495 A.2d 1245 (N.H. 1985)
The plaintiffs, Richard Murphy and his spouse, purchased a house in Nashua in 1966 and refinanced the mortgage loan in March 1980 by executing a new promissory note and power of sale mortgage with Financial Development Corporation as mortgagee.1 The note and mortgage were later assigned to Colonial Deposit Company.2 In February 1981, Richard Murphy became unemployed, and by September 1981 the plaintiffs were seven months in arrears on their mortgage payments while also failing to pay substantial utility assessments and real estate taxes.3
After unsuccessful discussions about revising the payment schedule or arranging alternative financing, the lenders gave notice on October 6, 1981, of their intent to foreclose.4 The plaintiffs paid the seven months’ mortgage arrearage but not the associated costs and legal fees of $643.18.5
The foreclosure sale was initially scheduled for November 10, 1981, but at the plaintiffs’ request was postponed until December 15, 1981, with an additional $100 cost, and notice of the postponement was posted at the property, city hall, and post office.6 On December 15, 1981, the sale proceeded at the property site with only the plaintiffs, a lenders’ representative, and an attorney present. The lenders’ representative made the sole bid of $27,000, which was accepted.7
Later that day, the lenders agreed to sell the property to William Dube of Southern New Hampshire Home Traders, Inc., for $38,000 after an initial counteroffer of $40,000.8 The plaintiffs commenced this action on February 5, 1982, in superior court.9 The superior court, adopting the master’s recommendation, entered judgment for the plaintiffs in the amount of $27,000 against the lenders after finding they failed to exercise good faith and due diligence, while ruling that Southern was a bona fide purchaser.10 The lenders appealed the decision to the New Hampshire Supreme Court.11
Whether RSA 479:25, II bars an action challenging a foreclosure sale when the claimed unfairness occurred during the sale itself?12
RSA 479:25, II bars any action based on facts which the mortgagor knew or should have known soon enough to reasonably permit the filing of a petition prior to the sale.13
No. The only unfairness referred to in the master's report involves the amount of the sale price.14 The plaintiffs could not have known of any deficiency in the sale price before the foreclosure sale occurred on December 15, 1981.15 The statute therefore does not bar an action based on events at the sale itself.16
RSA 479:25, II does not bar the plaintiffs' action.17
Whether the mortgagees failed to exercise good faith and due diligence in obtaining a fair price at the foreclosure sale?18
A mortgagee executing a power of sale must protect the interests of the mortgagor through the exercise of good faith and due diligence.19 In the role as seller this duty is essentially that of a fiduciary.20 The mortgagee must exert every reasonable effort to obtain a fair and reasonable price under the circumstances, including possibly adjourning the sale or establishing an upset price.
No. There is insufficient evidence that the lenders acted in bad faith because they complied with the statutory requirements of notice, postponed the sale one time at the plaintiffs' request, did not bid with knowledge of any immediately available subsequent purchaser, and showed no intent to injure the mortgagor by discouraging other buyers.21 Yes. There is ample evidence, however, that the lenders failed to exercise due diligence. A reasonable person in the lenders' place would have realized the plaintiffs' equity was at least $19,000 based on the 1980 appraisal.22
The lenders bid only $27,000 without returning any equity. They had reason to know they could make a substantial profit on a quick turnaround sale, as evidenced by their same-day offer to sell for $40,000 and agreement two days later for $38,000.23 They made no attempt to obtain fair market value, were concerned only with making themselves whole, failed to establish an upset price, and did not commercially advertise the postponed sale beyond minimal postings, resulting in no other bidders.2425
The mortgagees did not act in bad faith but failed to exercise due diligence in obtaining a fair price at the foreclosure sale.26
Related opinions on this issue
Justice Brock dissents from the finding of lack of due diligence. He states that the master made no findings regarding what an owner voluntarily selling his land would have done, such as establishing an upset price or reappraising the property, and that nothing in the record shows an owner would have taken those steps.27 He further states that the lenders' offer to sell for $40,000 addresses only their knowledge of value and says nothing about what a reasonable person would have done to ensure a fair price at the sale itself.28
He would remand the case to the superior court for further findings of fact.29
Whether the proper measure of damages for a mortgagee’s failure to exercise due diligence is the difference between fair market value and the foreclosure sale price?30
No. The master awarded damages of $27,000 based on the difference between the fair market value of $54,000 and the $27,000 sale price.33 Because only due diligence was breached, the correct measure is the difference between a fair price and the foreclosure sale price, and the case must be remanded for reassessment of damages on that basis.34
The proper measure of damages for failure to exercise due diligence is the difference between a fair price and the foreclosure sale price.35
Whether attorney’s fees may be awarded against mortgagees who failed to exercise due diligence but did not act in bad faith?36
Attorney's fees may not be awarded absent bad faith or obstinate, unjust, vexatious, wanton, or oppressive conduct.37
No. The master found no bad faith or obstinate, unjust, vexatious, wanton, or oppressive conduct on the part of the lenders. The award of legal fees must therefore be reversed under the general rule that the prevailing litigant is not entitled to collect attorney's fees from the loser.38
Attorney’s fees may not be awarded against the mortgagees.39