Implied Duty Of Good Faith, Fair Dealing & The Collection Of Deficiency Judgments In Foreclosure Actions

Lexology reports:

• It is fairly well-settled that a bank who breaches the implied duty of good faith and fair dealing may be barred from collecting its deficiency judgment in a foreclosure action. See de Jong v. Leitchfield Deposit Bank, 254 S.W.3d 817, 823 (Ky. App. 2007) (quoting Farmers Bank and Trust Co. v. Willmott Hardwoods, Inc., 171 S.W.3d 4, 11 (Ky. 2005)).

• Yet, in Harvest Homebuilders LLC v. Commonwealth Bank and Trust Company, 2008-CA-001897 (01/29/2010), the Kentucky Court of Appeals affirmed a judgment of the Oldham Circuit Court awarding Commonwealth Bank a deficiency judgment against the borrower and an individual guarantor. The Court held that the trial court did not err by awarding the deficiency judgment as the record clearly established that the bank did not breach the implied covenant of good faith and fair dealing imposed in every contract, which “impose[s] on the parties … a duty to do everything necessary to carry” out the contract.

For more, see Must a bank forgo its right of deficiency if it refuses to release its obligors who want to pursue a short sale during a foreclosure action? No. (requires paid subscription; if no subscription, TRY HERE - then click link for the story.)