SENATE BILL REPORT

SB 5500

BYSenators Talmadge, Hayner, Lee and Rasmussen

Relating to the fixing of fair value for homestead property for foreclosure.

Senate Committee on Law & Justice

Senate Hearing Date(s):February 16, 1987; February 17, 1987; January 25, 1988; January 26, 1988

Majority Report:  That Substitute Senate Bill No. 5500 be substituted therefor, and the substitute bill do pass.

      Signed by Senators Pullen, Chairman; McCaslin, Vice Chairman; Halsan, Hayner, Madsen, Newhouse, Niemi, Talmadge.

Senate Staff:Dick Armstrong (786-7460)

                  January 26, 1988

AS REPORTED BY COMMITTEE ON LAW & JUSTICE, JANUARY 26, 1988

BACKGROUND:

When ordering a foreclosure sale, the court may, in its discretion, fix a minimum or upset price to which the mortgaged premises must be bid or sold before confirmation of the sale. The original intention of the statute was to protect homeowners and farmers from deficiency judgments in times of economic depression.  However, in current practice it appears that the upset price eliminates competition from the bidding process and deprives the judgment debtor of the most favorable bids.

In addition, the statute can be used by commercial borrowers to avoid a deficiency judgment despite the fact that the borrower's credit, independent of the security, is the basis for the loan.  It is suggested that the upset price language be eliminated and that the court establish the fair market value for homesteaded property when requested to do so by the judgment debtor.  In addition, it is suggested that the language which allows judgment debtors to avoid deficiency judgments in judicial foreclosures be limited to homesteaded property.

SUMMARY:

If the property that is to be sold at a foreclosure sale is subject to a homestead exemption, the court may establish the fair market value of the property and require that the fair market value be credited upon the foreclosure judgment.  If the fair market value discharges the debt, no deficiency judgment may be granted.  In addition, the avoidance of a deficiency judgment is limited to homesteaded property.

EFFECT OF PROPOSED SUBSTITUTE:

For purposes of this bill, property used for agricultural or farming purposes is to be treated the same as property subject to a homestead.

Appropriation:    none

Revenue:    none

Fiscal Note:      none requested

Senate Committee - Testified: John Gose, attorney