Daily Development for
Tuesday, May 5, 1998

by: Patrick A. Randolph, Jr.
Professor of Law
UMKC School of Law
randolphp@umkc.edu

MORTGAGES; FORECLOSURE: A trustee under a deed of trust does not owe the same fiduciary duty to the guarantors of the secured debt that it does to the trustor.

Warner v. Clementson, 492 S.E.2d 655 (Va. 1997).

A deed of trust trustee sold property at foreclosure for $177,000. An appraisal two years before the foreclosure sale indicated that the property had a value of $525,000, $450,000 of which was attributable to the realty, and $75,000 of which was attributable to the furniture, fixtures and equipment. The guarantors of the note secured by the deed of trust filed suit alleging, among other things, that the trustee breached his fiduciary duty to the guarantors by failing to secure the property, and the furniture, fixtures and equipment, and to sell the furniture, fixtures and equipment as part of the foreclosure sale.

The court concluded that the trustee under the deed of trust owes no fiduciary duty to a guarantor in such circumstances. The court noted that, since the guarantor is not generally a party to a deed of trust, and since the trustee often does not know whether a guarantor even exists, the imposition of such a duty would be overly burdensome for trustees and disruptive of credit transactions in Virginia.

Comment: The case collects authority from other jurisdictions, which is minimal, and is quite clear and succinct in its holding. As such, it is a very useful item for any foreclosing lawyer's precedent file.

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