Madden v. ALASKA MORTG. GROUP

• Decision Date: 30 August 2002
• Docket Number: No. S-9428.,S-9428.
• Citation: 54 P.3d 265
• Parties: Rodney S. MADDEN and Marilyn J. Madden, Appellants, v. ALASKA MORTGAGE GROUP, an Alaska Limited Partnership, and Floyd Polmateer, Appellees.
• Court: Alaska Supreme Court

54 P.3d 265

Rodney S. MADDEN and Marilyn J. Madden, Appellants, v. ALASKA MORTGAGE GROUP, an Alaska Limited Partnership, and Floyd Polmateer, Appellees.

No. S-9428.

Supreme Court of Alaska.

August 30, 2002.

Ralph B. Cushman, Law Offices of Ralph B. Cushman, P.C., Anchorage, for Appellants.

Tonja Woelber, Tonja Woelber, P.C., Anchorage, for Appellees.

Before: FABE, Chief Justice, EASTAUGH, BRYNER, and CARPENETI, Justices.

OPINION

BRYNER, Justice.

I. INTRODUCTION

Alaska Mortgage Group sought to foreclose a deed of trust securing a promissory note from a debtor who had paid no installments for almost ten years and no longer owned any interest in the mortgaged property. Rodney and Marilyn Madden, who held a later mortgage on the same property, disputed the amount Alaska Mortgage claimed under its mortgage, contending that part of the debt was time-barred. Soon after this dispute arose, Alaska Mortgage received a new payment on its note. The superior court ruled that the payment restarted the statute of limitations and entitled Alaska Mortgage to recover through foreclosure the full amount owing on the underlying note. The court also awarded attorney's fees to Alaska Mortgage, finding the fees to be expenses reimburseable to the trustee under the terms of the trust deed. We affirm in part, holding that the new payment on the note extended Alaska Mortgage's right to recover its entire debt through foreclosure, even though the debtor on its note had lost title to the property. But we reverse the order awarding attorney's fees, holding that fees Alaska Mortgage expended in suing to establish the amount of the debt were not expenses of foreclosure recoverable by the trustee under the terms of the deed.

II. FACTS AND PROCEEDINGS

In 1984 Floyd Polmateer gave a promissory note to Alaska Mortgage for $50,000, payable in monthly installments of $1,275 at twenty-seven percent annual interest. Polmateer secured the note by granting Alaska Mortgage a second deed of trust on two lots he owned near Lake Iliaska—the Iliaska Subdivision.

In April 1987 Polmateer defaulted on his first deed of trust and lost title to Iliaska Subdivision in a nonjudicial foreclosure sale. Alaska Travel Bureau purchased the property subject to Alaska Mortgage's second deed of trust. A few months later Alaska Travel Bureau granted Rodney and Marilyn Madden a third deed of trust on the property to secure a $100,000 loan.

About a year later—in July 1988—Alaska Mortgage stopped receiving installments on its promissory note from Polmateer. After nine years elapsed without payments, Alaska Mortgage commenced foreclosure proceedings.

The Maddens attempted to block the foreclosure sale, asserting that Alaska Mortgage had overstated the amount due on its deed of trust because a number of past-due installments on Polmateer's promissory note were barred by the statute of limitations. Alaska Mortgage responded by filing a complaint in superior court, seeking to establish the amount owing under the second deed of trust, leave to foreclose, and a deficiency judgment against Polmateer for any part of the debt not recovered through foreclosure.

Several months after Alaska Mortgage filed this action, Polmateer unexpectedly sent another payment on his promissory note. Alaska Mortgage moved for summary judgment, arguing that the new payment revived the previously time-barred portion of the total debt secured by the deed.

The Maddens opposed this motion. Although they acknowledged that the new payment may have restarted the statute of limitations for an action to collect the full amount Polmateer owed on his promissory note, the Maddens insisted that his payment did not revive any time-barred payments for purposes of an action on Alaska Mortgage's deed of trust.

The superior court entered summary judgment in favor of Alaska Mortgage, ruling that Polmateer's recent payment had revived all time-barred installments under both the promissory note and the deed of trust. The court also awarded full reasonable attorney's fees to Alaska Mortgage, ruling that the award was appropriate as a cost of foreclosure recoverable by the trustee under the express terms of the deed of trust.

The Maddens appeal.

III. DISCUSSION

A. Summary Judgment

The Maddens first argue that the superior court erred in granting Alaska Mortgage's motion for summary judgment.¹ The $50,000 promissory note that Polmateer gave to Alaska Mortgage in 1984 called for monthly installments starting in January 1985. Alaska's six-year statute of limitations applied to this note;² because a separate cause of action accrues for each installment of an installment contract when it becomes due, this six-year limit ran individually on each unpaid installment.³ Under Alaska law, the six-year limit would ordinarily govern both an action on Polmateer's promissory note and an action to foreclose the deed of trust securing his note.⁴

Here, Polmateer ceased paying installments on the note in July 1988 and missed almost ten years of monthly payments. Thus, by the time Alaska Mortgage initiated its foreclosure action in 1997, more than three years of Polmateer's earliest missed installments fell outside the six-year statutory limit and were theoretically unrecoverable—either through an action on the note or by foreclosure.

But several months after Alaska Mortgage filed its action to determine the amount owed under its deed of trust, Polmateer made another payment. Under AS 09.10.210, "[w]hen a past due payment of principal or interest is made upon any evidence of indebtedness, the running of the time within which an action may be commenced starts from the time the last payment is made." Relying on this statute, Alaska Mortgage moved for summary judgment, arguing that Polmateer's recent payment revived the statute of limitations on the entire debt and correspondingly increased the amount needed to avert foreclosure. The superior court accepted Alaska Mortgage's argument and granted summary judgment.

The Maddens contend that the superior court erred by granting summary judgment. They do not dispute that, under AS 09.10.210, Polmateer's new payment revived his liability on the underlying promissory note. They also acknowledge the rule that the same time limit usually governs a foreclosure and an action on the underlying note. But they argue that an exception should apply here.

The Maddens posit that AS 09.10.210 simply codifies the common law rule that a part payment on a past due debt can extend or revive the statute of limitations.⁵ From this premise, the Maddens reason that we should recognize exceptions that existed to the common law rule.

Specifically, the Maddens contend, "the clear majority" of common law cases hold that when a mortgagor like Polmateer loses title to mortgaged property before the underlying debt is repaid, a subsequent payment after the statute of limitations expires revives only the underlying debt and does not extend the time for foreclosure. Applying this exception, the Maddens argue that Polmateer's May 1998 payment only revived his debt on the note and had no effect on the amount outstanding on Alaska Mortgage's deed of trust.⁶ We find this argument unpersuasive. The common-law rule precluding an out-of-title mortgagor from reviving a time-barred mortgage is rooted in the notion that the mortgagor would lose all interest in the property when the statute of limitations expires: "to such premises he is a stranger, and his power to revive mortgages does not exist[.]"⁷ In other words, once the statute of limitations terminates an out-of-title mortgagor's remaining property interest, the mortgagor should have no further power to encumber the property: "He can revive the old mortgage just so far and so far only as he could give a new mortgage, and that is, to bind his own property."⁸

This rationale does not apply when the statute of limitations bars only part of an outstanding installment debt. Here, for example, Polmateer did not become a complete "stranger" to the trusted property: as the Maddens concede, the statute of limitations barred only part of his entire debt. Inasmuch as the mortgage secured the installments that were not time-barred, Polmateer maintained an interest in the mortgaged property.

Notably, most cases decided under common law seem to permit an out-of-title mortgagor to extend the statute of limitations on a mortgage before it expires completely.⁹ These cases reason that a subsequent grantee who has notice of a valid and enforceable prior lien assumes the risk of an extension: "If a junior lienholder had notice, actual or constructive, of a valid and enforceable prior lien, at the time he acquired his rights, he took the latter subject to a possible extension of the time of payment, and cannot complain thereof, as it is only an incident of the lien."¹⁰

Only a few courts have held that an out-of-title mortgagor cannot extend the statute of limitations on a mortgage,¹¹ apparently assuming that the subsequent grantee has a right to assume that no extension will be granted without its consent.¹² But these cases reflect a minority view and their reasoning is unpersuasive. In the present case, for example, we fail to see how the Maddens could reasonably believe that Polmateer's mortgage was immune to extension: when they acquired their interest in the Iliaska Subdivision, the Maddens knew of Polmateer's deed of trust and took their interest subject to his deed. As the Maddens concede, they did not bargain for the right to have part of the debt secured by the senior deed become time-barred. Indeed, as the superior court correctly noted, when the Maddens acquired their interest in Iliaska Subdivision, Polmateer was still in good standing on his promissory note, and Alaska Mortgage's deed of trust was fully enforceable. Thus, allowing Polmateer to revive the time-barred installments merely returns the Maddens to their original situation.

We conclude, then, that...