                                  IN THE COURT OF APPEALS
                                            OF THE
                                     STATE OF MISSISSIPPI
                                      NO. 95-CA-00331 COA
MAGNOLIA FEDERAL BANK FOR SAVINGS AND                                                APPELLANTS
WILLIAM F. JONES, TRUSTEE
v.
I. MEADE HUFFORD AND DIANNE P. HUFFORD                                                 APPELLEES
  THIS OPINION IS NOT DESIGNATED FOR PUBLICATION AND MAY NOT BE CITED,
                          PURSUANT TO M.R.A.P. 35-B
DATE OF JUDGMENT:                                  03/03/95
TRIAL JUDGE:                                       HON. HYDE RUST JENKINS II
COURT FROM WHICH APPEALED:                         ADAMS COUNTY CHANCERY COURT
ATTORNEYS FOR APPELLANTS:                          ROBERT S. MURPHREE
                                                   H. A. MOORE III
ATTORNEYS FOR APPELLEES:                           R. BRENT BOURLAND
                                                   WALTER BROWN, JR.
NATURE OF THE CASE:                                CIVIL - OTHER
TRIAL COURT DISPOSITION:                           DEBTOR TO RECEIVE DIFFERENCE
                                                   BETWEEN FAIR MARKET VALUE AND
                                                   THE DEBT/EXPENSES OF SALE;
                                                   ATTORNEYS FEES AND PRE-JUDGMENT
                                                   INTEREST
DISPOSITION:                                       REVERSED ON DIRECT APPEAL;
                                                   AFFIRMED ON CROSS-APPEAL - 10/7/97
MOTION FOR REHEARING FILED:                        October 20, 1997
CERTIORARI FILED:                                  12/29/97
MANDATE ISSUED:                                    4/6/98




BEFORE THOMAS, P.J., KING, AND SOUTHWICK, JJ.

SOUTHWICK, J., FOR THE COURT:

This suit concerns a startling, initially suspicious-appearing, but from all the evidence, an innocent
coincidence. The day after the foreclosure sale of a house to the holder of the first deed of trust, a
potential buyer who had not known of the foreclosure saw the house for the first time. The next day
that buyer made an offer for more than the foreclosure amount. The issue is the former
debtors/mortgagors' entitlement to share in the proceeds from that second sale. The chancellor after a
two-day trial held that the former debtors were entitled to all of the sales price of the second sale, less
the expenses incurred by the creditor and the full amount of the debt owed. We reverse, holding that
absent an irregularity in the foreclosure procedures or price, the former debtors cannot claim a share
in proceeds of a subsequent sale. The rules governing the rights of parties after a foreclosure not only
control in the usual case, but also in the startling coincidences.

                                       STATEMENT OF FACTS

I. Meade and Diane P. Hufford owned a Natchez antebellum mansion called The Cliffs. Magnolia
Federal Bank for Savings held a deed of trust on the property. Evidence at trial indicated that the
Huffords had tried for over a year to sell the home, but were unsuccessful. Near the end of that year
Magnolia desired to foreclose, but prior to any sale the Huffords declared bankruptcy. At a hearing
conducted on whether to lift the bankruptcy stay, the Huffords indicated that the property was worth
$650,000. Magnolia put on proof that the outstanding balance on the loan as of March 7, 1986, was
approximately $512,000, with interest of $211 per day. A second lender, Deposit Guaranty National
Bank, had a subordinate deed of trust with a balance due of $343,000. The bankruptcy court lifted
the stay and abandoned the property. After other court proceedings temporarily delayed the
foreclosure, it was finally conducted on Wednesday, October 1, 1986.

There was evidence that Magnolia negotiated with Deposit Guaranty, the holder of the second deed
of trust, suggesting that Deposit Guaranty pay off the balance of the first note and obtain the priority
secured position. After getting an appraisal, Deposit Guaranty declined to do so.

Magnolia was the only bidder at the foreclosure, though the Huffords and a representative of Deposit
Guaranty were present. On the date of foreclosure, the balance due on the Huffords' note was almost
$551,000. Magnolia's bid price was $490,000. Magnolia had received some appraisals on the
property, revealing different values for a quick sale ($407,000) and for fair market value ($543,000).
As shown by the Huffords' own year-long experience of not finding a buyer, the appraisal suggested
that perhaps two years would be needed to sell.

That last forecast proved dramatically erroneous. At about 9:00 p.m. on the evening of the same day
as the foreclosure, a realtor contacted a Magnolia branch manager at home to inquire about the
house. The realtor stated that she assumed the property had been owned for some time by Magnolia,
based on the notices given much earlier about a foreclosure sale. She had been unaware that the
earlier foreclosures had been delayed by court action, and that the property had only sold that day.
The realtor's clients were later identified as an executive with a corporation in England who with his
wife was retiring to America, having just sold their home in England for one million dollars. The
clients were looking at antebellum mansions in Natchez and other Mississippi towns. On Thursday,
the day after the foreclosure, the realtor showed the clients several Natchez homes, but not The
Cliffs. The realtor testified that only after a day of looking at other homes, none of which seemed to
satisfy her clients, did she decide to show The Cliffs. Since Magnolia had not listed The Cliffs with
any real estate agency, it may not have been the house the realtor most wanted her clients to buy.
Calling from a gas station phone, the realtor got Magnolia's permission to show the house. Upon
seeing the house, the clients indicated an immediate interest.

The first anyone at Magnolia knew of the future buyers' interest was on Friday morning. A written
offer was made and delivered to Magnolia. At some time during the negotiations the question of a
realtor's commission was raised, even though Magnolia had not listed the house with any realtors.
The sale that finally occurred on December 7, 1986, was for $650,000. Magnolia paid a commission
to the realtor, insurance, pro rated taxes, and a rather large attorneys' fee.

Much later at trial, the chancellor determined that the total expenses of first the foreclosure and then
the second sale, when added to the balance of the note, were approximately $591,000. Regardless of
the amount, the holder of the former-second deed of trust, Deposit Guaranty, demanded the
difference between the second sale price and the costs of foreclosure. Its deed of trust had been
canceled by the foreclosure. Deposit Guaranty's primary suspicion may have been that Magnolia had
pre-foreclosure knowledge of the ultimate buyers' interest. Magnolia has denied, and the realtor and
buyers have concurred, that no one knew of the buyers' interest until after the foreclosure. After a
meeting between attorneys and principals for the two financial institutions, Deposit Guaranty
withdrew any demands on the money.

The Huffords brought suit thirty one months later, on June 23, 1989. Their initial complaint focused
on the fact that Magnolia's trustee who conducted the sale was not the kind of independent trustee
required in a then-recent Mississippi Supreme Court decision. Wansley v. First Nat'l Bank of
Vicksburg, No. 07-58207 (Miss. Apr. 5, 1989), rev'd on reh'g, 566 So. 2d 1218 (Miss. 1990). That
opinion, which seemed to ignore the practical realities of what occurred with every foreclosure, was
reversed the next year. Wansley v. First Nat'l Bank of Vicksburg, 566 So. 2d 1218, 1219 (Miss.
1990). Thus the complaint regarding the trustee's status was dropped.

After a two-day trial, the chancellor ruled that Magnolia owed a fiduciary duty to Hufford that was
breached by Magnolia's failure to deliver to them the difference between the $650,000 and actual
expenses and debt of $590,831.02. This "gain on the sale" of $59,168.98, plus interest and attorneys'
fees were to be paid the Huffords. Magnolia appealed, while the Huffords cross-appeal seeking
punitive damages, additional attorneys' fees and higher interest. The appeals were deflected by the
supreme court to this Court.

                                             DISCUSSION

The ultimate question presented to us is this: what right does the former owner/mortgagor have to
share in proceeds of a subsequent sale when the foreclosure sale purchaser was the mortgagee, if the
foreclosure sale itself is not subject to attack? Before confronting that question, certain other
threshold questions must be addressed.

1. Did the nonjudicial foreclosure sale occur when the property was struck off to Magnolia on
Wednesday, or only on Friday when the trustee's deed was executed?

The chancellor held that the foreclosure was not "consummated" until the deed was delivered two
days after the sale itself. The chancellor cites no authority for the proposition, and the parties can find
none. The concept that the foreclosure remained an on-going proceeding that began on Wednesday
and was not concluded until Friday was central to the chancellor's ruling. Magnolia's acquiring
knowledge of a potential buyer before the sale was final created a fiduciary obligation to give the
excess proceeds to the Huffords.
We first elaborate upon the facts. The trustee's deed was actually dated on Wednesday, October 1,
and was acknowledged by a notary public as having been signed and delivered on Wednesday. What
occurred on Friday, October 3, was the recording of the deed in the chancery clerk's office. There
was no evidence to the contrary on the date of execution. Regardless of the date of recording,
instruments are binding between the parties as of the date of execution; recording just gives notice to
third parties. Miss. Code Ann. § 89-5-3 (1972). Since the deed was executed and title therefore
conveyed prior to Magnolia's acquiring any knowledge of the potential buyer, we need not decide if
the foreclosure itself is effective as of the moment the property is "struck off" to the successful
bidder. Magnolia cites authority to that effect. 7 C.J.S. Auctions and Auctioneers, § 7. The recording
of the instrument on Friday, October 3, did not enlarge Magnolia's responsibilities over what they
would have been had the instrument been recorded on Wednesday.

2. Did the deed of trust itself require the "excess" proceeds to be given the Huffords?

The chancellor also determined that this language in the deed of trust compelled judgment for the
Huffords:

Trustee shall apply the proceeds of the sale in the following order: (a) to all costs and expenses of the
sale, including but not limited to reasonable Trustee's and attorney's fees and costs of title evidence;
(b) to all sums secured by this Deed of Trust; and (c) the excess, if any, to the person or persons
legally entitled thereto.


We have already determined that the sale did not "continue" from Wednesday through Friday, but
was completed in fact and in law on Wednesday. This language in the deed of trust refers to
distribution of the proceeds at the foreclosure sale, not at a subsequent sale two days or, as initially
seemed the better estimate here, two years later. Had these proceeds arisen from the foreclosure,
after the (a) expenses of the sale and the (b) debt owed Magnolia had been satisfied, the next (c)
entity legally entitled to the proceeds would have been Deposit Guaranty, since the lien of its second
deed of trust securing $343,000 attaches to the proceeds. Builders Supply Co. v. Pine Belt Sav. &
Loan Assn, 369 So. 2d 743, 745 (Miss. 1979). However, this language on its face has no relevance
to any sale other than the foreclosure itself.

3. Was the Complaint automatically dismissed under M.R.A.P. 15?

Magnolia argues that our Rule 15 required that the complaint be dismissed without prejudice because
the chancellor had the case under advisement for over six months. The rule states that unless a party
seeks mandamus from the supreme court within forty five days after the six months have run, the
complaint will stand as dismissed. M.R.A.P. 15 (a) & (c). The Huffords argue that additional
materials were submitted to the chancellor during that time period, which would start the six month
clock running anew.

The record does not reflect that additional filings were made with the chancellor, but an evidentiary
hearing could be held to make a record on that question. Regardless of the applicability of the rule,
we conclude that an evidentiary hearing to determine if the six months actually ran, and if so then the
complaint would stand dismissed, would be an unnecessary expenditure of resources of time and
money for the parties and the courts. Considering our conclusion regarding the ultimate legal issue in
this case, we exercise our discretion under Rule 2(c) to suspend the operation of the Rule in "the
interest of expediting decision." M.R.A.P. 2(c).

One issue remains on direct and cross-appeal that must be decided, since our decision on that issue
renders the rest moot.

4. What rights does a former mortgagor have to proceeds from a post-foreclosure sale?

The long-standing rule that the Huffords wish to change is this: a purchaser at a valid foreclosure
acquires the "entire interest and estate of mortgagor and mortgagee as it existed at the date of the
mortgage." GEORGE E. OSBORNE, et al., REAL ESTATE FINANCE LAW, §7.17 at 473 (1979).
That means the purchaser, whether it is the original creditor or a third party, takes free of any claims
by subordinate lienholders or by the original debtor. Shutze v. Credithrift of America, Inc., 607 So.
2d 55, 65 (Miss. 1992). The purchaser acquires the "entire estate"; there are no equitable liens carved
out that remain with anyone else such as the debtors. There is case law that will be discussed that
limits the contractual (note and deed of trust) rights of the former lender to seek a deficiency. There
is no law, however, that has required the purchaser at a valid foreclosure later to account to the
original debtor.

In essence, the chancellor shifted the rules for distribution of proceeds at the foreclosure itself, and
made the rules applicable to the next sale, the one made by the purchaser at the foreclosure. The
reason that this was done was the fact that the second sale followed so quickly on the heels of the
foreclosure. Of course, we have already addressed that there is no evidence that the trustee or
Magnolia had any knowledge of the prospect of this sale at the time of the foreclosure. Magnolia's
actions at the foreclosure had drawn to a close. Whether the unforeseeable date for resale of the
property was the next day or the next year, that resale did not impact the foreclosure or the
obligations that grew out of it.

The rights a mortgagor has to proceeds when his mortgage has been foreclosed have always been
measured at the time of foreclosure, and not at the time of an entirely separate transaction. "It is
elementary that the proceeds of the foreclosure sale determine the rights between grantor and
beneficiary of a deed of trust absent fraud, bad faith or other defect." Merchants Nat. Bank v.
Stewart, 608 So. 2d 1120, 1127 (Miss. 1992). No bad faith or fraud allegations survived the trial.

Starting with the most fundamental, we address the various questions that can arise regarding
foreclosure sales price. First, the long-standing Mississippi rule has been that the price successfully
bid at foreclosure will not cause the sale to be set aside unless it is so low as to "shock the
conscience." Haygood v. First Nat. Bank, 517 So. 2d 553, 556 (Miss. 1987); Lake Hillsdale Estates,
Inc. v. Galloway, 473 So. 2d 461, 465 (Miss. 1985). In Haygood, the court referred to a student
analysis of this case law that had found the "threshold of unconscionability for foreclosure sale prices
lies between thirty-six and forty percent of fair value." Haygood, 517 So. 2d at 556, quoting Jimmy
Reid Sledge, Jr., Note, Mortgages -- Mortgagor's Remedies -- Unconscionable Windfall From
Resale of Security Immediately After Mortgagee's Purchase . . ., 53 MISS. L. J. 533, 546 (1983).
That threshold was repeated in Allied Steel Corp. v. Cooper, 607 So. 2d 113, 120-121 (Miss. 1992).

The dissent relies on the "shock the conscience" case that was the subject of the law journal note, but
the dissent believes it created an entirely different rule than the majority describes. Central Financial
Services, Inc. v. Spears, 425 So. 2d 403 (Miss. 1983). Though the dissent quotes at some length part
of the Spears opinion, absent from the dissent's discussion of the case are the two sentences that
immediately precede what the dissent wishes to declare is the holding:

In this case, the chancellor found that the sale price was so inadequate it shocked his conscience. This
finding is amply supported by the evidence because CFS bid only $1458.86 at the foreclosure sale and
twelve days later sold the property for $4,000.


Spears, 425 So. 2d at 405. That is exactly the finding that must be made, as is clear from the dissent's
own authority, and is reiterated in the cases cited in this opinion. "Shock the conscience" may not be
the most objective-sounding legal standard, but a review of the case law described here makes it
evident that is the test that must be passed, or more accurately failed, in order to engage the remedies
that the dissent wishes to use. Unless the foreclosure itself is invalid, which requires a price as
inadequate as was the case in Spears, the purchaser takes good title free of claims that can be
brought by the debtor. In Spears the debtor shared in the surplus above the debt; in other cases the
remedy has been to set the foreclosure aside altogether. With that threshold finding omitted from the
dissent's quote, the remainder has no context.

Next we consider what rights the creditor has after foreclosure. If the amount credited at the
foreclosure is less than the debt, any attempt by that creditor to obtain a deficiency judgment will be
tested "under the principles of equity." Lake Hillsdale, 473 So. 2d at 466. The mortgagee must have
fairly attempted to collect its debt out of the mortgaged property, which requires more than just a
price bid at foreclosure that does not "shock the conscience." Wansley, 566 So. 2d at 1224.

Thus a creditor is not free to use the foreclosure bid price as a sword, affirmatively to seek additional
funds from the debtor with the bid price as the sole measure. However, a commercially reasonable
sale, conducted within the guidelines already described, is a shield to the debtor's attempt to claim
any part of the proceeds from a subsequent sale by the successful bidder. If the trustee conducted the
sale reasonably, then the purchaser -- whoever it is -- can deal with the property free from claims of
the former owner. As the court stated in Wansley, if the sale is commercially reasonable, then the
amount bid is credited against the debt owed, even though the lender-bidder "had not realized so
much as a penny." Wansley, 566 So. 2d at 1225. The chancellor never found, nor do we, that the
amount bid failed to comply with the standards for a commercially reasonable foreclosure.
Knowledge of a better price immediately waiting after foreclosure would seriously undermine the
reasonableness of a sale. No such evidence exists here.

Nonetheless, what in essence the chancellor did is create a lien, held by the former owner, on any
proceeds later earned that are greater than the debt owed. Such has never been the law in the state,
or to our knowledge in any other state. The chancellor imposed this lien when the excess amount was
59,000/590,000 of the total debt, or 10 percent. A foreclosure is a forced sale. It often is also, as it
was in this case, a forced buy. Magnolia did not in the normal sense want this house, and indeed tried
to get Deposit Guaranty just to pay off Magnolia's note. An unwilling seller (the debtor through the
trustee) and an unwilling buyer (the mortgagee) do not make for an arms length, fair market value
sale. In one case, the supreme court said its conscience was not shocked when the property was
purchased for in effect $47,000 (bid price plus amount of superior liens) and the "quick sale"
appraisal was $60,000. Shutze, 607 So. at 65. Thus historically a foreclosure has not realized an
arms-length, willing buyer and seller price. To start requiring foreclosure purchasers to account for
proceeds gained at subsequent arms length transactions would be a change in contract expectations
that the legislature may wish to consider, but such a change is not for this court.

The $160,000 difference between the foreclosure bid price and a subsequent sales contract price just
two days later created a suspicion. There is a concession now that despite appearances, no evidence
of fraud or sharp dealing was found. As to the $160,000, that is an inflated figure that shows
Magnolia bid less than it was owed. If others had been bidding, the price probably would have gone
higher. Deposit Guaranty had a huge, soon to be unsecured loan. They were present for the
foreclosure and bid no higher sum. This suggests a commercial reasonableness to Magnolia's actions.

Hufford would have us make a new rule for foreclosures, adopt it in a case in which the equity of
doing so disappears as the facts reveal themselves, that creates a right that would significantly change
the way deeds of trust traditionally have been interpreted. Hufford was entitled to attack the
foreclosure itself, but not later events. Later events were driven by their own dynamics, unrelated to
the foreclosure. Magnolia's selling an extremely expensive house without a loss and instead with a 10
percent profit, was certainly surprising. It does not qualify, however, as unconscionable.

This litigation is hardly the first time that a subsequent sale occurred at which a price higher than the
foreclosure price was paid. This court must follow statute and precedent, which allows others who
are not judges to have some chance of being able to plan their actions. That is the only way for
citizens to have a sense of their rights, rights and responsibilities that are not totally subject to judicial
whims. The supreme court has attempted to create some fairly large categories in the foreclosure
challenge area, categories in which the vast majority of cases will fall and doubt would exist only at
the margins. The first grouping is the "shock the conscience" inadequacy of price. The least
inadequate price that has fit into that category has been 40% of market value; here the amount owed
the creditor was 80-100% of the market value, depending on one's view of the facts. If the price is
shockingly low, the remedy is to cancel the foreclosure, to allow the debtor to receive the benefit of
the excess funds, or perhaps to apply other equitable remedies. The other category is for sales in
which the bid price fell sufficiently below the value of the property as to invoke principles of equity.
The remedy for cases of that class is to refuse to allow the foreclosure sales price to be the measure
for a deficiency judgment. This case did not involve a bid price that was unconscionably low, nor is
the creditor seeking a deficiency judgment. Thus neither line of cases applies.

As a result of our ruling on direct appeal, the cross-appeal is moot.

THE JUDGMENT OF THE ADAMS COUNTY CHANCERY COURT IS REVERSED ON
DIRECT APPEAL, AFFIRMED ON CROSS-APPEAL, AND JUDGMENT ENTERED HERE
FOR APPELLANTS. ALL COSTS OF THIS APPEAL ARE TAXED TO THE APPELLEES.


BRIDGES, C.J., McMILLIN AND THOMAS, P.JJ., COLEMAN, HINKEBEIN, AND JJ.,
CONCUR.


KING, J., CONCURS IN RESULT ONLY.
PAYNE, J., DISSENTING WITH SEPARATE OPINION JOINED BY DIAZ, J.


HERRING, J., NOT PARTICIPATING.


PAYNE, J., DISSENTING:


The majority would reverse the chancellor who required the mortgagee to return its windfall acquired
two days after a foreclosure sale, therefore allowing this fortuitous circumstance for the lender and
depriving the debtor of the difference between his indebtedness and the market value of the property.
I particularly take exception to the majority's statement: "There is no law, however, that has required
the purchaser at a valid foreclosure later to account to the original debtor." (Majority p. 7)

I believe Central Financial Services, Inc. v. Spears, 425 So. 2d 403 (Miss. 1983), does require just
that. Although the figures in Spears are much lower, the principle remains the same. In Spears the
original indebtedness was $1,250 plus interest, insurance, and fees making the total amount of the
note $1,797.30, which was secured by a deed of trust on debtor's land. By the time of the
foreclosure, the lender bid $1,458.86 which equaled the remaining balance on the debt plus costs of
foreclosure. Id.

Less than two weeks later, the lender sold the property for $4,000 realizing a profit of $2,481.14
after paying off a $30 judgment. Almost four months later that purchaser sold the property for $6,
500. The borrower sued to have the foreclosure set aside. The chancellor granted the lender's
demurrer. In an unpublished opinion the supreme court reversed the chancellor and remanded for trial
on the merits. Id. at 403-04.

At that trial, the chancellor found that the fair market value of the land was $6,000. The chancellor
then required the lender to pay as damages to the borrower the difference between its cost and $6,
000. The supreme court reversed to the degree that the amount the lender repaid was just its profit --
not the profit made by the later sale. However, in making its ruling affirming the lower court's
holding in principle, the supreme court said:

We hold that a sale of mortgaged property within twelve days of the foreclosure sale at a price two
and one-half times the bid of the mortgage is so inadequate, it would be "impossible to state it to a
man of common sense without producing an exclamation at the inequality of it." The chancellor did
not set the sale aside instead, he fashioned a remedy with which we agree in principle.


CFS [lender] was in compliance with the statutory law pertaining to the advertisement and sale of real
property under deeds of trust. However, the sale of the property by CFS twelve days later resulted in a
windfall to it of approximately $2,500. We deem this windfall to be unjust. If CFS had bid $4,000 at
the foreclosure sale it would have been entitled to recover the amount of its indebtedness plus the
expense of the sale, with the surplus being payable to Spears [debtor]. Certainly a sale twelve days
later for $4,000 enabled CFS to recover $2500 more that it risked in the transaction it made when it
advanced $1250 to Spears.


....


We are of the opinion, and hold, that the difference between the amount bid and the $4,000 received
by CFS at the private sale twelve days later should be used in computing the amount due Spears.


Id. at 405 (emphasis added).


In the present case, I deem the windfall of $99,000, being purchase price of $650,000 minus
indebtedness of $551,000, to be unjust. However, the chancellor found that actual expenses
(including "a rather large attorney's fee") plus the debt equaled $590,831.02, leaving a "gain on the
sale" of only $59,168.98. I would hold that gain to be unjust as well. The court in the Spears case did
not find malice nor fraud, but did award the excess to the debtor/landowner.(1) I would do the same
in this case by affirming the lower court's ruling.

DIAZ, J., JOINS THIS SEPARATE WRITTEN OPINION.

1. I agree with the majority that the surplus should first go to the junior lienor, according to Builder's
Supply Co. v. Pine Belt Sav. and Loan Assoc., 369 So. 2d 743, 745 (Miss. 1979), but that is of no
benefit to the appellant here.
