Land Associates, Inc. v. Becker

• Decision Date: 30 December 1982
• Citation: 656 P.2d 927,294 Or. 308
• Parties: LAND ASSOCIATES, INC., an Oregon corporation, Plaintiff, v. Richard A. BECKER; United States National Bank of Oregon, a National Banking Association; Lane County Oregon; Lloyd Hinrichs and Yvonna Hinrichs, husband and wife; Janice Louise Becker; United States of America, acting by and through Internal Revenue Department; Gerald J. Druliner; State of Oregon, acting by and through Department of Revenue; Coastal Adjustment Bureau, Inc., an Oregon corporation; State of Oregon, acting by and through Employment Division; and Lane County Escrow Service, Inc., Defendants. Launa H. BAUTISTA, Petitioner on Review, v. LAND ASSOCIATES, INC., and E & B Investors, Inc., Respondents on Review. CA 22290; SC 28874.
• Court: Oregon Supreme Court

Page 927

656 P.2d 927

294 Or. 308

LAND ASSOCIATES, INC., an Oregon corporation, Plaintiff, v. Richard A. BECKER; United States National Bank of Oregon, a

National Banking Association; Lane County Oregon; Lloyd

Hinrichs and Yvonna Hinrichs, husband and wife; Janice

Louise Becker; United States of America, acting by and

through Internal Revenue Department; Gerald J. Druliner;

State of Oregon, acting by and through Department of

Revenue; Coastal Adjustment Bureau, Inc., an Oregon

corporation; State of Oregon, acting by and through

Employment Division; and Lane County Escrow Service, Inc.,

Defendants.

Launa H. BAUTISTA, Petitioner on Review, v. LAND ASSOCIATES, INC., and E & B Investors, Inc.,

Respondents on Review.

CA 22290; SC 28874.

Supreme Court of Oregon.

Argued and Submitted Nov. 3, 1982.

Decided Dec. 30, 1982.

Harold D. Gillis, Eugene, argued the cause and filed the briefs for petitioner on review.

William A. Turnbow, Eugene, argued the cause and filed the brief for respondents on review. With him on the brief was Hershner, Hunter, Miller, Moulton & Andrews, Eugene.

Before LENT, C.J., and LINDE, TANZER, CAMPBELL, ROBERTS and CARSON, JJ.

CAMPBELL, Justice.

Launa H. Bautista, the assignee of unjoined pendente lite junior lien creditors, attempted to redeem property after foreclosure. The trial court dismissed her complaint in intervention in which she named Land Associates, Inc. and its assignee E & B Investors, Inc. as defendants. The Court of Appeals affirmed on the basis that she had no statutory right to redeem. We reverse, 58 Or.App. 216, 647 P.2d 989.

Land Associates, the seller of real property on a land sales contract, brought an action for judgment against its buyer on June 26, 1979, naming several others who had interests in the property as defendants. Land Associates initially requested a strict foreclosure, but in an amended complaint asked for a judicial sale. Land Associates joined those who held junior liens and judgments of record at the time it filed the complaint. After the complaint was filed, two trust deeds and a judgment against the buyer went on record. The trust deeds were recorded June 27, 1979, and July 2, 1979. The judgment was entered October 31, 1979. The people holding these three above-mentioned liens were not joined in the foreclosure action and did not intervene. On November 19, 1979, Becker, the purchaser on the contract, conveyed his interest in the property by deed to respondent E & B Investors. On March 5, 1980, the trial court entered a stipulated decree that gave Land Associates judgment for the balance of the purchase price, attorney fees and costs and directed the sale of the property on execution by the sheriff to satisfy the judgment. The decree provided for a possible deficiency and foreclosed all property interests or rights of all defendants, except for the statutory rights of redemption.

Land Associates bought the property at the sheriff's sale on April 17, 1980, and 27 days later, on May 14, 1980, obtained an ex parte order from the court directing the sheriff to issue a deed. The record in this court indicates that only the State of Oregon waived its rights to redeem. On this same day Land Associates assigned the certificate of sale to respondent E & B Investors and conveyed the property. The sheriff issued the deed the following day. The court confirmed the sale on May 15, 1980.

The three pendente lite lien creditors mentioned above then assigned their interests to appellant Bautista on June 13, 1980. On the same day, 57 days after the sale, Bautista served her notice of intent to redeem on Land Associates and its assignee E & B Investors. The sheriff refused to proceed with the redemption without direction from the court because he had already issued a deed to Land Associates. Bautista then intervened in this action, naming Land Associates and E & B Investors, Inc. as respondents, and filed allegations in the nature of a complaint asking to set aside the order which authorized the deed and directing the sheriff to permit her to exercise her statutory right of redemption. The trial court dismissed her second amended complaint and she appealed.

The Court of Appeals affirmed this dismissal. It held that Bautista, as the assignee of unjoined junior lien creditors, had no right to statutory redemption, relying on Portland Mtg. Co. v. Creditors Prot. Ass'n., 199 Or. 432, 262 P.2d 918 (1953). We allowed review to consider what redemption rights a lien creditor may have when its interest is acquired pendente lite.

Intervenor Bautista contends that the court erred, in that she claims a statutory right of redemption as an assignee of pendente lite unjoined junior lienholders whose rights were foreclosed because of the doctrine of lis pendens. She argues the order allowing the sheriff's deed should be set aside because respondent did not acquire the rights of all persons entitled to redeem either under former ORS 18.160 (ORCP 71B became effective January 1, 1982) or through the inherent powers of the court.

Respondents Land Associates and E & B Investors argue that because of the doctrine of lis pendens, Bautista actually had no rights in the real property, but rather only a contingent interest that could only attach to the real property if the buyer successfully defended the foreclosure suit. They also argue that because Bautista was not a party to the foreclosure action, she was not in the class of people who are entitled to exercise statutory redemption rights; that this suit was an impermissible collateral attack on the order that allowed the execution of the sheriff's deed; and that the sheriff's deed was absolute.

In order to understand the issues in this case, it is necessary to examine the history of mortgages to some extent, even though this case is based on a land sales contract, rather than a mortgage. Originally when one borrowed money on his land, he gave title to the land to the one who loaned the money. The borrower, however, could get his land back by paying the entire sum on a certain day of payment called Law Day. If he defaulted and did not pay the sum on that day, he lost all rights to his land. There were times when this absolute deadline resulted in injustices (as when the borrower was robbed on his way to Law Day), and the Court of Chancery conceived the idea of equitable redemption to soften this harsh rule. This allowed the borrower to come into court after default, and if he told a convincing story, he was allowed to force a reconveyance of the land. This remedy itself led to abuses, because the borrowers were allowed to reclaim their land years after they should have repaid the money. The Chancery Court, aware of the problems, then created the remedy of foreclosure. Foreclosure was designed to end the period of equitable redemption so that the new owner could be sure that his title was secure and the previous owner could not redeem the land. ¹ Foreclosure, then, forecloses the previous owner from exercising the equitable right of redemption. Equitable redemption only allows a junior lien creditor to redeem from the senior lien holder and become subrogated to his interests.

Mortgage law continued to change; however, the theory underlying mortgages changed from the mortgage giving the lender actual title to the property subject to the right of equitable redemption to the concept that the mortgage only gives the lender a lien on the property. This theory led to foreclosure and sale, rather than the earlier strict foreclosure that was considered equitable under the title theory. Most states, including Oregon, that adopted a lien theory of mortgage also enacted statutory redemption as an additional remedy. The period for statutory redemption ² starts after the foreclosure and sale itself and is one last chance for the previous owner and any lien creditors to regain the property. It is important to distinguish the two types of redemption--equitable redemption only exists until the interest is foreclosed, while statutory redemption only begins after the interest is foreclosed.

In the present case, the Court of Appeals relied on Portland Mtg. Co., supra, indicating that while arguably Bautista might have an equitable right of redemption, she did not have a statutory right of redemption. In this it is mistaken. Portland Mtg. Co. concerned an attempted redemption by junior lien creditors who were not joined in the foreclosure action. This court held that they had no right to statutory right to redeem because their interest had not been foreclosed. Those creditors were lienholders of record when the initial petition was filed; because they were not joined they were not bound by the foreclosure, and a statutory right of redemption did not arise.

The present situation differs because Bautista's predecessors were not lienholders of record when the initial complaint was filed. The doctrine of lis pendens controls here. This doctrine states that the filing of a suit concerning real property is notice to people who obtain an interest in the property after the commencement of the suit that they will be bound by the outcome of the suit. Puckett v. Benjamin, 21 Or. 370, 381, 28 P. 65 (1891). It is a necessary doctrine; without it every change of ownership or lesser interest in real property would require a modification of the suit and would require continual checking of the records to be sure that someone else had not obtained property rights in the property in question. Respondents argue that the doctrine means that any change of ownership during the pendency of the suit does not have any legal effect until the outcome of the suit, but in this they are mistaken. Kaston v. Storey, 47 Or. 150, 154, 80 P. 217 (1905). The doctrine of lis pendens does not change a property owner's right to transfer interests in a property even though a foreclosure suit is pending, and it also does not stop another person from gaining an interest by...