## Facts

- A bank loaned a real-estate developer about $2.576 million to acquire and develop 21 subdivision lots, secured by a deed of trust.
- The note’s maturity date was extended multiple times, ultimately to September 1, 2008, while some lots were sold and proceeds applied to principal.
- After the final extension, the borrower did not pay the remaining balance, and the lender foreclosed.
- At the foreclosure sale, the lender credit-bid $466,000 and purchased the remaining nine lots.
- The lender sued for a deficiency (unpaid principal, interest, and charges).
- The borrower offered evidence that the nine lots’ fair market value at foreclosure exceeded the sale price and argued the deficiency should be reduced by using fair market value, citing depressed market conditions.

## Issues

1. Under Missouri law, is a post-foreclosure deficiency measured by unpaid debt minus the foreclosure sale price, or unpaid debt minus the property’s fair market value at the time of sale?
2. May a borrower litigate the adequacy of the foreclosure sale price within the deficiency action?
3. Should Missouri adopt a fair-market-value approach to deficiency judgments, including for sophisticated commercial borrowers?

## Decision

- The Supreme Court of Missouri affirmed the trial court’s order granting the lender a new trial.
- Missouri common law measures deficiency as the difference between the unpaid debt and the amount received at the foreclosure sale, not fair market value.
- Challenges to an allegedly inadequate foreclosure price are not permitted in the deficiency case; the remedy is to seek to set aside the foreclosure sale if the price is so inadequate as to support an inference of fraud.
- The Court declined to adopt a Restatement-style fair-value offset rule in this case involving a sophisticated commercial debtor.
- Because the first trial instructed the jury to use fair market value, the instruction misstated Missouri law, and a new trial was within the trial court’s discretion.

## Legal Principles

- In Missouri, a deficiency after foreclosure of real-property security is calculated as: unpaid debt minus foreclosure sale price.
- The foreclosure sale price is treated as the controlling measure for deficiency purposes unless the borrower successfully attacks the sale itself on recognized grounds (e.g., fraud inferred from gross inadequacy of price with relevant circumstances).
- The adequacy of the foreclosure price is not litigated as a valuation issue in a deficiency action; it must be pursued through an action to void or set aside the foreclosure sale.
- Missouri courts may decline to replace established foreclosure-price rules with fair-market-value offsets, particularly where sophisticated commercial parties could allocate risk by contract.

## Conclusion

The court reaffirmed Missouri’s rule that deficiency judgments following foreclosure are based on the foreclosure sale price rather than fair market value and that disputes over an allegedly unfairly low foreclosure price must be brought as a direct challenge to the sale, not as a defense or offset in the deficiency lawsuit.


First Bank v. Fischer & Frichtel, Inc., 364 S.W.3d 216 (Mo. 2012)