Leader Federal Bank For Savings v. Saunders, 95SC752

• Decision Date: 13 January 1997
• Docket Number: No. 95SC752,95SC752
• Parties: 21 Colorado Journal 63 LEADER FEDERAL BANK FOR SAVINGS, Petitioner, v. Susan SAUNDERS; and All Other Occupants of 12021 North County Road 5-J, Wellington, Colorado 80549, Respondents.
• Court: Colorado Supreme Court

Page 1343

929 P.2d 1343

21 Colorado Journal 63

LEADER FEDERAL BANK FOR SAVINGS, Petitioner, v. Susan SAUNDERS; and All Other Occupants of 12021 North

County Road 5-J, Wellington, Colorado 80549, Respondents.

No. 95SC752.

Supreme Court of Colorado,

En Banc.

Jan. 13, 1997.

Law Office of Michael P. Medved, P.C., Michael P. Medved, Lakewood, for Petitioner.

No appearance on behalf of Respondents.

Justice MULLARKEY delivered the Opinion of the Court.

We granted certiorari in Leader Federal Bank for Savings v. Susan Saunders, No. 95 CV 361 (Larimer County Dist. Ct. Nov. 9, 1995), to review the district court's determination that a mobile home retains its status as personal property when the title to the mobile home is not purged pursuant to the Titles to Manufactured Homes Act (Act), sections 38-29-101 to -143, 16A C.R.S. (1996 Supp.). ¹ The district court reversed the county court's order granting possession of the mobile home to Leader Federal Bank for Savings (Leader), the petitioner, which holds a public trustee's deed for the land on which the mobile home is located.

We hold that the common law of fixtures and appurtenances as applied to mobile homes is abrogated by the Act. Consistent with our interpretation of the Act, however, we also conclude that Leader is entitled to foreclose on the mobile home at issue here. Accordingly, we affirm in part and reverse in part the district court's order. We remand the case to the district court for disposition consistent with our decision.

I.

In August of 1985, Donald R. and Elizabeth A. Kelly purchased unimproved real property in Larimer County located at 12021 North County Road 5-J, Wellington, Colorado (the Property) on which they placed a 1981 Champion 12' X 60' mobile home ² transported from Greeley, Colorado. The Kellys subsequently converted the mobile home into a "double-wide" home with measurements of 24' X 60'. The Kellys financed the purchase of the Property with a loan for $72,348 from Universal Lending Corporation (Universal). In connection with the loan, the Kellys executed a thirty-year note and deed of trust to Universal, thereby securing the loan with the Property. Universal was not expressly granted a separate security interest in the mobile home. Donald Kelly testified, however, that both he and Universal intended the deed of trust to include the mobile home. ³

The Universal loan was contingent on the Kellys' ability to secure approval from the United States Department of Housing and Urban Development (HUD) to insure Universal's loan. If the Kellys could not obtain HUD approval within 90 days of signing the loan papers, Universal could declare the loan immediately due and payable. In order to obtain HUD approval for the particular loan sought, Kelly testified that the mobile home had to be classified as a residential home. The process of conversion from a mobile home or a manufactured home into residential real property is governed by the terms of the Act which is implemented on a local level by county assessors' offices. Since the mobile home was located in Larimer County, the conversion process was regulated by the Larimer County Assessor's Office.

Kelly testified that he took some of the prescribed steps to convert the mobile home into residential real property. ⁴ In particular, Kelly installed the mobile home on a foundation, removed its wheels, removed and sold the axles, and installed permanent electrical and water utility systems as well as a sewage disposal system. As part of the conversion process, Kelly had to obtain a certificate of occupancy which would confirm that he had made the required physical adjustments to convert the mobile home into residential real property. ⁵ Kelly testified that he obtained a certificate of occupancy prior to the closing date of the loan. ⁶ Obtaining a certificate of occupancy fulfills one of the requirements enumerated by the Larimer County Assessor's Office in its brochure entitled "Converting A Mobile Home to Real Property." Pursuant to the Act, and as set forth in the brochure, however, the conversion process also entails purging the title to the mobile home. ⁷ See §§ 38-29-112(1.5), -118(2), 16A C.R.S. (1996 Supp.).

Although the mobile home had a Colorado certificate of title, Kelly did not purge the title. According to his testimony before the county court, Kelly lost or misplaced the certificate of title. Consequently, the mobile home was not technically converted from personal to real property pursuant to the purging provisions of the Act. And, as a further consequence, the mobile home was not removed from the personal property tax rolls and added to the real property tax rolls. The Kellys apparently managed to obtain HUD approval despite this deficiency. In fact, Universal continued to pay personal property taxes on the mobile home through the 1992 tax year. ⁸ Given the requirements of the HUD-approved loan, Universal's continued payment of personal property taxes on the mobile home, in conjunction with real property taxes on the Property, should have alerted Universal that something was seriously amiss.

In September 1991, Susan Saunders purchased the Property and the mobile home from the Kellys by warranty deed. There was no transfer of title to the mobile home to Saunders, however, and the title continued to be held in the Kellys' names. ⁹ Pursuant to their "Residential Contract to Buy and Sell Real Estate," the purchase price included "lighting, heating, plumbing, ventilation, and air conditioning fixtures, TV antennas, water softeners...." This language, describing its components and interior, clearly indicated that the mobile home was included in the sale. In connection with the sale, Saunders assumed the Kellys' loan, then held by Alliance Mortgage Company. The loan was subsequently assigned to Leader in 1993. Thereafter, Saunders defaulted on the loan and Leader foreclosed upon the deed of trust. On September 7, 1994, Leader was issued a public trustee's deed to the Property. Leader did not pay the personal taxes on the mobile home, apparently because it did not have the certificate of title for the home and was unaware that the structure was not a conventional home. As a result, Saunders was served a "Distraint Warrant" ¹⁰ on October 14, 1994, on the mobile home. ¹¹ Saunders then paid the personal property taxes due on the mobile home, some $196.61.

On December 2, 1994, Leader filed a complaint in unlawful detainer pursuant to section 13-40-104, 6A C.R.S. (1987), against Saunders and all other occupants of 12021 North County Road 5-J, Wellington, Colorado. After holding a bench trial on January 6, 1995, the county court determined that the only issue before it was whether the mobile home was subject to foreclosure by Leader or if it remained Saunders's personal property.

The county court issued a "Findings and Order" on April 21, 1995. Noting that the question of whether the mobile home had become a fixture to the Property was a question of fact, the county court concluded that the mobile home was covered under Leader's deed of trust. See Mining Equip. Inc. v. Leadville Corp., 856 P.2d 81, 85 (Colo.App.1993) ("The determination of whether an article of personal property attached to realty is a fixture or remains personal property is a question of fact."). In so concluding, the county court found insignificant that the certificate of title had not been purged. In particular, the county court was persuaded by Leader's argument that the Act controls only the tax status of the mobile home. Thus, the county court did not adjudge the purging process described in the Act to be the sole avenue of conversion. Instead, it relied upon the common law of fixtures and appurtenances.

The county court applied the three-pronged test fashioned by the Colorado Court of Appeals in Ferganchick v. Johnson, 28 Colo.App. 448, 450, 473 P.2d 990, 992 (1970), that an object becomes a fixture if: (1) it is annexed to the real property; (2) it is adapted to the use of the real property; and (3) it is intended that the object become a permanent accession to the real property. See also Mining Equip. Inc., 856 P.2d at 85 (reiterating the test and citing Ferganchick ).

The county court weighed the evidence and concluded that the mobile home had become a fixture to the Property:

The mobile home was sufficiently attached to the land to conclude that it was annexed. The method of attachment and installation compels this conclusion. The mobile home was adapted to the use of the property. It was a home placed upon a residential parcel for permanent use. The wheels were removed and the electricity, water and sewage disposal were permanently installed. The original owner of the mobile home, Mr. Kelly, intended that it be permanent. The original lender intended that it be permanent. It was not until the note became delinquent that the issue arose.

The county court then ruled that Leader was entitled to the mobile home pursuant to its public trustee's deed. See Alamosa Nat'l Bank v. San Luis Valley Grain Growers, Inc., 756 P.2d 1022, 1027 (Colo.App.1988) ("A real estate deed of trust attaches automatically to buildings and personal property which attaches to the land after execution of the deed of trust in such a way as to take on the character of real estate, i.e., which become fixtures.").

Saunders appealed the county court's decision to the district court pursuant to Rule 411 of the County Court Rules of Civil Procedure. On appeal, the district court interpreted the Act and found that it did abrogate the common law of fixtures and appurtenances. ¹² Citing Shoemaker v. Mountain States Telephone and Telephone Company, 38 Colo.App. 321, 559 P.2d 721 (1976), the district court observed that the legislature can abrogate common law by the passage of inconsistent legislation. Because it found that the Act was inconsistent with common law, the district court concluded that the mobile home had not been converted...