The New York Court of Appeals recently affirmed a trial court’s denial of a motion for deficiency judgment because the lender presented conclusory, insufficient evidence about the value of the property.

In so ruling, the Court held that, even with uncontested deficiency motions, a lender that has foreclosed must present satisfactory evidence about the value of the property.  However, the Court also held that when the lender presents insufficient evidence, the trial court should give the lender at least one additional chance to present adequate evidence.

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

The lender filed its foreclosure action in March 2010.  Neither the borrower nor any other defendant contested the foreclosure suit.  In August 2011, the property was sold to the lender at a public auction for $125,000.

Shortly after the sale, the referee appointed by the trial court found that the lender was owed $793,724.75.  In November 2011, the lender moved for a deficiency judgment against the borrower.  In support, the lender submitted an affidavit of an appraiser.

The affidavit was only four paragraphs long.  Two of the paragraphs detailed the appraiser’s qualifications.  The other two paragraphs contained conclusory statements about the property.  It found the property was worth $475,000, but it contained no supporting documentation.  It mentioned the appraiser inspected the house but said nothing about the condition of it.

The borrower did not contest the motion for deficiency judgment.  Even so, the trial court denied it, finding that the evidence submitted was not sufficient.  More specifically, the trial court held the affidavit “was ‘conclusory’ and lacked ‘any specific information regarding how he reached his fair market value determination.’”  The Appellate Division affirmed.

In the Court of Appeals, the borrower again did not contest the appeal.  However, the New York State Attorney General submitted a brief opposing the lender’s arguments.

To begin, the lender argued that the trial court should have entered the deficiency judgment because there was no conflicting evidence.  The Court of Appeals disagreed.

Lender Bears Burden of Proving Value

Instead, the Court of Appeals held that the lender bears the burden of proving the value of the property when asking for a deficiency judgment.  If the lender does not present satisfactory prima facie evidence of value, the trial court should deny the request for deficiency judgment.

In so holding, the Court of Appeals harshly criticized the conclusory affidavit from the appraiser because it (1) was unsupported by any detailed analysis of the data or valuation criteria used, (2) did not attach any evidence, (3) did not describe the building’s condition, and (4) “consisted of little more than conclusory assertions of fair market value.”

In response to the lender’s argument that the motion was uncontested, the Court stated: “[I]t is of no moment that [the borrower] failed to submit any evidence in opposition to the motion.”

However, the Court of Appeals did reverse the trial court’s ruling to the extent it did not provide the lender a second chance to present evidence.  The Court found that the statute requiring trial courts to enter deficiency judgments was a “directive.”

As such, the Court held that, if a lender fails to present adequate evidence once, the trial court must give the lender the opportunity to supplement the evidence presented and make a renewed motion for a deficiency judgment.

Notably, the Court included a footnote stating that it expressed no opinion about what a trial court should do if the lender presents unsatisfactory evidence twice.  It also held that the sufficiency of the evidence is in the trial court’s discretion.

Despite giving lenders a second chance, the Court warned “[l]enders seeking deficiency judgments, however, must always strive to provide the court with all the necessary information in their first application.”