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Sostaric v. Marshall

Supreme Court of West Virginia

November 2, 2017

Stjepan Sostaric, Defendant Below, Petitioner
v.
Sally Marshall, Plaintiff Below, Respondent

         (Morgan County 12-C-160)

          MEMORANDUM DECISION

         Petitioner Stjepan Sostaric appeals the June 21, 2016 order of the Circuit Court of Morgan County granting Respondent Sally Marshall's renewed motion for summary judgment and awarding Ms. Marshall a deficiency judgment in the amount of $175, 407.45, attorneys' fees, court costs, and pre- and post-judgment interest. Both Mr. Sostaric and Ms. Marshall appear pro se on appeal.

         Upon consideration of the parties' briefs, oral argument, [1] and the record presented, the Court finds no substantial question of law and no prejudicial error. For these reasons, in these limited circumstances, a memorandum decision affirming the circuit court's order is appropriate under Rule 21 of the Rules of Appellate Procedure.

         For purposes of the issues before us, we summarize the facts.[2] Mr. Sostaric and his former wife (collectively, "the Sostarics")[3] owned real property located at 99 Garden Drive, Berkeley Springs, West Virginia. The Sostarics used the property as collateral to secure a $200, 000 loan from Ms. Marshall.[4] The Sostarics executed both a promissory note and a deed of trust. Subsequently, the Sostarics defaulted and Ms. Marshall directed the trustee to foreclose on the property. At the foreclosure sale on October 17, 2012, Ms. Marshall purchased the property for $60, 000.[5] Of this amount, $58, 260.75 was distributed to Ms. Marshall as the holder of the note that was secured by the deed of trust; the remainder was applied to the costs of the sale.[6]

         Thereafter, Ms. Marshall filed an action against the Sostarics for a deficiency judgment in the amount of $175, 407.45 and attorneys' fees in the amount of $1, 749.25.[7]Subsequently, Ms. Marshall filed a motion for summary judgment. By order entered on January 16, 2014, the circuit court awarded summary judgment to Ms. Marshall based upon sworn affidavits. Accordingly, the circuit court awarded Ms. Marshall $175, 407.45 for the deficiency judgment, $1, 749.25 for attorneys' fees, and court costs and pre- and post-judgment interest.

         The Sostarics appealed the circuit court's January 16, 2014 order granting summary judgment resulting in our prior decision in Sostaric I. The Sostarics argued that the property was sold for less than its fair market value at the foreclosure sale and that, accordingly, the amount of the deficiency judgment awarded was too high and should have been adjusted to reflect the property's fair market value at the time of the sale. Id. at 450, 766 S.E.2d at 398. Following full briefing and argument, we reversed the award of summary judgment to Ms. Marshall holding that "[a] trust deed grantor may assert, as a defense in a lawsuit seeking a deficiency judgment, that the fair market value of the secured real property was not obtained at a trust deed foreclosure sale." Id. at 450, 766 S.E.2d at 397, syl. pt. 1 (overruling Syl. Pt. 4, Fayette County National Bank v. Lilly, 199 W.Va. 349, 350, 484 S.E.2d 232, 233 (1997)).

         Following remand to the circuit court, Ms. Marshall filed a renewed motion for summary judgment claiming that the Sostarics failed to provide any evidence that the property's fair market value was greater than the foreclosure sale price. By order entered on October 16, 2015, the circuit court held the renewed motion for summary judgment in abeyance for thirty days to allow the Sostarics to obtain an expert opinion regarding "the fair market value of the property at the time of the [October 17, 2012] foreclosure sale." After the Sostarics filed an appraisal valuing the property at $149, 000 as of November 12, 2015, the circuit court denied Ms. Marshall's renewed motion for summary judgment by order entered on December 15, 2015.

         On December 28, 2015, Ms. Marshall filed a motion for reconsideration of the December 15, 2015 order denying her renewed motion for summary judgment. Ms. Marshall asserted that the appraisal failed to create a genuine issue of material fact because the appraiser failed to value the property as of the date of the foreclosure, as directed by the circuit court. By order entered on June 21, 2016, the circuit court granted Ms. Marshall's motion for reconsideration and awarded her summary judgment. The circuit court found that the appraisal setting the property's fair market value as of November 12, 2015 was insufficient to show what the fair market value was at the time of the foreclosure sale three years earlier. The circuit court again awarded Ms. Marshall a deficiency judgment in the amount of $175, 407.45, attorneys' fees in the amount of $1, 749.25, and court costs and pre- and post-judgment interest.

         Mr. Sostaric[8] now appeals the circuit court's order awarding summary judgment to Ms. Marshall.[9] "A circuit court's entry of summary judgment is reviewed de novo." Syl. Pt. 1, Painter v. Peavy, 192 W.Va. 189, 451 S.E.2d 755 (1994). Rule 56(c) of the West Virginia Rules of Civil Procedure provides that summary judgment shall be granted provided that "there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law."

         Evolution of the West Virginia Rule Regarding Deficiency Judgments

         "A deficiency judgment is an imposition of personal liability upon a mortgagor for an unpaid balance of a secured obligation after foreclosure of the mortgage has failed to yield the full amount of the underlying debt." Sostaric I, 234 W.Va. at 452, 766 S.E.2d at 399 (quoting Lawrence R. Ahern, III, The Law of Debtors and Creditors, § 8:20 (2014)) (internal quotations omitted).[10] A majority of jurisdictions permit the sale price of a foreclosed property to be challenged in a deficiency judgment action. Sostaric I, 234 W.Va. at 453, 766 S.E.2d at 400; Lilly, 199 W.Va. at 355, 484 S.E.2d at 238.

         However, in Syllabus Point 4 of Lilly, we declined to adopt the majority rule and held that "[a] grantor [of a deed of trust] may not assert, as a defense in a deficiency judgment proceeding, that the fair market value of real property was not obtained at a trustee foreclosure sale." 199 W.Va. at 350, 484 S.E.2d at 233. In Sostaric I, we determined that Mr. Sostaric's argument required us to revisit our holding in Lilly. 234 W.Va. at 455, 766 S.E.2d at 402. We found "good and sufficient cause" to overrule syllabus point 4 of Lilly. Id. at 456, 766 S.E.2d at 403. We summarized our reasoning as follows:

Our ruling herein is consistent with the majority view of other jurisdictions, with section 8.4 of the Restatement [(Third) of Property: Mortgages], and with prior decisions from this Court that have applied common law principles of equity to permit an action to set aside a real property foreclosure sale. Our ruling will also prevent a creditor from receiving a windfall and being unjustly enriched at the expense of an already financially distressed grantor.

Id. at 458, 766 S.E.2d at 405. We found that it was proper to apply common law principles of equity to allow a trust deed grantor to raise the defense that the property's fair market value was greater than the foreclosure sale price in the absence of any statutory provision to the contrary. Id. at 456, 766 S.E.2d at 403. In dissent, Justice Davis stated that the Legislature had the responsibility of changing ...


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