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McKenna v. Sachse

Decided: June 14, 1961.

MCKENNA ET UX.
v.
SACHSE, EXECUTOR, ET AL.



Appeals from the Circuit Court for Anne Arundel County (DUCKETT, J.).

The cause was argued before Brune, C. J., and Hammond, Prescott, Horney and Sybert, JJ.

Hammond

HAMMOND, J., delivered the opinion of the Court.

Mortgagees sought a decree in personam for $11,195.02, the deficiency shown in the auditor's account after foreclosure. They had bought in the property and resold it several months later at a $9,000 profit. The chancellor charged them with half of this profit and with $1,500, the sum the mortgagors had paid on a deficiency after foreclosure of another mortgage they had made and the mortgagees had assumed, and entered a decree in personam for $5,195.00 (the two cents seem to have been overlooked). The mortgagees appealed.

In 1955 Louis and Mary Barattini bought from John and Mary McKenna a house at Bay Ridge in Anne Arundel

County at a price of $50,000. The purchase price was paid with $22,500 lent by a building association on a first mortgage, plus a $15,000 second mortgage from the Barattinis to the McKennas and the conveyance to the McKennas by the Barattinis of two properties, in which the Barattinis had an agreed upon equity of $12,500.

Mr. Barattini died in late 1955, a few months after the purchase of the Bay Ridge house. In May 1957 the McKennas foreclosed their $15,000 second mortgage and bought in the property at the sale on June 10, 1957, for $4,642.28, subject to the first mortgage balance of $19,357.72. An order nisi was passed on June 19, a certificate of publication was filed on July 17 and a final order of ratification was signed on July 23. The same procedure was followed as to the report and account of the court auditor, the final order of ratification being signed on October 16, 1957. No exceptions were filed to ratification of either the sale or the auditor's account.

On October 24, 1957, the McKennas filed a petition seeking a decree in personam against Mrs. Barattini and the executor of Mr. Barattini for the $11,195.02 deficiency shown in the auditor's account. An answer was filed by Mrs. Barattini and Mr. Barattini's executor, which alleged (a) that the McKennas had bought in the property for $24,500 and resold it for $33,000 and had not suffered a loss as they had alleged; (b) that John McKenna, acting as a real estate broker pretended to be diligently trying to sell the property for Mrs. Barattini while, actually, he was hindering a sale; (c) that the Barattinis, as part of the purchase price of the Bay Ridge property, had conveyed to the McKennas certain lots on which they had previously given a mortgage of $19,000 to one Mary Porter, which the McKennas had assumed, on which foreclosure was threatened and a deficiency liability loomed so that it would be inequitable to grant the decree in personam under the circumstances.

No action transpired on the petition, and on February 25, 1960, Mrs. Barattini and her husband's executor filed a supplemental answer and cross claim, alleging (1) that the court was without jurisdiction to enter a decree against the executor

because (a) an action at law would not lie; (b) the executor was not a party to the foreclosure proceedings; (c) the McKennas are estopped to claim a deficiency; and (2) that since the original answer the Porter mortgage had been foreclosed with a resulting deficiency of $2,662.03, which had been demanded of them and had been compromised by the payment of $1,500 which the answerers prayed the McKennas should be required to pay to them. A demurrer and answer were filed by the McKennas which said that the cross claim was not permissible and the matter was res judicata. The basis for reliance on res judicata is not specified in the demurrer and answer but the record shows that Mrs. Barattini and the executor had impleaded the McKennas in the Porter foreclosure in an effort to require them to pay the deficiency to Mrs. Porter or to the Barattinis, and that no action was ever taken by the court after it had ordered the McKennas made parties, presumably because of the compromise settlement by the Barattinis with Mrs. Porter.

We think the chancellor had no right to reduce the deficiency by half the amount of the profit the McKennas made on the resale of the Bay Ridge house. Whatever may be the rule in other states, by statute or judicial decision, ameliorating the obligations of a mortgagor to pay a deficiency when the mortgagee buys in the property at foreclosure sale, the Maryland rule is clear and fixed. In the absence of fraud or breach of actual trust, "it is also well established that since the confirmation of a foreclosure sale is the final determination by the court that the mortgaged property was sold at a fair price, the defense of inadequacy of price can not be raised in subsequent proceedings, and for the purpose of a deficiency decree the price obtained at the sale is conclusive on the question of the market value of the property." Walton v. Washington County Hospital Ass'n, 178 Md. 446, 451. It is also well established that the rights of a mortgagee to a deficiency ...


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