Harold FRAZIER and Mary Lou Frazier, husband and wife, Plaintiffs-Respondents, v. NEILSEN & COMPANY, an Idaho partnership; Craig H. Neilsen; Mark Holmstead, as Trustee of the Anderson Able Trust; The Anderson Able Trust; Mark Holmstead as Trustee of the Anderson Baker Trust; The Anderson Baker Trust; Mark Holmstead as Trustee of the Anderson Charlie Trust; The Anderson Charlie Trust; Mark Holmstead as Trustee of the Anderson Cherokee Trust; The Anderson Cherokee Trust; Mark Holmstead as Trustee of the Anderson Geronimo Trust; The Anderson Geronimo Trust; Mark Holmstead as Trustee of the Anderson Mohawk Trust; The Anderson Mohawk Trust; Craig H. Neilsen as Trustee of the Ray Neilsen Testamentary Trust; and The Ray Neilsen Testamentary Trust, Defendants-Appellants.
No. 16870.
Supreme Court of Idaho.
Feb. 21, 1989.
769 P.2d 1111 | 115 Idaho 739
Russell G. Kvanvig, Boise, for plaintiffs-respondents.
THE PREVIOUS OPINION ISSUED AUGUST 17, 1988, IS HEREBY WITHDRAWN AND THIS OPINION IS SUBSTITUTED THEREFOR.
McQUADE, Justice, Pro Tem.
The issue presented in this case is whether the holders of a promissory note secured by a deed of trust encumbering Idaho real property may sue for a money judgment on the note without first exhausting their security by judicial foreclosure or by exercise of the power of sale. We hold that they may.
The facts may be summarized as follows: plaintiffs-respondents, the Fraziers, sold
Buyers appeal, arguing that sellers were required to foreclose upon the real property before seeking judgment against buyers personally.
Idaho‘s so-called single action statute,
6-108 . Deficiency Judgments—Amount Restricted.—No court in the state of Idaho shall have jurisdiction to enter a deficiency judgment in any case involving a foreclosure of a mortgage on real property in any amount greater than the difference between the mortgage indebtedness, as determined by the decree, plus costs of foreclosure and sale, and the reasonable value of the mortgaged property, to be determined by the court in the decree upon the taking of evidence of such value.
A long and unbroken line of Idaho cases has construed the single action statute as prohibiting a mortgagee from maintaining an action at law without first foreclosing on the security, unless of course, the security has become worthless. See, e.g., Barnes v. Buffalo Pitts Co., 6 Idaho 519, 57 P. 267 (1899); Berry v. Scott, 43 Idaho 789, 255 P. 305 (1927); Eastern Idaho Production Credit Assoc. v. Placerton, Inc., 100 Idaho 863, 606 P.2d 967 (1980).
The policy behind the single-action statute was explained in Jeppesen v. Rexburg State Bank, 57 Idaho 94, 99, 62 P.2d 1369, 1371 (1936):
When a debtor gives a mortgage to secure his debt, he gives his creditor a lien on his property and thereby authorizes him, at maturity of the debt, to proceed in rem against the property for the amount of the debt. This necessarily impairs the debtor‘s credit to that extent; and it was the evident intention of the legislature, by enacting sec. 9-101 [the predecessor of
I.C. § 6-101 ], to require the creditor to proceed for collection of the debt (if not paid in due course) against the property, and to exhaust the security before being allowed to acquire any personal judgment against the debtor. (Clark v. Paddock, 24 Ida. 142, at 152, 132 Pac. 795, 46 L.R.A., N.S., 475.) In other words, it was intended not to allow the creditor to hold an incumbrance on his debtor‘s property, and at the same time proceed against him for a personal judgment, either with or without attachment (sec. 6-502, subd. 1, I.C.A.), for to allow the creditor to do so might, in any case, result in impairing the debtor‘s credit in at least double the amount of his debt; that is, both in rem and in personam. This statute avoids a multiplicity of suits against the same debtor.
Although by its terms
The case of Brown v. Bryan, is distinguishable. The then-existing legislative enactments did not include the Idaho Trust Deeds Act,
A mortgage and a deed of trust are also separately defined. Compare
Appellants urge that
Given that deeds of trust may only be used where the real property is not in excess of twenty acres, etc., and given the legislature‘s clear intention to treat deeds of trust and mortgages as separate and distinct instruments, we decline appellants’ invitation to expand the scope of
The mortgage foreclosure statutes,
45-1505. Foreclosure of trust deed, when.—The trustee may foreclose a trust deed by advertisement and sale under this act if:
(1) The trust deed, any assignments of the trust deed by the trustee or the beneficiary and any appointment of a successor trustee are recorded in mortgage records in the counties in which the property described in the deed is situated; and
(2) There is a default by the grantor or other person owing an obligation the per-
formance of which is secured by the trust deed or by their successors in interest with respect to any provision in the deed which authorizes sale in the event of default of such provision; and
(3) The trustee or beneficiary shall have filed for record in the office of the recorder in each county wherein the trust property, or some part or parcel, is situated, a notice of default identifying the deed of trust by stating the name or names of the trustor or trustors and giving the book and page where the same is recorded, or a description of the trust property, and containing a statement that a breach of the obligation for which the transfer in trust is security has occurred, and setting forth the nature of such breach and his election to sell or cause to be sold such property to satisfy such obligation; and a copy of such notice by registered or certified mail to any person requesting such notice of record a hereinafter provided.
(4) No action, suit or proceeding has been instituted to recover the debt then remaining secured by the trust deed, or any part thereof, or if such action or proceeding has been instituted, the action or proceeding has been dismissed.
An action to recover the debt without resorting to foreclosure of the deed of trust was contemplated by the legislature, but there is the caveat that statutory foreclosure is not permitted if there is an action then pending to recover the debt. This language does not permit a notice of sale foreclosure of the trust deed as security and simultaneously recovery of the debt by judicial action.
By enacting the trust deed legislation the legislature created a method outside of the judiciary for the foreclosure of debt security. Foreclosure of trust deeds is by advertisement and sale. However, in
By pursuing dual remedies, the statute precludes the plaintiffs from prevailing upon their complaint which asked for judgment upon the debt and judgment to foreclose the deed of trust. The judgment is reversed and the case is remanded to the trial court to proceed in accordance with the views expressed herein.
Costs to appellants.
No attorney fees on appeal.
BAKES and HUNTLEY, JJ., concur.
SHEPARD, C.J., concurs in the result.
BISTLINE, Justice, dissenting.
Thirty-one years ago the Idaho legislature enacted into law a new Chapter 15 to Title 45, which title has long been captioned: LIENS, MORTGAGES AND PLEDGES. That new chapter to Title 45 is captioned: TRUST DEEDS. The 1957 legislators had the foresight to embody therein their Declaration of Policy, which was to bolster Idaho‘s economic growth:
WHEREAS the availability of more adequate financing for home construction and business expansion is essential to the development to the State of Idaho, and Whereas such financing for real estate of not more than three acres is more available with little or no equity in the borrower and on amortization terms over a long period of years and by the use of deeds of trust as herein provided;
Now Therefore, the use of deeds of trust of estates and real property of not more than three acres as hereinafter provided is hereby declared to be the public policy of the State of Idaho.
1957 Session Laws, Chapter 181, § 1, page 345. The 1967 legislature saw fit to expand the use of trust deeds. Accordingly it deleted the prior restriction of trust deeds being applicable only where the real property was not more than three acres. In its place the expansion allowed trust deeds to be utilized in secured transactions involving any real property not exceeding 20 acres more or less, regardless of location. For over 31 years the Trust Deed Act has been accepted, understood, and utilized.
All of the trust deed legislation has been brought about at the hands of knowledgeable legislators who were ably aided by specialists versed in the field of secured transactions. They were aware that one of the problems holding back Idaho‘s economy was the lack of legislation authoring the use of trust deeds. Under mortgage procedures, foreclosure was time-consuming, and worse, in the minds of the lenders of money or financing of on-time sales of real property, was the further delay occasioned by the statutory right of redemption which attended all real property mortgages. So came the trust deed chapter into existence. In a terse summary memorandum decision the district court, at the urging of the respondents (Fraziers), has vitiated that legislation. We are asked to review the validity of that decision. At one time it was feared that this Court would affirm it. Fortunately that decision has been put off to a future day. Better yet, however, the district court may be brought to see the error of its reasoning, which is more than can be said of this Court.
The issue presented in this case is whether the holders of a promissory note secured by a deed of trust encumbering a specific described parcel of Idaho real property may waive the security which they had initially required from the borrower and sue for and obtain a money judgment for the amount due on the note. Their contention in district court, and which convinced the district court, was that they need not foreclose the trust deed by either of the two procedures set out in the trust deed act.
Appellants point to the obvious, i.e.,
The facts may be summarized as follows: Defendants-appellants, Neilsen & Company, executed a promissory note to plain-
Count I of the Complaint sought recovery of a money judgment for the amount due on the note without first foreclosing on the security given for the note, i.e., the trust deed. If turned away on that contention, Count II sought judicial foreclosure of the deed of trust as a mortgage and thereafter entry of a deficiency judgment. The complaint made clear that the preferred form of relief was a money judgment for the full amount due under the promissory note. The district court granted the Fraziers’ motion for summary judgment for the amount due on the promissory note. The trial court did not determine the fair market value of the real property as would have been required had that court relegated the Fraziers to the judicial remedy provided by the Trust Deed Act.
Idaho‘s so-called single action statute,
6-108. Deficiency Judgments—Amount Restricted.—
No court in the state of Idaho shall have jurisdiction enter a deficiency judgment in any case involving a foreclosure of a mortgage on real property in any amount greater than the difference between the mortgage indebtedness, as determined by the decree, plus costs of foreclosure and sale, and the reasonable value of the mortgaged property, to be determined by the court in the decree upon the taking of evidence of such value.
A long and unbroken line of Idaho cases has construed the single action statute as prohibiting a mortgagee from maintaining an action at law without first foreclosing on the security, unless of course the security has become worthless. See, e.g., Barnes v. Buffalo Pitts Co., 6 Idaho 519, 57 P. 267 (1899); Berry v. Scott, 43 Idaho 789, 255 P. 305 (1927); Eastern Idaho Production Credit Assoc. v. Placerton, Inc., 100 Idaho 863, 606 P.2d 967 (1980).
The policy behind the single-action statute was explained in Jeppesen v. Rexburg State Bank, 57 Idaho 94, 99, 62 P.2d 1369, 1371 (1936):
When a debtor gives a mortgage to secure his debt, he gives his creditor a lien on his property and thereby authorizes him, at maturity of the debt, to proceed in rem against the property for the amount of the debt. This necessarily impairs the debtor‘s credit to that extent; and it was the evident intention of the legislature, by enacting sec. 9-101 [the predecessor of
I.C. § 6-101 ], to require the creditor to proceed for collection of the debt (if not paid in due course) against the property, and to exhaust the security before being allowed to acquire any personal judgment against the debtor. (Clark v. Paddock, 24 Id. 142, at 152, 132 Pac. 795, 46 L.R.A., N.S., 475.) In other words, it was intended not to allow the creditor to hold an incumbrance on his debtor‘s property, and at the same time proceed against him for a personal judgment, either with or without attachment (sec. 6-502, subd. 1, I.C.A.), for to allow the creditor to do so might, in any case, result in impairing the debtor‘s credit in at least double the amount of his debt; that is, both in rem and in personam. This statute avoids the multiplicity of suits against the same debtor.
Although by its terms
The trial court‘s decision was based entirely on an easily discerned misreading of
I.C. Sec. 45-1505(4) does contemplate a separate action on a promissory note without foreclosing the trust deed. In pertinent part, it provides as follows:
The trustee may foreclose a trust deed by advertisement and sale under this act if: . . . (4) no action, suit or proceeding has been instituted to recover the debt then remaining secured by the trust deed or any part thereof or if such action or proceeding has been instituted the action or proceeding has been dismissed.
The court agrees with the plaintiffs that if the legislature had intended the one action rule to apply to trust deeds, then I.C. Sec. 45-1505(4) would be superfluous and have no purpose.
R. at 53. Clearly the legislature provided but two alternative remedies, not three. When it comes to providing alternative options ordinary people‘s language can be used to write or say that XYZ may do this or he may do that. Persons of ordinary common sense will understand that they must select one or the other. Recently the Court considered another case where option language was used.2 The statute involved was
In order to ascertain the validity of the lower court‘s reasoning it is only necessary to turn again to
(a) Foreclosure by advertisement and sale.
(b) Foreclosure as provided by law for the foreclosure of real property mortgages.
For, lo!, these many years no one seemed to have any problem with the portion of
(a) The entire amount of indebtedness which was secured by the trust deed.
(b) The amount for which the property was sold.
(c) The fair market value of the property on the date of sale, together with interest from date of sale, costs of sale, and attorney fees.
Then, still reading in
Before rendering judgement the court shall find the fair market value of the real property sold at the time of sale. The court may not render judgment for more than the amount by which the entire amount of indebtedness due at the time of sale exceeds the fair market value at that time, with interest from date of sale, but in no event may the judgment exceed the difference between the amount for which such property was sold and the entire amount of the indebtedness secured by the deed of trust.
It is self-evident what the legislature had well in mind providing the same safeguards in writing the TRUST DEED ACT as already were in place with regard to real property mortgages.
Turning one last time to
The judgment of the district court should be reversed with all costs to appellants. On remand the district court should award the appellants such costs and attorney fees as have been heretofore expended by them in district court and in this Court in turning aside the respondents’ innovative but misguided effort. See Everett v. Trunnell, 105 Idaho 787, 673 P.2d 387 (1983).
Preferring to waste no more time on this ludicrous affair than was necessary to demonstrate the obvious thesis of a mercifully succinct incorrect appellate opinion, I pause only long enough to lay low the majority‘s remarkable statement that, “If the statute was intended to provide exclusive remedies, it would have used mandatory ‘shall’ language, rather than the permissive ‘may‘.” I would have thought that the experience of the Saxton case should have been sufficient enlightenment to those jurists who are in the majority. Obviously not so. The holder of a promissory note which is in default is not required to take any action. No law can command that he do anything. If the note is that of a relative or dear friend, the holder of the note is at liberty to indulge the delinquency. If he indulges beyond the five year time limitation for suing on a promissory note, he may lose the right to bring a judicial action of fore-
All that need be kept in mind is that an option to timely sue in district court “by foreclosure as provided by law for the foreclosure of mortgages on real property,” (
The majority opinion is equally way off base in failing to observe how its manufactured third remedy impairs the contract which was entered into.4 The note and trust deed did not simply spring into existence. The Fraziers did not part with their money gratuitously, but as their part of a bargain by which they exacted from the defendants an interest-bearing promissory note.
Not just a note and a handshake, but rather a secured note. Not just any security, but specifically Blackacre. The defendants were willing to borrow against Blackacre, but not so with Greenacre, Whiteacre, and Orangeacre. These other three tracts the borrowers presumably desired to keep free of any lien. And what about the Fraziers? As a result of the bargaining process, if any, and if none, all the same, they agreed to hold and did hold as security for the note a deed of trust to Blackacre, naming them as beneficiaries. Not only that, but more. Surely they exacted from the defendants not only the trust deed in question, but a policy of title insurance which guaranteed the title of their security. Anyone knows that this policy was purchased at a considerable cost to defendants. Any cost paid enuring to the benefit of the Fraziers is what we in the legal profession call CONSIDERATION—in this case additional consideration. Thus, many existing legally enforceable contracts will be invalidated by today‘s decision; borrowers and buyers can be denied, in the event of default, the substantial benefit of their transaction.
One may optimistically hope for legislative relief from the legislature now in session. There are a number of real estate professionals in our legislature. It is likely that one or more of them may introduce legislation specifically overruling today‘s Frazier v. Neilsen majority. There exists solid precedent for such legislative action in
ADDENDUM
Although rehearing was not granted, the petitioner‘s supporting brief accomplished more than did my efforts at trying to turn a headstrong majority with the bit firmly clinched in the teeth. The brief makes these salient points:
The court‘s decision in this case leaves the law of real property in Idaho in disarray. Not only have debtors and creditors been placed in a position of uncertainty regarding their rights and obligations, but an avenue has been opened whereby creditors may obtain an unjust windfall at the expense of debtors. Neilsen respectfully urges that the court should reexamine the rationale for its decision and should rectify its holding if it is found to be incorrect.
[A] deed of trust executed in conformity with this act may be foreclosed by advertisement and sale in the manner hereinafter provided, or, at the option of the beneficiary, by foreclosure as provided by law for the foreclosure of mortgages on real property.
By its decision, the court judicially engrafts upon the statute a third option; namely, the option to sue on the note. The problem with creating this third option is that it permits a creditor to accomplish indirectly what the Act directly prohibits. It is clear that under the Trust Deeds Act a creditor may not first sell the property, either judicially or nonjudicially, and then obtain money judgment for more than the difference between the amount of the debt and the value of the property. A double recovery of this nature is expressly prohibited by
For illustration, let us examine the facts of the case at bar. The creditor in this case is owed approximately $150,000, which is secured by a deed of trust on real property which the creditor claims is worth $80,000. The debtor contends that the property is worth much more, but for the sake of argument the creditor‘s contentions will be accepted. If the creditor were to foreclose on the property, either judicially or by exercise of the power of sale, he would be required to credit the value of the property against the debt, leaving a balance owing of $70,000. He could then obtain a deficiency judgment for $70,000, which could be satisfied from other assets of the debtor. On the other hand, utilizing the method now sanctioned by the court, the creditor could first sue for and obtain a money judgment for the full amount of $150,000. He could then cause a writ of execution to be issued and could levy upon and sell the real property covered by the deed of trust. At the sheriff‘s sale, the creditor could purchase the property for a relatively nominal amount, say $10,000. Applying this amount against his judgment, that creditor would still have a judgment for $140,000, which he could satisfy from other assets of the debtor.
In the first hypothetical, the creditor would receive assets worth $150,000, an amount equal to the debt. Under the second hypothetical and simply by inverting the procedure, the creditor would receive assets worth $220,000. But why should there be a difference? The reality of the situation in each case is that the encumbered real property is sold and other assets are then seized to satisfy the debt. What logical reason can be advanced for permitting a creditor to recover a far larger amount merely by inverting the procedure? Why should the creditor be entitled to recover more if he sues first and then sells the property, as opposed to selling the property and then suing?
The injustice of the result which has been reached is further demonstrated by the fact that the debtor is helpless to minimize or eliminate his damages. He cannot require the creditor to foreclose against the encumbered real property, nor can he sell it to a third party. A creditor intent upon gaining a windfall may simultaneously retrain his deed of
In enacting the Trust Deeds Act, the Idaho Legislature included a safeguard which was designed to prevent a creditor from taking unfair advantage of a debtor in the manner described above.
The court may not render judgment for more than the amount by which the entire amount of indebtedness due at the time of sale exceeds the fair market value at that time, with interest from date of sale, but in no event may the judgment exceed the difference between the amount for which such property was sold and the entire amount of the indebtedness secured by the deed of trust. (Emphasis added.)
No logical reason suggests itself why Section 45-1512 should apply where the property is sold before money judgment is entered and should not apply where entry of judgment precedes the sale. In effect, the prohibition of
The policy of Idaho law is or should be to prevent a creditor from doubly impairing his debtor‘s credit by holding an encumbrance against the debtor‘s property and at the same time proceeding against him for a personal judgment. See Jeppesen v. Rexburg State Bank, 57 Idaho 94, 62 P.2d 1369 (1936). That policy is destroyed by the holding of the case at bar. The plain and specific language of the Trust Deeds Act should be given effect. Under the Act the creditor may liquidate the collateral by exercising the power of sale, or he may foreclose his deed of trust judicially in the same manner as a mortgage. Under either alternative, he should be required to credit the fair market value of the property against the debt and should have money judgment only for the difference.
The appellant‘s efforts have produced a modification of the majority opinion, albeit that the majority continues tinkering with the legislature‘s statutes. The majority opinion stays as it was first issued through Slip Opinion p. 6, and a new page 7 has been added.5
The majority on the revised Slip Opinion page 7, continues its bent on allowing Court action on the debt independent of the security. The slight modification it has made does not respond to the appellant‘s concerns, nor to mine earlier expressed. Somehow the members comprising the majority with magnificent hindsight are able to perceive that “the legislature contemplated a suit on the debt independent of the foreclosure provisions.” This remarkable judicial modification is accomplished without one citation of authority from anywhere, nor is it founded on any claimed need which it can defend by logical explanation. No other court of the fifty states having similar trust deed statutes has been so devilishly innovative.
Although the majority cites no authority for its novel and unprecedented decision, I have, in vain, attempted to find some continuity in the metamorphosis process.
Just last month the Supreme Court of Arizona addressed the question of whether the beneficiary of a deed of trust was “allowed to waive the security and sue on the promissory note.” Baker v. Gardner, 160 Ariz. 98, 102, 770 P.2d 766, 770 (1988). The court, typical of all tribunals that have encountered the question, answered thusly: “The holder of the note and security device may not, by waiving the security and bringing an action on the note, hold the maker liable for the entire unpaid balance.” 160 Ariz. at 104, 770 P.2d at 772.
On more than one occasion I have argued that sound jurisprudence is not offended merely because the newly adopted rule rejects a view held by a majority of courts. When a minority view is adopted, however, it is incumbent upon the court to clearly explain its reasons for so doing. Thus, I respectfully dissent because the majority opinion: (1) undermines the legislative intent of the trust deed statutes; (2) unknowingly rejects the unanimous thunder of sister states; and (3) provides no sound rationale for its holding. Luckily, under Idaho‘s tripartite system of government, our legislative body has the prerogative to mend the wound rendered today on our bleeding deed of trust act.
APPENDIX A
However, in
By pursuing dual remedies the plaintiffs cannot be permitted to prevail upon their complaint. The judgment is reversed and the case is remanded to the trial court to proceed in accordance with the views expressed herein.
Costs to appellants.
No attorney fees on appeal.
SHEPARD, C.J., and BAKES and HUNTLEY, JJ., concur.
Notes
The Court declined to agree with the contention of Gem County and the Catastrophic Health Care Costs Program of the Idaho counties that the use of “may” twice left it optional to the county to do neither.