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Supreme Court of Missouri Upholds Lenders' Rights to Obtain Full Deficiency Judgment

In an opinion issued on April 17, 2012, the Supreme Court of Missouri announced the proper measure of a deficiency judgment after a foreclosure sale is the loan balance less the amount paid for the property at a foreclosure sale. This decision affirmed a lender's entitlement to a full deficiency judgment following a foreclosure sale.

In First Bank v. Fischer & Frichtel, First Bank sought a deficiency judgment from its borrower after a foreclosure sale. The borrower defended by claiming the amount of First Bank's deficiency should be reduced by the fair market value of the property, not by the amount of First Bank's credit bid at the foreclosure sale. In making this defense, Fischer & Frichtel urged the court to change over 100 years of Missouri law with respect to the measure of deficiency judgments.

The debate stalled numerous efforts by banks around the state to collect funds owed on defaulted loans. The court refused to follow a growing number of other states that employ the fair market value standard and a deafening chorus from sophisticated borrowers and guarantors urging Missouri to change its law. Rather, the court upheld the present law, holding that First Bank is entitled to a deficiency judgment in the amount of the loan balance (which includes principal, accrued interest, and attorneys fees) less the amount it credit bid at the foreclosure sale.

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About this Author

Richard W. Engel, Jr., Financial Services, Attorney, Armstrong Teasdale, Law fir

Rick Engel serves as the Practice Group Leader of the Financial Services group – the firm’s national banking, bankruptcy and debtor/creditor practice. In his practice, he has represented the interests of local, regional, national and international corporations and financial institutions in all aspects of corporate and financial counseling. His integrated skill set combines advantageously complimentary disciplines, including:

Financial Structuring, Restructuring and Bankruptcy. Rick represents the interests of corporate borrowers, debtors, trade creditors, and financial...

Robert Graham III, Financial Services, Real estate, Attorney, Armstrong Teasdale

Robert Graham is a member of the firm’s Real Estate, Financial Institutions and Corporate Services practice groups. His experience includes the representation of financial institutions and other lenders including banks, savings banks and insurance companies in the negotiation, documentation and closing of loan transactions. His experience also includes organizing, counseling and maintaining corporations (profit and non-profit) limited and general partnerships; limited liability partnerships and limited liability companies; the negotiation, preparation and review of contracts, including employment agreements, stock and asset purchase and sale agreements, restrictive stock transfer and buy-sell agreements and voting trust agreements. Additionally, he has significant experience representing developers and equity investors in tax credit assisted development transactions including all aspects there of and representing financial institutions in connection therewith.

Robert's experience also includes the representation of clients in conjunction with acquisition, sale, construction, development, leasing and management of commercial real estate and the financing of such activities. He has also served as Vice-Chair of the firm's Financial Institutions practice group. 

Bruce D. LeMoine, Armstrong Teasdale Law firm, financial, real estate services

Bruce LeMoine is a member of the firm’s Financial and Real Estate Services group. He concentrates his practice on representing secured lenders and special servicers in the areas of creditors’ rights, loan workouts, business reorganizations, receiverships, foreclosures, replevin actions and real estate transactions. Bruce is skilled at protecting the interests of both creditors and debtors in all types of commercial transactions and litigation to maximize recoveries, minimize or avoid losses and protect collateral. 

Bruce’s varied experience in...