First Bank of Lincoln v. Tuschoff

• Court: Washington Court of Appeals
• Writing for the Court: LAWRENCE–BERREY, J.
• Citation: First Bank of Lincoln v. Tuschoff, 193 Wash.App. 413, 375 P.3d 687 (Wash. App. 2016)
• Decision Date: 14 April 2016
• Docket Number: No. 33192–0–III.
• Parties: FIRST BANK OF LINCOLN, a Montana Bank Corporation, Appellant, v. Donald C. TUSCHOFF and Jane Doe Tuschoff, Husband and Wife, and the Marital Community Comprised Thereof; Banana Belt Gaming LLC; John Does I–IV; and All Parties Claiming Right, Title or Interest in the Subject Real Property in Asotin County, Washington, Respondents.

193 Wash.App. 413

375 P.3d 687

FIRST BANK OF LINCOLN, a Montana Bank Corporation, Appellant

v.Donald C. TUSCHOFF and Jane Doe Tuschoff, Husband and Wife, and the Marital Community Comprised Thereof; Banana Belt Gaming LLC; John Does I–IV; and All Parties Claiming Right, Title or Interest in the Subject Real Property in Asotin County, Washington, Respondents.

No. 33192–0–III.

Court of Appeals of Washington, Division 3.

April 14, 2016.

Michael A. Roozekrans, Michael A. Roozekrans PLLC, Erika Balazs, Attorney at Law, Spokane, WA, for Appellant.

Donald C. Tuschoff, (Appearing Pro Se), Lincoln, MT, for Respondents.

Jane Doe Tuschoff, (Appearing Pro Se), Lincoln, MT, for Respondents.

Thomas Timbridge Bassett, Foster Pepper PLLC, Spokane, WA, for Respondents.

OPINION PUBLISHED IN PART

LAWRENCE–BERREY, J.

Donald Tuschoff (Tuschoff) sold a bowling alley to the Schwab family, who financed the purchase with a note secured by a deed of trust. Tuschoff and his daughter thereafter borrowed money from First Bank of Lincoln (First Bank) to purchase Hotel Lincoln located in the state of Montana. As additional collateral to secure the loan from First Bank, Tuschoff assigned the Schwab/Tuschoff deed of trust to First Bank. First Bank properly recorded the assignment of the deed of trust. Banana Belt Gaming LLC (Banana Belt) purchased the bowling alley from Schwab, paid Tuschoff the balance owing on the Schwab/Tuschoff note, but failed to secure a release of the assigned deed of trust from First Bank.

¶ 2 First Bank later learned of the sale and sued Tuschoff and Banana Belt. In addition, First Bank conducted a nonjudicial sale of the Hotel Lincoln property in Montana. Banana Belt successfully moved for summary judgment. The trial court determined as a matter of law that Banana Belt's payment of the Schwab/Tuschoff note extinguished First Bank's assigned Schwab/Tuschoff deed of trust. First Bank appeals.

¶ 3 Most of the issues on appeal involve whether Banana Belt's purchase of the bowling alley is subject to First Bank's recorded assigned deed of trust. In the published portion of this opinion we answer these issues in the affirmative, in favor of First Bank. The last issue on appeal is whether First Bank's election to foreclose nonjudicially against the Hotel Lincoln property in Montana extinguished the underlying obligation and also the Schwab/Tuschoff deed of trust. In the unpublished portion we direct Banana Belt to file suit in Montana to have this issue resolved, due to the fact that resolution of this issue requires application of Montana law and because the controlling precedent is unclear. In general, we reverse and remand for the trial court to proceed consistent with this opinion.

FACTS

¶ 4 This case involves a series of real estate transactions related to a bowling alley located in Clarkston, Washington. Tuschoff originally bought the bowling alley in July 1994 from Rex and Mary Helen Humphrey for $550,000.00. Tuschoff financed the sale by executing a note and deed of trust.

A. Tuschoff sells the bowling alley to Schwab

¶ 5 In 1998, Tuschoff sold the bowling alley to a group of investors for $1,100,000. The group of investors included Gene Schwab, Ladene Schwab, James Schwab, and several others (Schwab). Schwab financed the sale by executing a $1,100,000 note, payable to Tuschoff in monthly installments of $9,791.65. To secure repayment, Schwab executed a deed of trust, listing Tuschoff as the beneficiary. The Schwab/Tuschoff deed of trust stated:

This deed is for the purpose of securing performance of each agreement of Grantor herein contained, and payment of the sum of One Million One Hundred Thousand and No/100 Dollars ($1,100,000.00) with interest, in accordance with the terms of a promissory note of even date herewith payable to Beneficiary or order, and made by Grantor, and all renewals, modifications and extensions thereof, and also such further sums as may be advanced or loaned by Beneficiary to Grantor, or any of their successors or assigns, together with interest thereon at such rate as shall be agreed upon.

Clerk's Papers (CP) at 82. On November 2, 1998, Tuschoff recorded the Schwab/Tuschoff deed of trust with the Asotin County Auditor's Office. The Humphreys remained as senior lienholders.

¶ 6 Tuschoff placed the Schwab/Tuschoff note and deed of trust in escrow with Land Title of Nez Perce County (Land Title), which held the original loan documents, collected Schwab's monthly payments, and disbursed those payments to Tuschoff.

B. Tuschoff buys Hotel Lincoln and assigns the Schwab/Tuschoff deed of trust to First Bank

¶ 7 On January 27, 2011, First Bank lent $440,000 to Tuschoff and his daughter Laurie Parks so the two could buy Hotel Lincoln in Lincoln, Montana. At the time Tuschoff and Parks applied for the loan, the then-owners of Hotel Lincoln did not have adequate financial statements so that First Bank could analyze the business's cash flow. To secure the $440,000 loan, Tuschoff offered to provide additional collateral to First Bank in the form of an assignment of his beneficial interest in the Schwab/Tuschoff deed of trust and a security interest in the Schwab/Tuschoff note. First Bank agreed to loan the money in exchange for the additional collateral. Tuschoff and Parks thereafter signed a promissory note for $440,000, partially secured by a deed of trust against the purchased property. The promissory note was payable in full on February 1, 2014. It contained a due on sale clause that allowed First Bank to “declare the entire balance of this Note to be immediately due and payable upon the ... sale of ... any part of the Property,” earlier defined as “any property ... that secures ... performance of the obligations of this Loan.” CP at 72, ¶ 12, CP at 70, ¶ 1.E.

¶ 8 That same day, Tuschoff executed further documents to provide First Bank the additional agreed on collateral. Specifically, Tuschoff executed an “Assignment of Deed of Trust,” by which Tuschoff assigned his beneficial interest in the Schwab/Tuschoff deed of trust to First Bank. CP at 86. The assignment broadly assigned “all right title and interest in said Note and all rights accrued under said Deed of Trust.” Id. First Bank recorded the assignment with the Asotin County Auditor. Despite this purported assignment of all right title and interest in the note, Tuschoff continued receiving monthly installment payments from Schwab.

¶ 9 Tuschoff also signed a security agreement wherein he granted First Bank a security interest in all property described therein, including:

B. Instruments, Documents and Chattel Paper. All instruments and rights I have now or in the future to payments including, but not limited to, rights to payment arising out of all present and future documents, instruments, tangible and electronic chattel paper, and loans and obligations receivable. This includes any rights and interests ... which I may have by law or agreement against any Account Debtor or obligor of mine.

C. Specific Property. DEED OF TRUST Chattel Paper Issued to DONALD C. TUSCHOFF by .[sic] and executed on October 22, 1998 in the amount of $1, 100,000, secured by [the bowling alley property].^{[1 ]}

CP at 95 (emphasis added). First Bank then filed a UCC–1 statement with the Washington Department of Licensing providing notice of its secured interest in

[a]ll instruments, including ... promissory notes .... DEED OF TRUST Chattel Paper issued to DONALD C. TUSCHOFF by .[sic] and executed on October 22, 1998 in the amount of $1,100,000.00 ... secured by [the bowling alley property].

CP at 101–02 (emphasis added).

C. Banana Belt buys the bowling alley from Schwab

¶ 10 In June 2013, Schwab agreed to sell the Clarkston, Washington bowling alley to Banana Belt for $1,350,000. Banana Belt hired First American Title Company (First American) to close the sale with Schwab. First American's limited practice officer, Tonja Hatcher, handled the closing. Ms. Hatcher obtained the title commitment on the bowling alley property and reviewed it. She noticed in ¶ 21 of that commitment an exception that listed the Humphreys/Tuschoff deed of trust. She also noticed in ¶ 23 an exception that listed Tuschoff's assignment of the Schwab/Tuschoff deed of trust to First Bank. She did not contact First Bank to inquire about First Bank's rights.

¶ 11 Banana Belt borrowed $600,000 from Columbia Bank to finance the purchase. Columbia Bank sent a letter instructing First American to assure that its lien rights were in first position, and “request[ed] that exceptions [listed in paragraphs] 21 and 23 [in the title commitment] be released.” CP at 222.

Accordingly, Ms. Hatcher sent Rita Johnson, the Land Title employee who handled the Humphreys/Tuschoff and Schwab/Tuschoff note escrow accounts, an e-mail asking for a full payoff amount for the Schwab/Tuschoff note. The e-mail attached the pages of the title commitment listing both the Humphreys/Tuschoff deed of trust as well as the Schwab/Tuschoff deed of trust. Ms. Hatcher drew an arrow next to Tuschoff's assignment of the Schwab/Tuschoff deed of trust to indicate “that there [was] somebody else involved.” CP at 202. Ms. Johnson did not get the title commitment pages nor did she notice the assignment of the Schwab/Tuschoff deed of trust.

¶ 13 Ms. Hatcher sent a follow-up e-mail to Ms. Johnson requesting confirmation that Land Title would pay off the deeds of trust so that she would be able to guarantee clear title to Banana Belt and Columbia Bank. Ms. Johnson believed she was required to pay off Tuschoff personally and responded, “This is a wrap and both Deeds of Trust will be paid.” CP at 247. Ms. Hatcher and Ms. Johnson never discussed whether Land Title would pay First Bank, as opposed to Tuschoff. Ms. Johnson testified in her deposition that she does not review the title commitment to determine who Land Title needs to pay, but instead follows the instructions in Land Title's file.

¶ 14 Several days later, Ms. Johnson sent Ms. Hatcher a payoff quote for the...