Navarre Bachand Farms, Inc. Petitioner v. Small Business Administration Agency
SBA No. 421SBA No. 421August 26, 1988
SBA No. 421 (S.B.A.), SBA No. 421, 1988 WL 412457
Small Business Administration (S.B.A.)
Office of Hearings and Appeals
[Collection of Debts]
*1 NAVARRE BACHAND FARMS, INC., PETITIONER
*1 v.
*1 SMALL BUSINESS ADMINISTRATION, AGENCY
*1 Docket No. DBT-87-9-22-67
*1 Administrative Offset No. FDL-488482-20-05-SxFls
*1 August 26, 1988
DIGEST
The Agency, as the proponent of the fact that the debt exists, has the burden of proving that fact by preponderant evidence.
If the trier of the facts cannot determine the existence of a debt on the part of the Petitioner, a Petition filed under 13 CFR 140.5 must be granted, and the Agency is prohibited from proceeding with administrative offset of funds due to the Petitioner from another agency.
Regardless of the provision of a mortgage which requires the application of Federal law in its construction and enforcement, the Agency must comply with the provisions of a state statute when it elects to utilize the state foreclosure procedures which that statute allows, instead of using the provisions of the Federal statute at 28 U.S.C. 2001(a).
DECISION
USHER, Administrative Judge:
Jurisdiction
*1 This proceeding was initiated by the Petitioner pursuant to the Agency's regulations, which were promulgated pursuant to the Debt Collection Act of 1982, Public Law 97–365, 96 Stat. 1749 (hereinafter “the Act”), and codified at 13 CFR Parts 134 and 140.
Issue
*1 The question is whether the Petitioner is indebted to the Small Business Administration in the amount alleged and, if so, whether to allow administrative offset against funds due to the Petitioner by another Federal agency.
Facts
*1 By letter dated September 3, 1987, the Agency advised the Petitioner of its intention “to collect its claim [based upon a Promissory Note dated February 20, 1981] against you by administrative offset of funds due you from the Agricultural Stabilization and Conservation Service.” According to this letter, the note was “in the original principal amount of $161,000 ... at the rate of 5%,” but “because of default was accelerated ... [on] May 3, 1985” and, at that time, had a balance in the “amount of $136,686.29, consisting of principal in the amount of $125,722.02 and interest accrued to September 3, 1987, of $10,964.27.”
*1 The debtor's rights, set forth at § 140.5 of the regulations, were explained by the Agency in the September 3, 1987 letter, and the Petitioner timely filed its Petition by letter from its Counsel dated September 15, 1987. Petitioner's Counsel asserted these reasons why the funds due to his Client from the ASCS should not be offset:
*1 1. This administrative procedure denies Navarre Bachand Farms, Inc. their [ [sic] due process rights guaranteed by the United States Constitution and the constitution of the State of South Dakota.
*1 2. That administrative offset procedure which SBA proposes to utilize in this matter is a violation of South Dakota statutes, particularly SDCL 21–48–14 which provides that SBA must hold a court hearing to determine whether a deficiency exists at the time of sale.
*2 3. The Notice of Real Estate Mortgage Sale dated November 1, 1985, which indicates that the SBA intended to hold a sale of the Navarre Bachand Farms, Incorporated [sic] property on December 5, 1985 does not advise that a deficiency would be sought against Navarre Bachand Farms, Inc. As such, no deficiency exists due to the failure of the notice and the failure to request that the court determine a deficiency prior to the time of sale.
*2 4. The notice to Navarre Bachand Farms dated November 1, 1985 is improper to establish a deficiency pursuant to the case of Rau v. Cavenaugh, 500 F.Supp. 204 (D.S.D.1980) and pursuant to SDCL 21–48–14.
*2 5. Because SBA has failed to follow the proper procedure on its foreclosure by advertisement, it is barred from a deficiency because a foreclosure by advertisement is not a judicial sale. See Dirks Trust & Title Co. v. Koch, 143 NW 952 (S.D.1913).
*2 6. Pursuant to South Dakota law, a mortgage holder must bid the full amount of its mortgage unless it first establishes the value of the property and has the court approve and determine the value of the property. See SDCL 21–47–16 and Federal Land Bank v. Carlson, South Dakota Supreme Court Slip Opinion #15450, entered August 26, 1986.
*2 7. The procedure proposed by SBA to collect the improper deficiency claimed is a violation of the procedural and substantive due process rights of Navarre Bachand Farms, Incorporated [sic] under the United States and South Dakota constitutions and a violation of South Dakota statutes, particularly SDCL 21–47–16 which provides that no process to enforce a deficiency is allowed except after execution issued by the court which determined the deficiency.
*2 Counsel further argued:
*2 For the above reasons we contest the right of Small Business Administration to proceed in the foregoing manner and maintain that no deficiency to Small Business Administration exists because Small Business Administration had failed to follow statutory and constitutional requirements with regard to the Navarre Bachand Farms, Incorporated [sic] loan and mortgage with Small Business Administration. We request a hearing prior to any further action by Small Business Administration and request that Small Business Administration be required to follow the constitutional and statutory dictates for obtaining a deficiency provided by South Dakota statutes and the United States and South Dakota constitutions.1
*2 In response to my Orders, dated September 30 and October 27, 1987, the Agency's Counsel submitted its Answer to Petition, Report of Settlement Efforts, and Motion for Summary Decision. In its Answer, the Agency made these responses to the Petition:
*2 SBA expressly denies the allegations contained in Paragraph 1 of the Petition. The right of appeal provided by C.F.R. § 140.5 provides both written notice of SBA's asserted claim and the opportunity for hearing which supply all due process rights required under both the United States Constitution and the Constitution of the State of South Dakota.
*3 With respect to Paragraph 2 of the Petition, SBA asserts that Federal law applies to this transaction pursuant to U.S. v. Kimball Foods, Inc., 440 U.S. 715 (1979). Alternatively, SBA affirmatively alleges that it bid the true market value or more at the time of the sale. A true certified copy of an SBA obtained appraisal is appended as Exhibit A. This appraisal indicated a liquidating cash value of $19,440.00 for the property. SBA bid the sum of $23,000.00 for the property as is evidenced by the copy of the Sheriff's Certificate of Sale which is attached as Exhibit B. Alternatively, even in the event that SBA bid the property in for less than the true market value, the remedy pursuant to SDCL 21–48–14 is not a total elimination of a deficiency, only an adjustment for any difference in the value and the bid. A copy of SDCL 21–48–14 is appended as Exhibit C.
*3 SBA denies the allegations of Paragraph 3 of the Petition in that SBA's Notice of Foreclosure contained all elements required by SDCL 21–48–6, a copy of which is attached as Exhibit D. A true and correct copy of the SBA Notice of Foreclosure Sale is attached as Exhibit E.
*3 SBA denies the allegation of Paragraph 4 of the Petition in that actual notice was given to Navarre Bachand Farms, Inc. as is evidenced by the copy of the notice letter which was sent by Certified Mail, Return Receipt Requested. A true copy of the letter and return receipt are attached as Exhibit F. SBA was entitled to rely upon Lon N. Bachand being president of the corporation as is evidenced by Resolution of the Board of Directors, a true certified copy of which is attached as Exhibit G.
*3 SBA denies the allegation contained in Paragraph 5 of the Petition in that SBA did follow the proper procedure in the foreclosure and deficiency is further not barred pursuant to the appropriate statement of law contained in SDCL 21–48–14.
*3 SBA denies the allegations contained in Paragraph 6 of the Petition in that SDCL 21–47–16 and the case referred to by Petitioner relate to foreclosures by action.
*3 SBA denies the allegations contained in Paragraph 7 of the Petition in that SDCL 21–47–16 applies only to foreclosures by action.
*3 Navarre Bachand Farms, Inc. is indebted to SBA in the amount of $137,426.84, consisting of principal in the amount of $125,722.02 with interest through October 16, 1987, in the amount of $11,704.82 on SBA loan (F)DL–488482 20 05. The debt is evidenced by a Note dated February 20, 1981. A true and correct certified copy of the Note is attached and incorporated as Exhibit H. The debt is past due as evidenced by the acceleration letter with attached return receipt. True certified copies of which are attached and incorporated as Exhibit I. The balance due on the Note is shown by the Statement of Account printout. A true certified copy of which is attached and incorporated as Exhibit J. [sic].
*3 On November 10, 1987, the Petitioner's Counsel submitted a Memorandum in Support of Petition, reiterating his arguments as previously advanced and asserting further that due process for his Client, under the United States and South Dakota Constitutions, demands that “notice and opportunity for a hearing” be afforded. In that regard, he argues, citing Rau v. Cavenaugh, 500 F.Supp. 204 (D.C.S.D.1980) and Mullane v. Central Hanover Bank and Trust Co., 339 U.S. 306, 313, 70 S.Ct. 652, 656, 657 (1950), as follows:
*4 ... in order to determine whether Petitioner was given proper notice and hearing, the hearing officer must determine whether the foreclosure procedure utilized by the SBA afforded Petitioner adequate process with respect to establishing a deficiency. It appears that Plaintiff was served with notice, by certified mail, of the foreclosure sale which was scheduled pursuant to the South Dakota Foreclosure by Advertisement statutes. See S.D.C.L. 21–47 et. seq. Petitioner does not deny that the Notice of Sale contained all elements required by S.D.C.L. 21–48–6, a copy of which is attached to Respondent's Answer to Petition. However, to the extent that SBA is now intending to use an administrative offset in order to reduce the alleged deficiency, the Petitioner is being denied its due process constitutional rights under both the South Dakota Constitution and the United States Constitution.
*4 Under the Foreclosure by Advertisement statutes, located in Title 28, Chapter 48, a mortgage holder is entitled to purchase the property for the value of the debt remaining or for any lesser sum which is bid by the mortgage holder. However, to the extent that a mortgage holder pursues a foreclosure by advertisement, the mortgage holder is prevented from claiming any deficiency against the debtors until he has first establishes [sic] to the satisfaction of the appropriate South Dakota Circuit Court that the property, covered by the mortgage, sold at the foreclosure sale for its true marked [sic] value. S.D.C.L. 21–48–14. Thus, under the South Dakota Foreclosure by Advertisement statutes, once a foreclosure sale is had, the debt is treated as being satisfied in full and the mortgage holder is not entitled to any additional remedies unless and until the mortgage holder establishes to the satisfaction of the Court that the value bid at the foreclosure sale was, in fact, the true market value of the property. Only after the Court establishes that the amount bid was the fair market value of the property will the mortgage holder be entitled to a deficiency judgment. Id.
*4 In the instant case, there is no question that the SBA pursued the Foreclosure by Advertisement remedy available under S.D.C.L. 21–48–1 et. seq. As a matter of fact, the SBA, in its answer, admits that it pursued this remedy. However, at no time subsequent to the sheriff's sale did the SBA every [sic] apply to the Court for a deficiency judgment nor did the SBA ever establish to the satisfaction of any South Dakota Court that the value bid at the Sheriff's sale was, in fact, the true market value of the property. Because the SBA did not follow through with completing the South Dakota Foreclosure by Advertisement procedure, the Plaintiff is being denied its due process rights by this current action pending on appeal. There is no right to an administrative offset because there is no deficiency established by a Court, as required by the Foreclosure by Advertisement statutes. [Emphasis in original.]
*5 In the alternative, Petitioner's Counsel argues that, having availed itself of the remedies provided under S.D.C.L. 21–47, the Foreclosure by Advertisement statutes, the Agency cannot then choose a distinctly separate and additional route to collect the same debt. He cites Dalton Motors, Inc. v. Weaver, 446 F.Supp. 711 (D.C.Minn.1978) where the court considered a strikingly similar situation and concluded that SBA could not avail itself of other remedies under Federal law, once it had initiated, but not concluded, foreclosure by advertisement under the State statutes.
*5 In answer to my Order, dated February 26, 1988, the Agency's Counsel2 has supplied certain information which establishes the daily rate of interest accruing on the alleged loan balance and has also submitted a “certified statement of account,” which contains the following factual information concerning what the Agency asserts as the “total [remaining] indebtedness:”
Total amount disbursed: | |
|---|---|
Loan | $ 161,600.00 |
Less: Repayments | 35,877.98 |
Current balance | 125,722.02 |
Add: Accrued interest | 14,288.15 |
Total charges outstanding | 140,010.17 |
TOTAL INDEBTEDNESS | $ 140,010.17 |
*5 A copy of this submission by the Agency's Counsel was served upon the Petitioner's Counsel, and the computations set forth above have not been disputed.
*5 The Agency's Counsel certified that the Petitioner's representatives have been afforded the opportunity to exercise the Petitioner's rights under § 140.5(b)(2) and (3) of the regulations, but that they have neither “requested inspection or copying of [the] records” nor “proposed any repayment plan.”
Discussion
*5 The facts are seemingly not in dispute. The Petitioner made a disaster loan for $161,600 in late 1980 or early 19813 and executed a note and a mortgage to the Agency as security. The loan was defaulted in late 1984 and, by letter dated May 3, 1985, the Agency notified the Petitioner of acceleration of the loan because of “failure to pay installment of principal due December 1, 1984” and “failure to pay interest since December 15, 1983.” Demand was made for the balance of “the indebtedness in the amount of $134,322.16, plus accrued interest....”4 On September 3, 1987, the Agency afforded the Petitioner the 30 days notification of its intention “to collect its claim ... by administrative offset of funds due [to the Petitioner] from the Agricultural Stabilization and Conservation Service.”
*6 The Agency conducted a mortgage “foreclosure by advertisement” sale on December 5, 1985, and the property which secured the mortgage was sold to the Agency for $23,000. However, the Agency did not apply to the South Dakota Circuit Court for a deficiency judgment, allowing the Court to determine the true market value of the property at the time of the sale, as required by the South Dakota statute, 21–48–14, which provides:
*6 Proof of value required for deficiency judgment after purchase by mortgagee.... When any sale of real estate has been made by a mortgagee, trustee, or other person authorized to make the same at which the mortgagee, payee, or other holder of the obligation thereby secured becomes the purchaser and takes title, either directly or indirectly, before such mortgagee, payee, or other holder of the secured obligation as aforesaid, shall be entitled to any deficiency judgment against the mortgagor, trustor, or other maker of any such obligation whose property has been so purchased, he shall first establish to the satisfaction of the court in which such action for a deficiency judgment is pending that the property covered by such mortgage sold at foreclosure sale for its true market value or more at the time of such sale, and in adjudging any such deficiency the court in arriving at the amount of such judgment shall deduct from the amount of the mortgage indebtedness remaining unsatisfied after the sale of the mortgaged property the difference between the true market value of said property at the time of such sale and the amount for which it sold, if such amount was less than the true market value at the time of sale.
*6 Thus, the Petitioner's Counsel argues that before the Agency “may attempt to execute on the alleged deficiency,” by offset or otherwise, it must “return to the ... Court and ... petition the ... Court ... and establish that a deficiency exist(s)....” Counsel for the Agency asserts, on the other hand, that South Dakota law does not apply to this transaction; Federal law (the Debt Collection Act of 1982) is applicable, and that law allows for collection by offset of any debt due to the Agency.
*6 Initially, the Agency's Counsel errs when he concludes, without stated reasoning:
*6 The Debt Collection Act of 1982, specifically provides that government agencies such as the SBA may collect a claim by administrative offset if it first provides the debtor an opportunity for review within the agency. See 37 U.S.C. § 3716 (1982). Because the SBA has satisfied that requirement, the federal statute entitles the SBA to proceed with the offset. Id. Therefore, because there are no issues of material fact, the Office of Hearings and Appeals should grant the SBA's Motion for Summary Decision.
*6 Implicit in that reasoning is the assumption that, through the “review within the agency,” the Agency will establish that the claim exists. However, that is the purpose of the proceeding at hand. The Debt Collection Act is clearly not the “Federal rule” by which it is determined whether there is indebtedness, and, if so, the amount thereof. The Debt Collection Act is the mechanism for collecting an established claim. Likewise, the obvious purpose of the regulation codified at 13 CFR 140.5(b)(4) is to “review ... SBA's determination of the existence of the [asserted] claim,” upon the petition of a debtor. Thus, the following discussion concerns whether or not the Agency is precluded from proceeding to collect the debt by administrative offset unless it establishes a deficiency to the satisfaction of the State Court by proving the market value at the time of the sale.
*7 The Agency's Counsel argues simply that SBA is not “subject to South Dakota foreclosure procedures in its administrative offset activities under the Debt Collection Act of 1982.” He is clearly wrong. While Federal law governs the rights of the parties to the loan transaction at issue, the Agency cannot, under any interpretation of the Kimbell Foods rationale,5 argue that it may elect to utilize the arguably more expeditious and presumably simpler method of foreclosure provided by the State statute without adhering to the requirements of that statute. Certainly, when the Petitioner apparently assented to—by not opposing—the Agency's course of conduct, i.e., advertising the property for sale by the Sheriff, and apparently assented to the purchase of the property—by not bidding itself—by the Agency, it had every right to rely on its knowledge of the State statute and presume that a deficiency would thereafter be sought. It had a right to presume—based on its assessment of the value of the property—that it would be able to argue to the Circuit Court that no deficiency existed, or that the deficiency was less than the difference between the purchase price and the mortgage balance. That is the obvious purpose of the State law. The Agency chose to “foreclose by advertisement” and had a right under South Dakota statute to do so, but that right clearly carried with it the legal obligation to abide by the provisions of the State statute invoked as a remedy, viz., to “establish to the satisfaction of the court” that the property which it purchased (perhaps to the detriment of the mortgagor) was in fact purchased for its “true market value or more.” The wisdom of the statute cannot be ignored. It is patently clear that the intent of the statute was to avoid having the property bought by the mortgagor for the amount of the balance of the mortgage, thus depriving the landowner, mortgagee, of its rightful value, and imposing on the defaulting mortgagee a debt greater than it actually owes.
*7 The Agency was entitled to proceed to foreclose by other, less expeditious methods, but it chose the foreclosure by advertisement method, and it was, therefore, bound to follow the procedure set forth by the State statute which enabled that approach.
*7 The Agency cites United States v. Kurtz, 525 F.Supp. 734 (E.D.Pa.1981), aff'd. without opinion, 688 F.2d 827 (3d Cir.), cert. denied, 459 U.S. 991 (1982) to support its position that federal law applies. However, Kurtz is not apposite here. After setting forth its analysis of United States v. Kimbell Foods, the Court in Kurtz held that the state statute could not control because there was a conflicting federal statute. Simply put, in Kurtz the federal six-year statute of limitations took precedence over the state four-year statute of limitations based on the supremacy clause of the constitution and caselaw interpreting it. Further, Kurtz is inapplicable because there was no attempt by the Agency in Kurtz to collect a deficiency by offset before establishing that the deficiency exists.
*8 The Agency argues that in this case “there is a specific federal statute, the Debt Collection Act of 1982, concerning the issue in this lawsuit.” We must reject this argument. In Kurtz the Court was looking for a controlling statute of limitations and found that there was a federal statute that fit precisely. Here the question is considerably different. We are looking for guidance as to mortgage foreclosures and deficiencies after sale. The Debt Collection Act of 1982 contains no answer to the question posed here, viz., whether a deficiency exists after a foreclosure by advertisement in South Dakota or anywhere. The Debt Collection Act provides answers to what is to be done about collecting a debt due to the Federal Government after it has been determined that a debt in fact exists. This proceeding seeks to determine, therefore, whether the Agency must first prove in the South Dakota Court that a deficiency exists before it comes to this forum for permission to employ the offset provisions of the Act.
*8 The Agency's Counsel also cites United States v. Gish, 559 F.2d 572 (9th Cir.1977), cert. denied, 435 U.S. 996 (1978), for the proposition that Federal law governs transactions resulting from SBA loans and foreclosures resulting therefrom. This rule of law obtains, according to the decision in Gish, because of the contractual provisions in the mortgage, viz., “in compliance with ... the Rules and Regulations of the Small Business Administration [13 C.F.R. 101.1(d) ], this instrument is to be construed and enforced in accordance with applicable Federal law.” (Brackets in original.) That holding in Gish is likewise inapposite. The question here is not the applicability of state or Federal law. The determination to use Federal procedure (e.g., a judicial sale under 28 U.S.C. 2001(a)) or the State procedure (foreclosure by advertisement) was deliberately made by the Agency's Counsel when he elected to proceed under State law (South Dakota statute 21–48–14), rather than to proceed by judicial sale under 28 U.S.C. 2001(a).6 Having elected to foreclose by using the provisions of the state statute providing for foreclosure by advertisement, the Agency must certainly be expected to abide by the State's requirements concerning that procedure. Another distinguishing factor in Gish is the language in the Deed of Trust which provided, among other things, that “[t] rustor shall be liable for and agrees to pay any deficiency,” and “... this instrument is to be construed and enforced in accordance with the applicable Federal law.” No such provisions are found in the Navarre Bachand Deed of Trust. This result is dictated by the reasoning in Dalton Motors, Inc. v. Weaver, Administrator of the Small Business Administration, 446 F.Supp. 711 (D.Minn.1978).7 In Dalton, the SBA “foreclosed plaintiff's mortgage, availing itself of the procedural and substantive advantages of foreclosure by advertisement under Minnesota law,” and thus was deprived a deficiency by that state's procedure as the foreclosing mortgagee and purchaser at the sale. Dalton contended “that the SBA should accept as well the protections Minnesota law affords debtors whose mortgages are foreclosed by advertisement.” The Court agreed (at p. 714):
*9 Although federal law governs, the content of applicable federal law remains to be determined. See, United States v. Chappell Livestock Auction, Inc., 523 F.2d 840 (8th Cir.1975) (en banc). State law occasionally is adopted as the federal rule of decision. E.g., United States v. Marshall, 431 F.Supp. 888 (N.D.Ill.1977). The Court does not construe the language of the mortgages or the SBA regulations to apply to the situation where the SBA avails itself of a summary state foreclosure procedure. The SBA would be entitled to a deficiency judgment in other circumstances: for example, in foreclosure proceedings under 28 U.S.C. § 2001(a). Federal common law, as well as the SBA regulations and the mortgages would require as much. See, United States v. Thompson, 438 F.2d 254 (8th Cir.1971); United States v. Wells, 403 F.2d 596 (5th Cir.1968). But if the SBA chooses to seek the procedural benefits of a summary foreclosure procedure offered by a state, it should be ready to accept as well the protections the state affords its mortgagors under that procedure.
*9 This issue was also considered in U.S. v. Vallejo, 660 F.Supp. 535 (W.D.Wash.1987). There, the Veterans Administration brought an action to recover a deficiency subsequent to its foreclosing non-judicially on a VA-guaranteed loan. Washington had a state law which precluded a creditor from collecting a deficiency once it had foreclosed using non-judicial procedures. The Court described the inherent advantages to foreclosing in such a manner and stated “these advantages have been conferred by the legislature in return for the creditors' relinquishment of the right to obtain a deficiency judgment.” The Court explained:
*9 [T]he Administrator obtains the power to select foreclosure methods ... [ [and] therefore occupies the same position vis-a-vis a defaulting debtor as any private creditor.
*9 In concluding that the Veterans Administration could not collect a deficiency pursuant to Federal law, the Court stated:
*9 The Government argues that this court must allow the VA to retain the significant benefits afforded by the Washington Deeds of Trust Act, but must also fashion a federal law that enables it to avoid the loss of a deficiency judgment suffered by private lenders.... Whether the VA is to preserve its rights against the veteran debtor, however, is a choice the Administrator makes in deciding whether to pursue judicial foreclosure that would preserve the VA's right to a deficiency judgment....
*9 The facts here are not at all unlike those considered and ruled upon by the District Courts in Dalton and Vallejo. The Dalton decision was cited with approval by the Eighth Circuit in Victory Highway Village v. Weaver, 634 F.2d 1099 (1980), and the reasoning there should be applied here.
*9 This Petitioner is entitled to the protection offered by the South Dakota statute to a mortgagor whose property is foreclosed, sold by advertisement, and bought at foreclosure by the mortgagor. A deficiency cannot result without application to the Circuit Court of South Dakota in accordance with the state statute.
Conclusion
*10 The Petition is GRANTED.
*10 The Agency may not offset the alleged balance of the Petitioner's loan because it has not been determined that a deficiency exists in accordance with the South Dakota statute.
*10 This is the final decision of the Small Business Administration. See the regulation codified at 13 CFR 134.32(a)(3).
Footnotes
By “hearing” I presume the Petitioner means an oral hearing. That motion is denied because there are no facts in dispute which require for their resolution the confrontation of witnesses.
On March 15, 1988, the Agency substituted an attorney from its General Counsel's Office for the Sioux Falls, South Dakota attorney who represented it since filing the Answer to Petition, Motion for Summary Decision, etc.
The application for the loan was executed by the Petitioner's officers on October 15, 1980 and by the Agency's representative on January 2, 1981. The mortgage was signed on February 20, 1981.
But, See Deputy Sheriff's Report of Sale ($134,722.16).
United States v. Kimbell Foods, Inc., 440 U.S. 715, 99 S.Ct. 1448, 59 L.Ed.2d 711 (1979).
Contractual arrangements between the parties, as included in numbered paragraph 3 of the mortgage, provide that they may sell said property ...
(i) at judicial sale pursuant to the provisions of 28 U.S.C. 2001(a); or
(ii) at the option of the mortgagee, either by auction or by solicitation of sealed bids, for the highest and best bid complying with the terms of sale and manner of payment specified in the published notice of sale, first giving four weeks notice of the time, terms, and place of such sales, by advertisement not less than once during each of said four weeks in a newspaper published or distributed in the county in which said property is situated, all other notice being hereby waived by the mortgagor (and said mortgagee, or any person on behalf of said mortgagee, may bid with the unpaid indebtedness evidenced by said note). Said sale shall be held at or on the property to be sold or at the Federal, county, or city courthouse for the county in which the property is located. The mortgagee is hereby authorized to execute for and on behalf of the mortgagor and to deliver to the purchaser at such sale a sufficient conveyance of said property, which conveyance shall contain recitals as to the happening of the default upon which the execution of the power of sale herein granted depends; and the said mortgagor hereby constitutes and appoints the mortgagee or any agent or attorney of the mortgagee, the agent and attorney in fact of said mortgagor to make such recitals and to execute said conveyance and hereby covenants and agrees that the recitals so made shall be effectual to bar all equity or right of redemption, homestead, dower, and all other exemptions of the mortgagor, all of which are hereby expressly waived and conveyed to the mortgagee; or
iii) take any other appropriate action pursuant to state or Federal statute either in state or Federal court or otherwise for the disposition of the property.
Dalton v. Weaver was cited with approval by the Eighth Circuit in Victory Highway Village v. Weaver, 634 F.2d 1099 (1980) as follows:
Generally, federal law governs questions involving the rights of the United States arising under nationwide federal programs. United States v. Kimbell Foods, Inc., 440 U.S. 715, 726, 99 S.Ct. 1448, 1457, 59 L.Ed.2d 711 (1979). However, because of the District Court's interpretation of the breadth of the Minnesota statute, with which we agree, and because of the unconditional nature of the guaranty, we find it unnecessary to resolve the question of whether state law or a federal common law should be incorporated into the governing federal law. [Citations omitted; emphasis added.]
While adoption of state law as the rule of decision in the Dalton Motors, Inc. case involving the relationship between the mortgagor and mortgagee in foreclosure procedures may, perhaps, be supported on the ground that the SBA voluntarily chose to utilize the state statutory procedure see id., 446 F.Supp. at 716, it is not at all clear that state law should be applied to the relationship between the mortgagee and the guarantor.
SBA No. 421 (S.B.A.), SBA No. 421, 1988 WL 412457
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