Alma Group, LLC v. Weiss

• Decision Date: 16 August 2000
• Docket Number: No. 21224.,21224.
• Citation: 2000 SD 108,616 N.W.2d 96
• Parties: ALMA GROUP, L.L.C., Plaintiff and Appellee, v. Charles W. WEISS, Defendant and Appellant, And First Federal Savings Bank, f/k/a First Federal Savings and Loan Association and Pennington County, South Dakota, Defendants.
• Court: South Dakota Supreme Court

616 N.W.2d 96

2000 SD 108

ALMA GROUP, L.L.C., Plaintiff and Appellee, v. Charles W. WEISS, Defendant and Appellant, And First Federal Savings Bank, f/k/a First Federal Savings and Loan Association and Pennington County, South Dakota, Defendants.

No. 21224.

Supreme Court of South Dakota.

Considered on Brief April 25, 2000.

Decided August 16, 2000.

Paul S. Swedlund and J. Crisman Palmer of Gunderson, Palmer, Goodsell & Nelson, Rapid City, Attorneys for plaintiff and appellee.

John H. Mairose, Rapid City, Attorney for defendant and appellant.

LOVRIEN, Circuit Judge.

[¶ 1.] After a mortgage foreclosure action where no deficiency judgment was sought or obtained, the trial court awarded the mortgage holder, Alma Group, LLC (Alma), various rents and profits held by a receiver. Charles Weiss (Weiss) argues these rents and profits rightfully belonged to him. Weiss appeals the decision of the trial court. We affirm.

FACTS AND PROCEDURAL HISTORY

[¶ 2.] Charles Weiss owned the Rushmore Plaza Motel (motel) in Rapid City, South Dakota. The motel was subject to a mortgage held by Alma as successor in interest to the original mortgage lender. Weiss was in default under the promissory notes and mortgages that financed the purchase of the motel.

[¶ 3.] A complaint filed May 30, 1996 sought foreclosure of the mortgage against the motel property for the unpaid balance. At that time, the unpaid balance was $704,609.54. The complaint further sought the appointment of a receiver to take possession of the mortgaged property and to collect the rents and profits until the redemption period expired. On July 12, 1996, Alma also sought and obtained a default judgment of foreclosure against Weiss.¹

[¶ 4.] The parties attempted to negotiate a forbearance agreement and, by September 1996, stipulated to an order appointing a receiver. The receiver remained in possession of the motel for over two years until the foreclosure sale on April 30, 1999.² In addition to the order appointing a receiver, Alma and Weiss agreed to vacate the earlier default judgment so that the statutory foreclosure process could proceed. This stipulation provided that Alma would not seek a deficiency judgment against Weiss.

[¶ 5.] An amended default judgment and decree of foreclosure was entered on February 12, 1999 which provided "that the Plaintiff will not proceed with any deficiency judgment against the Defendant, Charles W. Weiss." The amended default judgment listed the unpaid balance as $843,073 with interest accruing at the rate of $181 per day.

[¶ 6.] Before the entry of the amended judgment, and while the receiver was in possession of the property, Weiss indicated to Alma that he would like to sell the property on his own. The parties entered into an additional agreement on December 18, 1998 that gave Weiss that opportunity. Alma agreed to accept "ninety percent of the purchase price net of expenses" as long as Alma received a minimum payment of $250,000. The agreement set a December 31, 1998 deadline for Weiss to sell and effect a closing on the property. Weiss failed to sell the property by this deadline. As a result, the parties entered into an addendum extending the terms of the December 18, 1998 agreement. In exchange, Weiss waived his redemption rights.

[¶ 7.] In the addendum, the parties again acknowledged that no deficiency would be sought against Weiss and agreed that, should a sale of the property take place pursuant to the second agreement, Alma would assign to Weiss any interest it might have in the funds held by the receiver. All applicable provisions of the original December 1998 agreement remained in place.

[¶ 8.] Weiss was never able to sell the property on his own. A sheriff's sale took place on April 30, 1999 and the property was sold to the highest bidder for $250,000. Because Weiss waived his redemption rights, no redemption took place during the applicable redemption period.

[¶ 9.] At the time of the sale, the funds held by the receiver consisted of $82 in a checking account and $42,326 in a savings account for a total of $42,408. Following the sale, Weiss asked the trial court to award the balance of the receiver's funds to him. Alma resisted this motion and filed a petition seeking the receivership funds. The trial court found that Weiss' interest in the rents and profits was subordinate to that of Alma. The trial court awarded Alma the money held by the receiver holding that the assignment of the promissory notes and mortgages to Alma by the original lenders transferred all right, title and interest in the property to Alma.

[¶ 10.] Weiss appeals the judgment of the trial court.

ISSUE

[¶ 11.] Did the trial court err in awarding receivership funds to the mortgagee when the foreclosure sale resulted in a deficiency between the balance of the debt and the proceeds of the sale even though the mortgagee agreed not to pursue a deficiency judgment against the mortgagor and even though no deficiency judgment was obtained?

STANDARD OF REVIEW

[¶ 12.] A complaint seeking foreclosure of a mortgage is unquestionably an equitable action. See First W. Bank, Sturgis v. Livestock Yards, 466 N.W.2d 853, 856 (S.D.1991)

(citing Lounsberry v. Kelly, 32 S.D. 160, 142 N.W. 180, on reh'g 32 S.D. 456, 143 N.W. 369 (1913)). "Foreclosure of a mortgage is an equitable action and a court in equity has the power and the right to grant full and complete legal and equitable relief." American Fed. Sav. v. Mid-America Service, 329 N.W.2d 124, 126 (S.D.1983).

[¶ 13.] In their briefs to this Court, the parties argue that the standard of review should be de novo. As authority, they cite several cases from other state courts which are advisory, but not binding on this Court. These authorities agree that an action to foreclose a mortgage is an equitable one as is the remedy of receivership. Federal Land Bank of Omaha v. Victor, 232 Neb. 351, 440 N.W.2d 667, 670 (1989); GMAC Mortg. Corp. v. Gisvold, 215 Wis.2d 459, 572 N.W.2d 466, 476 (1998). However, this Court has said unequivocally that the standard of review for equitable actions in South Dakota is abuse of discretion. Englehart v. Larson, 1997 SD 84, ¶ 12, 566 N.W.2d 152, 155 (citing Eli v. Eli, 1997 SD 1, ¶ 8, 557 N.W.2d 405, 408); Mattson v. Rachetto, 1999 SD 51, ¶ 9, 591 N.W.2d 814, 817 (citing Amdahl v. Lowe, 471 N.W.2d 770, 773 (S.D.1991)). We will continue to apply that standard in this case.

[¶ 14.] An abuse of discretion occurs when "`no judicial mind, in view of the law and the circumstances of the particular case, could reasonably have reached such a conclusion.'" Id. (quoting Gilkyson v. Wheelchair Express, Inc., 1998 SD 45, ¶ 6, 579 N.W.2d 1, 3). See also Englehart, supra

(quoting Dartt v. Berghorst, 484 N.W.2d 891, 894 (S.D.1992)). "The term `abuse of discretion' refers to `a discretion exercised to an end or purpose not justified by, and clearly against, reason and evidence.'" Herndon v. Herndon, 305 N.W.2d 917, 918 (S.D.1981) (quoting Root v. Bingham, 26 S.D. 118, 120, 128 N.W. 132, 133 (1910)). Accord State v. Flying Horse, 455 N.W.2d 605, 608 (S.D.1990).

DECISION

[¶ 15.] The essential purpose of a foreclosure action is to have the mortgaged property applied to a debt secured by a lender, together with such other relief as may be necessary to the enforcement of the debt. 55 Am.Jur.2d Mortgages § 630 (1996). A foreclosure action has been said to be a proceeding for the legal determination of the existence of the mortgage lien, the ascertainment of its extent, and the subjection to a sale of the property pledged for the debt's satisfaction. Id.

[¶ 16.] In South Dakota there are several statutory schemes that allow for foreclosure of a mortgage. When a default occurs on a contract for deed, for example, SDCL 21-50-1 provides that an action for strict foreclosure may be brought. Wandler v. Lewis, 1997 SD 98, ¶ 20, 567 N.W.2d 377, 382. However, a party is not limited to strict foreclosure under SDCL ch. 21-50. Depending on the circumstances, a lender may elect to proceed with any one of several remedies under South Dakota law including, but not limited to, a sheriff's sale as provided by SDCL ch. 21-47.³ In the instant case, Alma elected to proceed under this section with foreclosure by sheriff's sale.

[¶ 17.] After giving Weiss a chance to sell the property on his own, Alma prosecuted the foreclosure action, sold the property at a sheriff's sale and received $250,000 as a result. At the time, Weiss owed Alma in excess of $843,000. Alma then claimed rights to the more than $42,000 in rents and profits held by the receiver. Alma claimed this even though it had assigned its interest in the receivership funds to Weiss and had agreed in the December 1998 agreement and addendum not to pursue a deficiency judgment.

[¶ 18.] The trial court concluded that the agreement assigning the receivership funds to Weiss was inoperable because Weiss did not sell the property on his own as the agreement required. The trial court then found that the entire sum of the debt had not been paid and concluded that the receivership funds should be awarded to Alma even though a deficiency judgment against Weiss was neither sought nor obtained. Did the trial court abuse its discretion? We conclude that it did not.

[¶ 19.] Both Weiss and Alma agreed to the appointment of a receiver, an officer of the court appointed to preserve the collateral by collecting and retaining rents and profits subject to the control and disposition of the court. Todd v. Winkelman, 320 N.W.2d 525, 528 (S.D.1982); Sherman v. Wichner, 35 S.D. 436, 152 N.W. 700 (1915). While the trial court is authorized by statute to appoint a receiver to collect rents and profits, ordinarily, neither the court nor the receiver is authorized to pay rents and profits to a mortgagee to satisfy a deficiency judgment. First Nat. Bank v. Cranmer, 42 S.D. 404, 408-409, 175 N.W. 881, 882 (1920). An exception to this ordinary rule exists where the mortgage...