Missouri Court of Appeals Rules for Lender in Wrongful Foreclosure Lawsuit

Martin Leigh PC has been monitoring a wrongful commercial foreclosure lawsuit that resulted in a judgment of nearly $900,000 against a Kansas City area lender. That case is Grisham v. Mission Bank, Circuit Court of Platte County, Missouri, Case No. 13AE-CV02207, Missouri Western District Court of Appeals No. WD79964. The Missouri Court of Appeals handed down its opinion on May 13, 2017.

The borrower in Grisham defaulted on a $3.0 commercial debt—the fact that the borrower was in default was not disputed at trial. The loan was secured by, among other things, a deed of trust on real property valued between $1.35 - $2.4 million. The borrower marketed the property for sale but was unable to complete the sale alleging that the lender’s failure to provide an updated pay-off letter prevented that. The lender’s relationship with the borrower was strained because lender had spent considerable effort attempting to work out the default with the borrower, the borrower was alleged to have been hiding earth moving equipment and vehicles which were collateral for the loan, and the borrower would not identify the prospective property buyer to the lender. The lender subsequently foreclosed on the property, making a credit bid of $673,155.28, and took possession of the property. The lender later sold the property for $1.35 million.

At trial, the court ruled for the borrower under wrongful foreclosure, breach of contract, and unjust enrichment theories. The trial court concluded that lenders owe borrowers a contractual duty to provide loan pay-off letters. By breaching that duty, the trial court found that the lender’s foreclosure was wrongful and that the lender was unjustly enriched when it sold the property. The trial court imposed a judgment against the lender for economic damages of $750,000; punitive damages of $100,000; and $25,000 in emotional damages.

In its May 13, 2017 opinion, the Court of Appeals rejected the trial court’s legal conclusions and judgment. The Court of Appeals ruled that, under Missouri law, a lender’s foreclosure is not wrongful when the borrower is in default under the terms of the loan and there is a clear right to foreclose. In this case, it was undisputed that the lender was in default. Further, the Court of Appeals found that a lender’s obligations to its borrower are defined by the underlying promissory note and deed of trust. Based on this, the Court of Appeals concluded that the trial court’s conclusion that the lender was obligated to provide its borrower a pay-off letter (which was not required by the terms of the promissory note or the deed of trust) was in error. The Court of Appeals therefore reversed the judgment for the borrower and sent the case back to the trial court for further action.

Please contact William Meyer at whm@martinleigh.com if you have any questions about this case or any other aspects of Missouri, Kansas or Illinois law. Through offices in Kansas City and St. Louis, Martin Leigh PC keeps current on recent legal developments in banking, real estate and business law in Missouri, Kansas and Illinois. As a part of its smaller, faster and smarter law practice, Martin Leigh PC publishes updates like this one to keep industry leaders informed of the current legal environment.