Newtek Small Business Finance, LLC v. Baker
Annotate this CaseBaker Sales, Inc. (“BSI”) obtained two loans from Newtek Small Business Finance, Inc. (“Newtek”) which were secured by mortgages on BSI’s commercial property. Robert and Elsa Baker (collectively “the Bakers”) executed agreements unconditionally guaranteeing payment of all amounts owed on the loans. These agreements were secured by conventional mortgages on the Bakers’ home. BSI filed for bankruptcy approximately two years later. Newtek filed a proof of claim in the bankruptcy proceeding for the total amount of the outstanding balance of the loans. The bankruptcy court granted Newtek’s motion to lift the automatic bankruptcy stay. Newtek then filed a petition for executory process in state court against BSI and the Bakers requesting seizure and sale of BSI’s commercial property without the benefit of appraisal. Newtek purchased the seized property at a sheriff’s sale; the bankruptcy case was subsequently closed. Newtek filed the suit at issue here, seeking to foreclose on the Bakers’ home. The trial court issued a judgment preliminarily enjoining the sale of the Bakers’ home and converted the proceeding from executory to ordinary. The Bakers filed a petition seeking a declaration under the Louisiana Deficiency Judgment Act (“LDJA”) that as the underlying debt was extinguished, Newtek could no longer pursue them as sureties. The Louisiana Supreme Court granted certiorari review to determine whether a creditor’s recovery in a deficiency judgment action was barred against a surety when a creditor forecloses on property through a judicial sale without appraisal. Harmonizing the LDJA with the law of suretyship, the Supreme Court agreed with the court of appeal that such recovery was barred.
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