Franklin v. Spencer

• Decision Date: 15 February 1989
• Citation: 97 Or.App. 202,776 P.2d 13
• Parties: Timothy FRANKLIN and Phyllis Franklin, husband and wife, Respondents, v. Larry D. SPENCER, Sheriff of Lincoln County, and Carl Drobnic and Irene Drobnic, husband and wife, Defendants, Ted Harber and Karen Harber, husband and wife, and Darrell Linzy, Appellants. Ted HARBER and Karen Harber, husband and wife, Appellants, v. Timothy FRANKLIN and Phyllis Franklin, husband and wife, Respondents. 86-1253, 86-1288; CA A44858. . On Respondents' Petition for Review
• Court: Oregon Court of Appeals

Page 13

776 P.2d 13

97 Or.App. 202

Timothy FRANKLIN and Phyllis Franklin, husband and wife, Respondents, v. Larry D. SPENCER, Sheriff of Lincoln County, and Carl

Drobnic and Irene Drobnic, husband and wife, Defendants,

Ted Harber and Karen Harber, husband and wife, and Darrell

Linzy, Appellants.

Ted HARBER and Karen Harber, husband and wife, Appellants, v. Timothy FRANKLIN and Phyllis Franklin, husband and wife, Respondents.

86-1253, 86-1288; CA A44858.

Court of Appeals of Oregon.

On Respondents' Petition for Review Feb. 15, 1989 Decided June 14, 1989 Reconsideration Denied Aug. 25, 1989.

Guy B. Rencher II, P.C., Corvallis, for the petition.

J. Christopher Minor, Newport, for appellant Linzy, contra.

Before GRABER, P.J., and RIGGS and EDMONDS, JJ.

GRABER, Presiding Judge.

Plaintiffs petition for reconsideration of our decision. 94 Or.App. 355, 765 P.2d 1241 (1988). We allow the petition, withdraw our former opinion, and affirm. ¹

Loevitaur owned real property in Lincoln County. In 1970, he mortgaged it to the Walters. In 1981, defendants Harber obtained two judgments against Loevitaur. In August, 1982, defendants Drobnic obtained a judgment against Loevitaur. All three judgments were docketed as provided in ORS 18.320. On December 1, 1981, the Walters filed a civil action to foreclose their mortgage. The Harbers were among the original defendants in the foreclosure action; the Walters added the Drobnics as defendants after learning of their interest. ² The court entered a judgment on February 18, 1985, foreclosing the mortgage and ordering that the interests of all parties, including the Harbers and the Drobnics, be sold at a sheriff's sale. Defendant Linzy bought the property on April 5, 1985, at the sale. Loevitaur thereafter sold his interest to plaintiffs, who redeemed the property on April 4, 1986. ³ Some time later, Linzy purchased the Drobnics' judgment.

After the redemption, the Harbers levied execution on the property and sought to have defendant Spencer, the Lincoln County sheriff, sell it to satisfy their judgment lien. Plaintiffs then brought this action to enjoin the sale and to declare that the Harbers' and the Drobnics' liens did not revive when plaintiffs, as Loevitaur's grantees, redeemed the property from the sale to Linzy. The trial court granted the injunction. The Harbers and Linzy appeal. In our former opinion, we held that the liens did revive and that the Harbers and Linzy could execute on them. We are now persuaded that that holding conflicts with the controlling Supreme Court cases and is, therefore, incorrect.

In our former opinion, we concluded that, under ORS 18.350(1), the judgments against Loevitaur became liens on the property when they were entered and would remain liens on his interest in it until the redemption period expired and his interest was entirely divested. Under ORS 23.530(1), plaintiffs could receive no greater title when they redeemed than Loevitaur would have received, had he redeemed. 94 Or.App. at 358-59. We held, therefore, that plaintiffs took Loevitaur's interest subject to the judgment liens and that, when plaintiffs redeemed, the entire estate was again subject to those liens.

Our original conclusion would also appear to follow from the rule that a purchaser at a sheriff's sale acquires only an equitable estate in the realty, while the legal title remains in the mortgagor or judgment debtor until the purchaser receives a sheriff's deed when the redemption period ends. See Maas v. Bolinger, 261 Or. 23, 27, 492 P.2d 276 (1971); Kaston v. Storey, 47 Or. 150, 80 P. 217 (1905). From that rule, it would seem that the mortgagor's legal title remains encumbered by the judgment liens after the sale and that those liens reattach to the entire estate when the purchaser's equitable interest terminates, as by a redemption, before it ripens into legal title. But see Call v. Jeremiah, 246 Or. 568, 574 n. 3, 425 P.2d 502 (1967). However, a reexamination of the relevant Supreme Court cases convinces us that that court has reached a contrary conclusion.

In Williams v. Wilson, 42 Or. 299, 70 P. 1031 (1902), the owner of the property mortgaged it; thereafter, several judgments were entered against him. The mortgagee filed a suit to foreclose. The judgment creditors appeared in the suit, asking that their judgments be paid out of the proceeds of the foreclosure sale, and the court so decreed. The purchaser at the sale paid enough to cover all but one of the judgments. After the sale, the plaintiff obtained the mortgagor's interest and redeemed. The defendant, who owned the remaining judgment, then executed on it. The plaintiff brought suit to enjoin the execution sale. ⁴ The Supreme Court emphasized that the purpose for the statutory requirement that the judgment lien creditor be made a defendant in a foreclosure action is to divest the creditor of any interest in the property. 42 Or. at 306, 70 P. 1031. The court described the status of a judgment creditor who is made a party to the foreclosure:

"If he desires to perpetuate his lien as it pertains to the particular property involved by the suit, it is plain he must set it up; otherwise he must stand in default, and can get nothing. * * * Of what avail would be a decree, if, notwithstanding, the judgment creditor could have execution issue, and sell under his judgment? * * *

"The clear purpose as well as effect of a foreclosure proceeding under the statute is to conclude all parties to the record, and bind them by the decree. * * * The parties can have no remedy or process to enforce their individual liens as they existed prior to the foreclosure, because it cuts them off, and gives them the process provided for the enforcement of the decree where the priorities are determined and the assets marshaled * * *." 42 Or. 307, 70 P. 1031.

In short, the Supreme Court held that a judgment creditor who is a party to a foreclosure suit loses the judgment lien on the foreclosed property and must rely instead on the fund created by the foreclosure sale. Later cases have not affected that holding. In Kaston v. Storey, supra, the judgment liens attached after the foreclosure sale. The court held that those liens revived after the redemption, because the judgment creditors were not, and could not have been, joined in the foreclosure suit and, therefore, could not have participated in the proceeds of the sale. Although the judgments were entered after the sale, they nevertheless became liens on the mortgagor's retained legal title to the property. The redemption defeated the purchaser's inchoate right and restored the title to the same state that it would have had in the absence of a sale. The court distinguished Williams v. Wilson, supra, on the ground that, in Williams, the judgment creditor had been able to participate in the foreclosure. Nothing in the court's reasoning in Kaston is inconsistent with Williams.

Two other cases that we discussed in our former opinion also do not support its result. In Ulrich et al. v. Lincoln Realty Co. et al., 180 Or. 380, 168 P.2d 582, 175 P.2d 149 (1947), the mortgagee recovered a deficiency judgment against the mortgagor in the foreclosure proceeding. The court held that that judgment attached at the time of the foreclosure decree. Because the mortgagor had transferred title before then, the judgment never actually attached. Thus, there was nothing to reinstate after the mortgagor's assignee redeemed. 180 Or. at 399-400, 168 P.2d 582. ORS 18.350(1) does not provide for judgment liens on property that the defendant does not own.

Finally, in Call v. Jeremiah, supra, the court held that second mortgagees who had been parties to the foreclosure of the first mortgage could not, after redemption, seek to foreclose their mortgage. The first foreclosure extinguished their mortgage lien. The court did say, in a passage that we quoted in part in our former opinion, that a general lien,

"not being terminated by a decree or by the sale, continues to encumber the property during the redemption period and a grantee of the debtor takes subject to the encumbrance." 246 Or. at 582, 425 P.2d 502; quoted at 94 Or.App. at 360, 765 P.2d 1241.

Our quotation was misleading, because in that portion of the opinion the court was discussing the effect of an execution on a judgment, not of a mortgage foreclosure. In an execution, unlike a mortgage foreclosure, there is no general judgment that cuts off the other liens or establishes priorities. For that reason, the lien of a judgment will continue to encumber the legal title in the judgment debtor after the sale and will affect the entire title in the event of redemption. That reasoning has nothing to do with the revival of a judgment lien that has been expressly terminated as part of the foreclosure of a mortgage.

The dissent argues that ORS 23.530(1) overruled Williams v. Wilson, supra. That statute simply provides that the assignee of a right of redemption has no greater rights after redemption than would the assignor. The statute has nothing to do with Williams. Perhaps that is why the Supreme Court has continued to treat Williams as good law since the adoption of ORS 23.530. See, e.g., Call v. Jeremiah, supra, 246 Or. at 573 n. 2, 425 P.2d 502; Ulrich et al. v. Lincoln Realty Co. et al., supra, 180 Or. at 386, 399, 168 P.2d 582. Although the judgment lien will reattach if the assignor redeems, that will be a new lien as the result of ORS 18.350. That is, the assignor did not have what the dissent assumes that he had, because there is no lien attached to the right of redemption itself. See note 4, supra. When the assignee took the title, there was no lien attached to it. The judgment lienors must be content with one sale of the property at its full value. That sale clears the legal title of the liens of all persons who were made parties to the foreclosure action, and a later assignment of the legal title to a third party does not revive those...