Creditor Required to Convey Land Back to Judgment Debtor Because of Unconscionably Low Purchase Price at Execution Sale
Dedeaux v. Coastal Developments Inc., 295 So. 3d 476 (Miss. Ct. App. 2019). Ruth Dedeaux obtained a judgment against Coastal Development for $33,419 plus interest and costs. After four years, the amount of the judgment with accrued interest was $44,113. Dedeaux obtained a writ of execution directing the sheriff to sell four parcels of land owned by Coastal. At the sale Dedeaux purchased all four parcels for a total of $20,000. She later sold three of the properties to third parties for $76,000. Coastal filed an action in the Chancery Court of Harrison County to set aside the sale on the basis that the price for which Dedeaux purchased the properties at the execution sale was unconscionably low. The chancery court found that the price that Dedeaux paid was unconscionably low but was reluctant to aside the foreclosure sale because that would affect the interests of the third parties that had bought the three parcels of land from Dedeaux. The chancery court instead required Dedeaux to pay Coastal $32,386, the difference between the $76,500 for which she had sold the three lots and the amount of her judgment with accrued interest, and to convey to Coastal the fourth parcel which she had not yet sold. On appeal by Dedeaux, the Mississippi Court of Appeals, in an opinion by Justice Tindell, affirmed in part and reversed and rendered in part. The Court of Appeals affirmed the portion of the chancery court’s opinion that required Dedeaux to pay Coastal the difference between the amount for which she had sold the three lots and the amount of her judgment, and to convey the fourth lot to Coastal. The Court of Appeals found that the chancery court’s calculation of the amount of the surplus owed by Dedeaux did not take into account Dedeaux’s costs of selling the three lots, $9,458, and that these costs should be subtracted from the amount of the surplus that Dedeaux paid to Coastal. So the Court of Appeals reversed on the amount owed to Coastal and reduced the amount for Dedeaux to pay to Coastal from $32,386 to $23,928.
Note 1: One reason that this case is interesting is that it identifies and ratifies a new remedy for an inadequate sales price. The chancery court had the option to set the execution sale aside, which would have been the traditional remedy for an inadequate bid price by the creditor. But applying this traditional remedy would have extinguished the interests of the third parties to whom Dedeaux had sold three of the four properties. Instead the court required that Dedeaux pay the amount in excess of her debt to the borrower and convey the unsold property back to the judgment debtor. In a prior case, the Mississippi Supreme Court required the purchaser at the foreclosure sale to pay to the borrower the difference between the amount of the debt and the amount for which the purchaser at the foreclosure sale subsequently sold the property, when the price which the purchaser purchased the property at the foreclosure sale was inadequate, rather than overturning the sale to the third party. Central Financial Services, Inc. v. Spears, 425 So. 2d 403, 405 (Miss. 1983). But this is the first case in which a Mississippi court has ordered the purchaser at the sale to convey the unsold portion of the land purchased back to the borrower because of an inadequate sales price.
Note 2: This case re-affirms the standard for determining when a sales price at a foreclosure or execution sale is unconscionable. In Allied Steel Corp. v. Cooper, 607 So. 2d 113, 120-21 (Miss. 1992), the Mississippi Supreme Court noted that a survey of Mississippi cases concluded that the threshold of unconscionability is forty percent of fair market value. The Court of Appeals in Dedeaux quoted this language from Allied Steel as the basis for “the generally accepted threshold of 40%.”
Note 3: Dedeaux did not file an action to confirm her title to the land after the execution sale. In order for the title to land purchased at an execution sale to be insurable and marketable, the purchaser must bring an action to confirm its title. Shouldn’t this lack of marketability have raised questions about the amounts paid by the third parties to Dedeaux, and whether the third parties were really innocent purchasers for value?
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