Moreland v. Marwich, Ltd.

• Decision Date: 13 June 1983
• Docket Number: No. 81SC111,81SC111
• Citation: 665 P.2d 613
• Parties: Bobbie L. MORELAND and Elizabeth K. Moreland, Petitioners, v. MARWICH, LTD., Respondent.
• Court: Colorado Supreme Court

Page 613

665 P.2d 613

Bobbie L. MORELAND and Elizabeth K. Moreland, Petitioners, v. MARWICH, LTD., Respondent.

No. 81SC111.

Supreme Court of Colorado En Banc.

June 13, 1983.

Reckseen & Lau, P.C., Joel Judd, Northglenn, for petitioners.

David A. Senseney, Englewood, for respondent.

LOHR, Justice.

We are required in this case to determine whether the Adams County District Court erred in allowing the petitioners additional time to redeem their property from two public trustee foreclosure sales after the statutory time for redemption had expired and public trustee's deeds had been issued. The Colorado Court of Appeals reversed the trial court's order extending the redemption time, and we granted certiorari to review the appellate court's decision, Moreland v. Marwich, Ltd., 629 P.2d 1095 (Colo.App.1981). We conclude that the district court acted within its discretion in allowing additional time for redemption; therefore, we reverse the judgment of the court of appeals and direct that the trial court's judgment be reinstated.

I.

The facts relevant to the propriety of the trial court's order are not in dispute. On December 22, 1978, the petitioners, Bobbie L. and Elizabeth K. Moreland, executed two deeds of trust on their residence to secure three outstanding promissory notes payable to the Platte Valley Bank (the bank). The Morelands did not make certain payments prescribed in the notes, and the bank commenced proceedings to foreclose the deeds of trust through the public trustee. See section 38-37-113, C.R.S.1973 (1982 Repl.Vol. 16A). In addition, the bank filed two motions in separate actions in Adams County District Court under C.R.C.P. 120 seeking orders authorizing sales of the encumbered property under the powers of sale contained in the deeds of trust. See also section 38-37-140, C.R.S.1973 (1982 Repl.Vol. 16A). Bobbie Moreland filed a response to the C.R.C.P. 120 motions. ¹ He alleged, among other things, that he owned an auto sales business and obtained loans from the bank, secured by liens on vehicles, to operate that business. The bank demanded further security for the loans and offered to accept a lien on the Morelands' house for that purpose. According to Moreland, the bank represented that if the additional security were furnished the bank would convert the loans to a ten-year note to be amortized by monthly payments. After the Morelands had encumbered their residence by the deeds of trust, the response continued, the bank refused to convert the loans to a ten-year note as promised.

The district court held a single hearing on the C.R.C.P. 120 motions. At that hearing, the Morelands sought to offer evidence that, even though they were concededly in arrears in payments on the schedule prescribed in the promissory notes, the bank had breached its alleged agreement to convert the notes to a ten-year amortized loan. ² The district court declined to hear evidence of an oral agreement, ruling that the only questions cognizable in the hearing under C.R.C.P. 120 were whether the Morelands were in default under the loan terms as gleaned from the faces of the notes secured by the deeds of trust and whether they had defenses under the Soldiers' and Sailors' Civil Relief Act of 1940. Since there was no dispute as to these two matters, the court issued orders of sale permitting the public trustee sale proceedings to go forward. The C.R.C.P. 120 court stayed execution of that order for ten days, however, to permit the Morelands to seek injunctive or other relief in a separate action pursuant to C.R.C.P. 120(d).

The Morelands did not file an independent action while the stay order was in effect. The stay expired, the public trustee foreclosure proceedings went forward, and the bank brought the property at the foreclosure sales for $20,302.58, the total of the principal owed on the notes, plus interest and attorneys' fees. The petitioners did not redeem from the foreclosure sales within the 75-day period allowed by statute. See section 38-39-102, C.R.S.1973 (1982 Repl.Vol. 16A). Thereafter, Marwich, Ltd. (Marwich), which had acquired by assignment a judgment lien junior to the bank's deeds of trust, exercised its redemption rights by paying $20,773.58, the amount paid by the bank plus interest. See section 38-39-103, C.R.S.1973 (1982 Repl.Vol. 16A). The public trustee then issued deeds conveying the Morelands' residence property to Marwich.

After Marwich had received the public trustee's deeds, it brought an action in unlawful detainer in the County Court for Adams County against the Morelands, seeking possession of the newly-acquired property. The petitioners then commenced the present action in Adams County District Court, and the case was assigned to a judge other than the one who had presided at the previous C.R.C.P. 120 hearing. In this action the Morelands contend that in the C.R.C.P. 120 hearing the court violated their right to due process of law by refusing to hear evidence that the bank had agreed to convert their existing secured loans to a ten-year amortized note and had breached that agreement. Additionally, they assert that the bank's $20,302.58 bid at the foreclosure sales was grossly and unconscionably below the fair market value of the property, which the parties stipulated was $100,000 at all relevant times. The Morelands sought transfer of the county court unlawful detainer action to district court, a declaration that the public trustee's deeds to Marwich are void, an order setting aside Marwich's "purported redemption" and the sales on which it was based, a determination of the amount necessary for the petitioners to cure any default or to redeem the property, and an order allowing the Morelands a reasonable period of time in which to cure or to redeem.

The trial court granted the request to transfer the unlawful detainer action and ordered the two cases consolidated in district court. The district court then held a hearing on the issues in both cases and issued a detailed written judgment. The court concluded that the Morelands had been denied due process of law in the C.R.C.P. 120 hearing when they were not permitted to introduce evidence of their asserted oral agreement with the bank, and that the disparity between the bid and the purchase price, "while not controlling as a ground, is a factor the Court may consider in determining jurisdiction." The trial court ruled that these grounds were adequate "to warrant the exercise of the Court's equity jurisdiction to provide the relief sought, viz. a reasonable extension of the [Morelands'] period of redemption of their property from foreclosure." It concluded that this relief would not adversely affect the bank or the public trustee, and would allow Marwich to receive full payments of its secured obligation with statutory interest. The court stated, "[w]hat will be affected is Marwich's potential for a large unearned windfall profit arising from the disparity between what Marwich paid for the property and its actual value." It then granted the Morelands thirty days to redeem, prescribed appropriate incidental relief in the event that they should exercise that redemption right, and decreed that if such right were not exercised Marwich should be granted possession pursuant to its unlawful detainer action and certain appropriate ancillary relief should be allowed. The Morelands thereafter deposited the required redemption money with the public trustee. The court then dismissed the unlawful detainer action and set aside the public trustee's deeds.

Marwich appealed, and the court of appeals reversed the judgment of the district court. Moreland v. Marwich, Ltd., supra. Although the court of appeals agreed that the Morelands should have been permitted to assert their proposed defense in the C.R.C.P. 120 action, it concluded that they were not denied due process of law because the ten-day stay allowed in that proceeding ³ was adequate to permit the Morelands to protect themselves by instituting a separate suit. Additionally, the court of appeals noted that the Morelands were informed of the amount required to redeem at least sixty days before expiration of the redemption period but they did not redeem. It held that the amount bid at the foreclosure sale, being the full amount of the secured obligation, was not "improper" and that a disparity between market value and bid price, while relevant to the exercise of equity jurisdiction, is not controlling. The court of appeals concluded that, "[u]nder the circumstances here, where the Morelands could have redeemed but did not, where the bid was for the full amount due to the creditor, and where no deficiency judgment was sought, there was no justification for the additional relief granted." 629 P.2d at 1097. Accordingly, the court of appeals reversed the trial court's judgment, ordered dismissal of the Morelands' complaint, required the return of the money paid by the Morelands to redeem the property from Marwich, granted Marwich possession as sought in its unlawful detainer action, and remanded the case to the trial court for determination of any claim of Marwich against the Morelands for use and occupancy of the foreclosed property. We granted certiorari to review that judgment.

II.

The sole issue for review is whether the trial court acted within the limits of its discretion in allowing the petitioners additional time to redeem from the foreclosure sales. A summary of the history of C.R.C.P. 120 will provide useful background for our consideration of this question.

C.R.C.P. 120 was adopted in its original form in response to a requirement contained in the Soldiers' and Sailors' Civil Relief Act of 1940, 50 U.S.C. §§ 501-591 (1976). Section 532 of that Act provides that no foreclosure of property shall be valid if made "during the period of [the debtor's] military service or within three months thereafter [with an exception not relevant here] unless upon an order previously granted by the...