In his recent article, Tools of Ignorance: An Appraisal of Deficiency Judgments, Professor Alan Weinberger accurately identifies both the benefits and detriments of statutory “fair value” limitations on deficiency judgments. The principal benefit of these statutes, of course, is that they stand in the way of a windfall double recovery by mortgage creditors. In many cases there is little or no competitive bidding at foreclosure sales, leaving the way clear for the creditor to bid at a level far below the property’s market value and thus, gain both the full value of the property and the amount of a deficiency measured by the artificially low bid. This is simply an outrage, and the basic principles of fairness demand some means of preventing it. On the other hand, determining what fair value is—indeed, defining what we mean by fair value—is often left ambiguous by fair value statutes. Even if the meaning is clear, determining value by a war of expert appraisal witnesses is a messy, complex, expensive, and often inaccurate process
Washington and Lee Law Review - Deficiency Judgments
by Alan M. Weinberger
While achieving success as a major league catcher, Mike Matheny was preparing for a post-baseball career in real estate development. He could not have picked a worse time to pursue his aspiration. Matheny lost his accumulated savings and his family’s home after being held personally liable for a $4.2 million deficiency judgment following foreclosure of property he was unable to develop or market during the Great Recession. Matheny’s failure to succeed in real estate was the proximate cause of his return to baseball as manager of the St. Louis Cardinals.
Matheny’s story provides the backdrop for examining the methods by which deficiency judgments are calculated. The traditional common law approach has been criticized as unjust and overdue for reform. The most widely adopted variation, known as the “fair value” method, is hollow at its core. It provides no meaningful guidance to triers of fact charged with adjudicating value. This Article proposes a re-imagination of the method of calculating deficiency judgments based on experience in transactional practice and alternative dispute resolution. It seeks to accommodate the interests of borrowers and lenders, and the public interest in judicial efficiency and access to affordable credit.