ASSOC. FIN. SERV. OF AMERICA v. DC

• Decision Date: 27 February 1997
• Docket Number: No. 95-PR-69.,95-PR-69.
• Citation: 689 A.2d 1217
• Parties: ASSOCIATES FINANCIAL SERVICES OF AMERICA, INC., Appellant, v. DISTRICT OF COLUMBIA, Appellee.
• Court: D.C. Court of Appeals

689 A.2d 1217

ASSOCIATES FINANCIAL SERVICES OF AMERICA, INC., Appellant, v. DISTRICT OF COLUMBIA, Appellee.

No. 95-PR-69.

District of Columbia Court of Appeals.

Argued January 16, 1997.

Decided February 27, 1997.

David H. Cox, Vienna, VA, with whom Joanna M. Pedas, Washington, DC, was on the brief, for appellant.

Martin B. White, Assistant Corporation Counsel, Washington, DC, with whom Charles F.C. Ruff, Corporation Counsel, and Charles L. Reischel, Deputy Corporation Counsel, were on the brief, for appellee.

Before FERREN, TERRY, and KING, Associate Judges.

KING, Associate Judge:

In this certified appeal¹ we are presented with the question whether D.C.Code § 20-1104(c), before it was amended in 1995 ("old § 20-1104(c)"), protects a lender from the claims against an estate, where, in reliance on a title search of the real estate records and without actual or constructive notice of a competing claim, the lender takes an interest in real property from a distributee of the estate, in exchange for a deed of trust which is duly filed with the Recorder of Deeds. We hold that the old § 20-1104(c) protects such lenders and that the trial judge erred in voiding the deed of trust. Accordingly, we reverse and remand.

I. Facts

Bessie Williams, a widow when she died in May 1987, was a resident of the District of Columbia who received Medicaid assistance during her lifetime from the District of Columbia Department of Human Services ("DHS" or "District"). The principal, if not the sole, asset of value in Mrs. Williams's estate upon her death was a parcel of land, which included her home at 317 V Street, N.E. ("property"). Thomas Ellis, Jr. is her son and sole heir at law. Mrs. Williams's will named her son as an alternative executor of her estate, and also provided that he was to inherit the property.

Mr. Ellis was appointed personal representative of the Williams's estate by the probate division of the Superior Court. He initiated probate on October 13, 1987, the will was admitted to probate on November 3, 1987, and letters of administration were issued to him. Ellis published notices to creditors and unknown heirs on November 13, 20, and 27, 1987, including notice of the May 13, 1988 deadline for filing claims against the estate.

On January 11, 1988, DHS filed a timely claim against the estate in the amount of $36,549.27 for medical services provided to Mrs. Williams through the District's Medicaid program. DHS recorded this claim, which is not disputed, in the probate records for the estate. On September 29, 1988, Ellis, acting in his capacity as personal representative of the estate, deeded the property to himself in accordance with the terms of his mother's will. The deed was recorded with the Recorder of Deeds, the language of recordation stating that Ellis received title to the property from himself as the personal representative of the Williams's estate. On October 4, 1988, the Register of Wills granted the estate a Waiver of Filing Inventories and Accounts.

On July 26, 1989, Mr. Ellis and his wife borrowed $49,000 from Better Homes Financial Services in return for a deed of trust to the property. The loan was later assigned to Chrysler First Financial Services. On April 27, 1990, the Ellises borrowed $75,000 from appellant, Associates Financial Services of America, Inc. ("Associates"), to pay off the Chrysler First loan and to cover additional expenses. This second loan was secured by a deed of trust to the property in favor of Associates. Associates filed its deed of trust with the Recorder of Deeds on May 1, 1990. As part of Ellis's loan application process, Associates had the property appraised and a title search conducted, which apparently revealed no other interest or claims on the property.

On October 10, 1991, three years after Ellis recorded the transfer of title to himself, and seventeen months after Associates filed its deed of trust with the Recorder of Deeds, the District recorded its Medicaid claim, as a lien on the property, with the Recorder of Deeds. On October 15, 1991, the District filed the instant action against the Ellises and Associates in the Superior Court. The relief sought was the return of the property to the estate so that it could be sold and the proceeds used to pay the District's Medicaid claim.²

On January 16, 1992, the Ellises filed for bankruptcy in the U.S. Bankruptcy Court for the District of Maryland. The Ellises' bankruptcy plan proposed surrendering the property to Associates. The Bankruptcy Court determined that the property was abandoned by the Ellises in favor of Associates, but declined to resolve the conflicting claims to the property between Associates and the District. Thereafter, the Bankruptcy Court lifted the bankruptcy stay on the property, leaving the matter in the jurisdiction of the Superior Court for resolution of the conflicting claims.

II. Proceedings in Superior Court

On March 12, 1993, after a hearing on the parties' respective motion and cross-motion for summary judgment, Judge Eugene N. Hamilton granted partial summary judgment in favor of the District, restoring the property to the estate by voiding both Ellis's transfer of the property to himself and the subsequent deed of trust in favor of Associates.³ This action would allow the District to receive payment of its Medicaid claim from the estate.

In granting summary judgment for the District, Judge Hamilton made a series of rulings. First, he held that D.C.Code § 20-1102⁴ imposed on Ellis, in his capacity as personal representative of his mother's estate, a duty to notify the District, through a proposal for estate distribution, regarding his intent to transfer the property to himself. Had he done so, reasoned the court, the District would have been put on notice of the pending transfer, thus providing it an opportunity to object to the removal of the property from the estate — a removal that prevented the District from collecting its $36,549.27 claim. Judge Hamilton also ruled that, because he transferred the property to himself without a court order, Ellis violated D.C.Code § 20-742,⁵ thus rendering the transfer unlawful and void. Therefore, because he could not legally pass title to himself, Ellis could not pass legal title to anyone else, including Associates.

The court further ruled that Associates had "an obligation to make reasonable inquiry as to whether or not a person who purports to sell legal title to property has the authority to do so." Judge Hamilton concluded that a person using due care should have investigated the fact that Ellis, as personal representative of the estate, had passed title to himself. Thus, the judge ruled, Associates was obliged to examine the estate administration file where, presumably, it would have discovered: 1) that the District had a Medicaid claim against the estate; 2) that Ellis had failed to notify the District that he had transferred the property to himself; 3) that the probate court did not authorize the transfer; and 4) that Ellis was therefore without authority to transfer title to himself or to any other party. In sum, Judge Hamilton's rulings nullified Ellis's transfer of title to himself, voided the deed of trust in favor of Associates, and restored the property to the estate for sale by the successor personal representative, with the proceeds available to satisfy the District's Medicaid claim.⁶ This appeal followed.

Associates contends here that it has priority on the property because it was first to file its deed of trust with the Recorder of Deeds, and is therefore "first in time, first in right"; that it took the deed of trust without notice of the District's Medicaid claim against the estate; that old § 20-1104(c) protects a lender who takes an interest in realty, without notice of a competing claim, from any claims against the estate; and that the District's claim is against Ellis personally, either because the property had already been transferred from the estate at the time the District filed its lien with the Recorder of Deeds, or because Ellis breached his fiduciary duty as personal representative.

III. Standard of Review

The trial court should grant summary judgment if "there is no genuine issue as to any material fact and where the moving party is entitled to a judgment as a matter of law." Super. Ct. Civ. R. 56(c); see R & A, Inc. v. Kozy Korner, Inc., 672 A.2d 1062, 1070 (D.C.1996). "On appeal from the trial court's entry of summary judgment, this court conducts a de novo review of the record and applies the same principles employed by the trial court in initially considering the motion." Simard v. Resolution Trust Corp., 639 A.2d 540, 549 (D.C.1994) (citing Holland v. Hannan, 456 A.2d 807, 814 (D.C.1983)).

We conclude for the reasons set forth below that, pursuant to old § 20-1104(c), Associates took good title to the property in question, free of any claim against the estate, and that the trial court erred as a matter of law when it ordered that the property be returned to the estate.⁷

IV. D.C.Code § 20-1104(c)

Section 20-1104 (c) of the District's probate code was amended in 1995. However, the operative language under old § 20-1104(c) determines the outcome of this appeal because Associates filed its deed of trust on the property with the Recorder of Deeds on May 1, 1990, before the amendment became effective. The previous version provided:

If property distributed in kind is sold to a purchaser for value by a distributee who has received an instrument or deed of distribution from the personal representative, the purchaser takes good title free of any claims of the estate and incurs no personal liability to the estate. To be protected under this provision, a purchaser need not inquire whether a personal representative acted properly in making the distribution in kind.

D.C.Code § 20-1104(c) (1989 Repl.) (emphasis added). The meaning of this provision as applied here is both plain and undisputed: a "purchase...