Just as many waivers must be conspicuous in order to qualify as an “intentional relinquishment” of a right, they should, in many circumstances, also be express. While the initial impulse may be to draft a general waiver clause that does not clue the other side into exactly what waivers are important to your client, the approach is not without risk. Better to start with specific waiver language and have it negotiated out, leaving the litigator with broad, general waiver language to fight about, than to forego the opportunity to be so clear that no fight can be had. This is certainly the case with respect to matters not yet resolved by the Texas Supreme Court, such as offset for fair market value of a foreclosed property in a deficiency suit.

Fair Market Value offset

Sections 51.003 and 51.005 of the Property Code allow the subject of a deficiency suit to seek a determination of fair market value of the property, and pay only the difference between the amount due and fair market value, rather than the difference between the amount due and the actual sale price. That means a lender selling at foreclosure or deciding on a credit bid cannot be sure that the recoverable deficiency will equal the actual deficiency.

Section 51.003 is an affirmative defense. Cabot Capital Corp. v. USDR, Inc., No. 08-07-00202-CV, 2009 WL 1164928, at *4 (Tex. App.—El Paso April 30, 2009, pet. denied). Because it is an affirmative defense, Fair Market Value (FMV) offset can be waived—but just what you need to accomplish a waiver remains unclear.

The first two cases to consider the issue, Segal v. Emmes Capital, L.L.C., 155 S.W.3d 267, 279 (Tex. App.—Houston [1st Dist.] 2004, pet. dism’d), and LaSalle Bank Nat’l Ass’n v. Sleutel, 289 F.3d 837, 842 (5th Cir. 2002), held that a guarantor can waive any right of offset he may have under § 51.003, but noted the particular language of the waivers. In Segal, the waiver referred expressly to the applicable sections of the Texas Property Code. In LaSalle, the waiver included waiver of the “right of offset.”

Reasoning from these two cases, trial courts have held that a generic statement that the guarantor or borrower “waives all defenses” is not sufficient to evidence an intent to waive the protections afforded by the deficiency statute. In a series of decisions late this summer, however, the Dallas Court of Appeals rejected this position, and held that a waiver of all defenses means just that—all defenses, including the statutory right to FMV offset, are waived. Interstate 35/Chisam Road, L.P. v. Moayedi, __ S.W.3d __, 2012 WL 3125148 (Tex. App.—Dallas Aug. 2, 2012, no pet. h.); Toor v. PNC Bank N.A., 2012 WL 3637284 (Tex.App.-Dallas Aug. 24, 2012, no pet. h.); King v. Park Cities Bank, 2012 WL 3144881 (Tex.App.—Dallas Aug. 3, 2012, no pet. h.).

While the Dallas cases can be reconciled with the earlier precedents, until the Texas Supreme Court rules on the issue, the state of the law is unclear. In some jurisdictions, a general waiver may suffice, and in others, use of the term “offset” or specific reference to Section 51.003 and 51.005 may be required. With the increase in foreclosures, this is an issue ripe for the Court’s consideration, so stay tuned . . .

Bottom line

If you want a waiver of defenses to include waiver of a right to a FMV determination and offset (and if you’re the lender, you do!), the safer practice—at least for now—is to state so explicitly. At a minimum, use the word “offset.” You may win without this language, but not without a fight. So why not include it? And while you are at it, go ahead and underline it. See Segal, 155 S.W.3d at 284 (noting that if conspicuousness were required, fact that property code provisions being waived was underlined met such requirement).