Kern v. Gebhardt, 86SC67

• Citation: 746 P.2d 1340
• Decision Date: 14 December 1987
• Docket Number: No. 86SC67,86SC67
• Parties: George B. KERN and Richard P. Hume, Petitioners, v. Richard G. GEBHARDT, Public Trustee of the County of Boulder, State of Colorado, and Deward E. Walker, Jr., Respondents.
• Court: Supreme Court of Colorado

Page 1340

746 P.2d 1340

George B. KERN and Richard P. Hume, Petitioners, v. Richard G. GEBHARDT, Public Trustee of the County of

Boulder, State of Colorado, and Deward E. Walker,

Jr., Respondents.

No. 86SC67.

Supreme Court of Colorado,

En Banc.

Dec. 14, 1987.

Robinson & Mallon, P.C., James C. Mallon, Susan A. Stearns, Evergreen, for petitioners.

Hutchinson, Black, Hill & Cook, Forrest E. Cook, Heather Ryan, Boulder, for respondent, Richard G. Gebhardt, Public Trustee.

QUINN, Chief Justice.

The question in this case is whether the ten percent limitation on attorney fees in section 38-38-106, 16A C.R.S. (1982), applies to a proceeding to foreclose a deed of trust as to the entire indebtedness pursuant to a provision in the deed of trust granting the holder of the indebtedness the right to declare the whole of the indebtedness due and payable on default of any part of the obligation. In Kern v. Gebhardt, 717 P.2d 998 (Colo.App.1985), the court of appeals held that the ten percent limitation on attorney fees was applicable to such a proceeding. We now affirm the judgment.

I.

The petitioners, George B. Kern and Richard P. Hume, are the beneficiaries of a deed of trust on real estate in Boulder County securing a promissory note from Deward E. Walker, Jr., to the petitioners for the principal sum of $7,000, payable in annual installments of $700 a year or more with interest on the unpaid balance at 10 1/2 percent payable monthly. Both the deed of trust and the promissory note granted the holder of the indebtedness the right to declare the whole indebtedness secured by the deed of trust due and payable on default of any payment of principal or interest. Walker failed to make the annual installment payment due on July 5, 1983, and the petitioners on October 14, 1983, after giving Walker notice of default and acceleration, commenced a foreclosure proceeding through the Public Trustee of Boulder County as to the entire indebtedness secured by the deed of trust. Prior to sale by the public trustee, the petitioners submitted their bid which included $5,358.95 for unpaid principal and interest and an additional $1,280.50 for attorney fees.

The public trustee declared the petitioners' bid unacceptable under section 38-38-106, 16A C.R.S. (1982), because the bid included attorney fees in excess of ten percent of the whole of the indebtedness on which the foreclosure proceeding was based. The public trustee, however, agreed to permit the petitioners to bid the total amount at the sale on the condition that in the event of a redemption the disputed portion of the attorney fees, which amounted to $744.60, would be put in escrow until the court determined whether the attorney fees in excess of ten percent of the sum for which the property was foreclosed were permissible under section 38-38-106. Walker subsequently redeemed the property by tendering to the public trustee the full amount of indebtedness due and owing, and the disputed amount of attorney fees was placed in escrow by the public trustee.

The petitioners thereafter filed a declaratory judgment action in the District Court of Boulder County against the public trustee, who is the respondent here. In that action the petitioners sought a declaration that the ten percent limitation on attorney fees in section 38-38-106 was not applicable to a foreclosure as to the entire indebtedness and requested an order releasing the escrowed money to them. The public trustee moved to dismiss the complaint for failure to state a claim for relief. The district court granted the motion and the petitioners appealed. In affirming the judgment, the court of appeals held that the ten percent limitation on attorney fees in section 38-38-106, 16A C.R.S. (1982), applied to a proceeding to foreclose a deed of trust as to the entire indebtedness, when, as here, the deed of trust granted the holder of the indebtedness the right to declare the whole of the indebtedness due and payable on default of any part of the obligation. We thereafter granted certiorari to consider the court of appeals' construction of section 38-38-106.

II.

Before addressing the issue of statutory construction, it will be helpful to place section 38-38-106 in the context of the statutory scheme dealing with a foreclosure proceeding pursuant to an acceleration clause in a deed of trust. This statutory scheme was originally enacted in 1927, ch. 132, secs. 2-6, 1927 Colo.Sess.Laws 493, 493-95, and remained unchanged through numerous legislative reenactments until 1987, when the General Assembly adopted amendments that substantially affected the attorney fee limitation. Ch. 278, secs. 4 and 5, §§ 38-38-105 and -106, 1987 Colo.Sess.Laws 1340, 1342.

The pre-1987 version of sections 38-38-105 and -106, 16A C.R.S. (1982), provided in pertinent part as follows:

§ 38-38-105. The term mortgage, as used in sections 38-38-105 to 38-38-110, shall be construed to include both mortgages and trust deeds upon real estate ... and to include all such instruments made before or after March 12, 1927. Said sections shall apply only to mortgages giving the right to declare the whole indebtedness due and payable on default of the payment of any part thereof.

§ 38-38-106. Any mortgage securing an obligation payable by installments may at the option of the holder be foreclosed as to any one or more past due installments of principal or interest, together with any sums advanced by the holder pursuant to the terms of the mortgage for taxes, insurance, liens, assessments, or similar charges, as if such mortgage were given to secure separately each of such past due installments. In no foreclosure authorized by sections 38-38-105 to 38-38-110 shall attorney's fees be allowed for a total amount exceeding ten percent of the sum for which the property is thus foreclosed. Not more than one foreclosure proceeding provided for in sections 38-38-105 to 38-38-110 may be commenced in a period of twelve months.

Sections 38-38-107 through 38-38-109, 16A C.R.S. (1982), are directed specifically to a foreclosure as to past due installments only, rather than the entire indebtedness, and employ the term "such foreclosure" in that context. Section 38-38-107, for example, preserves the lien of the mortgage as to any remaining obligation and makes the title acquired by "such foreclosure" subject to the lien for the remaining obligation. This section further states:

[A]t any time after the commencement of such foreclosure proceeding and until the period of redemption has expired, the balance of the indebtedness secured by such mortgage and not included in the foreclosure proceeding may be paid in full by the payment of the amount actually due at the time of such payment or tender of payment and without penalty or advance interest.

In similar fashion, section 38-38-108, 16A C.R.S. (1982), provides that the redemption from "such foreclosure" shall have the same effect as if the foreclosure had been that of an independent mortgage. Section 38-38-109, 16A C.R.S. (1982), echoes the same theme by preventing the doctrine of merger from operating to extinguish the lien for the remaining obligation in the event the holder of the mortgage acquires title by virtue of "such foreclosure."

In contrast to the "such [installment] foreclosure" limitations in sections 38-38-107 to 38-38-109, section 38-38-110, 16A C.R.S. (1982), states that "[n]othing in sections 38-38-105 to 38-38-110 shall be construed to prevent the holder of the indebtedness secured by any such mortgage from exercising any option contained therein to declare the whole of such indebtedness due and payable."

In 1982 the General Assembly reenacted all of the above provisions in the 1982 Replacement Volume 16A of the 1973 Colorado Revised Statutes, and in 1987 amended sections 38-38-105 and 38-38-106. Section 38-38-105, 16A C.R.S. (1987 Supp.), now states:

The term mortgage, as used in sections 38-38-105 to 38-38-110, shall be construed to include both mortgages and trust deeds upon real estate, water rights, and water stocks and to include all such instruments made before or after March 12, 1927. Said sections shall apply only to mortgages giving the right to declare the whole indebtedness due and payable on default of the payment of any part thereof and to foreclosure proceedings based upon one or more past due installments without declaring the whole indebtedness due and payable.

(Emphasis added). Section 38-38-106, 16A C.R.S. (1987 Supp.), was amended in similar fashion to read as follows:

Any mortgage securing an obligation payable by installments may, at the option of the holder, be foreclosed as to any one or more past due installments of principal or interest, together with any sums advanced by the holder pursuant to the terms of the mortgage for taxes, insurance, liens, assessments, or similar charges, as if such mortgage were given to secure separately each of such past due installments. In no foreclosure based upon one or more past due installments without declaring the whole amount due as authorized by sections 38-38-105 to 38-38-110 shall attorney fees be allowed for a total amount exceeding ten percent of the sum for which the property is thus foreclosed. Not more than one foreclosure proceeding based upon one or more past due installments without declaring the whole amount due as provided for in sections 38-38-105 to 38-38-110 may be commenced in a period of twelve months.

(Emphasis added). These amendments became effective July 1, 1987, and "apply to foreclosure actions commenced on or after said date." Ch. 278, sec. 11, 1987 Colo.Sess.Laws 1340, 1345.

III.

The petitioners argue that the pre-1987 version of section 38-38-106, when read in conjunction with sections 38-38-105 through 38-38-110, lead inevitably to the conclusion that the ten percent limitation on attorney fees in section 38-38-106 was intended to apply only to a foreclosure proceeding based on a default of one or more past...