In re Turville

Decision Date09 March 2007
Docket NumberAdversary No. 06-00100.,Bankruptcy No. 05-62447-13.
PartiesIn re Lynne Marie TURVILLE, Debtor. Lynne Marie Turville, Plaintiff, v. Cornerstone Mortgage Company, Carole L. Turville, and Joseph Peter Amato, Defendants.
CourtU.S. Bankruptcy Court — District of Montana

D. Randy Winner, Great Falls, MT, for Plaintiff.

Matthew R. Kolling, MaCkoff Kellogg, Dickinson, ND, for Defendants.

MEMORANDUM OF DECISION

RALPH B. KIRSCHER, Bankruptcy Judge.

On August 2, 2006, Plaintiff Lynne M. Turville ("Lynne"), represented by D. Randy Winner, of Great Falls, Montana, filed this adversary proceeding. Defendant Cornerstone Mortgage Company ("Cornerstone"), represented by Matthew Kolling of Dickenson, North Dakota, filed an answer to the complaint on September 15, 2006. This Court issued on October 4, 2006, a pretrial scheduling order setting this proceeding for trial on January 25, 2007. After summonses were returned, Plaintiff moved for entries of default against Defendants Carole L. Turville ("Carole") and Joseph Peter Amato ("Joseph"). The Clerk of Court entered such defaults against Defendants Carole L. Turville and Joseph Peter Amato on November 21, 2006. Plaintiff has not filed applications for the entries of default judgments against Defendants Carole L. Turville and Joseph Peter Amato.

Lynne and Cornerstone filed a stipulation of facts and exhibits on January 17, 2007. On the same date, they filed a proposed pretrial order together with exhibits. The Court approved the pretrial order on January 18, 2007, and based on a stipulation of the parties, the Court vacated the January 25, 2007, trial setting. Based upon the stipulation and the approved pretrial order, Exhibits ("Ex.") B, C, D, E, F, G, and H1 are admitted. The Court directed the parties to file briefs on or before February 16, 2007. The parties have filed their respective briefs and this matter is ready for a decision. This memorandum of decision contains the Court's findings of fact and conclusions of law. As is more fully discussed below, Debtor has standing to quiet title the subject property ("property") in her name, but Debtor may not avoid the lien held by Cornerstone and is subject to the terms and conditions of the note and deed of trust.

The Court's jurisdiction over this matter arises under 28 U.S.C. § 1334 and 11 U.S.C. § 105. This adversary proceeding is a core proceeding under 28 U.S.C. 157. The Court's consideration of Lynne's interest in the property and the validity of Cornerstone's deed of trust are governed by state law. Farrey v. Sanderfoot, 500 U.S. 291, 299, 111 S.Ct. 1825, 114 L.Ed.2d 337 (1991), Board of Trade of City of Chicago v. Johnson 264 U.S. 1, 10, 44 S.Ct. 232, 68 L.Ed. 533 (1924), Long v. Bullard, 117 U.S. 617, 6 S.Ct. 917, 29 L.Ed. 1004 (1886).

FACTS

Pursuant to the stipulation filed January 17, 2007, and the pretrial order filed on January 17, 2007, and approved on January 18, 2007, the parties have agreed to the following facts and have stipulated to the admission of the designated exhibits:

1) The property at issue in this proceeding is a single family dwelling located at 1100 11th Street NW, Cascade County, Great Falls, Montana, and more particularly described as follows:

Lot 4, excepting an area 3 feet in width along the southerly boundary of said lot, Block 3, VALLEYVIEW HOMES, SECTION 1, an addition to the City of Great Falls, Cascade County, Montana, according to the official map or plat thereof on file and of record in the office of the Clerk and Recorder of said County.

2) On May 2, 1987 Joseph Amato and Lynne Turville were married in Cascade County, Montana.

3) On August 27, 1993, Joseph Amato purchased the residence located at 1100 11th Avenue NW, Great Falls, Montana, and Joseph and Lynne Amato moved into the residence immediately thereafter (Exhibits "A" and "B").

4) Joseph Amato financed the purchase of the residence by means of a loan from Wells Fargo Mortgage. Joseph Amato secured his Promissory Note by executing a Deed of Trust dated August 30, 1993 in favor of Wells Fargo Mortgage (Exhibit "C"). Lynne Amato did not participate as a party to this transaction because of her credit history.

5) Joseph Amato and Lynne Amato lived in the residence until the parties separated in March, 1995. By agreement between the parties, Lynne Amato remained in the residence and began making the house payments.

6) Lynne Amato was divorced from her husband pursuant to the Decree of Dissolution entered in the Eighth Judicial District Court, Cascade County, Montana, Cause No. DCR-95-436, dated the 13th day of September, 1995 (Exhibit "D").

7) Pursuant to the Dissolution Agreement and incorporated into the Decree, Lynne Amato was awarded the parties' residence located at 1100 11th Street Northwest, Great Falls, Montana.

8) Pursuant to the Divorce Decree, Joseph Amato was ordered to quitclaim his interest in the family home to Lynne Amato, now Lynne Turville. Joseph Amato failed to comply with this portion of the Dissolution Decree.

9) From 1995 until the present, Lynne Turville has lived in the property as her principal residence. Lynne periodically had trouble remaining current on the house payment. These problems were exacerbated by the fact that no representative of Wells Fargo Mortgage would speak with her because her name was not on the loan, and Joseph Amato had never transferred the property to her. In late 2003 lender Wells Fargo Mortgage instituted a foreclosure proceeding pursuant to the terms of Montana's Small Tract Financing Act (Exhibit "E").

10) Prior to the March 31, 2004 sale, Lynne Turville was able to reinstate the Wells Fargo Mortgage loan with funds derived in part from her 2003 federal tax refund and in part from a loan advanced by her mother, Carole L. Turville. As a consequence, the March 31, 2004 foreclosure sale was vacated.

11) To prevent further problems with the Wells Fargo loan, Carole Turville agreed to borrow enough money to retire the Wells Fargo Mortgage loan in its entirety. While Carole Turville had a sufficiently good credit score to qualify for a loan of this amount, she did not own any property to collateralize the loan.

12) On March 18, 2004 Joseph Amato executed a Quitclaim Deed transferring his ownership interest in the residence to Carole L. Turville (Exhibit "F"). The Quitclaim Deed was recorded in the Office of the Clerk and Recorder of Cascade County on August 25, 2004, as Document No. R0089502.

13) Based on the interest conveyed to her by the March 18, 2004 Quitclaim Deed, Carole L. Turville borrowed money from Cornerstone Mortgage Company in an amount sufficient to retire the lien of Wells Fargo Mortgage. Carole Turville secured her note by granting a Deed of Trust in favor of Cornerstone Mortgage Company (Exhibit "G").

14) Neither the Dissolution Agreement nor the Dissolution Decree were recorded in the real property records in the Office of the Clerk and Recorder of Cascade County, Montana.

15) As part of the loan transaction with Carole Turville, Cornerstone Mortgage obtained a lender's title insurance policy with respect to the real property at issue in this action. (Exhibit "H").

CONTENTIONS

Lynne is pursuing this litigation to quiet title in the property and to avoid Cornerstone's lien on the property. Lynne submits this contention on the grounds that the dissolution decree terminated Joseph's interest in the property, that Lynne owns the property and the quitclaim deed from Joseph to Carole transferred no ownership interest upon which Cornerstone's deed of trust could have been created and perfected.

Cornerstone contends that Joseph never quitclaimed any interest to Lynne and the dissolution agreement and decree were never recorded so no constructive notice was provided through the public records. When Joseph quitclaimed his interest to Carole, she became the record title owner of the property. Cornerstone submits that it is a good faith encumbrancer for value without notice, so the deed of trust is not avoidable and Lynne is not entitled to quiet title the property in her name.

LEGAL ISSUES

The parties state the legal issues as follows:

1. Does Lynne have standing to quiet title the property in her name?

2. Is Lynne entitled to avoid the deed of trust held by Cornerstone against the property and is she subject to the terms and conditions of the note held by Cornerstone and secured through the deed of trust by the property?

DISCUSSION
A. Standing.

Pursuant to MONT.CODE ANN. ("MCA") § 70-28-101 and long standing case law in Montana, a person in possession and a person claiming an equitable interest are entitled to pursue a quiet title action. MCA § 70-28-101 provides:

An action may be brought and prosecuted to final decree, judgment, or order by any person or persons, whether in actual possession or not, claiming title to real estate against any person or persons, both known and unknown, who claim or may claim any right, title, estate, or interest therein or lien or encumbrance thereon adverse to plaintiffs ownership or any cloud upon plaintiffs title thereto,' whether such claim or possible claim be present or contingent, including any claim or possible claim of dower, inchoate or accrued, for the purpose of determining such claim or possible claim and quieting the title to said real estate.

Further, a person holding possession of property claiming an equitable title may pursue a quiet title action. See Van Vranken v. Granite County, 35 Mont. 427, 90 P. 164, 166 (1907); Poison Sheep Co. v. Owen 106 P.2d 181, 183, 110 Mont. 601, 601 (Mont.1940). "... As courts of equity, bankruptcy courts `will look through the form to the substance of any particular transaction and may contrive new remedies when those in law are inadequate ....'" Atkins v. Fiberglass Representatives, Inc. (In re Atkins), 134 B.R. 936, 939 (9th Cir.BAP1992) (quoting In re Global Western Development Corp., 759 F.2d 724, 727 (9th Cir.1985)) (quoting In...

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