Greater Southwest Office Park, Ltd. v. Texas Commerce Bank National Ass'n
786 S.W.2d 386, 1990 WL 3111, 1990 Tex. App. LEXIS 118 (1990)
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Rule of Law:
In the absence of any procedural irregularity in a foreclosure sale that causes or contributes to a grossly inadequate price, mere inadequacy of the sale price is not grounds for a cause of action for damages against the lender, even when the lender is the purchaser.
Facts:
- Greater Southwest Office Park, Ltd. executed a promissory note for $5,000,000, payable to Texas Commerce Bank National Association ('the Bank').
- The note was secured by a deed of trust on a parcel of real property owned by Greater Southwest.
- In November 1987, the Bank declared Greater Southwest to be in default on the loan and posted the property for foreclosure.
- On December 1, 1987, the Bank purchased the property at the public foreclosure sale with a bid of $4,847,903.96, which equaled the outstanding debt plus costs.
- Greater Southwest alleged that the fair market value of the property at the time of the sale was $10,529,000.
- The Bank did not sue Greater Southwest for a deficiency balance after the foreclosure sale.
Procedural Posture:
- Greater Southwest filed its original petition in the trial court against the Bank, claiming fraud and intentional tort based on the low foreclosure bid.
- The trial court granted the Bank's special exceptions and ordered Greater Southwest to amend its petition.
- Greater Southwest filed its first amended original petition, reiterating its claims and adding an allegation of breach of duty of good faith.
- The Bank moved for summary judgment, arguing that Greater Southwest had failed to state a cognizable cause of action as a matter of law.
- The trial court granted the Bank's motion for summary judgment, dismissing Greater Southwest's entire case with prejudice.
- Greater Southwest (appellant) appealed the trial court's judgment to the intermediate court of appeals.
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Issue:
Does a borrower have a cause of action for damages against a lender when the lender purchases the foreclosed property for an allegedly inadequate price, if the foreclosure sale was conducted without procedural irregularities and the lender does not seek a deficiency judgment?
Opinions:
Majority - Warren, Justice
No. A borrower does not have a cause of action for damages against a lender for purchasing property at a foreclosure sale for an allegedly inadequate price, provided the sale was conducted without any procedural irregularities. The court reasoned that the established Texas rule, which prevents a sale from being set aside based on mere inadequacy of price, also applies to suits for damages. Greater Southwest did not allege any irregularity in the sale process. The court distinguished cases cited by the plaintiff because those involved suits for deficiency judgments, which were not at issue here. The court also rejected the claims of constructive fraud and intentional tort, finding that no special or fiduciary relationship exists between a lender and a borrower that would impose a duty on the lender to secure a fair market price. A lender's subjective trust is insufficient to create such a relationship, and a lender's internal bidding policy is not actionable if the act of bidding itself is lawful.
Analysis:
This decision reinforces the finality and stability of non-judicial foreclosure sales in Texas by shielding them from challenges based solely on the sale price. It clarifies that the longstanding rule from American Sav. & Loan Ass’n v. Musick—requiring a procedural irregularity plus a grossly inadequate price to set aside a sale—also bars a separate suit for damages on the same grounds. By refusing to impose a fiduciary duty on lenders to secure a 'fair' price, the court maintains the traditional view of the debtor-creditor relationship as an arms-length transaction. This precedent makes it significantly more difficult for defaulted borrowers to recover losses unless they can pinpoint a specific procedural flaw in the foreclosure process that directly caused the low price.
