Branch Banking and Trust Company v. 27th & Southern Holding, LLC et al

Filing 96

ORDER directing clerk to enter final deficiency judgment in favor of plaintiff Branch Banking, and against Defendants, in the amount of $2,040,258.71 plus interest at the default interest rate of 7.25% plus the one-month LIBOR Rate; a nd directing clerk to enter an award of attorneys fees for the Judicial Foreclosure Action in favor of plaintiff Branch Banking and against Defendants in the amount of $9,550.12. Signed by Judge Larry R. Hicks on 7/11/16. (Copies have been distributed pursuant to the NEF - JC)

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UNITED STATES DISTRICT COURT
DISTRICT OF NEVADA

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BRANCH BANKING AND TRUST
COMPANY, a North Carolina banking
corporation,

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Plaintiff,

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2:12-CV-01781-LRH-PAL

v.

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ORDER

27th & SOUTHERN HOLDING, LLC, a
Nevada limited liability company; YOEL INY,
individually and as Trustee of the Y&T INY
FAMILY TRUST dated June 8, 1994; NOAM
SCHWARTZ, individually and as Trustee of
the NOAM SCHWARTZ TRUST dated
August 19, 1999; D.M.S.I., LLC, a Nevada
limited liability company; and DOES 1
through 10, inclusive,
Defendants.

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This is a final deficiency judgment entered in favor of plaintiff Branch Banking and Trust

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Company (“Branch Banking”) and against defendants in the amount of two million forty

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thousand two hundred fifty-eight dollars and seventy-one cents ($2,040,258.71) plus interest at

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the default interest rate of 7.25% plus the one-month LIBOR Rate.

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I. Facts and Procedural History

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On July 28, 2006, Borrower 27th & Southern Holding, LLC (“Borrower”) executed and
delivered a Promissory Note Secured by Deed of Trust to Colonial Bank, N.A. (“Colonial
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Bank”), in the original amount of $3,056,000.00 (the “Note”). ECF No. 49, Ex. 1; ECF No. 50,

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Ex. 2. 1 The Note was secured by a Deed of Trust and Security Agreement and Fixture Filing

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with Assignment of Rents (“Deed of Trust”), dated July 28, 2006, encumbering certain real

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property in Maricopa County, Arizona (the “Property”). ECF No. 49, Ex. 2; ECF No. 50, Ex. 3.

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Also on July 28, 2006, Defendants Yoel Iny, individually and as Trustee of the Y&T Iny Family

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Trust; Noam Schwartz, individually and as Trustee of the Noam Schwartz Trust; and D.M.S.I.,

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LLC (collectively “Guarantors”) executed and delivered to Colonial Bank a Guarantee (the

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“Guarantee”). ECF No. 49, Ex. 3; ECF No. 50, Ex. 4. Pursuant to the Guarantee, the Guarantors

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guaranteed the payment of all indebtedness of the Borrower under the loan evidenced by the

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Note (the “Loan”). Id.
On February 26, 2009, the Note was amended by an Amendment to Promissory Note

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Secured by Deed of Trust such that the Maturity Date on the Note was extended to May 1, 2009

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(the “Amendment”). ECF No. 50, Ex. 5. On June 19, 2009, the Note was again amended by an

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Amendment to Promissory Note Secured by Deed of Trust such that the Maturity Date on the

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Note was extended to August 1, 2009. Id., Ex. 6. On August 21, 2009, the Note was amended

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by an Amendment to Promissory Note Secured by Deed of Trust such that the Maturity Date on

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the Note was extended to November 1, 2009. Id., Ex. 9. On August 14, 2009, Colonial Bank

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was closed by the State Banking Department of the State of Alabama and the Federal Deposit

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Insurance Corporation (“FDIC”) was named receiver in order to liquidate and distribute the

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assets of Colonial Bank. ECF No.469, Ex. 4; ECF No. 50, Ex. 7. On September 28, 2011, the

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FDIC executed an Assignment of Security Instruments, Notes and Other Loan Documents (the

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“Assignment”), to be deemed effective as of August 14, 2009. ECF No. 49, Ex. 4; ECF No. 50,

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Ex. 7. Pursuant to the terms of the Assignment, the FDIC assigned all rights, title, and interest in

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the Note, the Deed of Trust, and the Guarantee to Branch Banking. Id. The Assignment was

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recorded in Maricopa County, Arizona on November 4, 2011. Id.

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Refers to the court’s docket number.

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The Borrower failed to pay the outstanding principal balance of the loan due under the

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Note on November 1, 2009. ECF No. 50 at 5. By demand letter dated August 3, 2011 (the

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“Demand Letter”), Branch Banking indicated its intent to take steps to exercise its rights and

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remedies under the Loan on or after August 31, 2011. ECF No. 50, Ex. 10. On December 16,

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2011, Branch Banking commenced a judicial foreclosure action under the Deed of Trust by filing

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a Verified Complaint in the Superior Court of the County of Maricopa, Arizona. ECF No. 49,

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Ex. 5. A Default Judgment ordering the judicial foreclosure of the Property in full or partial

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satisfaction of the outstanding balance due under the Loan via Sheriff’s sale was entered by the

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Superior Court of the County of Maricopa, Arizona, on April 23, 2012. ECF No. 49, Ex. 7; ECF

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No. 50, Ex. 11. The Sheriff of the County of Maricopa, Arizona, sold the Property on June 21,

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2012, at public auction for a cash bid of $1,080,000.00 in partial satisfaction of the Loan. ECF

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No. 49, Ex. 8; ECF No. 50, Ex. 13.

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On October 10, 2012, Branch Banking filed a Complaint before this Court, alleging

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claims for deficiency, breach of guarantee, and breach of the covenant of good faith and fair

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dealing. ECF No. 1. On June 24, 2015, the Court granted Branch Banking’s Motion for

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Summary Judgment, and denied Defendants’ Motion for Summary Judgment. ECF No. 74. The

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Court also directed the parties to file briefs for a deficiency hearing pursuant to NRS § 40.457(1).

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On September 18, 2015, Defendants and Branch Banking filed their opening briefs. ECF

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No. 81 and 82. On October 23, 2015, Defendants and Branch Banking filed their respective

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responses. ECF No. 87 and 88. On May 16, 2016, a hearing on fair market value was held.

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ECF No. 93.

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II. Legal Standard

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Pursuant to NRS 40.455, a court shall award a deficiency judgment to a judgment

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creditor upon a finding that there is a deficiency between the proceeds of a trustee’s sale and the

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balance owed to the judgment creditor. NRS 40.455(1). However, before a court issues a

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deficiency judgment, the court must take evidence “concerning the fair market value of the

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property sold as of the date of foreclosure sale or trustee’s sale.” NRS 40.457(1). After

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determining the fair market value of the property, “the court shall award a judgment against the...

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guarantor... who is personally liable for the debt.” NRS 40.459(1). The amount of the

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deficiency judgment shall not be more than “[t]he amount by which the amount of the

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indebtedness which was secured exceeds the fair market value of the property sold at the time of

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the sale, with interest from the date of the sale.” NRS 40.459(1)(a).

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III. Discussion

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This is a fair market valuation determination pursuant to NRS 40.457. The issues before

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the court are (1) what was the fair market value of the underlying property at the date of the sale,

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and (2) what amount should be entered as a deficiency judgment, if any. The court shall address

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both issues below.

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A. Fair Market Valuation

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Nevada law defines fair market value “as the price which a purchaser, willing but not

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obliged to buy, would pay an owner willing but not obliged to sell, taking into consideration all

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the uses to which the property is adapted and might in reason be applied.” Unruh v. Streight, 96

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Nev. 684, 615 P.2d 247, 249 (1980). In the context of a foreclosure sale, however, the sale price

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is not necessarily an indication of a property’s fair market value. See Halfon v. Title Ins. & Trust

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Co., 97 Nev. 421, 634 P.2d 660, 661 (1981). In those cases, fair market value is determined by

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the court. Branch Banking & Trust Co. v. Smoke Ranch Dev., LLC, 92 F. Supp. 3d 998, 1001

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(D. Nev. 2015).

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Nevada Revised Statute § 40.457 governs the procedure for determining fair market

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value. It states that “before awarding a deficiency judgment … the court shall hold a hearing and

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shall take evidence presented by either party concerning the fair market value of the property

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sold as the date of foreclosure sale or trustee’s sale.” NEV. REV. STAT. § 40.457(1). An

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evidentiary hearing is mandatory. Branch Banking & Trust Co. v. Pebble Creek, LLC, 46 F.

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Supp. 3d 1061, 1076 (D. Nev. 2014) (“in no unclear terms, NRS § 40.457(1) requires the Court

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to hold a hearing and consider all relevant evidence in determining the fair market value of the

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property.”) (emphasis original).

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At the hearing, the court may “may consider all relevant evidence in determining the

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value of the property.” Unruh, 615 P.2d at 249; Tahoe Highlander v. Westside Fed. Sav., 95

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Nev. 8, 588 P.2d 1022, 1024 (1979). Additionally, “[u]pon application of any party made at

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least 10 days before the date set for the hearing the court shall, or upon its motion the court may,

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appoint an appraiser to appraise the property sold as of the date of foreclosure or trustee’s sale.”

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NEV. REV. STAT. § 40.457(2). To support a calculation of fair market value, a party must provide

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evidence “which a reasonable mind might accept as adequate to support [its] conclusion.” State

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Emp’t Sec. Dep’t v. Hilton Hotels Corp., 102 Nev. 606, 608, 729 P.2d 497, 498 (1986).
The Property is a 1.86 acre site with a 13,861 square foot unanchored retail strip located

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in Phoenix, Arizona. The improvements were constructed in 2007. The Property is located on

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the northwest corner of 27th Avenue and Southern Avenue, which are both major commercial

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roadways within the neighborhood. The Property was largely zoned C-2, Intermediate

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Commercial, with the northwest corner zoned S-1, Ranch or Farm Residence District.

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Branch Banking contends that the property’s fair market value was $1,000,000. This

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valuation is based on the appraisal of their expert, Thomas Rottkamp. He utilized the income

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capitalization approach because the Property is an income producing party leased in the open

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market.

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Defendants make several arguments in regard to the fair market value of the Property.

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First, they argue that because of Branch Banking’s failure to act in good faith and deal fairly,

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Branch Banking should only be permitted to offer its 2009 appraisal of the Property as evidence

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of value. However, this Court has already rejected the Defendants’ position in regard to the

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“Work-out Agreement.” ECF No. 35. Defendants also argue that this Court should adopt the

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owner’s value of $1.8 to $2 million or the value of their expert, Jan Sell, of $1.6 million.

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Having reviewed the parties’ evidence and considered the arguments presented in their

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papers and at the deficiency hearing, the Court agrees with the appraisal presented by Thomas

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Rottkamp and finds that the fair market value of the property on June 21, 2012, was $1,000,000.

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B. Deficiency Judgment Amount

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Branch Banking contends that the amount of indebtedness on June 21, 2012, the date of

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the Sheriff’s sale was $3,120,258.71. In response, Defendants argue that Branch Banking cannot

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competently prove the amount of indebtedness and that Defendants are entitled to off-sets, which

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would result in a finding that there is no deficiency.

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First, Defendants argue that Branch Banking cannot prove the amount of the principal

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balance of the loan because Branch Banking is relying on the declaration of Peter Nugent, a

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senior vice president at Branch Banking. Defendants argue that Mr. Nugent does not have

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personal knowledge and cannot lay a sufficient foundation for the books and records of Branch

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Banking in order to establish the facts of his declaration. This Court has already rejected such an

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argument. ECF No. 74. Further, as the court has already noted, Defendants have independently

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authenticated the loan documents. Ronnie Schwartz, Defendants’ Person Most Knowledgeable,

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acknowledged and authenticated each of the loan documents at issue. See ECF No. 50, Ex. 14.

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Thus, the declaration and related loan documents establish an amount of indebtedness of

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$3,120,258.71.

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Second, Defendants argue that Branch Banking has failed to prove that taxes paid,

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appraisals, environmental reviews, costs, late fees, and attorney’s fees related to the foreclosure

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action should be included in the indebtedness. However, Branch Banking is entitled to recover

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these amounts. See, e.g., Branch Banking & Trust Co. v. Jarrett, No. 3:13-CV-00235-RCJ, 2014

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WL 2573483, at *13 (D. Nev. June 9, 2014), appeal dismissed (Dec. 17, 2014); Woori Am. Bank

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v. Sahara Westwood Hotel, LLC, No. 2:10-CV-00358-KJD, 2011 WL 2295072, at *7 (D. Nev.

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June 8, 2011).

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Third, Defendants argue that Branch Banking has not established the correct interest rate

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to be applied to the loan, which the loan stated would be a base rate plus a variable rate derived

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from the LIBOR rate. ECF No. 1, Ex. 1. Defendants argue that Branch Banking provides no

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evidence of what the LIBOR was at all relevant times of the subject loan. However, the LIBOR

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rate is readily determinable information, and Branch Banking has provided the amount of

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accrued interest.

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Fourth, Defendants argue that Branch Banking is not entitled to an award of attorney’s

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fees and costs related to the foreclosure action because Branch Banking did not seek those fees in

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the Arizona judicial foreclosure action, Branch Banking violated the Work-Out Agreement, and

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Branch Banking has not established that the fees and costs are reasonable pursuant to Nevada

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law. As to the first argument, this Court has already held that Branch Banking’s failure to

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request or obtain a money judgment in the judicial foreclosure action in Arizona does not affect

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its right to pursue a deficiency in Nevada. ECF No. 74. As to the second argument, this Court

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has already rejected Defendants’ position as to any alleged breach of an oral “Work-Out

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Agreement.” ECF No. 35. Finally, as to the third argument, the Deed of Trust establishes

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liability for “attorneys’ fees incurred in any bankruptcy or judicial or nonjudicial foreclosure

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proceeding.” ECF No. 1, Ex. 2. The Court has reviewed the submitted invoices accrued in the

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Arizona judicial foreclosure action and determines they are reasonable. Therefore, the Court will

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award Branch Banking $9,550.12 for the attorneys’ fees that were accrued in the Arizona judicial

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foreclosure action.

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Finally, Defendants argue that they are entitled to off-sets due to Branch Banking’s delay

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in foreclosing and in relation to the Work-Out Agreement. However, Branch Banking had no

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duty to immediately foreclose. See, e.g., Fed. Deposit Ins. Corp. v. Coleman, 795 S.W.2d 706

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(Tex. 1990). Further, Defendants executed an acknowledgment letter acknowledging that any

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acceptance of payments by Branch Banking after Defendants’ default did not prejudice Branch

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Banking with respect to any of its rights and remedies under the subject loan documents. ECF

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No. 88, Ex. 1. Next, to the extent Defendants request off-sets on the basis of Branch Banking’s

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alleged breach of an oral “Work-Out Agreement” to forebear enforcing certain rights under the

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Loan documents, the Court has already rejected Defendants’ position. ECF No. 35. Therefore,

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Defendants are not entitled to any off-sets.

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Thus, the amount of indebtedness as of June 21, 2012, was $3,120,258.71. Subtracting

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$1,080,000, the actual price of the sale, which was higher than the fair market value of the

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Property on that date, Branch Banking is entitled to a deficiency judgment of $2,040,258.71 plus

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interest at the default interest rate of 7.25% plus the one-month LIBOR Rate. Accordingly, the

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court shall enter a final deficiency judgment in this amount. In addition, Defendants owe Branch

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Banking $9,550.12 for the attorneys’ fees in the Judicial Foreclosure Action.

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IV. Conclusion

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IT IS THEREFORE ORDERED that the clerk of court shall enter a final deficiency

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judgment in favor of plaintiff Branch Banking, and against Defendants, in the amount of two

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million forty thousand two hundred fifty-eight dollars and seventy-one cents ($2,040,258.71)

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plus interest at the default interest rate of 7.25% plus the one-month LIBOR Rate. .

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IT IS FURTHER ORDERED that the clerk of court shall enter an award of attorney’s

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fees for the Judicial Foreclosure Action in favor of plaintiff Branch Banking and against

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Defendants in the amount of nine thousand five hundred fifty dollars and twelve cents

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($9,550.12).

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IT IS SO ORDERED.

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DATED this11th day of July, 2016.

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LARRY R. HICKS
UNITED STATES DISTRICT JUDGE

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