Lender’s Credit Bid is Not Evidence of Fair Market Value for Foreclosures

In MidFirst Bank v. Chase, 640 Ariz. Adv. Rep. 9, __ P.3d __ (App. 2012), the Arizona Court of Appeals recently held that the amount of a successful credit bid at a trustee’s sale does not constitute admissible evidence offair market value” of the foreclosed property for the purposes of Ariz. Rev. Stat. (A.R.S.) § 33-814(A).(1)

In other words, the opinion requires a lender to introduce evidence of “fair market value” as part of its prima facie case in a deficiency action, even if the debtor does not request a “fair market value” hearing under A.R.S. § 33-814(A). As a result of this decision, lenders will generally be required to obtain an appraisal or broker’s price opinion to ensure they have admissible evidence of the fair market value of the collateral.

The facts of the case describe a rather ordinary fact pattern. In 2008, the secured lender loaned $1,620,000 to a borrower. The loan was secured by a deed of trust recorded against real property, and was guaranteed by two individuals – Mike and Linda Chase (the “guarantors”). The borrower and guarantors defaulted and the lender exercised its right to conduct a trustee’s sale of its real property collateral.

The secured lender was the successful bidder at the trustee’s sale with a credit bid of $486,000. Even after applying the credit bid to the then outstanding balance of the loan, the secured lender was left with a deficiency of $1,325,044.09.

The lender moved for summary judgment against the borrower and guarantors for the full deficiency amountbased solely on its credit bid. The guarantors argued that summary judgment was not appropriate, because they alleged that the “fair market value” of the real property serving as collateral was greater than the debt. The guarantors did not support their assertion with any evidence and never filed an application for a “fair market value” hearing under A.R.S. § 33-814(A).

The trial court rejected the guarantors’ defense, finding that “[n]o reasonable juror could find for the Chases on the issue of fair market value based upon the record presented.” Thus, the trial court granted summary judgment for the secured lender.(2) The guarantors timely appealed and the Court of Appeals reversed.(3)

More here…

Copy of the opinion below…




MidFirst Bank v. Chase