Reeves v. US Bank National Ass'n
2017 MT 70
| Mont. | 2017Background
- In 2005 the Reeves executed two deeds of trust on their home: a $136,000 first deed of trust and a $34,000 second deed of trust, both originally through New Century with Chicago Title as trustee.
- After the Reeves paid off the $34,000 loan, the successor trustee (First American) recorded a Deed of Reconveyance in 2007 that mistakenly reconveyed the FIRST deed (the $136,000 lien) instead of the second.
- Subsequent instruments attempted to correct the error: an August 20, 2007 reconveyance correctly identified the $34,000 deed, and a 2008 affidavit by Litton’s officer sought to rescind the erroneous reconveyances and ratify the corrected one; First American later filed a 2009 Rescission of Full Reconveyance indicating the lien remained.
- The Reeves filed Chapter 7 bankruptcy on August 20, 2008 (unaware of the scrivener’s error) and received a discharge; they acknowledged the $136,000 debt in their petition and stopped payments by December 2008.
- U.S. Bank later acquired the $136,000 note and pursued nonjudicial foreclosure; the Reeves sued to enjoin the trustee’s sale, arguing the erroneous reconveyance left U.S. Bank’s lien unperfected at the time of bankruptcy and that foreclosure violated the automatic stay.
- District Court denied the Reeves’ summary judgment and granted judgment on the pleadings for U.S. Bank; the Reeves appealed and the Montana Supreme Court affirmed.
Issues
| Issue | Plaintiff's Argument (Reeves) | Defendant's Argument (U.S. Bank) | Held |
|---|---|---|---|
| Whether a scrivener’s error in a Deed of Reconveyance can invalidate/discharge the underlying $136,000 lien created by the trust indenture | The mistaken reconveyance effectively discharged or left the lien unperfected before the Reeves’ bankruptcy, so foreclosure violated 11 U.S.C. § 362 | The reconveyance was a third‑party scrivener’s error that did not alter the underlying trust contract; the lien remained valid and survived bankruptcy | The scrivener’s error did not invalidate or discharge the lien; the lien survived the bankruptcy and U.S. Bank could pursue in rem foreclosure |
| Whether the subsequent corrective filings and affidavit were required to perfect U.S. Bank’s lien before bankruptcy | Reeves: Because the erroneous reconveyance stood of record, the lien was not perfected at the bankruptcy filing | U.S. Bank: The trust indenture—not the trustee’s mistaken reconveyance—controls perfection; lender need not accept a trustee’s erroneous filing as performance | Court: Perfection/continuing lien depends on the deed and contract; the lender’s lien continued despite the trustee’s error |
| Whether U.S. Bank is time‑barred from asserting corrective rights due to statute of limitations | Reeves: U.S. Bank failed to plead scrivener’s error timely and is barred by § 27‑2‑203, MCA | U.S. Bank: The case is not a mutual‑mistake reformation claim like Johnson; it enforces the original deed terms | Court: Statute of limitations argument fails; Johnson is distinguishable because this case involves a third‑party filing error, not reformation of the deed |
| Whether the automatic stay of 11 U.S.C. § 362 precludes U.S. Bank’s foreclosure | Reeves: Foreclosure (or actions to perfect a lien) after bankruptcy filing violated the automatic stay because the lien was not perfected pre‑bankruptcy | U.S. Bank: A valid lien that existed pre‑bankruptcy survives § 362 and U.S. Bank retained in rem rights against property | Court: Because the lien was not invalidated, § 362 does not bar U.S. Bank’s in rem foreclosure rights |
Key Cases Cited
- Dewsnup v. Timm, 502 U.S. 410 (1992) (a creditor’s lien remains on property until debt paid or foreclosure completed; bankruptcy discharge does not eliminate in rem lien)
- Johnson v. District VII, Human Res. Dev. Council, 349 Mont. 529 (2009) (distinguishable: involved mutual mistake in loan documents and consequences for reconveyance/payment dispute)