Janicek v. Obsideo, LLC

• Decision Date: 08 December 2011
• Docket Number: No. 10CA1853.,10CA1853.
• Citation: 271 P.3d 1133
• Parties: Anthony JANICEK and Pamela Janicek, Plaintiffs–Appellants and Cross–Appellees, v. OBSIDEO, LLC and 1502 Forrestal, LLC, as Assignee of Obsideo, LLC, Defendants–Appellees,andSnavely Development Company, Assignor to Obsideo, LLC, Defendant–Appellee and Cross–Appellant.
• Court: Colorado Court of Appeals

271 P.3d 1133

Anthony JANICEK and Pamela Janicek, Plaintiffs–Appellants and Cross–Appellees,

v.OBSIDEO, LLC and 1502 Forrestal, LLC, as Assignee of Obsideo, LLC, Defendants–Appellees,andSnavely Development Company, Assignor to Obsideo, LLC, Defendant–Appellee and Cross–Appellant.

No. 10CA1853.

Colorado Court of Appeals, Div. II.

Dec. 8, 2011.

Keiffer, LLC, Jeffrey C. Keiffer, Denver, Colorado, for Plaintiffs–Appellants and Cross–Appellees.

March, Olive & Pharris, LLC, J. Brad March, Fort Collins, Colorado, for Defendants–Appellees.

Semler and Associates, R. Parker Semler, Matthew Nelson, Denver, Colorado, for Defendant–Appellee and Cross–Appellant.Opinion by Judge MILLER.

In this action seeking payment of excess proceeds tendered at a public trustee foreclosure sale, plaintiffs, Anthony and Pamela Janicek (homeowners), appeal the trial court's orders in favor of defendants, Obsideo LLC and 1502 Forrestal, LLC (collectively, Obsideo) and Snavely Development Company (Snavely). Snavely cross-appeals the trial court's denial of its request for attorney fees. We affirm. In doing so, we hold that homeowners' non-waiver of their homestead exemption rights under Snavely's second deed of trust did not operate as a waiver by Snavely of the provisions of section 38–41–212(1), C.R.S.2011. That statute provides that, in connection with the foreclosure of a property by a senior lienholder whose deed of trust contained a homestead waiver, a junior lienholder may acquire the property through redemption free and clear of any homestead rights. Therefore, Snavely's transferee redeemed the foreclosed-upon property free and clear of homeowners' homestead exemption rights.

I. Background

Homeowners executed a first deed of trust on their home for the benefit of a lender, not a party to this action, which contained a waiver of their statutory homestead exemption rights. Homeowners also executed a second deed of trust for the benefit of Snavely. The second deed of trust did not include such a waiver, and homeowners presented evidence that the non-inclusion of the waiver was negotiated with Snavely.

The lender holding the first deed of trust foreclosed. The day before the public trustee sale, Snavely sold the note securing the second deed of trust to Obsideo. At the sale, Obsideo was outbid by the winning bidder, and the proceeds from the public trustee sale exceeding the bid submitted by the foreclosing lender totaled $24,769.71 (excess proceeds).

Shortly thereafter, homeowners filed a petition for declaration of homestead rights and a temporary restraining order, alleging that, because they negotiated to keep their homestead rights in the second deed of trust, they should receive the excess proceeds. The trial court entered a temporary restraining order and an order to show cause why homeowners' homestead rights were not valid.

After the case was filed, Obsideo sought to redeem by tendering payment to the public trustee on the last day of the redemption period. However, Obsideo failed to include two days of per diem interest, in the amount of $99.56, which it paid to the public trustee two days after the redemption deadline. The public trustee remitted the money paid by Obsideo to the winning bidder, who accepted it, and issued a certificate of redemption to Obsideo. Pursuant to the trial court's temporary restraining order, however, the public trustee held the excess proceeds and did not issue a trustee's deed pending further orders from the court.

Homeowners then filed a motion to strike the certificate of redemption, arguing that (1) in failing to pay the $99.56 of interest by the redemption deadline, Obsideo did not strictly comply with the redemption statute, and (2) the public trustee could not extend the redemption period absent fraud. Accordingly, homeowners sought an order requiring the public trustee to convey the property to the winning bidder and disburse the excess proceeds to homeowners.

After a hearing, the trial court determined that homeowners waived their homestead rights in the first deed of trust and were not entitled to claim a homestead exemption in foreclosure proceedings pursuant to that instrument. Thus, Obsideo was entitled to acquire the property free of any homestead rights because it redeemed pursuant to foreclosure of the first deed of trust. The court further held that homeowners had no standing to challenge Obsideo's redemption because, if the court were to strike the certificate of redemption, the property would pass to the winning bidder rather than homeowners. Accordingly, the trial court vacated the temporary restraining order and held that Obsideo was entitled to the excess proceeds up to the amount of the note secured by the second deed of trust.

Snavely thereafter moved for an award of attorney fees, arguing that homeowners' claims lacked substantial justification. The trial court denied Snavely's motion for attorney fees after finding that homeowners presented a rational argument and that their claims did not lack substantial justification.

On appeal, homeowners contend (1) the second deed of trust contractually placed their homestead rights in a superior position to the lien secured by that instrument, and therefore they are entitled to the excess proceeds; (2) Obsideo's failure to strictly comply with the redemption statute entitles them to the excess proceeds; and (3) various equitable doctrines bar Obsideo from receiving the excess proceeds. In its cross-appeal, Snavely contends the trial court erred in denying its request for attorney fees because homeowners' claims were substantially frivolous. We are not persuaded by any of these contentions.

II. Mootness

As a preliminary matter, we reject Obsideo's argument that homeowners' appeal is moot. Obsideo argues that this court cannot reverse the trial court's vacating of the temporary restraining order and set aside the redemption because the property was sold to a third party after the order was vacated.

“A case is moot when a judgment, if rendered, would have no practical legal effect upon an existing controversy.” Moran v. Standard Ins. Co., 187 P.3d 1162, 1164 (Colo.App.2008).

Based on our review of the pleadings, we understand that, at core, homeowners claim that they are entitled to be paid the excess proceeds. They do not appear to assert any claim to the property itself, but rather advance each of their various theories in support of their claim to the excess proceeds.

Patterson v. Serafini, 187 Colo. 209, 532 P.2d 965 (1974), supports homeowners' position that their claim for excess proceeds is not moot. There, a junior lienholder redeemed the property following foreclosure of a senior deed of trust and, pursuant to court order, was paid the excess proceeds tendered by the winning bidder at the public trustee sale. Id. at 211–12, 532 P.2d at 966–67. The supreme court addressed the merits of the owner's claim that, by virtue of her homestead rights, she, rather than the redeeming junior lienholder, was entitled to be paid the excess proceeds. Id. at 213–14, 532 P.2d at 967–68. Upon holding that the owner was entitled to the excess proceeds, the Patterson court remanded the case to the trial court with directions to enter judgment in favor of the owner and against the redeeming junior lienholder in the amount of the excess proceeds.¹ Id. at 214, 532 P.2d at 968; see also Thomas v. Lynx United Grp., LLC, 159 P.3d 789, 792 (Colo.App.2006) (acquiescence by appellant in court-ordered foreclosure did not render appeal moot); FCC Constr., Inc. v. Casino Creek Holdings, Ltd., 916 P.2d 1196, 1198 (Colo.App.1996) (same); but see Mount Carbon Metro. Dist. v. Lake George Co., 847 P.2d 254, 256–57 (Colo.App.1993) (court may not set aside a completed foreclosure sale, and appeal by the party foreclosed upon was therefore moot).

Here, the public trustee disbursed the excess proceeds to Obsideo. Accordingly, because homeowners could obtain a judgment against Obsideo for the amount of the proceeds if they prevail, their claim is not moot.

III. Homestead Rights

Homeowners contend that the second deed of trust contractually placed their homestead rights in a superior position to the lien secured by that instrument. Accordingly, homeowners argue that they are entitled to the excess proceeds because, in the second deed of trust, Obsideo waived its right under section 38–41–212(1) to take the property free of their homestead rights. We are not persuaded.

The homestead exemption statute, section 38–41–201(1)(a), C.R.S.2011, provides in pertinent part:

Every homestead ... shall be exempt from execution and attachment arising from any debt ... not exceeding in actual cash value in excess of any liens or encumbrances on the homesteaded property in existence at the time of any levy of execution thereon ... [t]he sum of sixty thousand dollars.

In Frank v. First Nat'l Bank, 653 P.2d 748 (Colo.App.1982), a division of this court held that a waiver of homestead rights contained in a deed of trust did not constitute a waiver as to all junior lienholders. 653 P.2d at 749–50. Rather, the waiver operated only to the extent of the debt secured by the deed of trust. Id. at 750. The General Assembly subsequently extended a senior lienholder's waiver of homestead rights to junior lienholders by enacting section 38–41–212(1). As relevant to this case, that statute provides:

Any purchase by an encumbrancer, lienholder, or any other person or any redemption by a junior lienholder pursuant to a foreclosure sale conducted by ... [a] public trustee ... pursuant to a ... deed of trust ... which contains a waiver of homestead rights in the encumbered property shall be subject to such waiver of homestead rights, and the purchaser of or person redeeming the property shall be entitled to acquire said property free of any homestead rights....

Accordingly, a contractual waiver of homestead rights in a deed of trust constitutes a waiver as to all junior...