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Holta v. Certified Financial Services, Inc. (6/28/2002) sp-5588
Holta v. Certified Financial Services, Inc. (6/28/2002) sp-5588
Notice: This opinion is subject to correction before
publication in the Pacific Reporter. Readers are
requested to bring errors to the attention of the Clerk
of the Appellate Courts, 303 K Street, Anchorage,
Alaska 99501, phone (907) 264-0608, fax (907) 264-0878,
e-mail corrections@appellate.courts.state.ak.us.
THE SUPREME COURT OF THE STATE OF ALASKA
G. OTTO HOLTA, and WILLIAM P. )
BREDESEN, JR., Trustee, ) Supreme Court No. S-9074/9114
)
Appellants and ) Superior Court No.
Cross-Appellees, ) 3AN-97-10138 CI
)
v. )
)
CERTIFIED FINANCIAL SERVICES, ) O P I N I O N
INC., a Washington Corporation, )
) [No. 5588 - June 28, 2002]
Appellee and )
Cross-Appellant. )
)
Appeal from the Superior Court of the State
of Alaska, Third Judicial District,
Anchorage, Michael L. Wolverton, Judge.
Appearances: David J. Schmid and Eric R.
Cossman, Law Offices of David J. Schmid,
Anchorage, for Appellants/Cross-Appellees.
Michael W. Price and Sabrina E. L. Fernandez,
Price & Price, Anchorage, for Appellee/Cross-
Appellant.
Before: Matthews, Chief Justice, Eastaugh,
Fabe, Bryner, and Carpeneti, Justices.
BRYNER, Justice.
I. INTRODUCTION
The superior court granted summary judgment to
Certified Financial Services, holding that the six-year statute
of limitations for contracts barred Otto Holtas 1997 nonjudicial
foreclosure action against Certified Financials property. Holta
appeals, contending that his action is not time barred. We
reverse, holding that Holtas foreclosure action was not time
barred and that his deed of trust had not been extinguished by
earlier municipal tax foreclosure proceedings. Because we
reverse, we need not consider Certified Financials cross-appeal,
which seeks an increase in its award of prevailing-party
attorneys fees.
II. FACTS AND PROCEEDINGS
The facts are complicated but essentially undisputed.
In August 1987 Julia Cooper executed a note promising to pay
$560,610 to four beneficiaries: Northern Commercial Company,
Aubrey Bennett, Karen Lindeen, and Duplesse & Associates, Inc.
The note was secured by a recorded deed of trust against
Anchorage property known as the Essex Square Subdivision, which
consisted of sixty undeveloped lots. Cooper planned to develop a
residential subdivision at Essex Square; the four Cooper Note
beneficiaries were subcontractors that Cooper had hired to work
on the subdivision or that Cooper owed money for past work on
other ventures.
The Cooper Note called for payment by November 15,
1989:
All sums owed by the undersigned must be paid
on or before November 15, 1989. If the total
sum is not paid by November 15, 1989, the
entire principal sum shall at once become due
and payable at the option of the holders of
this Note.
The note also provided that Cooper expressly agree[d] that this
Note or any payment thereunder may be extended or renewed from
time to time.
In September 1987 Cooper sold twenty-seven of the sixty
Essex Square lots to another party. The Cooper Note
beneficiaries executed a partial reconveyance to Cooper, which
released the twenty-seven newly sold lots, leaving thirty-three
lots subject to the August 27 Cooper Deed of Trust.
Cooper later ran into serious financial problems
developing the Essex Square Subdivision and eventually filed for
bankruptcy. While the bankruptcy was pending, Coopers husband,
Clevey Cooper, convinced three of the four Cooper Note
beneficiaries all but Duplesse & Associates to reduce the
amount owed on the Cooper Note. In June 1989, approximately five
months before the note matured, the three beneficiaries signed an
Amendment to Deed of Trust and Deed of Trust Note, purporting to
reduce Coopers total debt from $560,610 to $306,351. Cooper did
not sign or record the amendment.
By the time the Cooper Note reached its original
maturity date in November 1989, the propertys market value had
fallen below the notes $560,610 face value; accordingly, the
trustee in the Cooper bankruptcy proceeding abandoned the
property to the Coopers.
The following year, Cooper sued Duplesse & Associates
(the beneficiary that had not signed the Cooper Amendment),
seeking to clear the cloud on the property by canceling Duplesses
interest under the deed of trust. The superior court entered
judgment for Cooper and canceled Duplesses interest in December
1990.
At about the same time, the Coopers determined that
they could not afford to complete the Essex Square Subdivision.
They quitclaimed title to the thirty-three remaining lots to
Coopers nephew, Michael Curry. The deed expressly provided that
Curry assumed all obligations under the Cooper Deed of Trust.
Curry was aware of the June 1989 note amendment, knew that it
extended the original payment deadline, and understood that the
reduced amounts reflected in the amended note were the amounts
that he had assumed. Curry recorded the quitclaim deed but not
the original or amended notes on March 27, 1991.
The following year, the Municipality of Anchorage and
the Internal Revenue Service initiated foreclosure proceedings
against the Essex Square property because Curry had failed to pay
taxes. The superior court issued a clerks deed transferring the
property to the municipality on November 17, 1993. The
municipality then scheduled a public auction to sell the land on
August 24, 1994. Two days before the municipal auction, the IRS
conducted an auction to sell Currys right to redeem the Essex
Square properties from municipal foreclosure. At the IRS
auction, Greencrest Investments, Inc., and William Markham
(collectively, Greencrest) bought Currys rights of redemption.
The following day Greencrest redeemed the properties by paying
Currys delinquent municipal taxes. The municipality canceled its
tax auction and quitclaimed the Essex Square lots to Greencrest
on August 24.
Greencrest eventually ran into its own financial
problems and failed to meet obligations to Certified Financial
that Greencrest had separately secured by a deed of trust against
the Essex Square lots. On July 11, 1996, Certified Financial
acquired title to Essex Square from Greencrest by statutory deed
in lieu of foreclosure.
Meanwhile, Holta had acquired all interest in the
original Cooper Note from the Cooper Note beneficiaries. Holta
bought Northern Commercials interest on August 23, 1994 for
$2,000. Bennett and Lindeen assigned their interests to Holta on
October 11, 1996, for an undisclosed percentage of any money
Holta might collect. And as already stated, the superior court
had eliminated the interest of the fourth Cooper Note
beneficiary, Duplesse. These conveyances set the stage for the
present litigation.
Holta initiated nonjudicial foreclosure proceedings
against the Essex Square property by recording a notice of
default and sale in November 1997. Certified Financial responded
by filing a superior court action to quiet title and enjoin Holta
from foreclosing. In a subsequent motion for summary judgment
Certified Financial asserted that the six-year statute of
limitations for contracts barred Holtas action. The superior
court granted Certified Financials motion for summary judgment.
The court ruled that the six-year statute of limitations for an
action to foreclose on the Cooper Deed of Trust started running
on November 15, 1989 when the underlying note fell due and
therefore expired on November 15, 1995. The court thus concluded
that the statute of limitations barred Holtas November 1997
action. The court entered final judgment against Holta, awarding
costs and attorneys fees to Certified Financial.
Holta appeals, challenging the summary judgment order;
Certified Financial cross-appeals, contesting the amount of the
award of attorneys fees.
III. DISCUSSION
A. Standard of Review
This court reviews a grant of summary judgment de novo.1
We will affirm a grant of summary judgment if the evidence in the
record presents no genuine issue of material fact and the moving
party is entitled to judgment as a matter of law.2
B. Analysis
The superior court ruled that a deed of trust is
subject to the same statute of limitations as the underlying note
and that actions based on both instruments are governed by the
six-year statute of limitations for contracts set out in former
AS 09.10.050.3 Holta does not dispute that a six-year limit
governs both an action on the note and an action on the deed of
trust; but he does dispute the assumption that this six-year
limit expires at the same time for each action.4 This argument
requires us to consider how the six-year statute of limitations
affects the note and the deed of trust.
1. How the six-year statute of limitations applies to
the deed
Because the deed of trust failed to specify a maturity
date, Holta argues, the court should have applied AS 34.20.150(a)
to determine when the six-year statute of limitations began
running on the deed of trust. This provision states:
The date of maturity of an instrument
creating a lien upon real property is
considered to be 10 years from the date of
the instrument, unless
(1) the period of the instrument is
disclosed by the terms of the instrument; or
(2) another instrument extending the
period of the first instrument or a
memorandum of payment of the first instrument
is recorded.
But Certified Financial argues that the Cooper Deed of
Trust incorporated the terms of the Cooper Note, which in turn
specified that [a]ll sums owed by the undersigned must be paid on
or before November 15, 1989. Certified Financial reasons that
even though the Cooper Note went unrecorded, because the two
documents were contemporaneously executed, the deed should be
deemed to satisfy AS 34.20.150(a)s requirement of disclosing the
deeds maturity date as reflected in the note. To support this
argument, Certified Financial emphasizes that when a promissory
note and deed are executed simultaneously, they generally must be
read together as one document to ascertain the parties intent.5
But we are not concerned here with determining the
original contracting parties intent. Instead, we must determine
whether AS 34.20.150(a) allows its ten-year default maturity date
to be overridden by a maturity date that can be found only in an
unrecorded note that the deed merely incorporates by reference.
This determination hinges on AS 34.20.150(a)s purpose to provide
subsequent purchasers with record knowledge and reasonable
certainty regarding the vitality of liens recorded against the
property. Alaska Statute 34.20.150(a) attains this purpose by
establishing a ten-year default maturity date; the statute allows
no exception to the default date unless a different date is
expressly stated in either the recorded lien itself6 or some
other recorded document that extends the lien.7 Given the
statutes underlying purpose, we conclude that its ten-year
default maturity date cannot be overridden by a deed of trust
provision incorporating the terms of a contemporaneously executed
note unless the note itself is also recorded.
Here, the Cooper Deeds default maturity date is August
1997 ten years after Cooper recorded the deed. Neither the
unrecorded note nor the later unrecorded extension amendment
override this date. Under AS 34.20.150(a), then, the six-year
statute of limitations to foreclose on the deed began to run on
the August 1997 default maturity date and does not expire until
August 2003.
2. How the six-year statute of limitations applies to
the note
The facts of this case require us to consider an
additional wrinkle: in Dworkin v. First National Bank of
Fairbanks, we recognized that when the statute of limitations on
a deed of trust exceeds the limit for an action on the underlying
note, the shorter period that applies to the note also governs
the action on the deed; in such a case the foreclosure action is
subject to the same period of limitations as the underlying debt.8
Here, even though AS 34.20.150(a) applies a default maturity date
that extends the six-year statute of limitations for foreclosure
until August 2003 sixteen years after the deeds execution
Dworkin makes the statute of limitations on the note controlling
if it expires sooner and would preclude Holta from foreclosing on
the deed if the six-year limit for an action on the Cooper Note
had already expired when he commenced his foreclosure.
As indicated above, the original Cooper Note required
payment on or before November 15, 1989. If the six-year
statutory limit began running then, the time for filing an action
on the original note would expire on November 15, 1995 well
before Holta actually brought his foreclosure action in November
1997. But in 1989 an amendment ostensibly extended the notes
original due date by nearly three years until June 20, 1992;
this would generate a corresponding extension of the deadline for
filing an action on the note and deed until June 20, 1998 after
Holta actually began foreclosure. Assuming, then, that the 1989
amendment is valid, Dworkin would permit Holtas action. It thus
becomes crucial to determine when the six-year limit expired for
an action on the Cooper Note.
On this point Holta argues that the June 1989 amendment
extended the statute of limitations. On June 20, 1989, while the
Cooper bankruptcy was pending and several months before the
Cooper Note fell due, Cooper persuaded three of the four
beneficiaries to sign an Amendment to Deed of Trust and Deed of
Trust Note reducing the amount Cooper owed on the note and
extending the date for payment to June 20, 1992. Holta maintains
that this amendment delayed the six-year limit for actions on the
note from expiring until June 20, 1998 six years after the
amended due date.
Certified Financial counters that the 1989 amendment is
invalid for several reasons. It first argues that Cooper never
signed the amendment. But the original note authorized its
holders to extend the deadline for payment unilaterally; hence,
the note did not require Coopers consent to an extension. And in
any event, the record establishes that Cooper agreed to the
extension. The extension was negotiated by Coopers husband,
Clevey, who undisputedly had authority to act as her agent.
Furthermore, Michael Curry, Coopers eventual successor-in-
interest, acknowledged the amendment and expressly assumed its
obligations.9 Certified Financials effort to portray the
amendment as an inchoate agreement thus fails.
Certified Financial next argues that the June 1989
amendment to the original note was invalid because the automatic
stay in the Coopers bankruptcy prevented anyone but the trustee
from amending the note. Holta responds that Certified Financial
lacks standing to assert a violation of the bankruptcy stay, that
it is estopped from arguing this issue, and that the amendment
did not violate the stay in any event.
The bankruptcy code specifies that a bankruptcy
petition operates as a stay on any act to create, perfect, or
enforce any lien against the property of the estate.10 Here, the
amendment does not appear to create, perfect, or enforce a lien;
it simply extends a note secured by an otherwise valid lien.11
Moreover, the bankruptcy trustee ultimately abandoned Essex
Square to the Coopers. Cooper then filed an action against
Duplesse & Associates, the only holder of the original note that
had not signed the amendment, which established that Duplesse had
no further interest in the property. And when Cooper later
conveyed her interest in the property to Michael Curry, Curry
acknowledged the amendment and expressly assumed its obligations.
These post-bankruptcy actions effectively ratified the amendment
and cured any potential deficiency arising from its execution
during the bankruptcy stay.
We must next consider whether the amendment fails
because it was not recorded. Certified Financial identifies
statutory provisions requiring extensions to be recorded in two
situations: under AS 34.20.140, when payment is made on a
contract secured by a real estate lien, the payment will not
extend the lien unless a memorandum of payment is recorded;12 and
under AS 34.20.150(a)(2), when an instrument such as a deed of
trust creates a lien without specifying its maturity date, an
instrument extending the earlier instrument will operate to
extend the statutorily specified default maturity date only if
the later instrument is recorded.13
Neither provision applies here. The former statute has
no bearing because Holta seeks to enforce an extension arising
from the original notes amendment, not its payment. And both the
former and the latter are irrelevant because the only lien at
issue here is the Cooper Deed of Trust;14 the 1989 amendment
extends only the original note, not the deed, and so does not
qualify as an instrument extending either the lien or the
maturity date of an instrument creating a lien. Because the
extension of the Cooper Note did not affect the deeds statutorily
specified ten-year date of maturity under AS 34.20.150(a), the
amendments validity did not hinge on its being recorded.
The amendment thus extended the notes due date to
June 20, 1992; this in turn extended the expiration of the six-
year statute of limitations for any action on the note to
June 20, 1998. Because Holtas November 1997 notice of
foreclosure preceded this deadline, the statute of limitations
did not bar his action.
C. Tax Foreclosure
The superior courts decision to enter summary judgment
against Holta for violating the statute of limitations made it
unnecessary for the court to consider Certified Financials
alternative summary judgment argument. Because the argument
presents a question of law and arises on undisputed facts, we
consider it here.15
Certified Financial theorizes that the Municipality of
Anchorages 1994 tax foreclosure action against Currys property
extinguished the Cooper Deed of Trust and gave Currys successor,
Greencrest, clear title to the Essex Square property. To support
this theory, Certified Financial cites 26 U.S.C. 6339(c):
(c) Effect of junior
encumbrances.certificate of sale of personal
property given or a deed to real property
executed pursuant to section 6338 shall
discharge such property from all liens,
encumbrances, and titles over which the lien
of the United States with respect to which
the levy was made had priority.
Certified Financial points out that, in keeping with 6339(c),
the IRS issued a notice of sale in 1994 confirming that all liens
over which the lien of the United States with respect to which
the levy was made had priority are discharged when a deed to real
property [is] executed pursuant to [26 U.S.C. ] 6338.
But Certified Financial reads too much into the IRS
notice. The notice merely disclaims certain encumbrances that
are extinguished when an IRS tax sale results in the issuance of
a deed under 26 U.S.C. 6338. Yet here the IRS did not issue a
deed to Essex Square under this statute.16 Instead, it only sold
Currys right to redeem Essex Square from the Municipality of
Anchorage; to evidence the sale of this right, Curry gave
Greencrest a quitclaim deed. Absent a deed executed by the
Secretary of the Treasury under 6338, then, the IRS sale of
Currys right of redemption did not extinguish the Cooper Deed of
Trust lien. Certified Financial does not argue that the levy of
the United States had priority over the Cooper Deed of Trust. In
fact the levy did not, since the Cooper Deed of Trust was senior
to the IRS lien because it was recorded before the IRS lien
against Curry, and, most relevantly, before Curry acquired the
property. Although the relevant statute, 26 U.S.C. 6323(a), is
somewhat obscure on this point, the case law authoritatively has
interpreted this subsection to subordinate the tax lien to
perfected security interests arising before the filing of the tax
lien . . . .17
Certified Financial further argues that the
municipality obtained title to Essex Square, subject only to the
IRS tax lien, because AS 29.45.450(b) provides that when a
superior court issues a clerks deed in a tax foreclosure, as it
did here, the [c]onveyance gives the municipality clear title,
except for prior recorded tax liens of the United States and the
state.18 But Holta responds that this statute did not apply here
because Greencrest acted as Essex Squares previous owner and
simply exercised Currys right of redemption.
Holtas response has merit. In Jefferson v.
Metropolitan Mortgage & Securities Co. of Alaska, we acknowledged
the general rule that when a municipality forecloses on property
for failure to pay taxes, it receives a new title to the property
free from all encumbrances. A buyer of the property at the
subsequent tax sale receives a new, independent title and not
that of the former owner.19 But we described an exception that
applies when the record owner buys back the property by paying
delinquent taxes:
[I]n Alaska, even after [the] time of
redemption has run, the record owner may
still purchase the property by paying the
delinquent taxes, so long as the property has
not yet been sold to a third party at a tax
sale. . . . . It is the general rule that
when the owner of record redeems or
repurchases his property, his purchase merely
operates as a payment of the taxes and he
receives the same title he held before the
municipalitys foreclosure.[20]
In the present case, after Greencrest bought Currys
right of redemption from the IRS, the municipality canceled its
scheduled tax auction and allowed Greencrest to buy back the
property without competition by paying Currys delinquent taxes.
Because Greencrest stood in Currys shoes and redeemed the
property as his assignee, Jefferson instructs us to view the
transaction as leaving Greencrest with the same title [Curry]
held before the municipalitys foreclosure.21
IV. CONCLUSION
Because Holtas right to foreclose the Curry Deed was
not barred by the statute of limitations and because the lien
created by that deed was not extinguished by the 1994 municipal
tax foreclosure, we REVERSE the judgment and REMAND for further
proceedings.22
_______________________________
1 Davis v. Dykman, 938 P.2d 1002, 1006 (Alaska 1997).
2 Id.
3 Former AS 09.10.050 provided, in relevant part:
Unless the action is commenced within six
years, a person may not bring an action
(1) upon a contract or liability, express or
implied, excepting those mentioned in AS
09.10.040[.]
4 Holta also contends that the note is a negotiable
instrument and as such is subject to the six-year time limit set
out in Alaskas Uniform Commercial Code, see AS 45.03.118(a),
rather than the six-year limit for contracts set out in AS
09.10.050. He theorizes that a more lenient maturity date
applies to the note under the UCC provision. Our conclusion that
Holta prevails under the six-year contract limit makes it
unnecessary to consider his negotiable instrument theory.
5 See Moening v. Alaska Mut. Bank, 751 P.2d 5, 8-9
(Alaska 1988).
6 See AS 34.20.150(a)(1).
7 See AS 34.20.150(a)(2).
8 444 P.2d 777, 782 (Alaska 1968).
9 We need not consider whether the statute of frauds
applies to the June 1989 note extension. See AS 09.25.010; but
see Winters By and Through McMahon v. George Mason Bank, 94 F.3d
130, 135-36 (4th Cir. 1996). Because the original note gave its
holders unilateral power to extend the date for payment and thus
made Coopers signature unnecessary, the note satisfied the
statutes requirements if they applied.
10 11 U.S.C. 362(a)(4).
11 See In re Morton, 866 F.2d 561, 564 (2d Cir. 1989).
12 AS 34.20.140 provides:
Where the payment of an existing contract (a
bill of exchange, promissory note, bond, or
other evidence of indebtedness) is secured by
an instrument creating a lien upon real
estate, payment on the contract does not
extend the lien beyond its original or
extended period as against subsequent
purchasers, optionees, mortgagees, creditors,
or persons acquiring a lien upon the real
estate, unless
(1) a memorandum of the payment is
recorded in the office of the recording
district where the property is located;
(2) the memorandum is recorded before
the end of the statutory time for bringing an
action upon the existing contract and
extensions as exhibited by the terms of the
recorded instrument; and
(3) the memorandum is signed and
acknowledged by the owner or the
representative of the owner of the existing
contract of indebtedness.
13 AS 34.20.150(a) provides, in relevant part:
(a) The date of maturity of an instrument
creating a lien upon real property is
considered to be 10 years from the date of
the instrument, unless
(1) the period of the instrument is
disclosed by the terms of the instrument; or
(2) another instrument extending the
period of the first instrument or a
memorandum of payment of the first instrument
is recorded.
See Dworkin v. First Natl Bank of Fairbanks, 444 P.2d 777, 781
n.19 (Alaska 1968) (holding that AS 34.20.150s ten-year
presumptive date of maturity does not apply when an instrument
explicitly sets forth a maturity date).
14 See Grant S. Nelson & Dale A. Whitman, Real Estate
Finance Law 1.1, at 1 (4th ed. 2002) (distinguishing between a
note and a mortgage). This court has used the terms deed of
trust and mortgage interchangeably. See, e.g., K & L
Distributors, Inc. v. Kelly Elec., Inc., 908 P.2d 429, 432 & n.5
(Alaska 1995); Brand v. First Fed. Sav. & Loan Assn of Fairbanks,
478 P.2d 829, 831-32 (Alaska 1970) (stating that a deed of trust
is a mortgage in effect and only creates a lien).
15 See Alaskans for a Common Language, Inc. v. Kritz, 3
P.3d 906, 912 (Alaska 2000) (intervention); Bennett v. Hedglin,
995 P.2d 668, 671 (Alaska 2000) (insurance application).
16 26 U.S.C. 6338 provides:
(a) Certificate of sale.--In the case of
property sold as provided in section 6335,
the Secretary [of the Treasury] shall give to
the purchaser a certificate of sale upon
payment in full of the purchase price. In the
case of real property, such certificate shall
set forth the real property purchased, for
whose taxes the same was sold, the name of
the purchaser, and the price paid therefor.
(b) Deed to real property.--In the case of
any real property sold as provided in section
6335 and not redeemed in the manner and
within the time provided in section 6337, the
Secretary shall execute (in accordance with
the laws of the State in which such real
property is situated pertaining to sales of
real property under execution) to the
purchaser of such real property at such sale,
upon his surrender of the certificate of
sale, a deed of the real property so
purchased by him, reciting the facts set
forth in the certificate.
(c) Real property purchased by United
States.--If real property is declared
purchased by the United States at a sale
pursuant to section 6335, the Secretary shall
at the proper time execute a deed therefor,
and without delay cause such deed to be duly
recorded in the proper registry of deeds.
17 Slodov v. United States, 436 U.S. 256, 257 (1978).
18 See also AMC 12.15.070(D) (Properties transferred to
the municipality by tax deed will be subject to redemption or
repurchase by an owner as provided by AS 29.45.).
19 503 P.2d 1396, 1399 (Alaska 1972) (footnote omitted).
20 Id.
21 Id.
22 Our decision to reverse the judgment on its merits also
requires us to vacate the superior courts award of prevailing-
party attorneys fees to Certified Financial. We therefore need
not consider Certified Financials cross-appeal, which challenges
the award as insufficient.
