MidFirst Bank v. Sumpter
2016 Ark. App. 552
Ark. Ct. App.2016Background
- Carolyn Bedford owned property encumbered by a deed of trust later assigned to MidFirst; she defaulted and MidFirst foreclosed by judicial sale in 2008.
- Service by certified mail was signed by Carolyn’s sister Denise; Carolyn did not respond, and the court entered a default foreclosure; Lori Sumpter purchased the property and received a commissioner’s deed.
- The foreclosure was later set aside for defective service; MidFirst refunded Sumpter the purchase price, but Sumpter had made improvements, took possession, and collected rent.
- Sumpter sued MidFirst and Bedford seeking recovery for costs/interest on improvements and sought relief under Arkansas’s Betterment Act; Bedford cross-claimed for indemnity against MidFirst; Denise intervened claiming conversion of personal property.
- Trial court found MidFirst liable and awarded Sumpter the loan/improvement costs (net), denied the Bedfords’ conversion claims, later awarded Sumpter Betterment Act damages against Bedford and awarded Bedford indemnity against MidFirst.
- On appeal, the court addressed (1) whether Sumpter’s remedy was governed by the Betterment Act or an award against MidFirst, (2) rent setoff, (3) indemnity to Bedford from MidFirst, conversion claims, interest refund, and removal of Fidelity National’s lien.
Issues
| Issue | Plaintiff's Argument (Sumpter) | Defendant's Argument (MidFirst/Bedfords) | Held |
|---|---|---|---|
| Whether Sumpter may recover improvement costs and interest from MidFirst despite foreclosure being set aside | Sumpter sought costs of improvements and interest paid to lender as damages against MidFirst | MidFirst argued caveat emptor and that Sumpter’s remedy is limited to Betterment Act recovery against the true owner | Court held Sumpter’s claim for improvement costs against MidFirst was displaced by the Betterment Act; judgment against MidFirst set aside and Betterment Act remedy against Bedford applied |
| Appropriate measure of recovery for improvements (costs vs. increased value) | Sumpter argued she should recover costs/expenses paid plus interest | MidFirst/Bedford argued the Betterment Act limits recovery to increased value (not full costs) and may allow rent offsets | Court held Betterment Act governs: recovery is increased value, not full costs; Sumpter awarded value of improvements reduced by rent received |
| Whether rent received by Sumpter must be offset against Betterment Act award | Sumpter opposed offsetting rent | Bedford demanded offset for rents and profits during Sumpter’s possession | Court held statute permits setoff and, under precedent, improvements do not recover if rents equal/exceed them; reduced Betterment award by rent (from $9,650 to $2,650) |
| Whether Bedford may be indemnified by MidFirst for Betterment Act judgment | Bedford sought indemnity from MidFirst for Betterment Act judgment | MidFirst contended Betterment Act is equitable remedy against owner and does not support indemnity against the foreclosing bank | Court held indemnity award against MidFirst was erroneous and reversed that part of the judgment |
Key Cases Cited
- Smith v. MRCC P’ship, 302 Ark. 547, 792 S.W.2d 301 (1990) (Betterment Act elements: belief of ownership and color of title)
- Tolson v. Dunn, 48 Ark. App. 219, 893 S.W.2d 354 (1995) (application of Betterment Act standards)
- McDonald v. Kenney, 101 Ark. 9, 140 S.W. 999 (1911) (Betterment Act applies to purchaser at judicial sale later set aside)
- McDonald v. Rankin, 92 Ark. 173, 122 S.W. 88 (1909) (same principle regarding set-aside judicial sale)
- Crouch v. Crouch, 244 Ark. 823, 431 S.W.2d 261 (1968) (construction of Betterment Act regarding rents and improvements)
- Riddle v. Williams, 204 Ark. 1047, 166 S.W.2d 893 (1942) (purpose of Betterment Act as equitable compensation to mistaken occupier)
- Kellett v. Pocahontas Fed. Sav. & Loan Ass’n, 25 Ark. App. 243, 756 S.W.2d 926 (1988) (purchaser at judicial sale cannot sue for breach of contract against the court as vendor)