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Hussey v. Ragsdale

Tennessee Supreme Court
831 S.W.2d 279, 1992 Tenn. LEXIS 315 (1992)
ELI5:

Rule of Law:

A purchaser of mortgaged real property who takes title 'subject to' an existing mortgage, but does not expressly assume the mortgage debt, is not personally liable for the debt or for any deficiency judgment resulting from foreclosure.


Facts:

  • On November 3, 1983, George W. Hussey obtained an FHA-guaranteed loan from Leader Federal Savings and Loan Association, secured by a deed of trust on a property.
  • Six days later, Hussey conveyed the property to Joe A. Ragsdale, who formally assumed and agreed to pay the Leader Federal debt.
  • On February 15, 1984, Ragsdale contracted to sell the property to Metropolitan Housing II Ltd.
  • The sales contract stipulated that Metropolitan would make all payments on the existing mortgage but also contained an express clause stating, 'It is expressly understood that Buyer will not assume said first mortgage, but will take title to the property subject to said first mortgage.'
  • On March 1, 1984, Ragsdale conveyed the property to Metropolitan via a warranty deed which stated the conveyance was made 'subject to' the Leader Federal deed of trust.
  • Metropolitan made payments on the loan for over a year but defaulted after October 1, 1985.
  • Following the default, the property was foreclosed upon and sold, resulting in a deficiency.
  • Hussey, the original borrower, paid the $25,500 deficiency to the lender.

Procedural Posture:

  • Hussey sued Ragsdale in the trial court to recover the deficiency amount Hussey had paid.
  • Ragsdale filed a third-party action against Metropolitan, claiming Metropolitan was obligated to indemnify him.
  • The trial court granted Ragsdale's motion for summary judgment against Metropolitan for the full deficiency amount and denied Metropolitan's motion for summary judgment.
  • Metropolitan appealed the trial court's judgment to the Court of Appeals, with Metropolitan as the appellant and Ragsdale as the appellee.
  • The Court of Appeals affirmed the trial court's judgment in favor of Ragsdale.
  • Metropolitan appealed the decision of the Court of Appeals to the Supreme Court of Tennessee.

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Issue:

Does a purchaser of real property become personally liable for a pre-existing mortgage debt by agreeing to make payments on it as part of the purchase price, when the sales contract explicitly states the purchaser will not assume the mortgage but will take the property 'subject to' it?


Opinions:

Majority - Reid, Chief Justice

No, a purchaser does not become personally liable for a pre-existing mortgage debt under these circumstances. To be held personally liable for a pre-existing mortgage debt, a purchaser must expressly assume the debt; merely taking title to the property 'subject to' the mortgage is insufficient to create personal liability. The court's reasoning is grounded in the plain language of the contract and deed. The sales contract contained an unambiguous provision that Metropolitan 'will not assume said first mortgage.' The deed further confirmed that the conveyance was 'subject to' the existing deed of trust. The court rejected Ragsdale's argument that an agreement to make payments implies assumption, stating that 'liability will not be implied.' The court distinguished this case from precedent where liability was found because, in those cases, the debt was 'specifically assumed' in the contract, which is the opposite of the facts presented here.



Analysis:

This decision reinforces the critical legal distinction between 'assuming' a mortgage and taking property 'subject to' a mortgage. It clarifies that an express non-assumption clause will control, even if other language in the contract contemplates the buyer making payments on the underlying debt. The ruling provides certainty in real estate transactions by preventing courts from implying personal liability for mortgage debt where the parties have explicitly contracted against it. For future cases, this precedent establishes that courts must strictly interpret the language of conveyance documents and will not impose personal liability on a buyer without a clear and express assumption of the debt.

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