Bankers Trust Co. v. Woodall

Decision Date23 August 2006
Docket NumberNo. 25,930.,25,930.
Citation144 P.3d 126,2006 NMCA 129
PartiesBANKERS TRUST CO., Plaintiff, v. Mitchell WOODALL a.k.a. Mitch Woodall, Robbin Woodall, and Wells Fargo Bank New Mexico, N.A., Defendants, Tierra Casa Investments, L.L.C., Defendant-Appellant, v. Gretchen and Steven Welch, Defendants-Appellees.
CourtCourt of Appeals of New Mexico

John E. Farrow, Fairfield, Farrow & Strotz, P.C., Albuquerque, NM, for Appellant.

Sylvain Segal, Law Offices of Segal & Whittaker, LLP, Albuquerque, NM, for Appellees.

OPINION

KENNEDY, Judge.

{1} Mitchell and Robbin Woodall, following their divorce and the subsequent foreclosure and sale of the real property they had purchased during their marriage, each assigned their respective right of redemption to a different assignee. The first assignee to file a petition to redeem the property, Tierra Casa Investments, L.L.C. (Tierra Casa), appeals from the district court's order allowing the other assignee to redeem the property equally with Tierra Casa as tenants in common. Tierra Casa argues that the first in time rule for redemptions applies because: (1) the cotenancy that existed between the Woodalls ended with the foreclosure sale, or (2) the cotenancy that existed between the Woodalls ended with their individual assignments to others of their rights of redemption. As a result, Tierra Casa maintains that, as the first to redeem, it should be allowed to redeem to the exclusion of Gretchen and Steven Welch (the Welches). In other words, it argues that with the cotenancy extinguished, its redemption of the property is not subject to the Welches' right to contribution as cotenants.

{2} We affirm and hold that the Woodalls' cotenancy was not terminated either by the foreclosure sale or their assignments of their rights of redemption to two different parties; the first in time rule therefore does not apply to this case, and Tierra Casa's redemption is subject to the Welches' right of contribution. We hold that parties to whom tenants in common assign their rights to redeem property following foreclosure take their assignments subject to the rights and obligations of their assignors.

FACTS AND BACKGROUND

{3} The Woodalls were married when they bought the property at issue in this case. Following their divorce, the mortgage on the property was foreclosed and on January 5, 2005, a special master sold the property to Tierra Casa. On January 6, Mitchell Woodall assigned his right of redemption in the property to Tierra Casa, and Robbin Woodall assigned her right of redemption to the Welches. On January 27, the foreclosure sale was confirmed by the district court. That same day, Tierra Casa filed its petition to redeem the property. The next day, the Welches filed their petition to redeem.

{4} The Welches and Tierra Casa both asserted a superior right to redeem the property. The Welches also proposed that they and Tierra Casa be allowed to contribute half of the redemption price as cotenants. The district court agreed to this proposal. Subsequently, this Court decided HSBC Bank USA v. Fenton, 2005-NMCA-138, 138 N.M. 665, 125 P.3d 644, which held that, generally, the first to file a petition to redeem property following a foreclosure sale has priority with respect to redemption. Id. ¶¶ 1, 10. Tierra Casa asked the district court to reconsider its decision in light of that opinion. On June 14, the district court reaffirmed its decision that Tierra Casa and the Welches were to be allowed to equally redeem the property. Tierra Casa appeals.

DISCUSSION
Mortgage Foreclosure Sales Do Not Terminate Cotenancies Until After the Period of Redemption Has Passed

{5} The issues in this case are legal issues and our review is therefore de novo. See Self v. United Parcel Serv., Inc., 1998-NMSC-046, ¶ 6, 126 N.M. 396, 970 P.2d 582.

{6} Tierra Casa initially argued on appeal that the foreclosure sale terminated the cotenancy because the sale destroyed the unity of possession. See 86 C.J.S. Tenancy in Common § 11 (1997) (stating that destruction of the unity of possession defeats the cotenancy). Tierra Casa conceded during oral arguments that this argument is incorrect. We agree.

{7} "A `cotenancy' is a tenancy under more than one distinct title, but with unity of possession." 20 Am.Jur.2d Cotenancy & Joint Ownership § 1 (2005). The unity of possession does not require actual physical possession, but merely the right to possession. Id. § 33. Unity of possession is merely each cotenant's right to possess the whole. Id. §§ 32-33. "[U]nity of possession ... is, of course, simply another way of saying that the tenancy in common is a form of concurrent ownership." 4 David A. Thomas, Thompson on Real Property § 32.06(a), at 87 (David A. Thomas ed., 2d ed.2004).

{8} Some authorities assert the blanket proposition that a foreclosure sale terminates the cotenancy. See 86 C.J.S. Tenancy in Common § 11; Sigman v. Rubeling, 271 S.W.2d 252, 255 (Mo.Ct.App. 1954). However, in New Mexico, a foreclosure sale is always subject to the owner's right of redemption. NMSA 1978, § 39-5-18(A) (1987). The statutory right of redemption is a right to regain actual physical possession of the property, conditioned upon certain acts. See id. We view the "right to possess" as a right that is not destroyed by a foreclosure sale until the time for redemption passes, because a cotenant still has the right to possess the whole until then. See Bradley v. Bradley, 554 N.W.2d 761, 764 (Minn.Ct. App.1996) ("Upon expiration of the right of redemption, a redeeming co-tenant's title becomes paramount to that of a nonredeeming co-tenant.").

A party may redeem its interest in property lost through foreclosure sale by reimbursing all of the repurchaser's acquisition costs, or if another co-tenant has already redeemed the property, by paying that co-tenant the portion of the redemption money attributable to the later-redeeming co-tenant's interest in the property. A co-tenant who repurchases property lost through foreclosure takes subject to his co-tenant's right of redemption.

Id. (citation omitted). Redemption acts to restore the title of property to its status before the sale. See Velasquez v. Mascarenas, 71 N.M. 133, 139-40, 376 P.2d 311, 315 (1962) (characterizing the purchase of real property at a tax sale as obtaining an "inchoate title" (internal quotation marks and citation omitted)).

{9} At the time of the foreclosure sale, the Woodalls were cotenants. The Woodalls did not assign any of their rights in the property until after the foreclosure sale. Since the foreclosure sale did not terminate the Woodalls' cotenancy, under the doctrine of inurement, a redemption by one cotenant would inure to the benefit of the other cotenant, triggering the latter's right of contribution. In New Mexico, "a cotenant who redeems from a tax sale does so for the benefit of all the cotenants." Id. at 138, 376 P.2d at 314; Chavez v. Chavez, 56 N.M. 393, 396, 244 P.2d 781, 782 (1952). We hold that this rule applies with equal force to redemption from a mortgage foreclosure sale. See 86 C.J.S. Tenancy in Common § 63 ("Generally, a redemption from a judicial or foreclosure sale of the common property by one tenant in common inures to the benefit of all the cotenants."). We therefore hold that a foreclosure sale does not extinguish a cotenancy until the time for redemption has passed, and that one cotenant's redemption inures to the benefit of the other cotenants. See Laura v. Christian, 88 N.M. 127, 129, 537 P.2d 1389, 1391 (1975) ("[T]he redemption or prevention from loss by one cotenant of common property by payment of an obligation or the purchase of an outstanding interest, which should be discharged or purchased proportionately by cotenants inures to the benefit of the cotenants at their option, subject to the right of contribution."); Torrez v. Brady, 37 N.M. 105, 111, 19 P.2d 183, 187 (1932) ("[W]hen a cotenant purchases an outstanding title or claim to the common property, such purchase inures to the benefit of the common estate, subject only to the right of the purchasing cotenant to require a proportionate contribution from the other cotenants.").

Dual Assignments of Redemption Rights Do Not Terminate Cotenancies

{10} Tierra Casa next argues that the Woodalls' assignments of their respective rights of redemption to different parties terminated the cotenancy because there was no longer a confidential relationship between the parties. Tierra Casa relies on Smith v. Borradaile, 30 N.M. 62, 227 P. 602 (1922), which noted a number of exceptions to the general rule of inurement between cotenants. Id. at 81, 227 P. at 607. These exceptions include: (1) situations where title is perfected in a third party before the cotenant seeks to purchase the property, (2) situations of adverse possession between cotenants, (3) situations where the cotenants are taxed separately so that the other cotenant does not have a general duty to protect the other cotenant's interest, and (4) situations "where the titles derived by cotenants came from different sources, where it is said that the condition establishing a confidential relation between them with reference to the title, that is to say, a fiduciary or trust relation, does not exist." Id. It is this fourth exception which concerns us here. Tierra Casa maintains that because each assignee in this case derived its right of redemption from a different source, and the parties are "strangers," the cotenancy was destroyed for lack of a confidential relationship. We disagree with this conclusion.

{11} We begin by noting that Tierra Casa agreed during oral arguments that if there was only one assignment in this case, that single assignment would be insufficient to terminate the cotenancy. The general rule is that while "[a] tenant in common who conveys his or her interest to a third person ceases to be a cotenant, ... the purchaser of the undivided share of a tenant in common becomes a...

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