Circuit Judge, sitting for HENDERSON, J., disqualified.
WUEST, Chief Justice (dissenting).
I stand by my dissent reported at 411 N.W.2d 418 (S.D.1987) and further join the dissent of Justice Sabers.
SABERS, Justice (dissenting).
The majority opinion continues to hold that the requirement to bid the fair and reasonable value “works to the protection of inferior lienholders as well as mortgagors.” Again, no authority is cited for this statement. This is simply incredible in view of the fact that the inferior lienholder subordinated her position to FLB and not vice versa. The majority opinion is reversing the intended and obvious purрose and effect of the subordination agreement and the statutes.
If the majority holding is extended to its logical conclusion, it would provide unprecedented protection to аll inferior lienholders, including all judgment creditors, mechanic and materialman lienholders, and other subsequent lienholders. These statutes were never intended to do that.
However, these statutes should not be extended to protect the inferior lienholder against herself when no one is even attempting to get a deficiency judgment against her. If she thinks the property has a fair and reasonable value above the bid of $267,000, she must bid it or redeem it. Miners, supra.
As the trial court stated: “in the event the value of the equity of the Defendant Agnes M. Carlson is in truth and in fact the difference between $267,000 and appraisal of $484,000, Defendant Agnes M. Carlson would be able to overbid Plaintiff and protect that equity.” The majority opinion overlooks this point.
Thе majority opinion also overlooks the provisions in the conclusions of law and judgment which provided that if the property were not redeemed from the foreclosure sale, thе deficiency judgment would be satisfied and cancelled.
The fatal defect in the majority opinion is the requirement that a mortgage holder must bid the fair and reasonable value of the рroperty. They do not. They can refuse to bid altogether. They can, and usually do, bid in the property at the mortgage balance owed, but do not have to do so. A fair reading of these statutes makes it obvious that the only time a bid at a certain level is required is if a deficiency judgment is being taken against a mortgage debtor. To apply these statutes in favor of a subordinаted lienholder is a rank injustice in this case and a perversity of South Dakota law.
The majority opinion makes all mortgagees captive buyers and leads to absurd results, such as:
- a forеclosing mortgagee with a $50,000 mortgage on a $100,000 piece of
property being required to bid the latter amount; - a foreclosing mortgagee having a $50,000 second mortgage with a $20,000 first mortgage on a $100,000 piece of property being required to bid the latter amount; and
- a foreclosing first mortgagee having a $50,000 first mortgage with a $20,000 second mortgage on a $100,000 piece of property being required to bid the latter amount with the result that the junior mortgagee is paid off at the expense and risk of the prior mortgagee.
All of these examples show an improper shifting of financial responsibility to a foreclоsing mortgagee from a debtor who contractually undertook the indebtedness or from an inferior lien holder who had acknowledged and accepted inferior status.
The protection afforded inferior lienholders lies in their right to bid at the foreclosure sale or utilize the redemption statutes (such persons being denominated as redemptioners by virtue of
It is one thing to state that a mortgagee may not obtain a deficiency judgment for not bidding the fair and reasonаble value, but quite another matter to state that a mortgagee must bid the fair and reasonable value, even if that amount exceeds the value of the property to him or his lien.
It is clear from a reading of
The trial court conсluded that for all practical purposes, the mortgagee had collateral security for $267,000, the limit of the subordination, and that the balance of the claim was valueless. In other words, the trial court properly found that the “fair and reasonable value of the premises was less than the sum due.”
Footnote 1 of the majority opinion states: “We have clearly held thаt these procedural steps are mandatory.” Citing Todd and Perpetual. In doing so, the majority opinion totally overlooks the reason we held these procedural steps to be mandatory in Todd and Perpetual—to obtain a deficiency judgment. Obviously, these procedural steps are mandatory to get a deficiency judgment. It is just as obvious that no deficiency judgment is being taken here against Agnes. Thereforе, these procedural steps are not mandatory in this case. The majority opinion is insisting upon what should be a useless act. The majority opinion fails to defend its position or even attempt to explain away these absurd results. It prefers instead to attempt to hide behind that old scapegoat “it‘s the function of the Legislature, not the courts....”
Footnote 2 of the mаjority opinion states in part: “We fail to see any rank injustice or perversity in requiring a trial court to do
For all of these reasons I respectfully dissent.