Moore v. Bank Midwest

Jerry and Jean Moore (defendants) bought property with a mortgage loan from the predecessor in interest of Bank Midwest, N.A. (bank) (plaintiff). The loan was secured by a promissory note, which limited the Moores’ personal liability to 20 percent of the outstanding loan balance. Houston State Associates (HSA) (defendant) purchased the property from the Moores and assumed their note. HSA later sold the property to MGM Real Estate Management, Inc. (MGM), which took title subject to the Moores’ mortgage. MGM defaulted on the mortgage payments, but because MGM never assumed the note, the bank had no recourse against MGM. The bank accelerated the note and foreclosed on the property. The bank was the sole bidder at the foreclosure sale and therefore was able to buy the property for the below-market price of $1.16 million. The bank sued the Moores to make up the deficiency, which under state statute was the loan’s balance due (approximately $1.66 million) less the property’s fair market value (approximately $1.45 million, as supported by evidence and assessed by the trial jury). The trial court entered a deficiency judgment of approximately $221,000 plus attorneys’ fees, well within the Moores’ 20 percent liability limitation (approximately $332,000, if calculated at 20 percent of the loan’s $1.66 million balance due). Third-party defendant HSA did not dispute the court’s ruling that it was liable to the Moores for the deficiency judgment’s amount. On appeal to the Texas Court of Appeals, the Moores contended that (1) the property was worth far more than $1.45 million and that the deficiency judgment was therefore excessive and (2) even assuming that the deficiency judgment was warranted, the Moores’ approximate personal liability was only $44,000 (20 percent of the deficiency judgment) rather than $221,000.