Mut. of Omaha Bank v. Watson

• Decision Date: 11 August 2017
• Docket Number: No. S-16-906.,S-16-906.
• Citation: 297 Neb. 479,900 N.W.2d 545
• Parties: MUTUAL OF OMAHA BANK, appellee, v. Robert W. WATSON, appellant, and Shona Rae Watson, appellee, formerly husband and wife, and Community Bank of Lincoln, Trustee and beneficiary, et al., appellees.
• Court: Nebraska Supreme Court

297 Neb. 479

900 N.W.2d 545

MUTUAL OF OMAHA BANK, appellee,

v.Robert W. WATSON, appellant, and Shona Rae Watson, appellee, formerly husband and wife, and Community Bank of Lincoln, Trustee and beneficiary, et al., appellees.

No. S-16-906.

Supreme Court of Nebraska.

Filed August 11, 2017.

Robert W. Watson, pro se.

John D. Stalnaker and Robert J. Becker, of Stalnaker, Becker & Buresh, P.C., Omaha, for appellee Mutual of Omaha Bank.

Heavican, C.J., Wright, Miller-Lerman, Cassel, Stacy, Kelch, and Funke, JJ.

Funke, J.

I. NATURE OF CASE

The appellant, Robert W. Watson (Watson), appeals from the district court's summary judgment orders that determined Mutual of Omaha Bank (Mutual) held a valid and enforceable deed of trust against Watson's homestead property. The court determined that the instrument, the primary deed of trust, had first priority as an encumbrance on the property, ordered an execution sale, and foreclosed Watson from asserting any interest in the property.

Both Watson and his then-spouse, Shona Rae Watson, signed the primary deed of trust, but the notary did not certify that Shona had acknowledged the instrument. The notary did certify that Watson and Shona had both acknowledged a secondary deed of trust before the notary on the same day. Watson contends that the court erred in reading these two deeds of trust together to conclude that Watson and Shona intended to encumber their homestead through the primary deed of trust.

In our de novo review of the record, we conclude that even if the court erred in that conclusion, it nonetheless reached the correct result. The undisputed facts show that Watson and Shona could not have acquired title to the property except by giving a security interest for the purchase money through the primary and secondary deeds of trust. Accordingly, the acknowledgment requirement under the homestead statutes did not preclude enforcement of the primary deed of trust and Watson's homestead interest was subject to the seniority of that instrument. We affirm.

II. BACKGROUND

1. HISTORICAL FACTS

Watson was the manager of Reserve Design, LLC, a company which designed, built, and sold homes in Lancaster County, Nebraska. In April 2008, Watson, as the manager of Reserve Design, executed a deed of trust to secure a loan or line of credit from Cattle National Bank and Trust Company (Cattle National). Under the deed of trust, Reserve Design conveyed a residential property in Lancaster County to Cattle National as trustee and beneficiary if Reserve Design defaulted on its loan obligations. The maximum loan amount was $525,000.

On October 26, 2009, Watson and Shona purchased the same home, which Reserve Design had built but had been unable to sell. Watson and Shona were both members of Reserve Design, but they purchased the home in their personal capacities. The property became their homestead. On October 26, Watson executed and delivered a promissory note for $417,000 and a second promissory note for $118,414.50 to Community Bank of Lincoln (Community Bank) to fund the purchase price of the residential property and to pay off the prior indebtedness owed to Cattle National by Reserve Design. Upon receiving the payoff, Cattle National released its deed of trust for the property.

Watson and Shona signed the primary deed of trust to secure the $417,000 note and a secondary deed of trust to secure the $118,414.50 note. The instruments conveyed the same property in trust that had been security for the deed of trust in favor of Cattle National. Angela Schwartz, a Community Bank officer, notarized the instruments, but her certification on the primary deed of trust stated that only Watson had acknowledged the instrument before her. That same day, Community Bank assigned the primary deed of trust to TierOne Bank.

Later on October 26, 2009, Watson signed an addendum to a settlement statement in which he verified that $532,140.08 was the payoff to Cattle National. The next day, October 27, Community Bank transferred by wire $532,140.08 to Cattle National.

On November 5, 2009, Community Bank recorded the primary deed of trust and the assignment. A title insurance company issued a title insurance policy, which stated that the insured was TierOne Bank, and its successors or assignees. Subject to exclusions, the policy covered the insured against defects in the deed caused by various circumstances, including "a document affecting Title not [being] properly created, executed, witnessed, sealed, acknowledged, notarized, or delivered."

After TierOne Bank was placed in receivership in June 2010, the receiver sold TierOne Bank's servicing rights to a different bank. In October, the receiver and the other bank assigned all their rights in the primary deed of trust to Mutual.

Watson eventually defaulted on the note, and in January 2013, Mutual brought suit for judicial foreclosure.

On December 16, 2013, Mutual deposed Shona. She and Watson had divorced in 2010, and, at some point, she moved to Missouri. She stated that they had purchased a new home while they were married, but she did not know how the financing was handled. She agreed that her signature appeared to be on the primary deed of trust. But she did not recall any significant facts regarding the execution: i.e., signing the document, being at the closing, which bank she would have been at, or whether a notary was present. She said that Watson would just tell her when to show up and sign papers if he needed her signature and that this happened several times while they were married. She said that she did not know the purpose of the documents. She also did not recall signing the secondary deed of trust for Community Bank but agreed that it looked like her signature.

On December 31, 2013, an unspecified party filed a "Corrective Deed of Trust" that purported to correct Schwartz' certification for the primary deed of trust. The new certification stated that on October 26, 2009, the primary deed of trust had been acknowledged before Schwartz by both Watson and Shona. Schwartz' statement was undated, and neither Watson nor Shona signed the corrective deed.

In a 2015 deposition, Watson testified that he could not recall (1) signing the primary deed of trust, (2) whether he had signed the loan documents at Community Bank, (3) whether Shona was present, or (4) whether the loan officer was present when he signed them. Watson said that he had sometimes signed loan documents at his office or his home. He admitted that the signature on Mutual's copy of the primary deed of trust looked like his.

2. PROCEDURAL HISTORY

Mutual filed its operative amended complaint in January 2014 in which it alleged that Watson had failed to "make the payments ... which became due on May 1, 2012, and thereafter" and that Mutual had elected to declare the whole indebtedness due at once. It alleged that it was the holder of a deed of trust that "is, or in equity should be determined to be, a first lien" on the property. Mutual also sought an accounting, a determination that any other interests in the property were junior to its interest, and a judicial foreclosure sale of the property.

Alternatively, Mutual sought a declaratory judgment and equitable subrogation. It alleged that the omission of Shona's acknowledgment in the 2009 primary deed of trust had been corrected by the 2013 corrective deed of trust and that the corrective deed should be equitably subrogated to the first priority position of the primary deed of trust.

Watson filed an answer with affirmative defenses and counterclaims. Generally, he sought a setoff for Mutual's wrongful conduct against any amount that the court found Watson owed to Mutual. First, Watson alleged that Mutual had breached a contractual duty to him under the title insurance policy by commencing a foreclosure action against him. Specifically, he asserted the following: (1) Watson had purchased title insurance to insure the lender against defects in the primary deed of trust, and after the policy was issued, the insurer was liable for any defects; (2) by accepting title insurance, Mutual had agreed that it could not maintain an action against Watson to cure defects in the primary deed of trust; (3) Mutual had a contractual duty under the policy to seek remuneration from the title insurer for defects; and (4) Mutual admitted in a trial brief that it had filed a claim against its title insurer.

Second, Watson alleged that Mutual and the title insurer's agent in Nebraska had colluded to force a judicial sale of his homestead property despite a facial defect in the deed of trust. He alleged that the title insurer had provided legal services to Mutual to protect its own interests in avoiding payment of a claim by Mutual.

Third, Watson sought a judgment declaring that Mutual had contractually indemnified him against any claim for insured conditions and that Mutual's only claim for defects in the deed of trust was against its title insurer. He sought general and special damages.

Mutual moved to dismiss Watson's counterclaims, and the court sustained that motion, finding that Watson was not the insured under the title insurance policy. It rejected Watson's claim that he was a coinsured or an implied insured under the policy because he had paid the premiums and was listed as the title owner of the property. It concluded that Mutual was not seeking damages from Watson for title defects; it was seeking a judicial foreclosure because of Watson's default on the loan. It concluded that the policy covered only Mutual and that Watson was not entitled to any of its benefits.

The court also rejected Watson's argument that the title insurance policy and the primary deed of trust should be construed as one instrument. It concluded that provisions in the deed of trust and title insurance policy, when read together, showed that the parties did not intend for Watson to be a coinsured or covered by the policy. Instead, Watson's payment of the insurance premiums was merely a condition of the loan.

The...