First Banc Real Estate Inc. v. Johnson

• Decision Date: 01 June 2010
• Docket Number: No. WD 70741.,WD 70741.
• Citation: 321 S.W.3d 322
• Parties: FIRST BANC REAL ESTATE, INC., Respondent, v. Ivan L. JOHNSON, et al., Appellants.
• Court: Missouri Court of Appeals

321 S.W.3d 322

FIRST BANC REAL ESTATE, INC., Respondent,

v.Ivan L. JOHNSON, et al., Appellants.

No. WD 70741.

Missouri Court of Appeals,Western District.

June 1, 2010.

COPYRIGHT MATERIAL OMITTED.

COPYRIGHT MATERIAL OMITTED.

Ronald K. Barker, Lee's Summit, MO, for appellants.

Eric G. Kraft, Overland Park, KS, for respondent.

Before Division One: KAREN KING MITCHELL, Presiding Judge, LISA WHITE HARDWICK, Judge and CYNTHIA L. MARTIN, Judge.

CYNTHIA L. MARTIN, Judge.

Ivan and Marie Johnson (hereinafter the “Johnsons”) appeal from the trial court's judgment denying enforcement of their mechanic's lien and equitable lien against residential property they had at one time been under contract to purchase. The Johnsons contend that the trial court erred: (1) in holding that the Johnsons did not have a valid and enforceable mechanic's lien due to their failure to provide a “notice to owner” in the form and style required by section 429.012.1; ¹ (2) in holding that the Johnsons did not have a valid and enforceable equitable lien for earnest money deposits and additional sums paid to assist with construction of a residence they were under contract to purchase; and (3) in holding that even if the Johnsons did have a valid and enforceable equitable lien, it was foreclosed by Gold Bank's foreclosure of one of its deeds of trust. We affirm.

Factual and Procedural Background ²

This case is illustrative of the pitfalls and landmines inherent in residential construction when financial risks are perilously undertaken by purchasers who lack an appreciation of the complexities of real estate law.

On March 27, 2000, Sanctum, LLC (hereinafter “Sanctum”) acquired land it later platted as the Siena at Longview subdivision in Lee's Summit, Missouri (hereinafter the “Siena Subdivision”). On October 30, 2000, Sanctum obtained a construction loan from Gold Bank ³ for the Siena Subdivision in the amount of $619,750.00. This loan was secured by a deed of trust on the Siena Subdivision (hereinafter “Gold Bank First Deed of Trust”). On March 15, 2001, Sanctum obtained a second construction loan from Gold Bank in the amount of $1,723,000.00. This loan was also secured by a deed of trust on the Siena Subdivision (hereinafter “Gold Bank Second Deed of Trust”). On June 28, 2002, Sanctum obtained a third construction loan from Gold Bank in the amount of $448,000.00 for work to be performed on Block 1 of the Siena Subdivision. This loan was also secured by a deed of trust on at least a portion of the Siena Subdivision (hereinafter the “Gold Bank Third Deed of Trust”).

On June 29, 2002, the Johnsons entered into a Residential New Construction Sale Contract (hereinafter “Construction Contract”) with Sanctum. The Construction Contract obligated Sanctum to construct a residence on Lot 7B in the Siena Subdivision for the Johnsons (hereinafter the “Property”). The Construction Contract then obligated Sanctum to sell, and the Johnsons to buy, the Property for $317,600.00. Sanctum was, therefore, both the seller of the Property as the owner of legal title to the Property and the builder obliged to construct the residence for the Johnsons.

The Gold Bank Third Deed of Trust was recorded July 3, 2002, a few days after the Construction Contract was executed. All three Gold Bank Deeds of Trust encumbered the Property.

At the time of execution of the Construction Contract, the Johnsons paid Sanctum a $1,000.00 earnest money deposit. The Construction Contract required the Johnsons to pay Sanctum an additional earnest money deposit in the amount of $62,720.00 on August 1, 2002. The Johnsons made this payment. The collective earnest money deposits were treated by the Construction Contract as an advance payment to be applied toward the agreed purchase price for the Property.

The Construction Contract described the residence to be constructed for the Johnsons, including agreed options, finish allowances, and a schedule for completion. The Construction Contract obligated Sanctum, as the builder, to “supervise, direct and coordinate the construction” of the residence on the Property and to “obtain all materials, supplies, labor and other items necessary to complete the construction” of the residence. The Construction Contract also provided that Sanctum “shall have full responsibility and authority to select, contract and otherwise deal with all materialmen, suppliers, laborers, and subcontractors to be used in the construction” of the residence. Notwithstanding these provisions in the Construction Contract, Sanctum and the Johnsons agreed that the Johnsons could purchase some of the materials needed to construct the residence directly and that the Johnsons could hire third parties to perform some of what would otherwise have been work undertaken by Sanctum in the Construction Contract. Sanctum and the Johnsons agreed that the cost of any materials or labor paid for directly by the Johnsons would be treated as a credit against the purchase price the Johnsons were otherwise obligated to pay Sanctum. ⁴ This “understanding” was not documented in writing. During the course of construction, the Johnsons purchased materials and paid for labor for work performed on the residence in the amount of $57,517.86.

At some point after construction of the Johnsons' residence began, Sanctum secured a loan from First Bank of Medicine Lodge (hereinafter “FBML”) in the amount of $525,000.00. The loan was to be used for construction activities on the Property and for the adjacent property on Lot 7A. The loan was secured by a deed of trust on the Property and (presumably) on Lot 7A (hereinafter the “FBML Deed of Trust”). Gold Bank did not release any of its Deeds of Trust as encumbrances on the Property when the FBML Deed of Trust was recorded.

The Construction Contract required the Johnsons' residence to be completed by November 15, 2002. However, the Johnsons encountered numerous delays with Sanctum. The first time a closing was scheduled was on April 1, 2004, a year and a half after the promised completion date. In anticipation of closing, the Johnsons began moving personal items into the residence. However, closing did not occur on April 1, 2004. Though numerous other closing dates where thereafter scheduled, closing never occurred. Title to the Property was never transferred to the Johnsons. The record does not provide a clear explanation for Sanctum's failure to close, though the suggestion is that Sanctum was unable to secure necessary releases from Gold Bank and FBML as to enable Sanctum to convey clear title to the Johnsons.

Beginning July 20, 2004, and continuing through August 17, 2004, the successor trustee under the Gold Bank Second Deed of Trust advertised the entire Siena Subdivision for sale at foreclosure. The notice advertised the Siena Subdivision for sale in parcels or as a whole. Foreclosure of the Siena Subdivision proceeded on August 17, 2004. Gold Bank was the only bidder. Gold Bank later assigned its interest in the Siena Subdivision to Regional Properties, Inc. (hereinafter “Regional”). ⁵

The Johnsons received notice of the foreclosure sale approximately six weeks prior to the sale. The Johnsons attended the foreclosure sale with their counsel. The Johnsons did not offer a bid on the Property at the foreclosure sale. However, on the day of, and just prior to, the sale, the Johnsons filed a Notice of Equitable Lien against the Property claiming an equitable lien in the amount of $102,000.00.

On September 14, 2004, the Johnsons recorded a Notice of Lis Pendens on the Property, identifying the matter of Johnson, et al. v. Todd Kane, et al., case no. 04CV-226086, pending in the circuit court of Jackson County, Missouri at Independence.

On September 30, 2004, Regional transferred Lot 7A and the Property to First Banc Real Estate, Inc. (hereinafter “FBRE”) by a special warranty deed. The record suggests that no monetary consideration was paid by FBRE to Gold Bank for the transferred property. The deed was not recorded until December 13, 2004. FBRE is a subsidiary of FBML.

On November 17, 2004, the Johnsons sent a Notice of Mechanic's Lien to Sanctum, Siena Development, LLC, ⁶ and FBML. On December 16, 2004, the Johnsons filed a mechanic's lien on the Property claiming a lien in the amount of $121,237.86. The lien amount was comprised of $63,720.00 (the collective earnest money checks paid by the Johnsons to Sanctum), and $57,517.86 (the amounts paid by the Johnsons for labor and materials incorporated into the residence on the Property). ⁷

Several other entities filed mechanic's liens on the Property. One of those entities, Hermes Landscaping, Inc., initiated the first mechanic's lien enforcement action on January 22, 2004. The Johnsons intervened in the Hermes Landscaping, Inc. lawsuit and asserted a claim for breach of contract and for quantum meruit against Sanctum and Siena Development, LLC, and a claim to enforce their mechanic's lien against various defendants. Three other lawsuits seeking to enforce mechanic's liens were subsequently filed by other mechanic's lien claimants. In addition, FBRE filed a petition for declaratory judgment seeking a declaration that the Johnsons' equitable lien and mechanic's lien were neither valid nor enforceable. The Johnsons filed a counterclaim in the FBRE lawsuit seeking to enforce their mechanic's lien. The Johnsons did not assert a claim to enforce the equitable lien they had recorded on August 17, 2004.

All of the pending lawsuits were consolidated. Thereafter, several of the mechanic's liens were settled or resolved, and Gold Bank released the Property (which was now owned by FBRE) from the Gold Bank First Deed of Trust.

By the time of trial, and as noted in the trial court's pretrial order entered March 5, 2008, the only contested issue remaining to be adjudicated was the validity and enforceability of the Johnsons' mechanic's lien. The pretrial order specifically noted that the Johnsons were not...