Cooley v. Fredinburg, J-1

• Decision Date: 12 August 1992
• Docket Number: J-1
• Citation: 114 Or.App. 532,836 P.2d 162
• Parties: Marion C. COOLEY, Plaintiff, v. Robert Roger FREDINBURG, Appellant, Marion C. Cooley, as assignee of U.S. National Bank of Oregon, a national banking association; First Interstate Bank of Oregon, N.A.; L. Ken Casteel; John C. Preston and Patricia J. Preston, husband and wife; Timotheas John Horn and Normalee D. Horn, husband and wife; Tischhauser, Cooper & Co., a partnership; and Frieda A. Kuttig, Defendants, and Federal Deposit Insurance Corporation, in its corporate capacity, as successor to Bear Creek Valley Bank; and Hogue Investment Corporation, Respondents. 88-0971-; CA A68733. Court of Appeals of Oregon, In Banc
• Court: Oregon Court of Appeals

Page 162

836 P.2d 162

114 Or.App. 532

Marion C. COOLEY, Plaintiff, v. Robert Roger FREDINBURG, Appellant Marion C. Cooley, as assignee of U.S. National Bank of Oregon, a national banking association; First Interstate Bank of Oregon, N.A.; L. Ken Casteel; John C. Preston and Patricia J. Preston, husband and wife; Timotheas John Horn and Normalee D. Horn, husband and wife; Tischhauser, Cooper & Co., a partnership; and Frieda A. Kuttig, Defendants and Federal Deposit Insurance Corporation, in its corporate capacity, as successor to Bear Creek Valley Bank and Hogue Investment Corporation, Respondents.

88-0971-J-1; CA A68733.

Court of Appeals of Oregon,

In Banc.

Argued and Submitted Dec. 13, 1991.

Resubmitted In Banc May 6, 1992.

Decided Aug. 12, 1992.

Douglas J. Richmond, Medford, argued the cause and filed the briefs, for appellant.

David V. Gilstrap, Ashland, argued the cause, for respondent Hogue Inv. Corp. With him on the brief were Ainsworth Davis, Gilstrap, Harris, Balocca & Fitch, P.C., Ashland.

Frank C. Higham, San Jose, Cal., waived appearance, for respondent F.D.I.C.

BUTTLER, Judge.

Fredinburg (defendant) appeals an order that determined that Federal Deposit Insurance Corporation (FDIC) had the right to redeem his real property after he had redeemed it from the purchaser at a sheriff's sale. We reverse.

FDIC was joined in a mortgage foreclosure commenced by plaintiff against defendant, the debtor, and numerous other mortgage or deed of trust lien claimants. A stipulated ¹ judgment was entered in the foreclosure awarding plaintiff judgments against defendant for various amounts on various claims, including a trust deed and a subsequent mortgage. With respect to the trust deed and mortgage, the judgment declares that the trust deed is a "first, valid, prior and subsisting lien" against the described real property, and that the mortgage "is a valid and subsisting lien * * * [against the described property] and that lien is superior to any interest, lien or claim [other than the trust deed]." The judgment then provides for the sale of the property and for disposition of the proceeds.

FDIC did not assert its lien claim in the foreclosure proceeding and did not obtain a judgment against defendant for the amount of the outstanding debt. The judgment provides that FDIC is forever foreclosed of all interest, lien or claim in the described real property, "excepting only its 365-day statutory right of redemption pursuant to 28 U.S.C., Section 2410(c)."

The property was sold to a third party at a sheriff's sale on June 14, 1990. Defendant then redeemed. On February 6, 1991, FDIC gave notice of its intent to redeem the property under 28 U.S.C. § 2410(c). After defendant objected, the sheriff declined to act, whereupon FDIC moved for an order "Establishing FDIC Right to Redemption," which the court granted. Defendant appeals from that order.

Hogue Investment Corporation (Hogue), as successor to FDIC, makes several arguments on appeal challenging appellate jurisdiction, only one of which requires discussion. It argues that the trial court's order determining that FDIC had the right to redeem from defendant is not a final order, because the sheriff was not a party and the order did not direct the sheriff to permit FDIC to redeem. Therefore, it argues, it is not an order affecting a substantial right, ORS 19.010(2)(c), and is not appealable. However, FDIC invoked the jurisdiction of the court for an order in aid of execution to determine that it had the right to redeem from defendant, notwithstanding that defendant is the debtor and claimed that no right of redemption existed after he had redeemed. ORS 23.600. The sheriff appeared by county counsel. It is clear that the sheriff would not have permitted FDIC to redeem in the absence of the court's ruling. Therefore, the order affected a substantial right of both parties and is appealable under ORS 19.010(2)(c).

On the merits, defendant argued below, and argues here, that when he, as the debtor, redeemed the property, the effect of the foreclosure sale was terminated; therefore, there was no sale that would give rise to a right of redemption under Oregon law. He is correct. ORS 23.600 provides in part:

"If the judgment debtor redeems at any time before the time for redemption expires, the effect of the sale shall terminate and the judgment debtor shall be restored to the estate of the judgment debtor."

If that is all that there were to the case, FDIC ² would prevail, because federal law would preempt Oregon law to the extent that it does not provide a procedure for FDIC to protect its interest. 28 U.S.C. § 2410(c) provides, in part:

"A judgment or decree in such action or suit shall have the same effect respecting the discharge of the property from the mortgage or other lien held by the United States as may be provided with respect to such matters by the local law of the place where the court is situated. * * * Where a sale of real estate is made to satisfy a lien prior to that of the United States, ³ the United States shall have one year from the date of the sale within which to redeem * * *. In any case where the debt owing the United States is due, the United States may ask, by way of affirmative relief, for the foreclosure of its own lien and where property is sold to satisfy a first lien held by the United States, the United States may bid at the sale * * *." (Emphasis supplied.)

However, defendant argues that FDIC simply neglected to protect its rights when it failed to assert its lien and obtain a judgment in the foreclosure proceeding. He points out that, if it had obtained a judgment in the foreclosure, instead of permitting its interest in the property to be foreclosed, it would have had a judgment lien that would have been revived when he, the debtor, redeemed the property. It could then have executed on that judgment without having to pay the price of redemption. He is also correct in that argument. Franklin v. Spencer, 309 Or. 476, 488, 789 P.2d 643 (1990). Not only would FDIC not have been required to put up any money, it would have had a lien that would remain for 10 years and would be renewable. ORS 18.360.

It is also true that, under Oregon law, the failure of FDIC to assert and establish its lien and to obtain a judgment for the amount thereof, precludes it from redeeming the property from anyone, because it no longer has a "lien by judgment, decree or mortgage" on the property. ORS 23.530(2). ⁴ It did not assert its lien claim in the foreclosure proceeding and did not obtain a judgment on its claim, and, by the judgment, it was "forever foreclosed of all interest, lien or claim in the real property." If FDIC had obtained a judgment in the foreclosure proceeding, it would have taken the steps necessary to permit it to exercise its right to redeem from anyone other than the debtor within 1 year from the date of sale. 28 U.S.C. § 2410(c). However, as defendant points out, if FDIC had done that, it would also have been in the more advantageous position of being able to execute on its judgment when he redeemed.

The problem here is that FDIC did nothing, even though under Oregon law it could have taken the steps necessary to permit it to exercise its right to redeem or to collect on its judgment lien. Although 28 U.S.C. § 2410(c) requires Oregon to permit redemption by the government within 1 year from the date of sale, nothing entitles the government, or anybody else, to redeem when it has failed to follow the state procedures that would have permitted it to protect itself. That federal statute specifically provides:

"In any case where the debt owing the United States is due, the United States may ask, by way of affirmative relief, for the foreclosure of its own lien and where property is sold to satisfy a first lien held by the United States, the United States may bid at the sale * * *."

It is apparent that Congress recognized that it would or might be necessary for the government to foreclose its lien in order to be in a position to redeem or to otherwise protect its interest.

In U.S. v. John Hancock Mut. Ins. Co., 364 U.S. 301, 81 S.Ct. 1, 5 L.Ed.2d 1 (1960), on which Hogue and the dissent rely, the court expressly pointed out that the government had "satisfied the procedural requirements" (364 U.S. at 304, 81 S.Ct. at 3) of the state's laws: It had sought and obtained affirmative relief on its lien claim, obtained a judgment against the debtor in the foreclosure and had followed the proper procedure to redeem. The problem was that, under Kansas law, the debtor had the sole right to redeem within the first 12 months after the sale, and that was the 12 months during which the federal statute gave the federal government the right to redeem. The state law effectively took away the government's right to redeem, and there is nothing in the opinion suggesting that, under Kansas law, the government had any other recourse to collect its judgment by the sale of the debtor's property. The court held that the federal statute controlled and that the state must permit the government to redeem within 12 months after the foreclosure sale.

In reaching that conclusion, the court pointed out that Congress was concerned about a situation in which the United States, as a junior lienor, would find its lien dissolved without having had a chance to protect its right to any amount that the foreclosed property might be worth in excess of the senior lien. 364 U.S. at 305, 81 S.Ct. at 4. It recognized that one method of protecting that right would be to permit the government to bid at the sale. However, it also recognized that, in order to bid, it was necessary to obtain an appropriation from Congress, which might take more time than was available before the sale. Therefore, Congress provided that, not only may the government bid at the sale, it would also have 1 year within which to redeem in order to give it time to secure an appropriation and...