H & F Hogs v. Huwe, 10838

• Court: North Dakota Supreme Court
• Writing for the Court: ERICKSTAD; PEDERSON, S.J., sitting in place of MESCHKE
• Citation: H & F Hogs v. Huwe, 368 N.W.2d 553 (N.D. 1985)
• Decision Date: 22 May 1985
• Docket Number: No. 10838,10838
• Parties: H & F HOGS, a partnership, Plaintiff and Appellant, v. Kenneth HUWE and Betty Huwe, Defendants and Appellees. Civ.

Page 553

368 N.W.2d 553

H & F HOGS, a partnership, Plaintiff and Appellant, v. Kenneth HUWE and Betty Huwe, Defendants and Appellees.

Civ. No. 10838.

Supreme Court of North Dakota.

May 22, 1985.

Michael G. Sturdevant (argued), Kenner, Halvorson & Sturdevant, Minot, for plaintiff and appellant.

John J. Petrik (argued), Pringle & Herigstad, Minot, for defendants and appellees.

ERICKSTAD, Chief Justice.

H & F Hogs [H & F], a partnership, appeals from a district court judgment dismissing its foreclosure action against Kenneth and Betty Huwe. We affirm.

In 1970 the Huwes acquired a one-half interest in a lot in Bergen, North Dakota. The Huwes executed a promissory note to H & F requiring five payments of $11,000, and also executed a mortgage on their interest in the property to secure the note.

The Huwes defaulted on the note and abandoned the premises in 1972. Between 1972 and 1975, the property was rented to other parties. No real estate taxes were paid after 1975, and in 1977 a tax sale was held and the property was acquired by McHenry County. A tax deed was issued to McHenry County after expiration of the redemption period, and the county sold the property on November 17, 1981.

H & F commenced this action, seeking foreclosure of the mortgage, on November 13, 1978. The complaint reserved the right to seek a deficiency judgment. The Huwes served an answer and apparently no further action was taken for nearly four years. On November 22, 1982, H & F filed a motion for leave to amend its complaint to sue directly on the note. The trial court denied the motion, holding that a suit on the note was prohibited by the anti-deficiency judgment statutes contained in Chapter 32-19, N.D.C.C.

The matter was set for trial on July 13, 1984. The parties stipulated to the facts and the case was submitted to the court for a decision on questions of law. The trial court subsequently issued its memorandum decision and judgment was entered dismissing the action.

I

H & F contends that the trial court erred in dismissing its action against the Huwes. In its memorandum decision the trial court held that, because the property had been sold for taxes and no redemption had occurred, the Huwes no longer had an interest in the property. There being no interest to foreclose, H & F could not comply with Sections 32-19-06 and 32-19-07, N.D.C.C., which require a foreclosure sale. The court concluded that H & F could not obtain a deficiency judgment without first foreclosing its mortgage and holding a sheriff's sale.

We have recently held that when a superior mortgagee forecloses its mortgage, an inferior mortgagee is no longer entitled to foreclose its mortgage but is left instead with a statutory right of redemption. National Credit Union Share Insurance Fund v. University Developers, 335 N.W.2d 559, 560 (N.D.1983). We further held that, upon expiration of the redemption period, the inferior mortgagee loses all right to or interest in the property. National Credit Union, supra, 335 N.W.2d at 561.

The rule of National Credit Union applies as well to a case such as this where the superior lien is a tax lien. H & F received written notice of the period for redemption from the tax sale but failed to redeem the property. Section 57-28-08, N.D.C.C., provides that failure of a mortgagee to redeem from a tax sale passes all of the right, title, and interest of the mortgagee to the county by operation of law. Thus, H & F is in the same position as the inferior lienholder in National Credit Union --it has lost all of its right to and interest in the property and therefore is not entitled to foreclose its mortgage.

H & F contends that National Credit Union does not preclude an action on the note indebtedness, because we specifically recognized that the inferior mortgagee in that case could pursue an action against personal guarantors. National Credit Union, supra, 335 N.W.2d at 561. An action against guarantors, however, is an action on their separate contracts of guaranty, not an action on the note indebtedness. Bank of Kirkwood Plaza v. Mueller, 294 N.W.2d 640, 643 (N.D.1980).

We conclude that H & F was not entitled to pursue its foreclosure action after it had lost its right to and interest in the property by failing to redeem from the tax sale. The trial court did not err in dismissing the foreclosure action.

II

H & F contends that the trial court erred in refusing to allow H & F to amend its complaint. The trial court, in denying the motion to amend, held that a mortgagee is precluded by the anti-deficiency judgment statutes from bringing suit against a mortgagor directly on the note.

If the complaint as amended would fail to state a claim upon which relief could be granted, it is not error for the trial court to deny the motion for leave to amend. Galloway v. Forum Publishing Co., 138 N.W.2d 798, 802 (N.D.1965). Thus, if the trial court's determination that H & F cannot sue on the note is correct, denial of the motion was not error.

Section 32-19-07, N.D.C.C., provides in pertinent part:

"Except as otherwise provided in sections 32-19-04 and 32-19-06, neither before nor after the rendition of a judgment for the foreclosure of a real estate mortgage or for the cancellation or foreclosure of a land contract made after July 1, 1951, shall the mortgagee or vendor, or the successor in interest of either, be authorized or permitted to bring any action in any court in this state for the recovery of any part of the debt secured by the mortgage or contract so foreclosed. It is the intent of this section that no deficiency judgment shall be rendered upon any note, mortgage, or contract given after July 1, 1951, to secure the payment of money loaned upon real estate or to secure the purchase price of real estate, and in case of default the holder of a real estate mortgage or land contract shall be entitled only to a foreclosure of the mortgage or the cancellation or foreclosure of the contract except as provided by sections 32-19-04 and 32-19-06."

Sections 32-19-04 and 32-19-06, N.D.C.C., set forth the procedure to be followed in seeking a deficiency judgment, and provide that a mortgagee may seek a deficiency judgment in a separate action. Section 32-19-06 specifies, however, that such an action may only be brought after the foreclosure and sheriff's sale:

"Where a note or other obligation and a mortgage upon real property have been given to secure a debt contracted subsequent to July 1, 1951, and the sale of the mortgaged premises has failed to satisfy in full the sum adjudged to be due and the costs of the action, the plaintiff may, in a separate action, ask for a deficiency judgment, if he has so indicated in his complaint, against the party or parties personally liable for that part of the debt and costs of the action remaining unsatisfied after the sale of the mortgaged premises. Such separate...