Pub. 11 2016-2017 Issue 3

www.nebankers.org 26 Extraordinary Service for Extraordinary Members. difference between the fair market value (FMV) of the trust property at time of sale and the balance of the underlying obligation. Stressing the difference in contractual obligation between a guaranty and the underlying obligation, the Mu- rante court made clear that the provisions of the act do not protect guarantors. Not only did Buxom and Murante help define the limits of the act’s application, but also the decisions place significantly more liability on guarantors than on bor- rowers to the same transaction. In 2016, the Supreme Court extended the Boxum and Murante reasoning beyond an action against a guarantor, applying it to a lender’s right to foreclose additional collat- eral. In Doty et al. v. West Gate Bank , the bank made three loans to the Dotys secured by three deeds of trust. The Dotys defaulted on one of the loans and the bank exercised its power of sale on one of the deeds of trust. Following the trustee’s sale, a balance remained due on the defaulted note. Instead of pursuing a deficiency action on the underlying obligation, the bank relied on its remaining collateral to secure the bal- ance of the defaulted note as well as the two current notes. Following expiration of the act’s three-month statute of limitations, the Dotys brought an action seeking a determina- tion that the bank was barred fromexercising its power of sale rights in the remaining deeds of trust. The Dotys argued that the act’s statute of limitations governed attempts to collect the underlying obligation from the underlying borrowers. The Dotys distinguished the matter before the court from Buxom and Murante arguing that the former cases involved collection from third-party guarantors while the case at hand involved collection against the property of the underlying borrower. The Supreme Court rejected the Dotys’ arguments. The court, relying on Buxom and Murante , acknowledged that the bank’s remaining deeds of trust constituted separate A creditor may liquidate secondary collateral following a trustee’s sale without the time and expense associ- ated with bringing a legal action to determine the deficiency owed by the underlying borrower. collateral contracts to which the act’s provisions did not apply. The court also went a step further, definitively determining that the act’s statute of limitations and FMV protections apply exclusively to an action on the underlying obligation (often termed a deficiency action) and not in any other context. The development of case law from Buxom to Doty pro- vides increased flexibility to a foreclosing lender. A creditor may liquidate secondary collateral following a trustee’s sale without the time and expense associated with bringing a legal action to determine the deficiency owed by the underlying borrower. Additionally, the creditor need not become mired in an argument regarding FMV at the time of sale, such in- quiry being irrelevant to the exercise of rights in collateral. Of course, the benefit is of less significance when the creditor is under secured. When the available collateral value is not sufficient to support repayment of the debt, a creditor’s best remedy following a trustee’s sale remains an action on the underlying obligation in accordance with the act.  For more information, contact Gregory S. Frayser at Cline Williams Wright Johnson & Oldfather LLP at (402) 474-6900. Frayser is a senior associate specializing in secured transactions and creditors’ rights. He regularly represents Nebraska banks in litigation, and assists both lenders and borrowers in secured transactions including tax increment financing transactions and newmarket tax credit transactions. Frayser successfully argued Doty et al. v. West Gate Bank in the Nebraska Supreme Court.  Deeds Act — continued from page 25