Pub. 6 2015 Issue 1

www.wvbankers.org 10 West Virginia Banker P rior to November of 2014, the Bowers would not have prevailed. In a deficiency judgment proceeding, property sold at foreclosure was conclu- sively presumed to have been sold for fair market value, i.e., the foreclosure sale price was assumed to be fair market value and could not be challenged. However, last November, in Sostaric v. Marshall, 766 S.E.2d 396 (W.Va. 2014), the West Virginia Supreme Court of Appeals changed this presumption to one that could be challenged when it held that the grantor could assert, as a defense to a deficiency claim, that the fair market value of the property was not obtained at foreclosure sale. Today, the trial court would hear the Bowers’ defense. The Sostaric opinion is noteworthy not only because it changed the law, but because to do so, the West Virginia Su- preme Court of Appeals overruled itself. This article examines the Sostaric holding and the Court’s analysis in coming to its conclusion. In the next quarter’s article, we will look at how other jurisdictions respond to a fair market value defense, which may offer some tips for West Virginia lenders. The issue presented in Sostaric , of wheth- er a deficiency defendant can assert fair market value as a defense in a deficiency proceeding, was first addressed by the West Virginia Court in 1997, in Fayette County National Bank v. Lilly, 199 W.Va. 349, 484 S.E.2d 232 (1997). For the Lilly Court, this was an issue of first impres- sion, not previously decided. The Lilly Court recognized that the majority of states outside West Virginia allowed a court to consider the fore- closed property’s value in a deficiency proceeding, but noted this was usually pursuant to state law. West Virginia statutes neither permit nor prohibit a deficiency defendant to challenge the foreclosure sale price in a deficiency suit; the statutes are silent. But this silence would not, alone, bar a challenge to a foreclosure sale. The Lilly Court noted that it had previously permitted an action in equity to set aside a foreclosure sale. Nevertheless, the Court determined that changing the current real property foreclosure laws would be unsettling and would result in protracted and expensive litigation. Moreover, the legislature had addressed the same issue for consumer goods; likewise, it could address the issue for real property foreclosures. The fair market value defense would not be permitted. In Sostaric, the West Virginia Supreme Court of Appeals was asked once again to allow the fair market value of fore- closed property to be raised as a defense to a deficiency claim. The Sostarics’ property was sold at foreclosure to Mar- shall, the creditor holding the note and Sostaric v. Marshall: Putting the Foreclosure Sale Price in Question By Debra Lee Hovatter, Spilman Thomas & Battle, PLLC In 2006, Joe and Sylvia Bowers financed the purchase of a home in West Virginia with a loan from Bank for $300,000, secured by a Deed of Trust. The Bowers defaulted and decided to let the house go to foreclosure. Bank purchased the home with a credit bid of $40,000. At the time, the Bowers owed Bank $276,000 on their loan. Bank then filed suit to collect the deficiency of $230,000. The Bowers, the “deficiency defendants,” argue that any deficiency judgment must be adjusted to reflect the fair market value of the foreclosed property.