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In determining amount of deficiency judgment, court is not bound by irreconcilable appraisals offered by parties.

In March 21, 2005, WW Centennial Hills, LLC (Centennial), as borrower, and KeyBank National Association (KeyBank), as lender, entered into a construction loan agreement for $14,100,000. As further security, four individuals guaranteed the loan. Oreo Corporation (Oreo) is successor in interest to KeyBank.

After several delays in the project and multiple loan extensions--each of which required the guarantors to reaffirm their obligation--the loan finally matured on November 1, 2009. Centennial ultimately defaulted. On March 31, 2010, Oreo purchased the property at the foreclosure sale for the credit bid price of $5.3 million. As of that date, Centennial and the guarantors owed Oreo almost $ 12.3 million. On July 9,2010, Oreo sold the property to Grand Canyon Village Square, LLC, in an arm's-length transaction for $4 million.

Oreo sought a deficiency judgment against Centennial and the guarantors for the $7 million difference between the amount owed by Centennial on the loan and the amount paid by Oreo at the foreclosure sale. Centennial claims the fair market value of the property at the date of foreclosure sale was $14.9 million, and thus, Oreo was not entitled to a deficiency judgment.

Nevada law allows a creditor to seek a deficiency judgment when the proceeds received from the sale of the collateral do not equal the amount of the indebtedness. However, the judgment is limited to the amount by which the debt exceeds the greater of the fair market value of the collateral on the date of foreclosure or the amount bid at the sale by the creditor.

Oreo's appraiser testified the fair market value of the property was $4,330,000 at the time of the foreclosure sale. Centennial's appraiser determined the fair market value on that date was $14,905,000.

The court also heard the testimony of a third real estate appraiser who had routinely appraised the property for loan extensions and who testified that the value of the property had fluctuated wildly during the real estate recession in Southern Nevada from 2007 until the date of foreclosure in 2010. The third appraiser testified to appraisals with the following values: July 2007, $23,310,000; October 2008, $21,610,000; December 2009, $11,380,000; and March 2010, $7,770,000.

The court gave marginal weight to the appraisals provided by the parties because they were irreconcilable. The court determined that the third appraiser's appraisals were more reliable and determined the fair market value of the property at the date of foreclosure to be $7.8 million. Thus, Oreo was entitled to a deficiency judgment of $4.5 million.

Oreo Corporation v. Nielsen

United States District Court

District of Nevada

December 5, 2013

2013 WL 6384535

I would like to acknowledge the contributions of my research assistant, Megan Murphy, in the preparation of this column.

Alan M. Weinberger, JD, has been a professor at Saint Louis University School of Law since 1987. Previously, he practiced for twelve years with law firms in Detroit and Washington, DC, where he specialized in real estate transfer, finance, and development. Weinberger graduated magna cum laude from the University of Michigan Law School. He has published articles and chapters in the fields of real estate finance, partnership, and property law. He is coauthor of Property Law Cases, Materials and Problems, 3rd ed., published by West Group.

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Title Annotation:Recent Court Decisions
Author:Weinberger, Alan M.
Publication:Appraisal Journal
Geographic Code:1USA
Date:Mar 22, 2014
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