Call v. Jeremiah

• Decision Date: 22 March 1967
• Parties: Albert H. CALL and Eudora Call, husband and wife, Appellants, v. Duane JERMIAH and Patricia Mae Jeremiah, husband and wife, Earl Thomas Lawhead and Ethel E. Lawhead, husband and wife, Security Bank of Oregon, an Oregon corporation, Respondents.
• Court: Oregon Supreme Court

Page 502

425 P.2d 502

246 Or. 568

Albert H. CALL and Eudora Call, husband and wife, Appellants, v. Duane JERMIAH and Patricia Mae Jeremiah, husband and wife, Earl Thomas Lawhead and Ethel E. Lawhead, husband and wife, Security Bank of Oregon, an

Oregon corporation, Respondents.

Supreme Court of Oregon, In Banc.

Argued and Submitted Nov. 3, 1966.

Reargued and Submitted Feb. 1, 1967.

Decided March 22, 1967.

Oliver Crowther, Portland, argued and reargued the cause for appellants. With him on the briefs was Anthony Pelay, Jr., Portland.

James G. Breathouwer, Portland, argued the cause, and Carlton R. Reiter, Portland, reargued the cause for respondents. With them on the brief were Reiter, Day, Anderson & Wall, Portland.

Before PERRY, C.J., and McALLISTER, SLOAN, O'CONNELL, GOODWIN, DENECKE and REDDING, JJ.

O'CONNELL, Justice.

This suit was brought to foreclose a second mortgage after the first mortgage was foreclosed and the land was redeemed from the foreclosure sale by the grantees of the mortgagors. Plaintiffs appeal from a decree in favor of defendants. The facts are as follows:

(1) On February 2, 1960, Duane and Patricia Mae Jeremiah executed a first mortgage to Pacific Mutual Life Insurance Company.

(2) On February 3, 1960, the Jeremiahs executed a second mortgage to plaintiffs, Albert and Eudora Call.

(3) On April 6, 1961, the Jeremiahs executed a deed to Mercer Steel Company.

(4) On March 21, 1962, Pacific Mutual Life Insurance Company brought suit against the Jeremiahs to foreclose the first mortgage. Albert and Edudora Call were joined as parties defendant but defaulted.

(5) On July 27, 1962, the decree of foreclosure was entered.

(6) On September 10, 1962, Pacific Mutual Life Insurance Company purchased at the foreclosure sale.

(7) On August 27, 1963, Mercer Steel Company executed a quitclaim deed to Robert and Patricia Blake.

(8) On August 27, 1963, Robert and Patricia Blake executed a quitclaim deed to Earl and Ethel Lawhead.

(9) On September 9, 1963, the Lawheads redeemed the property from the foreclosure sale.

(10) On December 9, 1963, the trustee in bankruptcy of the Jeremiahs executed a quitclaim deed to the Lawheads.

(11) On December 9, 1963, Earl and Ethel Lawhead executed a mortgage to Security Bank of Oregon.

(12) On May 25, 1964, the Calls brought the present suit to foreclose the second mortgage.

Plaintiffs in the present suit were joined as defendants in the foreclosure suit brought by Pacific Mutual Life Insurance Company, the first mortgagee. In the first foreclosure suit the decree provided that 'the defendants above named, and each of them, and all persons claiming by, through or under them, or any of them, be forever barred and foreclosed of all right, title, interest, lien or equity in or to said real property and each and every portion thereof, except their statutory right of redemption.'

Defendants, the grantees of the mortgagors, contend that since the decree expressly forecloses plaintiffs' mortgage interest in the property, the second mortgage is extinguished and plaintiffs' only remaining interest is a personal claim against the mortgagors for the payment of the loan.

Plaintiffs, on the other hand, contend that a second mortgage may be foreclosed after the foreclosure of a first mortgage, if the property is redeemed from the foreclosure sale by the mortgagor or his grantee.

Ulrich v. Lincoln Realty Co., 180 Or. 380, 168 P.2d 582, 175 P.2d 149 (1947), clearly establishes that a decree of foreclosure extinguishes a first mortgage and that when the land is redeemed by the mortgagor or his grantee the mortgage is not revived as to any deficiency on the foreclosure sale. The first mortgagee has, of course, the lien of a docketed judgment for the deficiency, but this lien dates from the docketing of the judgment and does not have its source in the mortgage which is extinguished by the foreclosure decree.

In spite of the holding in Ulrich, plaintiffs argue that the foreclosure decree does not have the same effect upon a second mortgage, even where the language of the decree expressly forecloses that mortgage lien. They argue that they 'were not actual adversaries in the prior proceeding' in relation to the present defendants and, therefore, are not bound by the judgment. Put in a different way, they argue that the mortgage sought to be foreclosed in the present suit was not the same claim, demand or cause of action presented in the prior mortgage foreclosure proceeding.

Plaintiffs misconceive the purpose of foreclosure proceedings and the effect of the foreclosure decree. The effect of the foreclosure decree is not simply to extinguish the interest of the mortgagee bringing the suit--it is designed to extinguish All interests which are subordinate to the foreclosing mortgagee's interest. This result is clearly pronounced in the decree itself. If a second mortgagee or other junior encumbrancer wishes to assert that his lien is prior to that of the plaintiff, or if he wants to obtain a deficiency judgment in the foreclosure proceedings rather than through a separate action on the debt, he is free to do so. But if he elects not to raise these or other questions, the decree will extinguish his mortgage lien.

If, as contended by plaintiffs, junior liens are not cut off by the decree during the redemption period, it would seem to follow that we have developed a system whereby the second mortgagee who 'has been joined' in the first mortgagee's suit to foreclose can bring a second suit to foreclose during the redemption period and a third mortgagee can bring a third suit to foreclose, and so on with other inferior lien claimants, as a consequence of which there is a multiplicity of litigation which serves no purpose that cannot be served in the original foreclosure suit. When one adds to this the fact that the junior encumbrancers have a right to bid in at the sale of the prior mortgage and also have a statutory right to redeem after sale, it should be apparent that no such system of litigation was contemplated for the foreclosure of mortgages.

This effect of the decree is explained in the various treatises on mortgages. Thus, in 2 Wiltsie, Mortgage Foreclosure, § 835 at pp. 1355--56 (5th ed. 1939), the author says: 'Where a subsequent mortgagee or lienor is made a party to the action or proceeding for the foreclosure of a prior mortgage, the judgment or decree therein destroys his lien, and upon the expiration of the time for redemption the purchaser is entitled to the property free from the lien. The subsequent mortgagee or lienor is remitted to the fund realized in the foreclosure proceedings above that required to satisfy all proper prior charges.' ¹ Our own cases express the same idea. ² Wiltsie's statement that 'upon the expiration of the time for redemption the purchaser is entitled to the property free from his lien' is intended to explain that the purchaser takes the land at the end of the redemption period and that when he does the land is free from the lien. Wiltsie's preceding statement that the decree 'destroys the lien' is unqualified, which means that the lien is destroyed not only as to the purchaser but as to all others unless the destroyed lien is brought back to life, which is another matter involving the policy behind the redemption statutes and the desirability of Reviving liens which are destroyed by a foreclosure decree. ³

Several arguments have been advanced for the revival of mortgage liens upon redemption by the mortgagor or his grantee. ⁴ In the face of these arguments, the Ulrich case decided at least that a first mortgage lien is not revived. To reach a contrary result in the case of a second mortgage, it would be necessary to explain why a second mortgage lien revives when it is clear that a first mortgage lien does not. It would seem that the first mortgagee would have a stronger argument for the revival of his lien to satisfy the deficiency on the debt owing to him than would the second mortgagee who bargained only for a lien interest subordinate to the first mortgage. To allow revival of the second mortgage in this situation would be tantamount to holding it superior to the first mortgage to the extent of the deficiency.

It is argued that the grantee of the mortgagor can get no more than the mortgagor had and thus must take the land burdened by the mortgage. ⁵ Accepting the argument that the grantee can get only that which the mortgagor had, the grantee would take free of the first mortgage as held in the Ulrich case. That being so, it is difficult to see why he should not also take free of the second mortgage.

The reasons for not permitting the revival of liens subjected to foreclosure is summarized in a note by William F. Bernard in 27 Or.L.Rev. 139 at 141--42 (1948):

'The advocates for the view that the proceeding of foreclosure and sale extinguishes the mortgage lien have advanced the following arguments. It has been noted that the purpose of the redemption statutes of the helping the mortgagor is thwarted rather than promoted where, under the revival theory, the possibility of successive resales is imminent. Also, it has been contended that the main purpose of making it to the mortgagee's interest to bid up to the fair value of the property is defeated where revival of the mortgage lien is recognized. Considering the position of the mortgagee further, the point has been emphasized that holding the lien extinguished by foreclosure and sale does not unduly burden the mortgagee because he has ample opportunity to protect himself by bidding up to the fair value of the property. In addition, we have been reminded that, notwithstanding the extinguishment of the mortgage lien, redeemed property in the hands of the mortgagor would be subject to a judgment lien for any personal deficiency judgment rendered in favor of the mortgagee. And one final argument should be noted. In those jurisdictions where the revival theory is expounded,...