Myers v. Eich

• Decision Date: 26 July 2006
• Docket Number: No. 23837.,23837.
• Citation: 2006 SD 69,720 N.W.2d 76
• Parties: William G. MYERS, Trustee William G. Myers, Living Trust, Dated, Dated 11-25-94, Plaintiff and Appellee, v. Michael R. EICH and Sheri L. Eich, Defendants and Appellants.
• Court: South Dakota Supreme Court

720 N.W.2d 76

2006 SD 69

William G. MYERS, Trustee William G. Myers, Living Trust, Dated, Dated 11-25-94, Plaintiff and Appellee, v. Michael R. EICH and Sheri L. Eich, Defendants and Appellants.

No. 23837.

Supreme Court of South Dakota.

Argued on May 24, 2006.

Decided July 26, 2006.

COPYRIGHT MATERIAL OMITTED

Roger W. Hunt of Hunt Law Office, Brandon, South Dakota, Attorney for plaintiff and appellee.

Thomas K. Wilka of Hagen, Wilka & Archer, P.C., Sioux Falls, South Dakota, Attorneys for defendants and appellants.

KONENKAMP, Justice.

[¶ 1.] In 1999, William Myers advanced Michael and Sheri Eich $125,000 to redeem their property from foreclosure. The transaction between the parties included a warranty deed and contemporaneous contract for deed. Over the next several years, Myers continued to advance the Eichs money. With one advance, Myers amended the 1999 contract for deed; with another, he had the Eichs execute new warranty deeds. The Eichs, however, could not get ahead and became delinquent on their obligation. Ultimately, Myers informed them that he was going to sell the property. He then brought a forcible entry and detainer action, alleging that he was the fee simple owner of the property and the Eichs were leasing the premises from him. The Eichs, however, asserted that an equitable mortgage existed and Myers was required to proceed by a foreclosure action. The circuit court agreed with Myers and the Eichs appeal. Because the initial transaction bears the central earmarks of an equitable mortgage and should have been so construed, and nothing in the subsequent actions changed the character of the initial transaction, the circuit court abused its discretion in concluding otherwise. We reverse and remand.

Background

[¶ 2.] Since 1980, Michael and Sheri Eich lived on sixty-four acres they owned in Moody County, South Dakota (the home property). In 1995, the Eichs purchased land next to the home property to operate a truck repair business (the shop property). After the Eichs purchased the shop property, they gave First Bank of South Dakota a mortgage in 1996 using both the shop and home property as collateral.

[¶ 3.] Three years later, the Eichs became delinquent on this mortgage loan and First Bank foreclosed on both properties. During the Eichs' redemption period a broker contacted William Myers believing that he might assist the Eichs. According to Myers, the broker told him that the Eichs needed $200,000 to redeem their property but were only able to finance $75,000 through First National Bank of Brookings. Myers agreed to provide the additional $125,000 through his trust, William G. Myers Living Trust (WGMLT).

[¶ 4.] The arrangement between Myers and the Eichs was summarized by Myers in a letter to the Eichs. The letter was printed on Myers Real Estate letterhead and was entitled "Instructions to Borrowers." In the body of the letter, Myers noted that he was a licensed real estate broker. He then described their transaction:

WGMLT is lending you $125,000 to acquire your property from U.S. Bank. In return, you are to repay to WGMLT $135,000.00 plus interest of 14% per annum in monthly payments of $1,800.04 per month starting on October 1, 1999 for 180 payments. . . . To provide security to WGMLT for this transaction, WGMLT is purchasing your property above described as Parcel 1[the home place] for $1.00 and the above described Parcel 2 [the shop property] from U.S. Bank for $125,000 plus other funds you are furnishing and then selling these two parcels to you for $135,000 on a contract-for-deed (CFD) with 14% interest.

In accord with the letter, Myers prepared and the Eichs signed a warranty deed dated September 1, 1999, purporting to convey the home and shop properties. Contemporaneously, Myers executed a contract for deed, whereby he agreed to re-convey both properties to the Eichs upon their payment of $135,000 in monthly installments of $1,800.04 from October 1, 1999, through September 1, 2014, at a rate of fourteen percent interest per annum. The $135,000 obligation represented $125,000, plus a $10,000 fee Myers charged for the advance.

[¶ 5.] On September 2, 1999, Myers filed the warranty deed with the Moody County Register of Deeds. In the following month, Myers responded to a questionnaire from the Moody County Office of Equalization, regarding an annual assessment to sales ratio. In this questionnaire, he characterized the September 1, 1999 transaction:

This property was in foreclosure and the purchase by [WGMLT] was followed by a sale to [the Eichs] via contract for deed not yet filed. This purchase and resale was simply a security vehicle to secure to WGMLT the money loaned to Eich to redeem the property from foreclosure. Therefore, none of the information requested on the form required by SDCL 10-11-54 thru 60 would be reflective of a true sale or sales price.

The reason the contract for deed was not yet filed, according to Myers, was because the Eichs "had other debts they wanted to clear up." The Eichs started making their monthly payments on September 29, 1999, as required by the contract for deed. Myers documented the Eichs' payments in his computer-generated amortization schedule. He explained that the computer program recorded the amount of the Eichs' payments and date received. The program then calculated the interest paid and principal due after each payment in relation to the total obligation and interest rate charged.

[¶ 6.] The amortization schedule reflected that the Eichs continued to make timely payments from September 1999 until April 2001. In 2001, however, the Eichs began experiencing financial difficulties. They had defaulted on a $25,000 mortgage loan that had been secured through the Farmers Home Administration in 1980 for the home property. Myers agreed to assist them and either paid or assumed the remaining balance, $40,098.74. Thereafter, Myers created an amended contract for deed. In the amended contract, Myers noted that "the Eichs now wish to borrow Forty Thousand Ninety-Eight and 74/100 Dollars ($40,098.74) to pay off a Real Estate Mortgage dated November 17, 1980 ... given by [the Eichs], WROS, to United States of America, acting through the Farmers Home Administration ..." The Eichs signed the amended contract for deed on April 4, 2001, and, on April 24, 2001, Myers recorded this contract along with the original contract for deed dated September 1, 1999. Both the 1999 contract for deed and the 2001 amended contract for deed related to the same tracts, the home and shop properties.

[¶ 7.] With this additional obligation, the new contract for deed increased the Eichs' monthly payments to $2,353.56, with the same fourteen percent per annum interest rate. Beginning in May 2001, the Eichs paid the new monthly amount. However, in August 2001, the Eichs were again experiencing financial difficulties as a result of an IRS tax lien. Myers agreed to loan them $21,000. In return, Myers charged a $1,000 fee and took a lien on the trucks the Eichs owned. This loan was separate from the arrangement relating to the home and shop properties and was documented by Myers through a separate amortization schedule. Also, the circumstances surrounding this loan are not part of this appeal. However, the fact that Myers loaned the Eichs additional money is relevant in understanding the nature of the parties' relationship.

[¶ 8.] Returning to the Eichs' obligation under the amended contract for deed, the Eichs made payments from the latter part of 2001 until December 2002. During all of 2002, however, the amount and timeliness of the payments were inconsistent and irregular. The Eichs would later recount that Myers accepted whatever amount they could pay, and in many instances they paid him by endorsing over company checks. However, the amortization schedules Myers kept show that although multiple payments were received in January 2002, after that date no payments were received until June 2002. From June 2002 until December 2002, the Eichs made payments, but the monthly amounts varied.

[¶ 9.] On January 15, 2003, the amortization schedule shows that Myers advanced a "loan" of $64,800. According to the Eichs, on January 4, 2003, the First National Bank of Brookings sent them notice that it was going to foreclose on a $75,000 mortgage loan they had secured on their property in August 1999. With foreclosure imminent, Myers agreed to have the remaining obligation assigned to WGMLT. This arrangement, unlike the previous instance when Myers advanced the Eichs additional money, did not result in an amended contract for deed. Instead, Myers presented and the Eichs signed two new warranty deeds. The new deeds conveyed the same property as the 1999 deed purported to convey and was filed with the Moody County Register of Deeds on January 15, 2003.

[¶ 10.] The Eichs' financial difficulties persisted. Myers had not received a payment from them since December 2002. On March 11, 2003, Myers sent the Eichs a letter, stating,

I have been studying the two loans you have with us and trying to come up with some way that you can recover your property and that I can recover my money. So far I don't have anything to offer except as follows. On the first loan we made to you, after we had paid off the bank twice, paid off FmHA, paid your back real estate taxes and insurance, as of 3/15/03 you will owe us $264,625.89.

I don't know how to get this from you other than to sell the farm and the shop, and I don't know if the two of them will bring that amount. One other thought I have had is that I could rent the farm and shop to you for a year at $3,500 per month and see if the picture looks better for you at the end of one year. If we do that I will have to have the rent each month on time....

I need to know your thoughts on this because, as I am sure you know, having $291,418.04 out there with no payments coming in has not put me in a good situation.

The Eichs did not contact Myers in...