Pub. 6 2015 Issue 1

spring 2015 11 West Virginia Banker Debra Lee Hovatter is a Member based in Spilman Thomas & Battle’s Morgantown office. She is co-chair of the firm’s Consumer Finance Practice Group. Her primary areas of practice are consumer finance litigation and bankruptcy. She can be reached at 304.291.7951 or dhovatter@spilmanlaw.co If you have a bank, WE SHOULD BE IN IT ! PO Box 325 - Batavia, OH 45103 Email: Deb@GreatAdFactory.com Phone: 717.814.5395 CALL DEB MAXWELL (GRAPHICS MANAGER / VP) TODAY - FOR MORE INFORMATION & A FREE SAMPLE PACK OF CUSTOMIZED VIDEO ADS - FEATURING YOUR BANK’S LOGO, PRODUCTS, EMPLOYEES & MORE! CUSTOM - DYNAMIC - ANIMATED High Definition Video Advertising! VIDEO ADVERTISING SCREENS FOR BANK LOBBIES, DRIVE THRU LANES & MORE! Here’s what you will receive. . .  WE DO ALL THE WORK, including creation of UNLIMITED Video Ads for one low monthly, per-location price  Very, very low one-time equipment cost for lobby LED screens, video playback equipment, wall mounts, etc.  FREE installation services  FREE on-site support visits  FREE phone support Video Advertising Screens measure 40 - 70 inches!  deed of trust. At foreclosure, the debt was $231,660; Marshall purchased the property with a credit bid of $60,000. Marshall then filed suit to collect a deficiency judgment of $175,407. In response, the Sostarics argued the defi- ciency judgment award must be adjusted to reflect the fair market value of the property that secured the debt. As with Lilly, the Sostaric Court began its analysis by recognizing that the majority of states allow the property’s fair market value to be considered in a deficiency proceeding. But the greater challenge for the West Virginia Court was finding the grounds to overrule its decision in Lilly. A prior decision of the Court general- ly will not be overruled unless there is evidence of changing conditions, serious judicial error, or a compelling public policy reason. In this instance, the Court relied heavily on public policy. First, as noted in Lilly, even though the West Virginia statute is silent on the question of whether property value can be used to challenge a deficiency claim, the Court had previously employed equity (and not a statute) to set aside a trustee’s foreclosure sale. Second, and probably most concerning to the Court, the Lilly ruling had the potential to allow a windfall to the creditor. The Court envisioned a scenario where the holder of the note could bid a deflated price and then sell the property at fair market value, reaping a “double recovery” at the expense of the “already financially distressed grantor.” Third, the Court found no evidence to support the Lilly Court’s conclusion that foreclosure practice would be unsettled if the law were changed. And last, the Court con- sidered another of its opinions in which a defendant was permitted to assert fair market value as a defense in a deficiency proceeding after foreclosure of a mobile home. That a defendant could use fair market value to challenge the foreclo- sure sale price of a mobile home but not of residential real property was, in the Court’s words, “an absurdity.” Thus, the Sostaric Court held that a trust deed grantor may assert, in defense of a claim seeking a deficiency judgment, that the fair market value of the se- cured real property was not obtained at foreclosure sale. However, unless the deficiency defendant requests a determi- nation of fair market value, the foreclo- sure sale price will be used to compute the deficiency. Last, if the fair market value is greater than the foreclosure sale price, the defendant is entitled to an off- set against the deficiency in the amount by which the fair market value, less the amount of any liens not extinguished by the foreclosure, exceeds the sale price. Chief Justice Davis wrote a dissenting opinion; notably, Justice Davis also wrote the Lilly opinion. In the next issue, we will look briefly at how other states respond to the fair market value challenge and consider the Sostaric decision’s impact on West Virginia lenders. n