The District Court of Appeal of Florida, Second District, recently reversed an order denying a claim for a post-foreclosure sale deficiency judgment, holding that the trial court abused its discretion by excluding from evidence an expert’s testimony and report as to fair market value because the report was dated six days after the foreclosure sale.

A copy of the opinion is available at: Link to Opinion.

A final judgment of foreclosure in the amount of $2.4 million was entered against the borrower company and its principal. A third party purchased the property at a foreclosure sale for $100. The third party moved for a deficiency judgment, presenting evidence of the foreclosure judgment, the assignment of judgment, and the certificate of sale.

At the hearing on the motion for deficiency judgment, the purchaser offered into evidence, over objection, the testimony of its expert and an appraisal report that valued the subject property at $1.9 million as of a date six days after the foreclosure sale.

The trial court sustained the objection, precluding any testimony as to fair market value, because it “deemed the expert’s testimony and report irrelevant because the appraisal was conducted six days after the foreclosure sale ‘making it impossible to calculate the deficiency.’”

Because the purchaser did not meet its burden of proving that a deficiency existed as of the date of the foreclosure sale, the trial court denied the motion for deficiency judgment. The purchaser appealed.

On appeal, reviewing the trial court’s decision to exclude the expert’s testimony under an abuse of discretion standard, the Appellate Court began by explaining that “[a] trial court may not reject expert testimony unless it is so ‘incredible, illogical, and reasonable as to be unworthy of belief.’”

The Appellate Court then concluded that the trial court’s exclusion of the expert’s testimony and report, despite there being no dispute as to his qualifications, just because the report was dated six days after the foreclosure sale, was an abuse of discretion.

The Court reasoned that while “[i]t is well-settled that for purposes of calculating a deficiency judgment, the relevant date for determining the fair market value of the property is the foreclosure sale date,” Florida law also “recognizes that a party seeking a deficiency judgment may provide testimony to link the value of property on the date of an appraisal to the value of property on the date of the foreclosure sale.”

Further, the Appellate Court could not agree that “the passage of a mere six days rendered [the] appraisal so devoid of probative value as to be irrelevant, especially in light of the court’s refusal to allow [the] expert to explain whether the intervening days affected the value of the property.”

The Court noted that “[a]ny determination that a deficiency judgment should be denied must be supported by established equitable principles and the record must disclose sufficient facts and circumstances to support that judgment.”

Accordingly, the Appellate Court reversed the trial court’s order denying the motion for deficiency judgment, and remanded the case for further proceedings.