Federal Home Loan Mortg. Corp. v. Bauer

• Decision Date: 17 December 1997
• Citation: 950 P.2d 399,151 Or.App. 591
• Parties: FEDERAL HOME LOAN MORTGAGE CORPORATION, a corporation, Respondent, v. Janet Lynn BAUER, aka Janet L. Freeman, aka Janet Lynn Freeman-Bauer, Larry R. Bauer, and NDC, Ltd., a corporation, Appellants, Riviera Finance East Bay, Inc., a California corporation, Trans National Leasing, Inc., a Washington corporation, and United States of America, Internal Revenue Service, Defendants, and Security Pacific Financial Services, Inc., a Delaware corporation, Respondent. CCV95-06104; CA A93340.
• Court: Oregon Court of Appeals

Page 399

950 P.2d 399

151 Or.App. 591

FEDERAL HOME LOAN MORTGAGE CORPORATION, a corporation, Respondent, v. Janet Lynn BAUER, aka Janet L. Freeman, aka Janet Lynn Freeman-Bauer, Larry R. Bauer, and NDC, Ltd., a corporation, Appellants Riviera Finance East Bay, Inc., a California corporation Trans National Leasing, Inc., a Washington corporation, and United States of America, Internal Revenue Service, Defendants and Security Pacific Financial Services, Inc., a Delaware corporation, Respondent.

CCV95-06104; CA A93340.

Court of Appeals of Oregon.

Argued and Submitted Feb. 26, 1997.

Decided Dec. 17, 1997.

Shay S. Scott, Portland, argued the cause for appellants. With him on the briefs was Hagland & Kirtley.

Christine A. Kosydar, Portland, argued the cause for respondent Security Pacific Financial Services, Inc. With her on the brief were Charles F. Adams and Stoel Rives LLP.

No appearance for respondent Federal Home Loan Mortgage Corporation.

Before DEITS, C.J., and WARREN and De MUNIZ, JJ.

De MUNIZ, Judge.

Appellants Janet Bauer, Larry Bauer and NDC, Ltd. (NDC) appeal from an order terminating a decree of foreclosure after the property was equitably redeemed under ORS 88.100. We review de novo, ORS 19.125(3), and affirm.

Janet Bauer owned real property in Clackamas County. Plaintiff Federal Home Loan Mortgage Corporation (FHLM) held a first mortgage on the property, and defendant Security Pacific held a second lien by virtue of a trust deed. The other defendants held interests in the property junior to those of FHLM and Security Pacific. After Janet Bauer defaulted, FHLM filed this foreclosure action in June 1995. Security Pacific was served but did not appear, and the court entered an order of default against Security Pacific on August 7. On December 21, the court granted FHLM's motion for summary judgment and issued a decree of foreclosure that stated, inter alia, that defendants, including Security Pacific, were "forever foreclosed of all interest, lien or claim in the real property * * * excepting only any statutory right of redemption which the defendants may have[.]"

In April 1996, after the decree was entered but before the foreclosure sale, FHLM assigned its rights in the foreclosure judgment to Security Pacific, which filed a notice of assignment with the court. ¹ Security Pacific then tendered $68,952.85 to the court, the "full sum due on plaintiff's judgment" pursuant to ORS 88.100. On April 23, Janet Bauer and Larry Bauer assigned their interest in the property to NDC. On May 29, the court entered an order terminating the decree of foreclosure. It is that order that appellants appeal, naming as respondents FHLM and Security Pacific. ²

NDC first assigns error to the court's allowing Security Pacific to equitably redeem under ORS 88.100. The statute, enacted in 1862, ³ provides:

"If, before a decree is given, the amount then due with the costs of suit is brought into court and paid to the clerk, the suit shall be dismissed. If the same is done after decree and before sale, the effect of the decree as to the amount then due and paid shall be terminated, and the execution, if any has issued, shall be recalled by the clerk. When an installment not due is adjudged to be paid, the court shall determine and specify in the decree what sum shall be received in satisfaction thereof, which sum may be equal to such installment, or otherwise, according to the present value thereof."

NDC argues that Security Pacific could not redeem under ORS 88.100, because a party must have an interest in the property in order to redeem and, when Security Pacific defaulted in the foreclosure proceeding, it was forever barred from any interest. ⁴ Security Pacific contends that its interest in the property was not extinguished, because a default order is not an adjudication on the merits but, even if it is so construed, the decree of foreclosure only determined the priority of FHLM's lien, because that is what FHLM sought in its pleadings. See Rajneesh Foundation v. McGreer, 303 Or. 139, 143, 734 P.2d 871 (1987) (default judgment establishes all material facts alleged in the complaint). NDC responds that the foreclosure decree did "forever bar and foreclose" Security Pacific's interest.

The text of ORS 88.100 does not preclude a defaulting junior lienor from redeeming under the statute. NDC argues, however, that the Supreme Court has "long recognized" that a party must have an interest in the property in order to equitably redeem. Portland Mtg. Co. v. Creditors Prot. Ass'n, 199 Or. 432, 441, 262 P.2d 918 (1953) (equity of redemption is a valuable right that exists in every person who has an interest in, or legal or equitable lien upon, the mortgaged premises). Therefore, NDC argues, ORS 88.100 includes the requirement of a valid property interest as a prerequisite to equitable redemption.

NDC is correct that, when the Supreme Court interprets a statute, that interpretation becomes part of the statute as if written into it at the time of its enactment. Walther v. SAIF, 312 Or. 147, 149, 817 P.2d 292 (1991). However, in Portland Mtg. Co., the court held that a junior lienor omitted from a foreclosure action has an equitable right to redeem, but the court did not interpret ORS 88.100, and the issue of whether a defaulting junior lienor could redeem under the statute was not before the court. NDC argues that, under Oregon law involving real property and defaulting junior lienors,

"a default judgment in a foreclosure proceeding has a conclusive effect--a defaulting party is forever barred from asserting an interest in the land that is the subject of the action." (Emphasis NDC's.)

As authority for that proposition, NDC cites Call v. Jeremiah, 246 Or. 568, 425 P.2d 502 (1967); Lutz v. Blackwell et ux., 128 Or. 39, 273 P. 705 (1929); Giesy v. Aurora State Bank et al., 122 Or. 1, 255 P. 467, 256 P. 763 (1927); Bickel v. Wessinger, 58 Or. 98, 113 P. 34 (1911); Wright v. Conservative Invest. Co., 49 Or. 177, 89 P. 387(1907); and Williams v. Wilson, 42 Or. 299, 70 P. 1031 (1902).

However, NDC's authorities do not advance its position. From those cases, NDC has pointed to statements to the effect that if one is made a party defendant in an action in which the party's lien is attacked, the lienor must set up the lien or otherwise it will be in default and can get nothing. See, e.g., Williams, 42 Or. at 307, 70 P. 1031. NDC has not, however, discussed those statements in their factual contexts, and none addressed the issue of the right of a defaulting junior lienor to redeem before the sale on foreclosure. ⁵ For example, in Call, the Calls had a second mortgage on property in a foreclosure proceeding. They were joined as parties but defaulted. The property was sold and redeemed. A year-and-a-half later, the Calls sought to foreclose their second mortgage. The court held that the redemption of the property after the sale did not revive the second mortgage of the Calls. To perpetuate their lien, the Calls were required to assert the lien in the foreclosure proceeding. 246 Or. at 573, 425 P.2d 502. That is not the situation here where Security Pacific redeemed before the sale.

ORS 88.100 codifies the common-law doctrine of equitable redemption, and, in Land Associates v. Becker, 294 Or. 308, 312-13, 656 P.2d 927 (1982), the Supreme Court discussed the doctrine in a brief review of the history of mortgages. The court explained that equitable redemption developed during the period when title to the land was held to pass to a lender at the time a person borrowed money on the land. Equitable redemption was a means to avoid the harsh result of the borrower losing all rights to the land on the failure to pay amounts due on Law Day. In turn, foreclosure developed to avoid the abuses of equitable redemption under which some borrowers were allowed to reclaim land years after payment was due. Foreclosure was designed to end the period of equitable redemption so that the new owner could be certain that the title was secure and the previous owner could not redeem the land.

In the light of that historical development of equitable redemption, we agree with Security Pacific that NDC's argument fails to distinguish between the foreclosure of a lien interest and the right to redeem. As the Supreme Court explained in Call:

"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.

" * * * * *

"[The] 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.' Our own cases express the same idea.

"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...