First-Citizens Bank v. Reikow

313 P.3d 1208

FIRST–CITIZENS BANK & TRUST COMPANY, successor in interest to Venture Bank, Appellant,

v.Bruce A. REIKOW and Sandra J. Reikow, individually and the marital community comprised thereof; Karl R. Zetterberg and Jane Zetterberg, individually and the marital community comprised thereof, Respondents.

No. 43181–5–II.

Court of Appeals of Washington, Division 2.

Nov. 13, 2013.

Alexander Sether Kleinberg, Chrystina R. Solum, Eisenhower & Carlson PLLC, Tacoma, WA, for Appellant.

Jeffrey Paul Helsdon, Oldfield & Helsdon PLLC, Tacoma, WA, for Respondents.

BJORGEN, J.

¶ 1 First–Citizens Bank & Trust Company sued Bruce and Sandra Reikow for a deficiency judgment following a trustee's sale of real property securing a commercial loan, then in default, which the Reikows had guaranteed. The trial court granted partial summary judgment to First–Citizens as to the amount of the debt and the Reikows' liability for any deficiency, but ultimately dismissed the complaint after holding an evidentiary hearing and finding that the fair value of the property exceeded the amount owing on the loan.

¶ 2 First–Citizens appeals, alleging that the trial court erred in denying it summary judgment as to all issues, and, in the alternative, that the court abused its discretion in determining the fair value of the foreclosed property. Because the trial court properly declined to determine the amount of deficiency on summary judgment and because substantial evidence in the record supports the trial court's fair value determination, we affirm.

FACTS

I. The Commercial Loan and Associated Guaranties

¶ 3 Venture Bank made a $6,746,803.53 commercial construction loan to NBP LLC, an entity in which the Reikows had a 50 percent interest and in which Bruce Reikow served as a managing member. To secure the promissory note, NBP granted the bank a deed of trust for the property under development, known as Narrows Business Park.

¶ 4 The Reikows also executed personal guaranties for the entire amount of the loan. These guaranties include language by which the Reikows purported to waive, among other things,¹

any and all rights or defenses arising by reason of (A) any “one action” or “anti-deficiency” law or any other law which may prevent Lender from bringing any action, including a claim for deficiency, against Guarantor, ... or (F) any defenses given to guarantors at law or in equity other than actual payment and performance of the indebtedness.

Clerk's Papers (CP) at 42, 45. The guaranties also required the Reikows to pay the lender's costs and legal fees incurred in enforcing the loan obligation.

II. Nonjudicial Foreclosure of Deed of Trust

¶ 5 The Washington State Department of Financial Institutions subsequently closed Venture Bank and placed it in receivership. The receiver sold all of the failed bank's assets, including the note and associated guaranties at issue here, to First–Citizens. After NBP began missing scheduled loan payments, First–Citizens declared the promissory note in default and initiated nonjudicial foreclosure of the deed of trust under chapter 61.24 RCW.

¶ 6 First–Citizens submitted the sole bid at the trustee's sale, purchasing the property for $5,215,000.00 on July 9, 2010. At the time of the sale, the amount due on the note, including interest, foreclosure costs, charges, and fees stood at $7,168,710.74.

III. First–Citizens' Lawsuit Against Reikows for Deficiency

¶ 7 Following the trustee's sale, First–Citizens sued the Reikows personally for a deficiency judgment

in an amount to be proven at trial, representing the outstanding balance on the Note ... less the fair value of the Property sold at the trustee's sale or the price paid at the trustee's sale ... plus [costs and attorney fees].

CP at 4. The Reikows answered the complaint, admitting to the amount due on the promissory note, to NBP's default, and to their guarantee of the loan, but denying any remaining liability and requesting judicial determination of the fair value of the property sold.

¶ 8 First–Citizens then moved for summary judgment. In its motion, First–Citizens argued that the Reikows had waived any right to request a fair value hearing by virtue of the guaranties' waiver provisions, and therefore, the deficiency amounted to the difference between the outstanding debt and the sale price as a matter of law.

¶ 9 Bruce Reikow filed a declaration in opposition to the summary judgment motion, attaching an Internal Revenue Service (IRS) form he had received from First–Citizens concernmg the trustee's sale. The preparer, a First–Citizens employee, had listed the “fair market value” of the property as $7,820,000 on the form. CP at 150. Reikow also attached documents from the Pierce County Assessor's office showing the 2010 “assessed value” of the property as $7,521,000. CP at 154–56. In its reply, First–Citizens submitted a professional appraisal dated December 30, 2009, giving a “Prospective Market Value at Stabilization” of $7,820,000 and an “As–Is Market Value” of $6,630,000. CP at 207–09.

¶ 10 At the hearing on First–Citizen's summary judgment motion, the Reikows argued pro se ² that the court should hold First–Citizens to its statement of fair market value on the IRS form. First–Citizens maintained that the Reikows had waived any right to dispute the amount of the deficiency and that the court should not hold a fair value hearing or consider the IRS form. The court entered an order granting partial summary judgment to First–Citizens as to the amount of the debt and the Reikows' liability for any deficiency, but decided to hold a hearing to determine the fair value of the property.

¶ 11 At the fair value hearing, First–Citizens presented the testimony of one of the professionals who had prepared the December 2009 appraisal. One of First–Citizens' employees also testified to the bank's opinion that the “estimated as-is market value” of the property shortly before the trustee's sale stood at $6,370,000. Verbatim Report of Proceedings (VRP) (Feb. 21, 2012) at 41.

¶ 12 Bruce Reikow testified on the Reikows' behalf, describing the difficulties he had obtaining and retaining tenants during the nonjudicial foreclosure, which he attributed in part to the conduct of First–Citizens. Reikow also discussed receiving the IRS form from First–Citizens, stating his belief that the amount on the form was correct. The court admitted the form into evidence.

¶ 13 The court found the fair value of the property as of the trustee's sale to have been $7,820,000.00, a sum exceeding the amount due on the note by $651,289.26, and therefore dismissed the complaint. Based on the fee-shifting provision in the guaranties, the court entered judgment in favor of the Reikows for reasonable costs and attorney fees incurred in defending against First–Citizens' deficiency suit. First–Citizens timely appeals.

ANALYSIS

¶ 14 First–Citizens' claim that the trial court erred in holding a fair value hearing, if correct, would dispose of the question of whether the court's value determination amounted to an abuse of discretion. We therefore first address the trial court's grant of partial summary judgment, then consider the trial court's finding as to the fair value of the foreclosed property.

I. Trial Court's Decision to Hold a Fair Value Hearing

¶ 15 We review a trial court's denial of summary judgment de novo. Walston v. Boeing Co., 173 Wash.App. 271, 279, 294 P.3d 759,review granted,177 Wash.2d 1019, 304 P.3d 115 (2013) (citing Baker v. Schatz, 80 Wash.App. 775, 782, 912 P.2d 501 (1996)).

Summary judgment should only be granted if after considering all the pleadings, affidavits, depositions or admissions and all reasonable inferences drawn therefrom in favor of the nonmoving party, it can be said (1) that there is no genuine issue as to any material fact, (2) that all reasonable persons could reach only one conclusion, and (3) that the moving party is entitled to judgement [sic] as a matter of law.

Baker, 80 Wash.App. at 782, 912 P.2d 501.

¶ 16 Washington statutes allow deficiency judgments against a borrower or guarantor following nonjudicial foreclosure on a deed of trust securing a commercial loan. RCW 61.24.100(3). In actions against a guarantor for a deficiency,

the guarantor may request the court or other appropriate adjudicator to determine, or the court or other appropriate adjudicator may in its discretion determine, the fair value of the property sold at the sale and the deficiency judgment against the guarantor shall be for an amount equal to the sum of the total amount owed to the beneficiary by the guarantor as of the date of the trustee's sale, less the fair value of the property sold at the trustee's sale or the sale price paid at the trustee's sale, whichever is greater, plus [interest, costs, expenses, and fees, to the extent provided for in the guaranty or related contract].

RCW 61.24.100(5) (emphasis added). The plain language of the statute thus limits the deficiency judgment to the difference between the outstanding loan balance and the “fair value” of the collateral, plus collection-related costs explicitly allowed by contract.³ As First–Citizens properly concedes, the statute also expressly grants courts discretion to determine the fair value even when the guarantor does not request such a determination.

¶ 17 First–Citizens devotes considerable argument to its claim that the Reikows waived any right they may have had to request a judicial determination of fair value. Nowhere, however, does First–Citizens explain how this questionable proposition,⁴ were it established, would entitle the bank to a larger deficiency judgment than the statute allows. First–Citizens merely asserts that “[t]he only reason there was a fair value hearing in this case is because the Reikows requested one.” Br. of Appellant at 15.

¶ 18 The record does not support First–Citizens' assertion. To begin with, First–Citizens' complaint itself calls for a fair value hearing, although the...