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Real Property – Mortgages – Banks & Banking – Contract – Guarantors – Anti-Deficiency Statute

High Point Bank & Trust Co. v. Highmark Properties, LLC (Lawyers Weekly No. 15-06-0915, 13 pp.) (Barbara Jackson, J.) (Sam Ervin IV, J., not participating) Appealed from Guilford County Superior Court (Ronald Spivey & Stuart Albright, JJ.) On discretionary review from the Court of Appeals. N.C. S. Ct.

Holding: Anti-deficiency statute G.S. § 45-21.36 simply allows guarantors the right to a judicial method of debt calculation that accounts for the fair market value of the mortgaged property at the time of a foreclosure sale. Accordingly, notwithstanding the waiver language contained in the guaranty agreements, the defendant-guarantors did not waive their right to the protection of § 45-21.36.

We modify and affirm the Court of Appeals’ decision. We hold that joinder of the borrower was proper and that, irrespective of the borrower’s presence in the litigation, guarantors may assert the anti-deficiency defense.

Facts

Defendant Highmark Properties, LLC, borrowed $6,450,000 from the plaintiff-bank. The loan was secured by two parcels of real property and guaranteed by the defendant-guarantors.

Highmark defaulted, leaving an indebtedness of $4,877,912. The bank foreclosed and was the sole bidder on both properties, paying $2,578,070 for one property and $720,000 for the other.

After the foreclosure, the bank voluntarily dismissed its claims against Highmark and sought to proceed solely against the guarantors for the deficit. With the trial court’s permission, the guarantors added Highmark as a defendant.

A jury found that the amounts paid by the bank for the real properties at foreclosure were substantially less than the fair market value of the parcels on the date of sale. The jury’s valuation of the parcels reduced the guarantors’ responsibility to $302,556.

Analysis

This court has held that a guarantor is within the group of those who enjoy the protection of § 45-21.36. Wachovia Realty Invs. v. Housing, Inc. (Lawyers Weekly No. 292 N.C. 93, 232 S.E.2d 667 (1977). The statute establishes an equitable method of calculating indebtedness; therefore, it is not a “defense” in the usual sense of the word.

A guaranty, as it operates here, is a promise to repay “indebtedness.” Section 45-21.36 simply provides the method of calculating that amount.

Section 45-21.36 protects a debtor by calculating the debt based on the fair market value of the collateral instead of the amount bid by the creditor at the trustee’s sale. Thus, the statute is an equitable method of calculating the indebtedness; as such, it is not the type of “defense or offset” which is subject to waiver.

Because anti-deficiency legislation is so narrowly tailored to address specific instances of the public’s vulnerability to lender overreach, waiver of this statutory protection as a prerequisite to receipt of a mortgage or as a condition of a guaranty agreement would violate public policy.

Modified and affirmed.


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