The appellants—the borrowers and guarantors of a commercial real estate loan—appeal a final judgment entered in favor of the lender, SLV IV Lending, L.P. The trial court concluded that the parties agreed to apply Texas law to the lender's claim for deficiency and that under Texas law, the appellants waived their right to challenge the amount of the deficiency. We agree with the appellants' argument that the trial court erred in applying Texas law because the loan documents state that Florida law applies to foreclosures and the claim for deficiency in this case was a continuation of the foreclosure. Accordingly, we reverse the decision of the trial court in that regard.
In 2011, appellants Bonita Real Estate Partners, LLC, and Alico Retail Holdings, LLC, (the borrowers) borrowed $6,100,000 from the lender to develop real property in Lee County. The borrowers executed a promissory note and a mortgage, and appellants Scott A. Chappelle and Charles W. Crouch (the guarantors) executed guarantees by which they agreed to be personally liable for certain "recourse obligations" under the note.
The promissory note provided that the note and other loan documents would be governed by Texas law but that Florida law would govern foreclosure:
(Emphasis added.) The mortgage provides:
The mortgage and the guarantees also contain waivers of certain remedies or defenses under Texas law. The mortgage provides that the borrowers "waive all rights, remedies, claims and defenses based upon or related to [s]ections 51.003, 51.004 and 51.005 of the Texas Property Code to the extent the same pertains or may pertain to any enforcement of the [n]ote, this [m]ortgage or any of the other [l]oan [d]ocuments." And the guarantees provide that the guarantors "waive . . . any and all rights under [s]ections 51.003, 51.004 and 51.005 of the Texas Property Code." These statutes address deficiency judgments and permit a borrower or a guarantor to request that the deficiency amount be offset by the fair market value of the property if the fair market value is greater than the sale price of the property. Tex. Prop. Code Ann. §§ 51.003, .004, .005 (West 2011). Thus, by waiving their rights under those Texas statutes, the appellants waived their right to offset the deficiency by the fair market value of the property, which is permitted under Texas law.
The borrowers defaulted on the loan, and the lender filed an action in Florida circuit court against the borrowers and the guarantors. The original complaint alleged a count against the borrowers to foreclose on the mortgage (count I), a count against the borrowers seeking money due on the promissory note (count II), and a count against the guarantors seeking money damages pursuant to the terms of the guarantees (count III). The trial court entered a judgment of foreclosure in favor of the lender in the amount of $6,983,325 in May 2012, and in the judgment, the trial court reserved jurisdiction for the entry of a deficiency judgment. A foreclosure sale was conducted in June 2012, and the lender purchased the property for $91,200.
In March 2013, in the same underlying foreclosure action, the lender filed a motion for deficiency judgment pursuant to section 702.06, Florida Statutes (2012), claiming that the "fair market value of the [m]ortgaged property on the date of the foreclosure sale was less than the total indebtedness owed to [the lender] under the [f]oreclosure judgment." The parties disputed whether the lender had already foreclosed the development rights to the property, so the lender sought and obtained permission to file an amended complaint to allege a count to foreclose against the borrowers' non-real estate interests in the property, i.e., the development rights. The dispute on that issue was resolved after a bench trial with the trial court concluding that the development rights had been foreclosed in the prior judgment. Regarding the lender's claim for deficiency, the appellants amended their answer and affirmative defenses to argue that the property's value exceeds the indebtedness. The appellants asserted that the property was worth $7,550,000, whereas the lender argued that the property was worth $4,500,000 and that the deficiency was $2,500,000.
The lender's claims for damages against the borrowers under the note (count III) and against the guarantors under the guarantees (count IV) were set for trial in November 2014. In a brief filed before trial, the lender argued for the first time that Texas law applies to the lender's claims to collect money damages on the debt. The parties disputed whether Texas law applies to the lender's claims on counts III and IV and for deficiency. If Texas law applies, the borrowers and guarantors waived their right under Texas law to have the fair market value of the property considered when determining the amount of deficiency.
The appellants moved for reconsideration of the issue of whether Texas law applies to the deficiency, and the trial court denied the motion. The trial judge then granted the appellants' motion to disqualify her, and a new judge was assigned to the case. The appellants asked the successor judge to reconsider the issue of whether Texas law applies, and after two hearings, the judge denied the appellants' motion for reconsideration, confirming the earlier ruling that Texas law applies.
The lender then moved for partial summary judgment on counts III and IV, claiming that Texas law applies to the damages portions of those claims and that the appellants waived their right under Texas law to offset the fair market value against the total indebtedness owed. The lender acknowledged that whether the appellants were liable based on a recourse event would need to be determined at a trial. The trial court entered an order granting partial summary judgment on the damages portions of counts III and IV, concluding that pursuant to Texas law, the deficiency should be calculated as the difference between the amount of the judgment of foreclosure and the bid price, with the difference being $6,892,125.
The trial court conducted a trial on whether recourse events had occurred that would render the appellants liable, and the trial court found in favor of the lender on those events. The trial court entered a forty-nine-page judgment detailing the full recourse events and limited recourse events establishing liability on the part of the appellants. The trial court found the appellants jointly and severally liable for the amount of $6,892,125 plus interest in the amount of $1,117,562.79, for a total "deficiency" of $8,009,687.79.
The appellants argue that the trial court erred in applying Texas law to the lender's claim for deficiency because the loan documents provide for the application of Florida law to foreclosure and a claim for deficiency is a continuation of a claim for foreclosure.
We must first determine whether the final judgment entered is a deficiency judgment. Typically, a judgment of foreclosure and the resulting sale of the property encompass both the remedy at law and the equitable remedy of mortgage foreclosure.
A party "has the right to pursue both a claim for foreclosure of the mortgage and a claim for damages on the note."
"A deficiency decree is one for the balance of the indebtedness after applying the proceeds of a sale of the mortgaged property to such indebtedness."
We note that section 702.06 provides in relevant part that a party "shall also have the right to sue at common law to recover [a] deficiency." The lender in this case filed a motion for deficiency—and obtained a determination of deficiency—in the same underlying foreclosure suit. Thus, it is clear in this case that "[t]he motion for deficiency was a continuance of the foreclosure proceedings."
The lender argues that its claims on the note and guarantees did not arise out of the foreclosure. As discussed above, because the lender had already obtained a foreclosure and had purchased the property at a foreclosure sale, its claim for damages on the note was limited to the amount of the deficiency.
We recognize that a party may pursue a claim on a guaranty along with a foreclosure claim as long as the party has not received full satisfaction of either claim.
Affirmed in part, reversed in part, and remanded for proceedings consistent with this opinion.
LUCAS and BADALAMENTI, JJ., Concur.
NOT FINAL UNTIL TIME EXPIRES TO FILE REHEARING MOTION AND, IF FILED, DETERMINED.