Murphy v. Financial Development Corp.

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Murphy v. Financial Development Corp.
Court New Hampshire Supreme Court
Citation 495 A.2d 1245
Date decided May 24, 1985

Facts

  • Financial Development Corporation = defendant = lender
  • Murphy = plaintiff = mortgagor who financed his mortgage
  • In 1980, the home of Murphy in New Hampshire was appraised for $46,000
  • Murphy's refinanced mortgage was assigned to a 2nd lender: Colonial Deposit Company (defendant)
  • In 1981, Murphy lost his job
  • Murphy missed his mortgage payments
  • The lender picked out a foreclosure sale date
  • Soon, Murphy paid the regular monthly payments; nevertheless, he couldn't pay the overdue fees that had accrued since he fell behind on his mortgage payments
  • The lender pushed the new foreclosure date to a 1 month later; the lender posted the foreclosure notice at (1) Murphy's home, (2) the post office, & (3) city hall
  • Murphy didn't pay the overdue fees; consequently, the sale proceeded ahead
  • The lender's agent was the only bidder who showed up at the foreclosure sale
  • The lender's agent placed a winning bid for $27,000; at that time, the home's fair market value was $54,000
  • At that time, Murphy owed $27,000.
  • The entire $27,000 from the sale proceeds went to pay off the outstanding mortgage
  • After the sale, the lender put the home up for sale for $40,000
  • The next buyer bought the property for $38,000

Procedural History

  • Murphy sued the lender
  • A court master ruled that the lender to exercise good faith & due diligence to obtain a fair market price at the foreclosure sale.
  • Murphy won in the trial court in New Hampshire

Issues

Does a lender owe a borrower a duty to use both (1) good faith & (2) due diligence to sell a foreclosed property for a fair price?

Holding

Yes; a lender has duties to a borrower to use both good faith & due diligence to sell a foreclosed property for a fair price.

At the same time, the master's use of the fair market value of the home was the wrong way to measure damages. Foreclosure auctions typically don't fetch the same price as those generated in open market sales.

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