Problem.Waste
A. (In the words of Dave Barry: "We are not making this up.") A minister inherited an old house situated on a small lot. After leasing the house for a couple of years he put it on the market for $200,000. He immediately received several serious inquiries, but doctor was the first to submit a written offer and give an earnest money deposit of $2,000. Doctor offered a $28,000.00 downpayment and proposed that minister carry back a note for the balance secured by a standard deed of trust on the property purchased. Two other potential buyers offered cash for the property, but minister felt honor bound to accept the first offer. Minister and doctor executed a contract for the purchase and sale of the real property which included a clause stating that doctor was purchasing the property only for its value as raw land and was purchasing the property "As Is".
Prior to close of escrow, doctor informed minister that doctor could only come up with $22,000 of the required $28,000 downpayment. Minister agreed to deferral of the $6,000 payment for six months. On the day escrow was to close, doctor requested a reduction in the purchase price because of a termite inspection report showing extensive termite infestation. Notwithstanding the "As Is" language in the contract, minister agreed to waive $3000 of the $6000 which the parties had agreed would be paid in six months. Escrow closed in February.
Doctor made the March, April and May payments. The April payment was accompanied by doctor's letter explaining that he was abandoning his original plan to remodel the house as a medical office and that the house would have to be demolished because termite damage was even more extensive than revealed in the termite inspection report. Minister did not respond.
When June's payment was a few days late, minister phoned doctor to inquire about payment. Doctor told minister that the house had been demolished because doctor believed that it would cost more to repair and remodel the house than to demolish the house and build a new structure. The $3,000 balance on the down payment was imminently due but minister, made aware of doctor's precarious financial condition, waived the payment "in the spirit of good will."
Doctor made the next three payments but, prior to the due date of the September payment, informed minister that he wanted out of the deal and wanted to quitclaim the property back to the minister (i.e. a proposal for a deed in lieu of foreclosure). Doctor made no further payments. Minister sought the advice of a lawyer (the husband of one of your co-authors). If you had been the lawyer, what would you have advised? Should the minister take back a quitclaim deed or foreclose? If the minister forecloses, should it be a judicial or non-judicial foreclosure? If the property is sold at a foreclosure sale for a price less than the amount due on the note, may the minister obtain a judgment for the deficiency? For waste? If the deed of trust contained a clause entitling the beneficiary to recover attorney's fees expended in connection with enforcing rights under the deed of trust, should the court award attorney's fees to the minister in an action for waste following a non-judicial foreclosure sale?
B. Soccer Mom has neglected maintenance on her home because of endless weekend trips accompanying her daughter's traveling youth soccer team. After losing her job, Soccer Mom defaulted on her mortgage payments. The foreclosing lender (a purchase money lender), which is still owed $150,000 on its secured note, entered a bid of $100,000 at a non-judicial foreclosure sale after receiving a report from an appraiser that the property is worth about $105,000 but likely would have been worth $120,000 but for the debtor's neglect. Does the lender have an action against Soccer Mom for waste? If so, for how much?
C. Assume the lender in Question B, above, did not wish to incur the cost of an appraisal after default. Counsel to lender, having read Cornelison, has advised lender to routinely bid 33% less than a full credit bid at all non-judicial foreclosure sales. Following this advice, lender opens bidding at the foreclosure sale with a bid of $100,000. A third party bidder shows up at the foreclosure sale and bids $101,000. Should the lender bid $102,000?