BRET W. BENNETT, an individual, and MARY E. BENNETT, an individual, Plaintiffs-Appellants, v. BANK OF EASTERN OREGON, a national banking association, Defendant-Respondent.
Docket No. 47346
IN THE SUPREME COURT OF THE STATE OF IDAHO
August 31, 2020
Boise, June 2020 Term
Appeal from the District Court of the Third Judicial District, State of Idaho, Payette County. Susan E. Wiebe, District Judge.
The decision of the district court is reversed, judgment vacated and remanded for further proceedings.
Law Office of D. Blair Clark, PC, Boise, for Appellants. Jeffrey P. Kaufman argued.
Yturri Rose, LLP, Boise, for Respondent. Timothy J. Helfrich argued.
This appeal addresses whether a debtor can use Idaho‘s single-action rule as a sanction to quiet title against a deed of trust when the secured creditor has violated the rule by filing an action against the debtor to recover on the debt before seeking satisfaction of the debt by foreclosing on the property serving as security. Bret and Mary Bennett filed an action to quiet title to their residence in Payette, Idaho, against the Bank of Eastern Oregon (“BEO“), seeking to remove a judgment lien and a deed of trust. BEO filed a
I. FACTUAL AND PROCEDURAL BACKGROUND
In 2007, the Bennetts started a motorsports business in Ontario, Oregon, which leased its premises from a different business entity owned by the Bennetts. In 2008, the Bennetts personally guaranteed one or more loans between BEO and these businesses. Among these loans was a $100,000 promissory note (“the Note“) that was secured by a deed of trust on the Bennetts’ residence situated on the other side of the Snake River in Payette, Idaho (“the Property“). The deed of trust designated 1st American Title Company of Malheur County, Oregon as trustee. The parties signed the deed of trust on April 10, 2008. One day later, on April 11, 2008, BEO recorded the deed of trust in the Payette County Recorder‘s Office. By its terms, the deed of trust was set to mature on May 5, 2009.
The Bennetts later defaulted on the Note and other obligations to BEO. Rather than seeking to foreclose on the Property for a breach of the Note‘s terms, BEO successfully pursued a collection action against the Bennetts in Oregon state court to recover on all of the Bennetts’ debts, including the Note. On June 15, 2010, BEO domesticated the Oregon state court judgment in Payette County pursuant to Idaho‘s Enforcement of Foreign Judgments Act.
Roughly a month later, on July 16, 2010, the Bennetts filed for Chapter 7 bankruptcy in the U.S. Bankruptcy Court for the District of Idaho. During the Bennetts’ bankruptcy proceedings, BEO filed a proof of claim for $281,597.57 as an unsecured debt. The bankruptcy estate disbursed $4,658.38 to BEO for its claim and the Bennetts’ personal liability for that obligation was extinguished. The bankruptcy estate abandoned the Property pursuant to
Eight years after their bankruptcy discharge, the Bennetts filed a verified complaint to quiet title to the Property against BEO. The Bennetts attached four documents: (1) the deed of trust; (2) the abstract of judgment filed in Payette County; (3) BEO‘s proof of claim in the Bennetts’ bankruptcy; and (4) the bankruptcy trustee‘s final account and distribution report. The Bennetts alleged that both the deed of trust and its judgment lien were unenforceable, and, thus, the Bennetts were entitled to a judgment
On June 4, 2019, BEO moved to dismiss the case under
After fielding additional briefing and holding a hearing on the motion to dismiss, the district court granted BEO‘s motion and entered its findings on the record at a June 19, 2019, hearing. The district court reasoned that the Bennetts could not quiet title against the judgment lien because the lien was invalid as a matter of law as its expiration “operates automatically.” The district court then determined that the single-action rule was inapplicable to the proceedings because BEO was not attempting to foreclose on the property. The district court next determined that there was no conflict between
II. ISSUES ON APPEAL
- Whether the district court erred in concluding that the Bennetts failed to state a claim for quiet title against BEO.
- Whether either party is entitled to attorney‘s fees on appeal.
III. STANDARD OF REVIEW
Under
“A
If a
IV. ANALYSIS
On appeal, the Bennetts argue that the district court erred in granting BEO‘s motion to dismiss on two primary grounds. First, the Bennetts argue that BEO‘s violation of Idaho‘s single-action rule—i.e., that BEO sought to recover from them personally on the Note before seeking satisfaction from the Property—entitles the Bennetts to a court order directing the trustee to reconvey legal title to them. Second, the Bennetts argue that
A. The Bennetts have stated a cause of action that could allow them to quiet title against BEO for the deed of trust.
In Idaho, quiet-title actions have long been provided for by statute: “An action may be brought by any person against another who claims an estate or interest in real or personal property adverse to him, for the purpose of determining such adverse claim.”
The Bennetts argue that they are entitled to quiet title against the deed of trust on alternate grounds. First, the Bennetts contend that this Court should look to Idaho‘s single-action rule as codified in
For the reasons below, we conclude that the Bennetts have stated a cause of action enabling them to quiet title against BEO for the deed of trust and the matter should be remanded to the district court to conduct additional proceedings, if any are necessary.
1. Idaho Code sections 6-411 and 6-413 have no application to deeds of trust.
While mortgages and deeds of trusts serve similar functions, the two instruments are not interchangeable. For practical purposes, “a deed of trust is effectively a mortgage with a power of sale[.]” ParkWest Homes, LLC v. Barnson, 154 Idaho 678, 684, 302 P.3d 18, 24 (2013). However, when a deed of trust is used as security for a loan, legal title passes to the trustee (along with the power of sale). Id.; see also Long v. Williams, 105 Idaho 585, 587, 671 P.2d 1048, 1050 (1983) (“[W]ith the adoption of the Trust Deeds Act in 1957 . . . Idaho transitioned from a ‘lien theory’ state to a ‘title passes’ state where a deed of trust is employed as a security device.“). As such, a deed of trust does not create a lien because a lien is a charge upon property that transfers no title. Compare
So while the recordation of a mortgage creates a lien on property, the recordation of a deed of trust does not. What it does do, however, is secure the beneficiary‘s priority and serves as notice that legal title to the property has passed to a trustee. Compare
We mention this substantive distinction between the two instruments to highlight the interpretive distinction in this Court‘s jurisprudence. After the Idaho Legislature passed the Idaho Trust Deeds Act in 1957, this Court was asked to determine whether the functional similarities between mortgages and deeds of trust were such that the terms should be treated as interchangeable within Idaho‘s statutory schemes. That is, whether the laws that had long applied to mortgages should also be applied to deeds of trust. Ultimately, this Court held in Frazier v. Neilsen & Co., 115 Idaho 739, 741, 769 P.2d 1111, 1113 (1989), that the terms were not interchangeable, reasoning that because the Legislature enacted separate schemes for each instrument, the canons of statutory interpretation required this Court to read each term narrowly.1
But Frazier is important not only because it demonstrates that this Court treats the terms “mortgages” and “deeds of trust” distinctly, which is dispositive of the Bennetts’ reliance on
The central issue in Frazier was whether Idaho‘s single-action rule codified in
The long-cited purpose of the single-action rule is to protect a debtor‘s credit from double impairment. See Jeppesen v. Rexburg State Bank, 57 Idaho 94, 99, 62 P.2d 1369, 1371 (1936) (explaining that
(“Idaho law protects property not subject to the mortgage unless the value of the mortgaged property is exhausted.“). In other words, a creditor may only impair the debtor‘s assets which were not pledged as collateral if there is a deficiency after foreclosing on the pledged property.
However, despite this established precedent applicable to mortgages, the Frazier Court noted that the Legislature, by enacting the Idaho Trust Deeds Act, created a “separate scheme” which indicated its intent that mortgages and deeds of trust receive disparate treatment under the law. Frazier, 115 Idaho at 741, 769 P.2d at 1113. This Court has since adhered to that approach. See Liberty Bankers Life Ins. Co. v. Witherspoon, Kelley, Davenport & Toole, P.S., 159 Idaho 679, 690 n.3, 365 P.3d 1033, 1044 n.3 (2016).
For that reason, we find the parties’ reliance on
An action may be maintained to quiet title to lands against any mortgage, the enforcement and collection of which is barred by the Statute of Limitations of the State of Idaho, and which, except for the fact that its collection and enforcement is so barred, would constitute a lien upon such lands.
The party seeking to maintain such action shall be entitled to a decree quieting title to his lands against the lien of any such judgment or mortgage upon proof that the collection and enforcement of such judgment or mortgage is barred by the Statute of Limitations and without the necessity of proving that any such judgment or the indebtedness secured by any such mortgage has been paid.
2. Construing the pleadings in favor of the Bennetts, BEO violated the single-action rule codified in Idaho Code section 45-1503(1) by seeking to recover from the Bennetts on the Note personally before seeking to foreclose on the Property.
After Frazier was decided, the Idaho Legislature amended the Idaho Trust Deeds Act to legislatively enact the single-action rule so that it would apply to deeds of trust as it applied to mortgages. 1989 Idaho Sess. Laws 861; see also Statement of Purpose, RS 22774C1, H.B. 274 (1989) (“The purpose of this legislation is to better define the current law so that lending agencies, whether using mortgages or deeds of trust, be first required to liquidate the secured property before proceeding to attach or liquidate any other assets a borrower might have.“).
With that amendment, the beneficiary of a deed of trust securing an obligation may not institute judicial action against the grantor to personally recover on the obligation unless the beneficiary meets one of four conditions:
- The trust deed has been foreclosed;
- The action is one for foreclosure of mortgages on real property;
- The beneficiary‘s interest in the property secured by the deed of trust is “substantially valueless“; or
- The action is excluded from the meaning of “action” under
Idaho Code section 6-101(3) .
The Bennetts argue that BEO‘s domestication of the Oregon judgment qualified as an “action” because domestication of a foreign judgment is not listed as an excluded action under
As referenced in
(c) To enforce a mortgage or other lien upon any real or personal property collateral located outside of the state which is security for the same debt or other obligation;
(d) To secure a judgment outside of this state on a debt or other obligation secured by real property in this state and by real or personal property collateral located outside this state;
. . . .
(m) [A proceeding w]hich does not include the collection of the debt or enforcement of the obligation or realization of the collateral securing the debt or other obligation;
The proper focal point for determining whether BEO violated the single-action rule is the nature of the collection proceeding filed in Oregon state court—not the subsequent domestication of that action‘s eventual judgment. While the Bennetts advance the domestication of the Oregon state court judgment as the focus of our inquiry, that view misses the mark. As we have stated on previous occasions, domesticating a judgment is not an action distinct from the action underlying the foreign judgment. Grazer v. Jones, 154 Idaho 58, 67, 294 P.3d 184, 193 (2013) (“An EFJA [Equal Force of Judgment Act4] filing does not involve initiating a new case.“). As such, we decline to view it as a new action for purposes of the single-action rule.
With the proper focal point on the Oregon state court collection action, we are satisfied that none of the referenced exclusions apply. Subsection 6-101(3)(c) does not apply because the Oregon collection action involved collateral (the Property) located in Idaho, not “outside of the state.” Subsection 6-101(3)(d) does not apply because, while the Oregon collection action was an action “[t]o secure a judgment outside [of Idaho],” there is no suggestion in the pleadings that it was an action to recover debt secured by the Property and collateral located outside of Idaho. While BEO‘s action to collect on the Bennetts’ debts other than the Note may have included other debts which were separately secured by property located in another state, the deed of trust on the Property was the sole security on the Note. As such, the debt at issue (the Note) was not secured by “real property in this state and by real or personal property collateral located outside this state.”
the Note. Accordingly, based on the facts as recited in the pleadings, BEO has instituted an action directly against the Bennetts before seeking to recover on the security.
3. A debtor may use the single-action rule as a sanction in a quiet title action against a creditor who has violated the rule.
Alternatively, BEO argues that, even if this Court determines that it violated the single-action rule, the appropriate sanction is only to bar the foreclosure of the trust deed, not invalidate the lien of the trust deed or require reconveyance. This, BEO claims, is in line with
We conclude, based on the facts recited in the pleadings, that BEO‘s violation of the single-action rule renders its security interest in the property unenforceable, and the matter should be remanded to the district court to conduct further proceedings if necessary. As explained above, the Idaho Legislature modified the Idaho Trust Deeds Act to include the single-action rule embodied in
1503(3). Because the Legislature determined that the creditor could only seek to recover from the debtor directly in the event that the security interest was determined to be “substantially valueless” and then reconveyed back to the debtor, it stands to reason that when a creditor skips this step, courts may presume that the step should have been complied with. See
Though BEO asserts that the sanction should be loss of the right to foreclose, it fails to explain what legal interest the trustee would hold without that power of sale. A deed of trust passes legal title, but that legal title only carries the power of sale. So once that power of sale is terminated, the legal interest the trustee has in the property is effectively eliminated. Thus, whether viewed as a loss of the power of sale or BEO stating that its interest in the property is substantially valueless, the consequence is that BEO‘s security interest in the property is unenforceable and the district court may quiet title in favor of the Bennetts.
We are not persuaded by BEO‘s arguments that the “equitable principles” that carried the day in Trusty—that is, a party who has not paid their debt may not quiet title against a creditor who has let their power to foreclose lapse under the statute of limitations—have any bearing on this outcome. Trusty rested on the age-old maxim that “[h]e who seeks equity must do equity.” Gerken v. Davidson Grocery Co., 50 Idaho 315, 317, 296 P. 192, 193 (1931). In other words, a party cannot affirmatively seek to quiet title (an equitable remedy) when they have not satisfied their equitable duty to pay their debt. As such, this Court explained that a sort of stalemate arises in this context. On the one hand, a court of equity will not enforce a lien because the statute of limitations has run. Miller v. Monroe, 50 Idaho 726, 731–32, 300 P. 362, 364 (1931) (citing Mendini v. Milner, 47 Idaho, 439, 276 P. 313 (1929)). On the other hand, until the payment of the underlying debt, or until a presumption of payment arises, a court will deny relief against the debt and refuse to quiet title. Id.
This case presents no such stalemate, and debtors do not stand to reap a windfall as BEO suggests. The creditor simply makes an election of remedies and waives its security if it first sues on the debt without
B. The Bennetts have stated a claim that would entitle them to quiet title against the judgment lien.
The Bennetts also sought to quiet title to the judgment lien created by BEO‘s domestication of its judgment pursuant to Idaho‘s Enforcement of Foreign Judgment Act.6 The district court dismissed this claim, reasoning that the lien did not cloud the property‘s title because it expired automatically as a matter of law. On appeal, the Bennetts argue that
ruled that the lien expired as a matter of law and, thus, there was nothing to quiet title against.
Idaho‘s quiet-title statute permits “any person” to file suit against anyone who claims an adverse “estate or interest.”
An action may be maintained to quiet title to lands against any judgment, the enforcement and collection of which is barred by the Statute of Limitations of the State of Idaho and which, except for the fact that its collection and enforcement is so barred by the Statute of Limitations, would constitute a lien upon said lands.
As a preliminary matter, we determine that the Bennetts did not waive this issue below. While the Bennetts’ counsel admitted that “the title company may have taken [the judgment lien] off [the title report] based upon some argument,” the argument below was the same as it is on appeal—the Idaho Code provides them with a right to quiet title against an expired judgment lien, even if it had been removed from the title report.
Addressing the merits of the Bennetts’ argument, we determine that a property owner may quiet title to an expired
As such, for the district court to determine whether the underlying judgment (here, the Oregon state court judgment) is “barred by the statute of limitations,” it must assess the two methods by which a judgment creditor may “collect or enforce” on a foreign judgment in Idaho: (1) an “action on a judgment“; and (2) a filing pursuant to the EFJA. Grazer, 154 Idaho at 64, 294 P.3d at 190.
An “action on a judgment” is a “common-law cause of action based on the debt represented by a judgment.” Id. (citations omitted). Under
the Bennetts are correct that an action to collect on the judgment is barred by the statute of limitations.
As for the second method—an EFJA filing—the facts as stated in the complaint demonstrate that BEO allowed its Oregon judgment to become unenforceable. BEO domesticated the Oregon state court judgment and recorded a certified abstract of judgment on June 17, 2010. By recording the abstract of judgment pursuant to EFJA specification, BEO acquired a judgment lien against the property under
Even though judgment liens expire automatically if not renewed under the EFJA, an expired judgment lien nevertheless constitutes a cloud on title redressible by the quiet-title action.10 Broadly speaking, a
Corp., 99 Idaho 662, 667, 586 P.2d 1378, 1383 (1978) (quoting 65 Am. Jur. 2d Quieting Title § 9). “A court of equity will not in general allow an otherwise clear title to be clouded by a claim unenforceable at law or in equity.” Id. While BEO argues that the broad scope of Idaho‘s quiet title statute should be narrowly construed as it is in derogation of the common law, the opposite is true. It is a remedial statute supplementing, more than replacing, common-law and equity-based jurisprudence; hence, it should be broadly construed.11
The judgment lien obtained from the recording of the abstract of judgment has expired, and the underlying judgment has also expired. As such, the lien is “an encumbrance which is actually invalid or inoperative,” but “nevertheless impair[s] the title to the property.” Beal, 99 Idaho at 667, 586 P.2d at 1383; cf. Maxwell v. Twin Falls Canal Co., 49 Idaho 806, 814, 292 P. 232, 235 (1930) (“An instrument that does not actually cast a cloud on the title may be exceedingly vexatious and injurious, though it actually throws only a suspicion.“). Accordingly, the Bennetts stated a claim upon which relief could be granted and the district court erred in granting BEO‘s motion to dismiss on this count.
C. BEO is not entitled to attorney‘s fees on appeal under Idaho Code section 12-121.
BEO argues that attorney‘s fees are appropriate under
(1997), where this Court held that a district court did not err in awarding attorney‘s fees at the trial level when the plaintiff‘s position was in direct opposition to binding case law.
Inasmuch as we have not only determined that Trusty is inapplicable to the cause of action before us, but also that the Bennetts have succeeded on appeal, BEO is not entitled to attorney‘s fees under
V. CONCLUSION
For the above reasons, we reverse the district court‘s decision granting BEO‘s motion to dismiss, vacate the judgment of dismissal, and remand for further proceedings.
Justices BRODY, BEVAN, STEGNER, and MOELLER CONCUR.
ROGER S. BURDICK
CHIEF JUSTICE
Notes
The party seeking to maintain such action shall be entitled to a decree quieting title to his lands against the lien of any such judgment or mortgage upon proof that the collection and enforcement of such judgment or mortgage is barred by the Statute of Limitations and without the necessity of proving that any such judgment or the indebtedness secured by any such mortgage has been paid.