JP Morgan Chase Bank, NA v. Wright

• Decision Date: 17 December 2015
• Docket Number: No. 20140625–CA.,20140625–CA.
• Parties: JP MORGAN CHASE BANK, NA, Appellee, v. Shannon WRIGHT and Russell S. Walker, Appellants.
• Court: Utah Court of Appeals

365 P.3d 708

JP MORGAN CHASE BANK, NA, Appellee,

v.Shannon WRIGHT and Russell S. Walker, Appellants.

No. 20140625–CA.

Court of Appeals of Utah.

Dec. 17, 2015.

Russell S. Walker, David R. Williams, and Anthony M. Grover, Salt Lake City, for Appellants.

Leslie Van Frank, Salt Lake City and Bradley M. Strassberg, for Appellee.

Senior Judge RUSSELL W. BENCH authored this Memorandum Decision, in which Judges JOHN A. PEARCE and KATE A. TOOMEY concurred.¹

Memorandum Decision

BENCH, Senior Judge:

¶ 1 Shannon Wright² appeals the district court's order granting summary judgment in favor of JP Morgan Chase Bank, NA (Chase) and denying Wright's motion for summary judgment. She also challenges the district court's award of attorney fees to Chase. We affirm.

¶ 2 In 2004, Daniel and Eden Ellingson agreed to purchase Wright's home. The Statement of Settlement, dated June 25, 2004, indicated that the parties agreed to a purchase price of $650,000, that Wright would provide a "New Loan" in the amount of $341,000 to the Ellingsons, and that the balance due from the Ellingsons, after a credit for interest and taxes, was $307,061.96. A promissory note (the first promissory note) and an all-inclusive trust deed (the AITD), also dated June 25, 2004, evidenced a secured debt to Wright in the amount of $341,000. The AITD indicated that it was "subject and subordinate to" a previous mortgage from Countrywide Bank, also in the amount of $341,000 (the Countrywide mortgage). The AITD further provided, "Nothing in this Trust Deed, the Note, or any deed in connection herewith shall be deemed to be an assumption by the Trustor of the [Countrywide mortgage]."

¶ 3 Another promissory note (the second promissory note) and trust deed (the $309,000 trust deed), both dated August 11, 2004,³ were drafted to secure the additional $309,000 debt owed to Wright and her ex-husband as joint tenants. The promissory note provided that the full $309,000 would be due five years from the date of the note. The $309,000 trust deed was not recorded until October 2005. Wright maintains that she was unaware of these two instruments until after 2009.⁴

¶ 4 In August 2004, the Ellingsons borrowed $400,000 from Chase.⁵ Chase recorded a trust deed securing the loan on August 12, 2004. From that loan, $333,667.07 was remitted directly to Countrywide to pay off the balance remaining on the Countrywide mortgage at that time. An additional $7,332.93—the difference between the $341,000 secured by the AITD and the payoff amount of the Countrywide mortgage—was disbursed to Wright. By virtue of these payments, Chase believed that the AITD had been satisfied and that its trust deed would be in first position.

¶ 5 The Ellingsons made no additional payments to Wright and subsequently filed for bankruptcy. On April 29, 2011, Wright filed a notice of default and sought to foreclose the AITD. Chase demanded that Wright release the AITD based on the satisfaction of the Countrywide mortgage, but she refused. Chase then filed a complaint against Wright, requesting that the court order Wright to release the AITD or, alternatively, that the court equitably subrogate the AITD to Chase's trust deed.

¶ 6 The parties filed cross-motions for summary judgment. Because the AITD refers to both a new loan from Wright in the amount of $341,000 and the Countrywide mortgage, also in the amount of $341,000, Wright asserted in the district court that the AITD "references and secures a total debt of $682,000." Chase, on the other hand, argued that the AITD secured only $341,000 of the purchase price and that Wright was to use that $341,000 to pay off the Countrywide mortgage. According to Chase, the balance of the purchase price was secured by the $309,000 trust deed, which was recorded after Chase's trust deed. The district court granted Chase's motion and denied Wright's, concluding that "[w]hen the Countrywide loan of $341,000 was paid off, it also satisfied the promissory note and trust deed recorded for $341,000 by virtue of being an all inclusive trust deed." The district court accordingly entered judgment declaring that the AITD was "invalid and of no further force and effect" and awarding Chase attorney fees. Wright appeals.

I. Summary Judgment

¶ 7 Wright asserts that the district court erred in granting Chase's motion for summary judgment and denying her motion. "We review a district court's grant of summary judgment for correctness and afford no deference to the court's legal conclusions." Salt Lake City Corp. v. Big Ditch Irrigation Co., 2011 UT 33, ¶ 18, 258 P.3d 539.

¶ 8 In the district court, Wright argued that the AITD secured a total debt of $682,000—a $341,000 obligation to Wright and an additional $341,000 obligation equal to the amount owing on the Countrywide mortgage. On appeal, she instead states that the AITD should have been drafted in this way but acknowledges that, as prepared, the AITD secured "only ... the $341,000 [promissory note]." Nevertheless, she asserts that the $341,000 promissory note "requires the Ellingsons to pay Wright, and Wright alone" and that no provision in the note or the AITD permitted the Ellingsons to satisfy their obligation under those instruments by paying off the Countrywide mortgage on Wright's behalf.⁶

¶ 9 The district court determined that "by virtue of being an all inclusive trust deed," the AITD was satisfied when Chase paid off the Countrywide mortgage. We agree and hold that this is so even under Wright's reframed argument that the first promissory note and the AITD required the Ellingsons to pay Wright directly rather than Countrywide.

¶ 10 An all-inclusive trust deed or

wraparound mortgage may be defined as a second mortgage which includes or "wraps around," but does not assume or extinguish the amount of an obligation under a prior mortgage on the property conveyed, with the buyer-wraparound mortgagor's payments being calculated on the aggregate, plus interest, of the seller-wraparound mortgagee's outstanding first-mortgage obligation plus the balance of the purchase price owed by the buyer-wraparound mortgagor.

James L. Isham, Annotation, Validity and Effect of "Wraparound" Mortgages Whereby Purchaser Incorporates into Agreed Payments to Grantor Latter's Obligation on Initial Mortgage, 36 A.L.R.4th 144, § 2[a] (1985) (footnote omitted); see also id. § 1[a] n. 1 (indicating that " ‘wraparound mortgage,’ ... ‘all-inclusive mortgage,’ ‘hold harmless mortgage,’ [and] ‘overlapping mortgage’ " are synonymous). Here, rather than secure the entire amount of the purchase price using an all-inclusive trust deed, the parties drafted a promissory note covering the amount of the Countrywide mortgage and secured it with the AITD. They then drafted a second promissory note and trust deed to secure the rest of the purchase price. This $309,000 trust deed, despite being dated the day before Chase's trust deed was recorded, was ultimately recorded in second priority to the trust deed securing Chase's loan to the Ellingsons, indicating the parties' intent that Wright's interest in the remaining $309,000 be subrogated to Chase's mortgage.

¶ 11 Wright's argument essentially asks that the funds paid to Countrywide on her behalf be credited against the second promissory note rather than the first promissory note, leaving intact her first priority interest under the AITD. While we acknowledge Wright's point that no provision in the $341,000 promissory note explicitly permitted the Ellingsons to pay Countrywide directly rather than Wright, the parties' use of an all-inclusive trust deed, as well as their reference to the Countrywide mortgage in the AITD, directly links payment of the Countrywide mortgage to satisfaction of the first promissory note.

¶ 12 "The principal defining characteristic of a [wraparound mortgage] is the ‘wrapping’ of the existing debt owed by the seller to a prior seller or lending institution. The new buyer obligates herself or himself to the seller, who in turn remains obligated to pay the existing mortgage debt." Adams v. George, 119 Idaho 973, 812 P.2d 280, 282 (1991). "[I]n the usual wraparound situation, the seller-wraparound mortgagee remains primarily responsible for paying his prior first mortgage, and makes payments on such first mortgage out of the amounts forwarded to him by the buyer-wraparound mortgagor." Isham, 36 A.L.R.4th 144, § 2[a]. Thus, even if the Ellingsons had used the Chase loan to pay Wright directly, Wright would have been obligated, consistent with the AITD, to use those funds to pay off the Countrywide mortgage and she would be in the same position she is in now.

¶ 13 Furthermore, the parties' explicit declaration that "[n]othing in this [AITD or promissory note] ... shall be deemed to be an assumption by the Trustor of the [Countrywide mortgage]" indicates that the parties did not anticipate that the Ellingsons would be required to pay off the Countrywide mortgage in addition to paying off the first promissory note. The second promissory note and its accompanying trust deed confirm this, as they secure the remainder of the purchase price owed to Wright in excess of what was owed to Countrywide—$309,000.⁷ Indeed, if the Ellingsons were required to pay the total $341,000 owed to Wright under the first promissory note in addition to the funds already remitted to pay off the Countrywide mortgage, they would ultimately end up paying approximately $24,667 more than the contracted purchase price of the home.

¶ 14 "[W]hen [a] debt is paid ... the lender no longer has a legitimate interest in the security...." Hector, Inc. v. United Sav. & Loan Ass'n, 741 P.2d 542, 545 (Utah 1987) ; see also...