MOAYEDI V. INTERSTATE 35
THE TEXAS SUPREME COURT’S ENFORCEMENT OF THE WAIVER OF ANTI-DEFICIENCY
by Brian A. Fisher
The Texas Supreme Court has defined waiver as the “intentional relinquishment of a known right or intentional conduct inconsistent with claiming that right.” Sun Exploration & Prod. Co. v. Benton, 728 S.W.2d 35, 37 (Tex. 1987). In Moayedi v. Interstate 35/Chisam Road, L.P., 57 Tex. Sup. J. 724 (Tex. 2014), the Texas Supreme Court appears to stray from that definition.
In Moayedi, the Texas Supreme Court held that language providing that a guarantor waives “any” and “each and every” defense “that the Guarantor may or might have as to Guarantor’s respective undertakings, liabilities and obligations hereunder” was an enforceable waiver of such guarantor’s rights to the anti-deficiency protections of Section 51.003 of the Texas Property Code.
Section 51.003 is the Texas legislature’s means of protecting borrowers and guarantors in the foreclosure process by providing a mechanism to challenge the bid price paid at a foreclosure sale as being below fair market value. A determination that the bid price was lower than fair market value protects the challenging party through a reduction of the deficiency for which it is liable. Without this protection, a lender is free to bid as much, or as little, as it desires and hold the borrower or guarantor liable for any resulting deficiency.
While Moayedi is most significant for borrowers and guarantors for its holding that a general broad waiver (which does not specifically reference Section 51.003) is sufficient to waive the protections afforded by Section 51.003 (and thus an express reservation of such protections should be sought when loan documents contain a general waiver of defenses), Moayedi’s holding also is significant for its ruling on the relationship of waiver and knowledge. The guaranty at issue in Moayedi did not expressly reference Section 51.003, and the facts set forth in the opinion do not establish that the guarantor had knowledge of Section 51.003. Thus, the Court must have determined that the guarantor intentionally waived the protections of Section 51.003.
The result begs the obvious question —- How can a party intentionally waive a right it does not know that it has?