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402 by subtracting the $625,000 credit bid from the $1,044,453
owing on the loan and dividing the resulting deficiency amount
in two to account for the settlement between AmWest and
Bryson. Thus, the district court calculated the deficiency
judgment against Kellin on Unit 402 as $209,727, plus associated
interest, costs, and attorney fees.
¶9 As to Unit 302, the district court stated that the fractional
nature of the foreclosed seven-eighths interest was ‚more
problematic‛ and that ‚neither party’s expert addressed the
issue adequately.‛ The district court did not accept Kellin’s
argument that a one-eighth share, which Hunt appraised at
$150,000, could be multiplied by seven to arrive at a whole value
of the seven-eighths interest, but the court also rejected Weed’s
testimony that the value of the unit as a whole could simply be
reduced by one-eighth. Both methods, the district court
explained, violated USPAP rule 1-4(e). The district court found
that AmWest had presented credible evidence of the fee simple
value of Unit 302 but had failed to present credible evidence of
the value of the seven-eighths interest in Unit 302 that was
actually foreclosed. The district court then explained,
If [AmWest] wanted an offset in any amount less
than the fair market value of the entire unit, it was
obligated to come forward with admissible
evidence of that amount. [AmWest] failed to do so.
Because [AmWest] failed to meet its burden of
proof to show how much less a 7/8 interest is
worth, Kellin is entitled to a credit in the only
amount [AmWest] did offer—the value of a fee
simple interest, $615,000.
The district court then subtracted the fee simple value of Unit
302—$615,000—from the $995,777 owing on the Unit 302 loan to
obtain a deficiency judgment amount of $380,777, plus interest,
costs, and attorney fees.
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¶10 The district court entered a final deficiency judgment
against Kellin that combined the two individual deficiency
judgments and added interest, costs, and attorney fees. Kellin
appeals.
ISSUES AND STANDARDS OF REVIEW
¶11 Kellin raises various challenges to the district court’s
determination of the fair market value of the foreclosed interests
in Unit 302 and Unit 402. To the extent Kellin’s arguments
challenge the district court’s legal rulings, we review those
rulings for correctness. See St. Jeor v. Kerr Corp.,
2015 UT 49, ¶ 6,
353 P.3d 137; see also In re Anna Blackham Aagard Tr.,
2014 UT
App 269, ¶ 11,
339 P.3d 937. To the extent Kellin’s arguments
challenge the district court’s factual findings, we review for clear
error. In re Anna Blackham Aagard Tr.,
2014 UT App 269, ¶ 11.
ANALYSIS
I. Utah’s Deficiency Judgment Statute
¶12 Utah Code section 57-1-32 governs Utah’s statutory
process for obtaining a deficiency judgment against a debtor. See
Machock v. Fink,
2006 UT 30, ¶ 10,
137 P.3d 779 (‚Once a creditor
elects to foreclose a trust deed, . . . section 57-1-32 provides the
only procedure for obtaining recovery of the remaining balance
due.‛). Section 57-1-32 states, in its entirety,
At any time within three months after any sale of
property under a trust deed as provided in
Sections 57-1-23, 57-1-24, and 57-1-27, an action
may be commenced to recover the balance due
upon the obligation for which the trust deed was
given as security, and in that action the complaint
shall set forth the entire amount of the
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indebtedness that was secured by the trust deed,
the amount for which the property was sold, and
the fair market value of the property at the date of
sale. Before rendering judgment, the court shall
find the fair market value of the property at the
date of sale. The court may not render judgment
for more than the amount by which the amount of
the indebtedness with interest, costs, and expenses
of sale, including trustee’s and attorney’s fees,
exceeds the fair market value of the property as of
the date of the sale. In any action brought under
this section, the prevailing party shall be entitled to
collect its costs and reasonable attorney fees
incurred.
Utah Code Ann. § 57-1-32 (LexisNexis 2010). In other words,
when the proceeds from a trustee’s sale do not completely satisfy
the debt underlying a trust deed, section 57-1-32 allows the
creditor to sue the debtor in an attempt to recover the amount
remaining due on the note.
Id.
¶13 However, section 57-1-32 provides an important
protection for debtors by capping the amount of the deficiency
judgment at the difference between the amount owing on the
note (with interest, costs, and expenses of sale) and the fair
market value of the foreclosed property at the time of the
trustee’s sale.
Id. This provision ‚is meant to prevent creditors
from reaping a windfall by obtaining valuable trust deed
property at a fraction of its fair market value while pursuing the
debtor (or guarantor) for the full amount due on the underlying
note.‛ Machock v. Fink,
2004 UT App 376, ¶ 14,
101 P.3d 404, aff’d,
2006 UT 30,
137 P.3d 779; see also City Consumer Servs., Inc. v.
Peters,
815 P.2d 234, 238 (Utah 1991).
¶14 Thus, in the ordinary deficiency action, it is in the
creditor’s interest to establish a low fair market value of the
foreclosed property to avoid or minimize the effect of the
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statutory cap and obtain a judgment for as close as possible to
the full amount of the deficiency. By contrast, the debtor has an
incentive to show that the foreclosed property had a high fair
market value, so as to minimize or even eliminate the creditor’s
deficiency judgment.
¶15 The parties’ positions in this case illustrate those
competing incentives in practice. AmWest presented expert
testimony from Weed that valued Unit 402 substantially below
the amount of AmWest’s credit bid on that unit. When the
district court accepted Weed’s valuation of Unit 402, the fair-
market-value cap was not triggered and AmWest received a
judgment for the full amount of the deficiency as to that unit.
Kellin, on the other hand, used Hunt’s testimony to argue that
the fair market value of each foreclosed interest exceeded the
total amounts owing on the respective notes. Had the district
court accepted Kellin’s argument, the statutory cap would have
precluded a deficiency judgment as to either unit.
II. Burden of Proof
¶16 Kellin contends that AmWest bears the burden of proving
all aspects of its claim for a deficiency judgment. Kellin argues
that AmWest’s burden of proof includes not just the
responsibility to establish the amount of the deficiencies—i.e.,
the difference between the trustee’s sales amounts and the total
debt owing on each loan—but also the responsibility to prove
the fair market value of the foreclosed interests for purposes of
establishing the statutory cap. See
Utah Code Ann. § 57-1-32.
Under Kellin’s conceptualization of the burden of proof, a
creditor who can establish the amount of a deficiency but fails to
put forth credible evidence of the fair market value of the
foreclosed property is simply precluded from obtaining a
deficiency judgment.
¶17 AmWest responds that it complied with Utah Code
section 57-1-32 by ‚setting forth . . . the fair market value‛ in its
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pleading, after which it was ‚the District Court’s duty to
determine the fair market value of the trust properties foreclosed
based upon the evidence received.‛ However, elsewhere in its
brief, AmWest argues that it ‚met its burden as to the fair market
value of [the foreclosed interests],‛ a position that AmWest also
took in the district court.
¶18 We decline to resolve the question of which party to a
deficiency action, if either, has the burden of proving the fair
market value of a foreclosed property, because such a
determination is not necessary for the resolution of this appeal.
The district court concluded that AmWest had the burden of
establishing the fair market value of the foreclosed interests, and
the court calculated the deficiency judgment after applying that
burden of proof. Because the district court applied Kellin’s
proposed burden of proof, we assume for purposes of this
appeal that the district court allocated the burden correctly and
evaluate Kellin’s remaining arguments accordingly.
III. Highest and Best Use
¶19 Kellin’s appeal centers on his argument that the highest
and best use of the Unit 302 and Unit 402 interests required them
to be valued as a collection of fractional one-eighth shares. Kellin
argues that evaluating the interests’ fair market values as a
conglomeration of one-eighth shares would have yielded the
highest value and that the district court erred in accepting
Weed’s testimony that the highest value of each unit was as a
single whole. Kellin also argues that the district court erred in
concluding that valuation of the interests as undivided parcels
was required because Kellin’s interests in the properties were
foreclosed and sold as undivided parcels.
¶20 In light of the evidence before the district court, we see no
error in the court’s decision to value the interests as whole
parcels rather than as collections of fractional shares. The district
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court considered Kellin’s proposed valuation method and
explained that it could
envision a valuation arrived at by determining the
value of a 1/8 interest, the amount of time a
reasonably prudent investor would have to hold
the property to sell such interests, the carrying and
sales costs such an investor would incur, a
reasonable profit, etc., all discounted to a net
present value as of the date of the foreclosure.
However, the district court further explained why it did not
adopt that approach: ‚Hunt did not undertake that analysis (and
it is not clear he has the qualifications necessary to do so) and
Kellin did not offer testimony from any other expert who could
offer such an opinion.‛
¶21 Thus, the district court did not limit its valuation of the
unit interests based on the legal configuration in which they
were foreclosed and sold. Nor did it refuse to consider the
possibility that the highest and best use of the interests was as
fractional shares. Rather, the court acknowledged the possible
relevance of the value of the one-eighth shares to the value of the
foreclosed interests as a whole. But the court rejected Kellin’s
attempt to calculate the values of those interests based solely on
a multiplication of the value of the fractional shares because the
court concluded that Kellin did not provide the court with
credible evidence about the combined value of the fractional
shares. The court concluded that simple multiplication, without
adjustment to account for factors such as those the court
identified, was not a reliable indicator of the foreclosed interests’
fair market value and could not serve to rebut Weed’s testimony.
¶22 The district court’s approach was consistent with, if not
mandated by, the USPAP standards, which the Utah Legislature
has adopted as the accepted professional standards for
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appraisals. See
Utah Code Ann. § 61-2g-403(1) (LexisNexis Supp.
2015). USPAP rule 1-4(e) states,
When analyzing the assemblage of the various
estates or component parts of a property, an
appraiser must analyze the effect on value, if any,
of the assemblage. An appraiser must refrain from
valuing the whole solely by adding together the
individual values of the various estates or
component parts.
Appraisal Standards Board: The Appraisal Foundation, Uniform
Standards of Professional Appraisal Practice, Standards Rule 1-
4(e) (2014–2015 ed.), http://www.uspap.org/#2 (emphasis
added). The comment to USPAP rule 1-4(e) further explains,
Although the value of the whole may be equal to
the sum of the separate estates or parts, it also may
be greater than or less than the sum of such estates
or parts. Therefore, the value of the whole must be
tested by reference to appropriate data and
supported by an appropriate analysis of such data.
Id. In essence, the district court rejected Hunt’s testimony as a
basis for establishing the fair market value of the respective
interests because Kellin’s proposed use of Hunt’s testimony was
not ‚tested by reference to appropriate data [or] supported by an
appropriate analysis of such data.‛ See
id.
¶23 We note that the evidence presented to the district court
bolsters its conclusion. There was ample evidence before the
court that there was little, if any, market for one-eighth shares in
the units at the time of the trustee’s sales. Hunt could find no
comparable sales of one-eighth condominium shares and relied
instead on sales of one-quarter interests to reach his valuations.
Weed testified that ‚there is no market for eighth share units‛
because ‚there was no evidence of any sales.‛ And prior to the
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foreclosures, Kellin had been able to sell only one of the sixteen
fractional shares in the units that he and Bryson had placed on
the market.5
¶24 The district court’s valuation analysis in this case
complied with USPAP rule 1-4(e) and was consistent with the
evidence that there was no viable market for one-eighth shares
of the units at the time of the trustee’s sales. In light of this, we
cannot conclude that the district court erred in refusing to apply
Kellin’s proposed valuation methodology.
IV. The District Court’s Credibility Determination
¶25 Kellin argues that the district court recognized that
Weed’s testimony was not credible and erred by nevertheless
basing its valuation on that testimony. Determinations regarding
the weight to be given to the testimony of expert witnesses ‚are
within the province of the finder of fact, [and] we will not
second guess a court’s decisions about evidentiary weight and
5. Despite this evidence, Kellin argues that Weed should have
valued the foreclosed interests as fractional shares, as that
constituted the highest and best use of the property. Kellin
further argues that the district court erred in relying upon
Weed’s testimony which, Kellin claims, ‚never even calculated
or looked at the value of the fractions in‛ the foreclosed
properties. Weed testified, ‚My decision on highest and best use
because of an absence of demand was to not look—not view the
subject based on fractionalization.‛ (Emphasis added.) In other
words, Weed testified as to why he valued the interests in the
manner he did and testified as to what he considered the
problems with the valuation method Kellin proposed. As
discussed herein, the district court has wide latitude to
determine expert witness credibility, and the district court did
not clearly err in deciding to credit Weed’s expert opinion over
Hunt’s. See infra ¶ 26.
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credibility if there is a reasonable basis in the record to support
them.‛ Fullmer v. Fullmer,
2015 UT App 60, ¶ 25,
347 P.3d 14
(alteration in original) (citation and internal quotation marks
omitted). ‚Thus, we may reverse a trial court’s credibility
determination if its findings in support of that determination are
‘clearly erroneous,’ that is, if they ‘are against the clear weight of
the evidence,’‛ or if we otherwise reach ‚‘a definite and firm
conviction that a mistake has been made.’‛ Woodward v.
LaFranca,
2013 UT App 147, ¶ 7,
305 P.3d 181 (quoting State v.
Walker,
743 P.2d 191, 193 (Utah 1987)).
¶26 As noted above, Kellin argues that the district court
deemed Weed’s testimony to lack credibility but nevertheless
accepted it as the basis for its fair market value determination.
To make this argument, Kellin mines the district court’s order
and points to observations the district court made in its findings
of fact and conclusions of law. The district court stated that
Weed’s valuation of Unit 402 at $580,000 ‚obviously is
dramatically less than the unit was worth prior to the real estate
collapse.‛ The district court also observed that Weed’s valuation
of Unit 402 was ‚not entirely satisfactory to the court‛ and ‚left
several questions unanswered.‛ The district court described the
valuation of Unit 302 as ‚more problematic‛ and stated that
‚neither party’s expert addressed the issue adequately.‛ As to
Weed’s deduction of one-eighth of his appraised whole-unit
value of Unit 302 to account for the seven-eighths interest in that
unit, the district court stated that this portion of Weed’s
testimony was ‚entirely lacking in the foundation,‛ ‚contradicts
the very USPAP principles he insists must be applied,‛ and ‚is
simply not credible.‛
¶27 Pointing to the district court’s critiques of Weed’s
testimony, Kellin argues that the district court was required to
disregard Weed’s testimony altogether. Kellin’s argument
ignores other statements in the district court’s order that more
completely reflect the court’s evaluation of Weed’s credibility.
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As to Unit 402, the district court noted that Weed ‚offered his
explanations‛ for the unit’s steep decline in value after ‚the real
estate collapse.‛ Despite the noted shortcomings in Weed’s
testimony, the district court ultimately described it as ‚the best
indication of the fair market value of Unit 402‛ and ‚the most
reliable information that was presented to the court at trial.‛
And the district court’s statement that Weed’s valuation of Unit
302 was not credible was directed solely at the portion of Weed’s
testimony that deducted one-eighth off the whole-unit valuation,
which the district court did not use to calculate the deficiency
judgment.
¶28 Reading the district court’s findings of fact and
conclusions of law as a whole, we do not agree with Kellin’s
contention that the district court found Weed’s testimony to be
incredible. We also reject Kellin’s argument that the district
court, by recognizing issues with parts of Weed’s testimony, was
constrained from relying upon other portions of the testimony it
found to be credible. We further note that Weed’s qualifications
as an appraiser were unchallenged before the district court and
that he reached his whole-unit valuation of Unit 302 using the
generally accepted approach of evaluating the sales of
comparable properties. On the record before us, we cannot
conclude that the district court’s acceptance of Weed’s testimony
appraising the interests, while simultaneously recognizing
deficiencies in that testimony, was clearly erroneous. To the
extent AmWest bore the burden of demonstrating the fair
market value of the foreclosed interests, the district court did not
clearly err in relying upon the aspects of Weed’s testimony that
the court found credible to ultimately find that AmWest had met
its burden.
V. Valuation of Unit 302
¶29 Kellin argues that the district court erred when it entered
a deficiency judgment with respect to Unit 302 because AmWest
failed to provide credible evidence of the fair market value of the
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seven-eighths interest in that unit at the time of its foreclosure.
The district court based its valuation on Weed’s opinion of Unit
302’s fee simple value. Kellin has not demonstrated that the
district court’s reliance on Weed’s testimony was in error.
¶30 The district court noted that valuing Unit 302 was ‚more
problematic‛ than valuing Unit 402, presumably referring to the
expert witnesses’ difficulties in appraising Kellin’s seven-eighths
interest in Unit 302. Hunt testified only as to the value of a one-
eighth interest in Unit 302, and Kellin advocated multiplying
that value by seven to reach the aggregated seven-eighths value.
The district court rejected this approach as violative of USPAP
standards. See Appraisal Standards Board: The Appraisal
Foundation, Uniform Standards of Professional Appraisal
Practice, Standards Rule 1-4(e) (2014–2015 ed.),
http://www.uspap.org/#2.
¶31 Weed appraised the whole value of Unit 302 based on
comparable sales and then multiplied that value by seven-
eighths to account for Kellin’s partial interest. The district court
accepted Weed’s whole-unit valuation of Unit 302 but rejected
the seven-eighths adjustment for the same reason it had rejected
Hunt’s testimony. See
id. (‚A similar procedure must be followed
when the value of the whole has been established and the
appraiser seeks to value a part. The value of any such part must
be tested by reference to appropriate data and supported by an
appropriate analysis of such data.‛).
¶32 After rejecting Hunt’s and Weed’s mathematical
adjustments, the district court still had two expert opinions
before it: Hunt’s testimony that a one-eighth interest in Unit 302
was worth $150,000 and Weed’s testimony that the undivided
whole-unit value of Unit 302 was $615,000. The district court
concluded that based on the evidence before it, it could not scale
either of these figures to obtain an exact value of the seven-
eighths interest without either speculating or applying the same
type of mathematical adjustment that the court had already
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determined was improper. The district court ultimately
determined the fair market value by deeming the value of the
seven-eighths interest to be equal to the value of the whole-unit
interest. The district court explained,
[AmWest] has the burden of proof. If the bank
wanted an offset in any amount less than the fair
market value of the entire unit, it was obligated to
come forward with admissible evidence of that
amount. [AmWest] failed to do so. Because
[AmWest] failed to meet its burden of proof to
show how much less a 7/8 interest is worth, Kellin
is entitled to a credit in the only amount the bank
did offer—the value of a fee simple interest,
$615,000.
The district court noted that no evidence had been presented
that the seven-eighths interest in Unit 302 could be worth more
than the value of the unit as a whole and, thus, that ‚Weed’s
calculation of the fair market value of the entire fee estate
represents the absolute outer limit of the fair market value of the
7/8 interest that was actually conveyed.‛ The district court then
based the valuation on that ‚absolute outer limit.‛
¶33 Kellin has not established any error—and certainly not
any error that caused him any harm—in the district court’s
approach. Weed’s testimony provided competent evidence as to
the whole-unit value of Unit 302. The district court’s use of the
whole-unit value of Unit 302, rather than the lesser value of the
seven-eighths interest that was actually foreclosed, resulted in a
higher fair market value and a lower deficiency judgment
against Kellin under Utah Code section 57-1-32. AmWest could
have obtained a higher deficiency judgment by presenting
competent evidence of the value of the partial interest in Unit
302. It did not do so, but its failure did not deprive the district
court of the ability to enter a deficiency judgment based on
credible evidence of Unit 302’s whole-unit value. Further, any
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error in the district court’s approach benefitted Kellin.6 Cf. Ross v.
Epic Eng’g, PC,
2013 UT App 136, ¶ 12,
307 P.3d 576 (‚‘The court
at every stage of the proceeding must disregard any error or
defect in the proceeding which does not affect the substantial
rights of the parties.’‛ (quoting Utah R. Civ. P. 61)).
VI. Valuation of Unit 402
¶34 Finally, Kellin argues that the district court erred by using
AmWest’s credit bid on Unit 402 as evidence of that unit’s fair
market value. We reject this argument because it does not
accurately reflect the district court’s actions.
¶35 The district court found, based on Weed’s testimony, that
the fair market value of Unit 402 was $580,000. As discussed
above, the district court noted several shortcomings in Weed’s
testimony. The district court then stated, ‚Some of the court’s
concerns about Mr. Weed’s appraisal are ameliorated by the fact
that the [$625,000+ credit bid *AmWest+ made at the trustee’s sale
exceeded Mr. Weed’s calculation of the fair market value, and
Kellin is entitled to the benefit of the greater amount.‛
¶36 Thus, the district court did not use the $625,000 credit bid
as evidence of the fair market value of Unit 402. Rather, the
district court used the credit bid only for purposes of calculating
the deficiency, i.e., the difference between the sale amount and
the total amount owing on the note at the time of the sale.
AmWest was entitled to a judgment for the lesser of either that
deficiency or the difference between the amount due and the fair
market value of Unit 402, again evaluated at the time of the
trustee’s sale. See
Utah Code Ann. § 57-1-32 (LexisNexis 2010);
6. We note that AmWest did not pursue a cross-appeal to
challenge the district court’s use of the whole-unit appraisal to
calculate the fair market value of Kellin’s seven-eighths interest
in Unit 302.
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see also Black’s Law Dictionary 486 (9th ed. 2009) (defining
‚deficiency‛). The district court’s statement that Kellin was
‚entitled to the benefit of the greater amount‛ was a clear
reference to the deficiency judgment statute that we cannot
construe as a use of the credit bid to establish fair market value.
VII. Attorney Fees
¶37 AmWest requests an award of its attorney fees incurred
on appeal. ‚Generally, a party that received attorney fees below
and prevails on appeal is entitled to fees reasonably incurred on
appeal.‛ Giles v. Mineral Res. Int’l, Inc.,
2014 UT App 259, ¶ 25,
338 P.3d 825; see also Valcarce v. Fitzgerald,
961 P.2d 305, 319 (Utah
1998). AmWest received an award of attorney fees below and
has prevailed on appeal. We therefore award AmWest its
reasonable attorney fees incurred on appeal.
CONCLUSION
¶38 Kellin has failed to establish error arising from the district
court’s application of the burden of proof, its determination of
highest and best use, its credibility determinations, its valuation
of the two foreclosed interests, or its use of AmWest’s credit bid
on Unit 402 in calculating the deficiency judgment. We affirm
the district court’s deficiency judgment and remand this matter
for a calculation of AmWest’s reasonable attorney fees incurred
on appeal.
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