Ruby Valley Nat'l Bank v. Wells Fargo Del. Trust Co.

Decision Date21 January 2014
Docket NumberNo. DA 13–0251.,DA 13–0251.
CourtMontana Supreme Court
PartiesRUBY VALLEY NATIONAL BANK, Plaintiff and Appellee, v. WELLS FARGO DELAWARE TRUST COMPANY, N.A.; Vericrest Financial, Inc., Defendants and Appellants.

OPINION TEXT STARTS HERE

For Appellants: Cassie R. Dellwo, Jason J. Henderson; Mackoff Kellogg Law Firm; Dickinson, North Dakota.

For Appellee: Andrew P. Suenram, Adam M. Shaw; Erb & Suenram, PLLC; Dillon, Montana.

Justice JIM RICE delivered the Opinion of the Court.

¶ 1 Wells Fargo Delaware Trust Co. (Wells Fargo) appeals from the order of the Fifth Judicial District Court, Madison County, denyingits motion for summary judgment and granting summary judgment to Ruby Valley National Bank (RVNB). Wells Fargo and RVNB both claim beneficiary interests under separate trust indentures on the same real property. RVNB obtained and recorded a Deed of Trust (DOT) on the property subsequent to a previously recorded DOT. RVNB filed for judicial foreclosure of its interest in the property and sought identification of the beneficiary under the first DOT, because it had been assigned multiple times. Wells Fargo was the only named defendant to answer and claim to be the beneficiary of the first DOT. The District Court held that RVNB's DOT was entitled to priority over the earlier DOT held by Wells Fargo. We reverse.

¶ 2 We restate and address the following issue:

¶ 3 Did the District Court err by determining that RVNB's lien held priority over Wells Fargo's lien, and granting summary judgment to RVNB?

FACTUAL AND PROCEDURAL BACKGROUND

¶ 4 This case involves real property located in Madison County. The subject property was owned by Cherie Lewis (Cherie), but on February 2, 2005, Cherie conveyed the property to her daughter, Beckie Lewis (Beckie), by recorded deed. Beckie mortgaged the property by executing a DOT that secured a promissory note in the amount of $279,000 in favor of Elliot Ames Nevada, Inc. (Indenture 1). Indenture 1 was entered pursuant to the Small Tract Financing Act (STFA), named Mortgage Electronic Registration Systems, Inc. (MERS) as beneficiary, and was recorded on February 3, 2005.1 Subsequently, Beckie executed a second DOT to secure a promissory note for $102,057 to RVNB. This DOT (RVNB Indenture) was recorded on December 29, 2005.

¶ 5 In 2009, Cherie filed an action against Beckie, alleging breach of an oral contract. The facts of that matter are irrelevant to this proceeding, but the judgment entered therein quieted title to the subject property in Cherie and terminated all of Beckie's claimed interest in the property. Elliot Ames Nevada, Inc., MERS, and RVNB were not made parties to the action, and the court's order specifically restored title in Cherie as previously encumbered. Shortly thereafter, Beckie died in a car accident.

¶ 6 On June 4, 2010, MERS assigned its interest in Indenture 1 and the underlying promissory note to Flagstar Bank, FSB. This assignment was recorded on June 15, 2010. Flagstar Bank subsequently assigned its rights in the DOT and note to U.S. Bank Trust National Association as trustee for LSF7 NPL V Trust, executed by Vericrest Financial, Inc., as attorney in fact for Flagstar Bank. This assignment was recorded on August 10, 2011. U.S. Bank assigned the DOT and note to Wells Fargo as trustee for Vericrest Opportunity Loan Trust 2011–NPL1. This assignment was recorded on September 21, 2011. Vericrest Financial, Inc. is the current servicer of Indenture 1.

¶ 7 RVNB filed for judicial foreclosure of its interest in December of 2011, naming Cherie, Beckie's Estate, Wells Fargo, U.S. Bank, Vericrest Financial, Flagstar Bank, and MERS as party defendants. RVNB's complaint set forth the history of transactions and the recordings on the subject property, attaching copies of both trust indentures and all recorded assignments of Indenture 1. The complaint asked the District Court to determine the correct identity of the beneficiary of Indenture 1, claiming that “three allegedly separate entities hold themselves out to be the beneficiary.” RVNB also requested an order declaring it had priority “over all other lienholders.” RVNB did not state any facts that facially raised a question about the priority of Indenture 1, but rather affirmatively pled that Indenture 1 was recorded almost a year before the RVNB Indenture.

¶ 8 Though served with process, U.S. Bank, Flagstar Bank, and MERS failed to answer the complaint, and default judgment was entered against each of them. Wells Fargo was the only asserted beneficiary to answer the complaint, and thus is the only entity in the litigation claiming to be the beneficiary of Indenture 1. Cherie and Beckie's Estate moved for summary judgment on various grounds, but their claims were denied and judgment was entered against them in favor of RVNB. Neither Cherie nor Beckie's Estate appeal.

¶ 9 Wells Fargo filed its trial witness and exhibit list ten days after the deadline set by the court's scheduling order. The District Court granted RVNB's motion to strike Wells Fargo's trial witness and exhibit list as untimely and vague. Wells Fargo moved for summary judgment on the basis that, as the holder of the first-in-time interest, it had priority over RVNB's interest. RVNB filed a cross-motion for summary judgment, asserting its lien was entitled to priority because Wells Fargo had failed to make a compulsory counterclaim to foreclose its interest. The District Court granted summary judgment in favor of RVNB, holding that Wells Fargo had not proven the elements necessary for judicial foreclosure, and was unable to do so because its trial witness and exhibit list had been stricken. Wells Fargo appeals.

STANDARD OF REVIEW

¶ 10 We review a district court's ruling on a motion for summary judgment de novo, applying the same M.R. Civ. P. 56 criteria as the district court. Deschamps v. Treasure State Trailer Court, Ltd., 2011 MT 115, ¶ 12, 360 Mont. 437, 254 P.3d 566. Summary judgment is appropriate when there is no genuine issue as to any material fact, and the moving party is entitled to judgment as a matter of law. M.R. Civ. P. 56(c)(3). We review the district court's conclusion that the moving party is entitled to judgment as a matter of law for correctness. Deschamps, ¶ 12.

DISCUSSION

¶ 11 As a general rule, [o]ther things being equal, different liens upon the same property have priority according to the time of their creation.” Section 71–3–113, MCA. However, this general rule can be altered under narrow circumstances by recording requirements. Montana has a ‘race-notice’ recording system.” Earl v. Pavex, Corp., 2013 MT 343, ¶ 18, 372 Mont. 476, 313 P.3d 154. A subsequent lienholder's interest holds priority over an earlier lienholder's interest only if the subsequent holder lacked notice of the earlier interest and duly recorded its interest first. Earl, ¶ 18. Proper filing of an interest in real property as prescribed by law is constructive notice of the interest to subsequent purchasers and mortgagees. Section 70–21–302(1), MCA.

¶ 12 RVNB has not alleged that it did not have notice of Indenture 1 or that any other special exception with regard to priority applies. Rather, RVNB argues that Wells Fargo was obligated to assert a compulsory counterclaim for judicial foreclosure in response to RVNB's complaint and that Wells Fargo's failure to do so resulted in the loss of its indenture's priority. The authority cited by RVNB for this position is Zimmerman v. Kevin Connor Construction, 1998 MT 131, ¶ 9, 289 Mont. 148, 958 P.2d 1195. In Zimmerman, Kevin Connor Construction (Connor) had foreclosed on a construction lien against Zimmerman in a prior action. Zimmerman subsequently brought a separate suit against Connor alleging negligence within the same construction work that resulted in the foreclosed lien. Zimmerman, ¶¶ 2–3. We affirmed summary judgment for Connor on the ground that Zimmerman's negligence claims were compulsory counterclaims in the prior action. Zimmerman, ¶ 19. Clearly, the separate trust indentures recorded here do not arise out of the same transaction or occurrence as did the claims at issue in the Zimmerman litigation and Zimmerman is not controlling.

¶ 13 We addressed the necessity of filing a compulsory counterclaim for foreclosure of a trust indenture in Deschamps. There, we held that a nonjudicial foreclosure of property is “not the type of claim contemplated by M.R. Civ. P. 13(a) because a counterclaim generally requires redress by the court, while nonjudicial foreclosure is a process that does not require court involvement. Deschamps, ¶ 14. The plain language of the STFA permits a trust indenture beneficiary to determine whether to proceed with or without court involvement. Deschamps, ¶ 15. Thus, nonjudicial foreclosure of an indenture is not waived by failure to counterclaim for judicial foreclosure in a legal action. Deschamps, ¶ 16.

¶ 14 Although the District Court concluded it was unnecessary to determine whether Wells Fargo was compelled to counterclaim for judicial foreclosure, the court nonetheless reasoned that Wells Fargo was unable to “prove the required elements necessary” to make out a prima facie case for judicial foreclosure. It therefore determined that RVNB's indenture was entitled to priority over Wells Fargo's indenture. The court's order did not address the reason Wells Fargo was required to demonstrate the elements of judicial foreclosure when its interest was secured by a trust indenture that could be foreclosed nonjudicially under the STFA.

¶ 15 The District Court's order failed to recognize certain principles of judicial foreclosure. A foreclosure extinguishes or “closes” the mortgagor's (or “grantor's”) interest and terminates junior interests in the property that are either named in the foreclosure action or unnamed but against whom the proceeding is deemed conclusive by operation of statute. See§§ 71–1–315(1)(a)(i),(v), –222(3), MCA....

To continue reading

Request your trial
8 cases
  • State v. Edmundson, DA 13–0046.
    • United States
    • United States State Supreme Court of Montana
    • January 21, 2014
  • Pinnacle Rest. At Big Sky, LLC v. CH SP Acquisitions, LLC (In re Spanish Peaks Holdings Ii, LLC)
    • United States
    • United States Courts of Appeals. United States Court of Appeals (9th Circuit)
    • July 13, 2017
    ...a mortgage terminates a subsequent lease on the mortgaged property. See Ruby Valley Nat'l Bank v. Wells Fargo Delaware Trust Co. , 373 Mont. 374, 317 P.3d 174, 178 (2014) ; Williard v. Campbell , 91 Mont. 493,11 P.2d 782, 787 (1932).7 SPH's bankruptcy proceeded, practically speaking, like a......
  • Pinnacle Rest. at Big Sky, LLC v. CH SP Acquisitions, LLC (In re Spanish Peaks Holdings II, LLC)
    • United States
    • United States Courts of Appeals. United States Court of Appeals (9th Circuit)
    • July 13, 2017
    ...a mortgage terminates a subsequent lease on the mortgaged property. See Ruby Valley Nat'l Bank v. Wells Fargo Delaware Trust Co. , 373 Mont. 374, 317 P.3d 174, 178 (2014) ; 862 F.3d 1157Williard v. Campbell , 91 Mont. 493,11 P.2d 782, 787 (1932).7 SPH's bankruptcy proceeded, practically spe......
  • King v. LSF9 Master Participation Trust, CV 17-172-M-DLC-JCL
    • United States
    • United States District Courts. 9th Circuit. United States District Court (Montana)
    • June 20, 2018
    ...*4 (D. Mont. 2016); Bank of America v. Alexander, 389 P.3d 1020, 1024 n.1 (Mont. 2017); and ruby Valley National Bank v. Wells Fargo Delaware Trust Co. N.A., 317 P.3d 174, 176 n.1 (Mont. 2014) (noting that upon a foreclosure "the interest flowing to [the beneficiary] down the chain of trans......
  • Request a trial to view additional results
1 books & journal articles

VLEX uses login cookies to provide you with a better browsing experience. If you click on 'Accept' or continue browsing this site we consider that you accept our cookie policy. ACCEPT