Michael McKenzie v. Brandywine Homeowners' Association, Inc.

06/12/2019
IN THE COURT OF APPEALS OF TENNESSEE
AT JACKSON
Assigned on Briefs April 1, 2019
MICHAEL MCKENZIE v. BRANDYWINE HOMEOWNERS’
ASSOCIATION, INC.
Appeal from the Chancery Court for Shelby County
No. CH-16-1422 JoeDae L. Jenkins, Chancellor
No. W2018-01859-COA-R3-CV
This appeal involves a non-judicial foreclosure by Brandywine Homeowners’
Association (the HOA) for non-payment of assessments due to the HOA by former
property owner, plaintiff Michael McKenzie. It is undisputed that there was no
irregularity in the recording, notice or foreclosure of the HOA’s lien on the property.
Plaintiff argues that the foreclosure sale price, $4,445.90, is shockingly low in light of the
trial court’s finding that the property was worth about $100,000. Plaintiff does not
allege, nor did the trial court find, any “misconduct, fraud, or unfairness on the part of the
[HOA] that caused or contributed to an inadequate price.” Holt v. Citizens Central
Bank, 688 S.W.2d 414, 416 (Tenn. 1984). The trial court granted the HOA summary
judgment, refusing plaintiff’s request to set aside the foreclosure on equitable grounds.
Because the Supreme Court in Holt held that the “lone infirmity” of a “conscience
shocking inadequate price . . . will no longer justify voiding a foreclosure sale,” id., we
are compelled to affirm the trial court’s judgment.
Tenn. R. App. P. 3 Appeal as of Right; Judgment of the Chancery Court
Affirmed; Case Remanded
CHARLES D. SUSANO, JR., J., delivered the opinion of the court, in which D. MICHAEL
SWINEY, C.J., and ANDY D. BENNETT, J., joined.
Ted I. Jones, Memphis, Tennessee, for the appellant, Michael McKenzie.
Dawn Davis Carson, Hal S. Spragins Jr., and Dylan J. Gillespie, Memphis, Tennessee,
for the appellee, Brandywine Homeowners’ Association, Inc.
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OPINION
The trial court succinctly set forth the pertinent facts in its order granting summary
judgment. Neither party takes issue with any of these findings. The following is a
verbatim quote from the trial court’s order, with numbering omitted and the sentences re-
organized into paragraphs.
This is an action for damages and to set aside the non-judicial
foreclosure of certain real estate formerly owned by the
plaintiff . . . (the “Property”). The Property is subject to
certain covenants, conditions, and restrictions found in the
Declaration of Covenants, Conditions, and Restrictions (the
“CCR”). Article VII, Sections 1 and 2 of the CCR subject all
owners of real estate in the Brandywine subdivision to certain
assessments or dues for the regular operation and upkeep of
the subdivision.
In the event of nonpayment of assessments or dues, the CCR
permits the defendant homeowners’ association (the “HOA”)
to place a lien on the relevant lot for the outstanding amount,
plus interest and collection costs. The CCR further provides
that the HOA may proceed directly against the delinquent
homeowner for the amount owed or foreclose the lien and sell
the lot at a public auction. Should the HOA choose to
foreclose its lien, the CCR provides certain prerequisite
conditions: the time and place of the foreclosure sale must be
published for twenty-one (21) days by three (3) consecutive
weekly publications in a newspaper circulated in Shelby
County, Tennessee, and the owner of the subject lot must be
notified of the time and place of the sale by written notice at
his or her last known address.
On July 11, 2014, the HOA placed and recorded a lien on the
Property following the plaintiff's nonpayment of assessments
levied pursuant to the CCR. On July 20, 2015, the HOA
obtained a judgment against the plaintiff in the Shelby County
General Sessions Court for the outstanding assessment
amount. The HOA then opted to foreclose its lien on the
Property, and notified Plaintiff of its intent and the time and
place of the foreclosure sale by certified mail to the plaintiff’s
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last known address and published the same in The Memphis
Daily News for three consecutive weeks.
On June 17, 2016, the foreclosure sale took place, and the
HOA, the sole bidder, obtained the property for $4,445.90.
The property had a fair market value of approximately
$100,000.00 at the time of the foreclosure sale.
The foreclosure sale price shocks the Court’s conscience;
however, pursuant to Brooks v. Rivertown on the Island
Homeowner Association, Inc., No. W2011-00326-COA-R3-
CV, 2011 WL 6034781 (Tenn. Ct. App. Dec. 6, 2011),
applying Holt v. Citizens Central Bank, 688 S.W.2d 414
(Tenn. 1984), a conscience-shocking foreclosure sale price
standing alone, absent some irregularity in the foreclosure
sale, is not sufficient grounds for setting aside a lawful
foreclosure sale.
There is no evidence of any irregularity in the recording,
notice, or foreclosure of the HOA’s lien on the Property. The
HOA is not pursuing a deficiency judgment against Plaintiff.
The HOA has sufficiently demonstrated that no basis exists to
support setting aside the June 17, 2016 foreclosure sale of the
Property.
Plaintiff testified by deposition. He said that he owns several residences and splits
his time among those in New Orleans, Lake Charles, Louisiana, and Miami, Florida. He
expected most of his mail to go to P.O. Box 308 in Metairie, Louisiana. This is the
address to which the HOA sent its required notices. Plaintiff further testified that he
“didn’t have anyone really checking the mail,” and that he thought the HOA had been
dissolved because a check he had sent to it was returned.
On appeal, plaintiff raises the issue, as quoted from his brief, of whether the trial
court erred in granting summary judgment and “in affording no relief when finding that
the foreclosure sale was ‘shocking.’ ” There are no facts in dispute. The question is
whether the following principles and the rule announced in Holt applies to preclude the
setting aside of the foreclosure sale:
The Court of Appeals reached the conclusion that two
Tennessee cases, Donaho v. Bales, 59 S.W. 409 (Tenn. Ch.
App. 1900) and Wright v. Wilson, 10 Tenn. 294 (1829),
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established the rule that inadequacy of the price at a
foreclosure sale that was so great as to shock the conscience
of the court, without any other inequitable circumstance
appearing, required a court of equity to set aside the sale.
* * *
We are convinced that such a rule is impractical and should
be abandoned. If a foreclosure sale is legally held, conducted
and consummated, there must be some evidence of
irregularity, misconduct, fraud, or unfairness on the part of
the trustee or the mortgagee that caused or contributed to an
inadequate price, for a court of equity to set aside the sale.
That is the rule we adopt today and apply to this case.
The chancellor and the Court of Appeals have concurred in
finding the sale legal in all respects and its only infirmity a
conscience shocking inadequate price. That lone infirmity
will no longer justify voiding a foreclosure sale.
Holt, 688 S.W.2d at 415, 416. The Supreme Court’s language in Holt is unambiguous
and largely inflexible. Justice Brock, in his separate concurrence, recognized this,
stating, “I think that the Court goes too far, farther than is necessary or prudent[.]” Id. at
416.1 Nonetheless, the rule is clearly and absolutely stated.
The trial court and both parties cite and rely upon the case of Brooks v. Rivertown
on the Island Homeowner Ass’n, Inc., 2011 WL 6034781. In fact, Brooks is the only
opinion other than Holt cited in plaintiff’s brief, and the HOA also discusses it at some
length. However, this opinion was entered under Rule 10 of the Rules of the Court of
Appeals, which, as Brooks itself observes, states that it “shall not be cited or relied on for
1
Eight years after Holt, Judge Goddard echoed this concern in a separate concurrence, saying:
I concur that the result reached by the majority is mandated by current
case law. I do, however, question the determination in Holt that
inadequacy of sales price alone is never a sufficient ground to set aside a
foreclosure sale no matter how gross the inadequacy.
McDill Columbus Corp. v. The Lakes Corp., No. 03A01-9112-CV-00445, 1992 WL 115576, at *2
(Tenn. Ct. App., filed June 1, 1992) (Goddard, J., concurring). The Supreme Court denied permission to
review the McDill decision.
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any reason in any unrelated case.” Id. at *1, n.1. The reliance on Brooks stems from the
fact that it is apparently the only Tennessee case involving a non-judicial foreclosure by a
homeowners’ association wherein the Court applied the Holt rule. Still, Court of Appeals
Rule 10 renders such reliance and citation improper.
This Court has cited and applied Holt numerous times in the thirty-five years since
it became the rule in Tennessee. See, e.g., Greenbank v. Thompson, No. E2010-00160-
COA-R3-CV, 2010 WL 5549231, at *6 (Tenn. Ct. App., filed Dec. 29, 2010) (“Unless
there is evidence demonstrating irregularity, misconduct, fraud, or unfairness during the
foreclosure sale, Tennessee law accords conclusive effect to the price produced through
the foreclosure sale, even where the sale price is shockingly disproportionate to the actual
value of the Property.”) (internal quotation marks and brackets omitted); Conway v.
Eastern Savings Bank, No. W2005-02919-COA-R3-CV, 2006 WL 3613605, at *4
(Tenn. Ct. App., filed Dec. 11, 2006); Young v. Bank One, N.A., No. M2003-01359-
COA-R3-CV, 2004 WL 2098284, at *1 (Tenn. Ct. App., filed Sept. 20, 2004); Orlando
Residence, Ltd. v. Nashville Lodging Co., 104 S.W.3d 848, 855 (Tenn. Ct. App. 2002);
Decatur County Bank v. Smith, No. W1999-02022-COA-R3-CV, 1999 WL 1336042, at
*4 (Tenn. Ct. App., filed Dec. 27, 1999) (“the inadequacy of consideration received on
foreclosure, even if ‘shockingly inadequate,’ does not justify voiding the sale, if the sale
is legal in all other respects”). Although a somewhat different analysis applies if there is
a deficiency judgment associated with the foreclosure sale, see Lost Mtn. Dev. Co. v.
King, No. M2004-02663-COA-R3-CV, 2006 WL 3740791, at *4-*5 (Tenn. Ct. App.,
filed Dec. 19, 2006), there was no deficiency judgment entered in this case.
Consequently, we must affirm. Although we are sympathetic to plaintiff’s
position that the foreclosure sales price was extremely low relative to the property’s
value, this fact standing alone cannot warrant relief under the rule set forth by the
Supreme Court in Holt. If the rule is to be altered, it must be done by the High Court, not
this Court.
The summary judgment of the trial court is affirmed. Costs on appeal are assessed
to the appellant, Michael McKenzie. The case is remanded to the trial courts for
collection of costs assessed below.
_______________________________
CHARLES D. SUSANO, JR., JUDGE
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