--- title: "Murphy v. Financial Development Corp." type: Landmark Case source: https://casebriefly.com/landmark-cases/murphy-v-financial-development-corp --- # Murphy v. Financial Development Corp. Murphy v. Financial Development Corp. established that a mortgagee exercising a power of sale in a foreclosure must act in good faith and use reasonable diligence to obtain a fair price for the property. The case imposed a duty of care on foreclosing mortgagees, moving beyond the traditional rule that allowed mortgagees to sell the property at any price so long as the statutory procedures were followed. ## Citation 126 N.H. 536, 495 A.2d 1245 (1985) ## Year 1985 ## Court Supreme Court of New Hampshire ## Facts The Murphys defaulted on their mortgage. Financial Development Corp., the mortgagee, exercised its power of sale and sold the property at a foreclosure auction. The property, which was appraised at approximately $46,000, sold for $27,000 — an amount that was substantially below fair market value. The Murphys alleged that the mortgagee failed to take adequate steps to obtain a fair price, including failing to adequately advertise the sale, conducting the sale at an inconvenient time and location, and selling the property to a related party. ## Procedural History The trial court found for the mortgagee. The New Hampshire Supreme Court reversed and remanded. ## Issue Whether a mortgagee exercising a power of sale in a non-judicial foreclosure has a duty to exercise good faith and reasonable diligence to obtain a fair and reasonable price for the property. ## Holding The court held that a mortgagee exercising a power of sale owes a duty of good faith and reasonable diligence to the mortgagor to obtain a fair price. The sale price of $27,000 for property worth approximately $46,000, combined with inadequate advertising and other deficiencies, raised genuine issues about whether the mortgagee fulfilled this duty. ## Reasoning The court reasoned that the mortgagee holds a fiduciary-like duty to the mortgagor when exercising the power of sale because the sale directly affects the mortgagor's financial interests — any surplus goes to the mortgagor and any deficiency remains the mortgagor's obligation. While the mortgagee is not a true fiduciary, it must exercise the same care in selling the property that a reasonable person would in selling their own property. The court rejected the argument that mere compliance with statutory notice requirements was sufficient, holding that the duty extends to making reasonable efforts to obtain fair value through adequate advertising, timing, and marketing of the property. ## Impact Murphy v. Financial Development Corp. has been widely followed and is the leading case on the duties of foreclosing mortgagees. The good faith and reasonable diligence standard has been adopted in many jurisdictions and has influenced both statutory reform and judicial oversight of foreclosure sales. The case has become particularly relevant in the wake of the 2008 financial crisis, which generated widespread concerns about predatory foreclosure practices. ## Key Quotes - The mortgagee must exert every reasonable effort to obtain a fair and reasonable price under the circumstances. - A foreclosing mortgagee does not have to sacrifice the interests of the mortgagor in order to protect its own interests, but must act with good faith and reasonable diligence. - The duty requires the mortgagee to use the same efforts to obtain a fair price as it would if it were selling its own property. ## Related Cases - bean-v-walker - johnson-v-davis - lohmeyer-v-bower - javins-v-first-national-realty ## Exam Relevance Murphy appears on exams in questions about mortgage foreclosure, the duties of foreclosing parties, and the adequacy of foreclosure sale prices. Students should be prepared to analyze what constitutes 'good faith and reasonable diligence' in the foreclosure context and to evaluate whether specific sale procedures meet the standard. ## Study Tips - Know the good faith and reasonable diligence standard: the mortgagee must act as a reasonable person would in selling their own property. - Understand the difference between judicial foreclosure and power-of-sale foreclosure and why the duty matters more in the latter. - Be prepared to evaluate specific factors: advertising adequacy, sale timing, property condition, and whether the buyer is related to the lender. - Connect this case to equitable redemption rights and the policy of protecting mortgagors from unfair foreclosure practices. ## Doctrine Established Good Faith and Reasonable Diligence in Foreclosure Sales --- Source: [Murphy v. Financial Development Corp. — CaseBriefly](https://casebriefly.com/landmark-cases/murphy-v-financial-development-corp)