Nebraska Supreme Court Holds Nebraska Trust Deeds Act Does Not Apply to Unsecured Guaranty
In 2005, Sam Murante formed Sutherlands Plaza, LLC, and began development of property in Omaha, Nebraska. To finance the development, Mutual of Omaha Bank and its predecessor, Nebraska State Bank (“Mutual”), issued several loans to Sutherlands, and Sutherlands executed deeds of trust for the loans. As additional security, Murante executed a personal guaranty which unconditionally guaranteed full payment and satisfaction of Sutherlands’ debt as evidenced by the notes. The guaranty permitted Mutual to proceed against Murante without exhaustion of its remedies against Sutherlands. Further, in the guaranty Murante waived all defenses based on suretyship or impairment of collateral, including antideficiency laws.
Sutherlands defaulted on the loans, failed to cure defaults, and filed for bankruptcy. Mutual exercised its right to accelerate the debt of approximately $3.2 million. Murante failed to pay and Mutual commenced action against Murante for breach of the guaranty. In the meantime, Mutual foreclosed the property which secured the loans, and Mutual purchased the property at the trustee sale with a credit bid of approximately $1.6 million.
In defense of Mutual’s action to enforce the guaranty, Murante argued that, pursuant to the Nebraska Trust Deeds Act, Mutual could only recover the amount by which the guaranteed indebtedness exceeded the fair market value of the property secured by Sutherlands’ deed of trust. The District Court of Douglas County disagreed, and concluded that Murante remained liable to Mutual for the remainder of Sutherlands’ debt, holding that the provisions of the Nebraska Trust Deeds Act that may have barred a deficiency action against Sutherlands did not bar recovery from Murante. The District Court entered a judgment against Murante for the full amount of Sutherlands’ indebtedness, less the trustee’s sale price. Murante appealed.
The Supreme Court of Nebraska affirmed. The Court concluded that the Nebraska Trust Deeds Act did not apply to Mutual’s action on Murante’s guaranty. The Court explained that the antidefiency provisions of the Nebraska Trust Deeds Act only apply to deficiency actions against obligations secured by a deed of trust. The Court held that Murante’s guaranty was a separate and distinct obligation. Because the a deed of trust as was not security for Murante’s guaranty, the Act did not apply to the guaranty. Accordingly, the Court affirmed the District Court’s ruling that that Murante was liable for the full amount of Sutherlands’ remaining debt.