November 23, 2014

Colorado Court of Appeals: No Authority Permits Counterclaims or Cross-Claims in Spurious Lien Action

The Colorado Court of Appeals issued its opinion in Fiscus v. Liberty Mortgage Corp. on Thursday, June 19, 2014.

Spurious Lien—Deed of Trust—Forgery—Statute of Limitations—Counterclaims—Cross-Claims—Ownership Interest.

Raymond L. Fiscus (owner) sued Liberty Mortgage Corporation, BB&T Corporation, and Branch Banking and Trust Company (collectively, the banks) under the spurious lien statute, seeking to have a deed of trust recorded by Branch Banking and Trust in 2009 declared spurious after owner’s wife executed the deed of trust on owner’s behalf based on a forged power of attorney. The banks counterclaimed against owner, asking to judicially foreclose on the property, alleging unjust enrichment and seeking an equitable lien against the property. The banks also filed a third-party complaint against wife, alleging theft. The trial court declared the deed of trust spurious and ordered its release, and dismissed the bank’s counterclaims and third-party claims.

On appeal, the banks contended that the trial court erred when it held that owner’s spurious lien petition was not barred by the statute of limitations. Spurious lien actions must be brought within two years of accrual. A cause of action accrues on the date “both the injury and its cause are known or should have been known by the exercise of reasonable diligence.” Here, the trial court concluded that, had owner exercised reasonable diligence, April 2010 was the earliest date he could or should have discovered the existence of the deed of trust. Therefore, owner timely filed the spurious lien petition on March 29, 2012.

The banks contend that the trial court erred when it granted owner’s motion to strike their counterclaims for judicial foreclosure, unjust enrichment, and an equitable lien, as well as their third-party claim against wife. However, there is no authority permitting counterclaims or cross-claims to be brought in a spurious lien action. Therefore, the trial court did not err when it dismissed these claims without prejudice. Because these claims were dismissed without prejudice and the banks were not prohibited from bringing a separate action regarding their claims, the banks were not deprived of any due process rights to pursue them.

The banks also argued that the trial court erred when it concluded wife did not have an ownership interest in the property sufficient to allow her to encumber the property. However, wife was not the record owner of the property. Therefore, she had an inchoate interest only and did not have the authority to encumber the property.

Summary and full case available here.

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