April 22, 2019

Colorado Court of Appeals: Partial Subordination Approach to Lien Priority Best Reflects Colorado Law

The Colorado Court of Appeals issued its opinion in Tomar Development, Inc. v. Friend on Thursday, June 4, 2015.

Lien—Subordination Agreement—Partial Subordination Approach.

The Friend family sold its ranch to Friend Ranch Investors Group (FRIG) to develop it into a resort-style golf course community. In 2010, FRIG conveyed the property to Mulligan, LLC, and at that time, the relevant order of priority was (1) Colorado Capital Bank’s (CCB) senior lien; (2) Tomar Development (Tomar); (3) the Damyanoviches; (4) the Friends; and (5) CCB’s junior lien. Bent Tree, Mulligan, and CCB then entered into a subordination agreement whereby CCB’s senior lien became subordinate to CCB’s junior lien. Neither Tomar, the Damyanoviches, nor the Friends was involved in or an intended beneficiary of the subordination agreement. CCB’s senior lien was never released. Bent Tree then foreclosed on CCB’s senior lien and, in November 2010, Bent Tree bought the property at a public trustee’s foreclosure sale for approximately $11,800. Tomar, the Friends, and the Damyanoviches filed claims, each of which sought declaratory judgments as to the priority of their interests, which were dismissed by the trial court under CRCP 12(b)(5).

On appeal, Tomar, the Friends, and the Damyanoviches argued that the trial court erred in applying the partial subordination approach to the subordination of liens. The partial subordination approach applies when the most senior lienholder (A) agrees to subordinate his interest to the most junior lienholder (C) without consulting the intermediary lienholders (B). Under this approach, when A subordinates to C, C becomes the most senior lienholder, but only to the extent of A’s original lien. Under this partial subordination approach, B is not affected by the agreement between A and C, to which it was not privy. Colorado adopts the partial subordination approach, and it was properly applied in this case. Accordingly, the trial court did not err in dismissing Tomar’s, the Damyanoviches’, and the Friends’ claims seeking a declaratory judgment that each of their interests was senior to all other interests.

Summary and full case available here, courtesy of The Colorado Lawyer.

Foreclosures and Liens — Some Basics

I recently worked with a client who had purchased a property at the sheriff’s sale on a homeowners association lien. We frequently take properties through this kind of judicial foreclosure, and so from my perspective, everything was pretty cut and dry. The client had a lot of questions, and I found myself discussing some basic rules of real property law. Today, I found this article about a purchaser of a property foreclosed on by an HOA, and decided it might be appropriate to set out some general information about liens and the effect of foreclosure.

  • In an HOA foreclosure, what happens to the first mortgage?
    If the HOA lien foreclosed was the six month “superlien,” the first mortgage itself may be wiped out. This is not common. Most of the time, the HOA lien being foreclosed is for amounts owed beyond six months worth of assessments. The superlien is senior to the first mortgage. The amounts owed beyond the superlien are junior to the first mortgage. Foreclosure of a senior lien wipes out junior liens. In all likelihood, if you have purchased a property at the foreclosure of an HOA lien, you are going to have to pay the first mortgage. The holder of the first mortgage may be in the process of foreclosing its lien, as well, so do your research.
  • What happens to the second mortgage, or other liens such as judgments?
    The second mortgage and other liens are wiped out by the foreclosure of the senior lien. An exception to this is when the second mortgage or other liens are not given proper notice of the foreclosure. Make sure to obtain title information to verify that all parties received proper notice.
  • Why is the HOA lien senior to the second mortgage? It was recorded after the date of the second mortgage.
    Colorado requires that any party claiming an interest in real property record evidence of that interest in the real property records of the county in which the property is located. When the Declaration creating the homeowners association is recorded, it automatically creates a lien for assessments. The association doesn’t even have to record a lien later, when an owner fails to pay assessments, but it’s a good idea to do so to protect the association’s rights.
    Because the Declaration was recorded long before any owner took out a first or second mortgage, it is technically “senior” to those interests. The Declaration, however, as well as Colorado law, subordinates the association’s lien (beyond the superlien) to the first mortgage. This is to ensure banks are willing to finance properties within associations. Second mortgages are not treated with the same deference and are junior to the association’s lien.
  • I won my auction! I’m going to sell the property immediately!
    Not so fast, my friend. While you may win an auction, the second mortgage holder and other junior lien holders have at least eight business days after the sale to file a notice of intent to redeem. If they do this, you will receive payment for your bid, but they will end up with the property.
  • How do I get rid of the tenants?
    If the parties residing in the property were the owners who were subject to foreclosure, they can be removed with a simple eviction. Keep in mind that evictions are often not simple. If the parties in the property were bona fide tenants, paying fair market value rent, and not related to the prior owners, you may have to allow the tenant to reside in the property for the longer period of 90 days, or the end of the lease. Contact an attorney to learn the proper procedures in these cases.

Each individual foreclosure has its own idiosyncrasies, and this information is extremely general. If you’re looking into investing in a foreclosure, make sure you do your due diligence and don’t get surprised with an unexpected mortgage payment, or worse, an unexpected foreclosure!

Lindsay S. Smith is an attorney at Winzenburg, Leff, Purvis and Payne, LLP where she practices in general community association and real estate law. She provides legal representation in covenant enforcement, eviction, bankruptcy, and general association litigation; contract and document drafting and review; and general business and governance advice for association clients. She regularly contributes to the firm’s blog on topics such as governance and litigation. This article originally appeared on the firm’s blog on September 21, 2012.
A Colorado native, she received her undergraduate degree from the University of Oklahoma in 2001, magna cum laude. She was a member of Phi Beta Kappa, Phi Sigma Pi, and Alpha Gamma Delta. She received her Juris Doctorate from the University of Oklahoma in 2004, with distinction. She was Articles Development Editor of the American Indian Law Review, which also published her article on American Indian water rights issues. She is a member of the Colorado and American Bar Associations and is admitted to practice in Colorado state and federal courts. To contact Lindsay directly, you may e-mail her at lsmith@wlpplaw.com.

Colorado State Judicial Branch Revises Several Forms in Many Categories

This is Part 4 of 4 posts about new forms from State Judicial. Click here for Part 1, here for Part 2, and here for Part 3.

The Colorado State Judicial Branch issued several revised forms in July across multiple practice areas. These include instructions for county court civil and small claims, instructions for filing county court criminal appeals, instructions and a form for appealing property tax determinations, eviction/FED forms, garnishment forms, and more. Practitioners should begin using the new forms immediately.

Most forms are available in Adobe Acrobat (PDF) and Microsoft Word formats; many are also available as Word and Excel templates. Download the new forms from State Judicial’s individual forms pages, or below.

Appeals

  • JDF 126 – “Instructions to File a Small Claims or County Court Civil Appeal” (Revised 7/12)
  • JDF 221 – “Instructions for Filing a County Court Criminal Appeal (For Defendant/Appellant Only)” (Revised 7/12)
  • JDF 610 – “Complaint for Judicial Review Pursuant to 24-4-106 C.R.S. and Request for Stay and Designation of Record” (Revised 7/12)
  • JDF 605 – “Instructions for Appealing Property Tax Assessment” (Revised 7/12)
  • JDF 606 – “Petition to Appeal Property Tax Assessment” (Revised 7/12)

County Civil

  • JDF 100 – “Instructions for Forcible Entry and Detainer (FED)/Evictions” (Revised 7/12)
  • CRCCP 1A – “Summons in Forcible Entry & Unlawful Detainer” (Revised 7/12)
  • JDF 97 – “Notice to Quit” (Revised 7/12)
  • JDF 99 – “Complaint in Forcible Entry and Detainer” (Revised 7/12)
  • JDF 103 – “Writ of Restitution” (Revised 7/12)
  • JDF 140 – “Instructions for Mobile Home FED” (Revised 7/12)

County Civil / District Civil

  • JDF 82 – “Instructions on How to Collect a Judgment and Completing a Writ of Garnishment” (Revised 7/12)
  • Form 26 – “Writ of Continuing Garnishment” (Revised 7/12)
  • Form 29 – “Writ of Garnishment with Notice of Exemption and Pending Levy” (Revised 7/12)
  • Form 31 – “Writ of Garnishment for Support” (Revised 7/12)
  • Form 32 – “Writ of Garnishment – Judgment Debtor Other Than Natural Person” (Revised 7/12)
  • Form 33 – “Writ of Garnishment in Aid of Attachment” (Revised 7/12)
  • Form 34 – “Notice of Levy” (Revised 7/12)

Criminal

  • JDF 370 – “Appearance Bond” (Revised 6/12)
  • JDF 371 – “Consent of Surety” (Revised 7/12)
  • JDF 375 – “Surety Request – Show Cause Hearing” (Revised 7/12)

Small Claims

  • JDF 248 – “Small Claims Instructions” (Revised 7/12)
  • JDF 250 – “Notice, Claim, and Summons to Appear for Trial” (Revised 7/12)

For all of State Judicial’s forms, click here.

Colorado Court of Appeals: Statute of Limitations Began to Run at Maturity Date of Loans and Therefore Action Was Timely Filed

The Colorado Court of Appeals issued its opinion in Castle Rock Bank v. Team Transit, LLC on July 19, 2012.

Promissory Notes —Statute of Limitations.

Defendant Michael L. Zinna appealed the trial court’s ruling that plaintiff Castle Rock Bank’s (Bank) action was timely filed under the applicable statute of limitations. The judgment was affirmed and the case was remanded with directions.

On December 18, 1996, the Bank loaned Team Transit, LLC, $100,000 (Team Transit loan), pursuant to a promissory note signed by Zinna, president of Team Transit. Team Transit was required to pay the Bank $1,378 per month beginning one month from December 18, 1996, with “the balance of the principal and interest payable 10 years from the date [t]hereof.”

On April 9, 1998, the Bank loaned Kelly A. Spooner $75,000 (Spooner loan), pursuant to a promissory note signed by her. Spooner was to pay the Bank $1,295 per month beginning one month from April 9, 1998, with “the balance of the principal and interest payable 7 years from the date [t]hereof.”

On March 1, 2001, both loans were modified and new promissory notes were executed by Zinna and Spooner, who had married. The new principal on the Team Transit loan was $75,671.39. Zinna and Spooner were added as co-borrowers in their personal capacities and Spooner pledged additional collateral, consisting of a third deed of trust on their family home. The monthly repayment schedule was revised with a final payment on December 18, 2006. The new principal on the Spooner loan was $48,959.15. Zinna was added as a co-borrower in his personal capacity and the payment terms were revised, with a final payment due on April 9, 2005.

Zinna made two installment payments on both loans in May and July of 2001, and then stopped making payments. The Bank received a “pay-down” of $5,000 from the sale of their home, which it applied to the Team Transit loan on August 2, 2002. The Bank received no further payments, Zinna and Spooner divorced, and Spooner filed for bankruptcy.

On June 5, 2009, the Bank filed its complaint in this action, alleging two claims for breach of contract. On the Team Transit loan, the allegation was against Team Transit and Zinna, and on the Spooner loan, the allegation was against Zinna.

A clerk’s default was entered against Team Transit for failing to answer. Zinna answered and asserted the statute of limitations as an affirmative defense.

The Bank filed a motion for summary judgment, arguing it was entitled to judgment as a matter of law against Zinna for the amount due on the two notes. The Bank represented the Team Transit loan went into “default” on September 20, 1997, and the Spooner loan went into default on January 8, 2002, both for failure to make payments.

Zinna responded, alleging there were questions of material fact and attached an affidavit regarding his understanding that the loans had been paid from various sources. The Bank responded that this was correct but that there still were outstanding balances under both loans. The summary judgment motion was denied based on the dispute about material facts, and a one-day bench trial was held. The court orally denied Zinna’s motion for judgment as a matter of law based on the statute of limitations and ultimately held that Zinna owed $69,108.77 plus interest on the Team Transit loan and $45,036.60 plus interest on the Spooner loan and entered judgment.

Zinna appealed. Shortly before briefing was completed, the Supreme Court issued its opinion in Hassler v. Account Brokers of Larimer County, Inc., 274 P.3d 547 (Colo. 2012), which addressed the specific statute of limitations at issue in this case. Supplemental briefing was requested.

The trial court had found that the Bank had never called the notes in default but had pursued Zinna due to their delinquency. The Court considered what appeared to be an issue of first impression in Colorado: when does the statute of limitations begin to run on a promissory note that is to be repaid in installments; was not accelerated by the creditor; and provides that a “final payment of the unpaid principal balance plus accrued interest is due and payable” on the note’s maturity date?

The Court held that under the circumstances of the case, the statute of limitations didn’t begin to run until then notes’ maturity dates, which were December 18, 2006 for the Team Transit loan and April 9, 2005 for the Spooner loan. Therefore, the Bank timely filed suit. The Court reached this conclusion based on slightly different reasoning than the trial court.

Hasslerset forth the legal framework for evaluating how the statute of limitations applies to an installment payment security agreement that was validly accelerated by the creditor. Based on Hassler, the Court held, as a matter of law, that the Bank did not accelerate the notes when it applied funds to pay them down because it did not express a “clear, unequivocal intent” to do so. Finally, it found the plain meaning of the terms of the notes was that the statute of limitations began running when Zinna was obligated to make a “final payment of the unpaid balance plus accrued interest” on the notes’ respective maturity dates. The Court awarded the Bank its attorney fees in bringing the appeal as permitted under the terms of the notes.

Summary and full case available here.

Tenth Circuit: Trustee Did Not Lack Standing to Prosecute Adversary Proceeding and Obtain Turnover of Domain Name

The Tenth Circuit Court of Appeals published its opinion in Search Market Direct, Inc. v. Jubber on Monday, July 16, 2012.

The Tenth Circuit affirmed in part and reversed in part the district court’s decision. The three cases before the Court arose from bankruptcy proceedings initiated by debtor Steve Zimmer Paige in 2005. “The parties driving the litigation are Search Market Direct, Inc. (SMDI) and ConsumerInfo.com (ConsumerInfo). Both seek control of the internet domain name “freecreditscore.com” (the Domain Name), which once belonged to Paige. SMDI purchased the Domain Name from a third party shortly after Paige filed for bankruptcy. In May 2006, the estate’s trustee instituted an Adversary Proceeding to recover it. In December 2006, the bankruptcy court entered a Sale Order approving an Asset Purchase Agreement under which, inter alia, ConsumerInfo agreed to provide funds to repay the estate’s creditors and litigate the Adversary Proceeding in exchange for the estate’s promise to give ConsumerInfo the Domain Name if it was recovered.”

“In 2007, the parties proposed competing Chapter 11 plans for the estate. The bankruptcy court denied confirmation of the plan SMDI proposed, under which the Adversary Proceeding would have been settled and SMDI would have kept the Domain Name. The court instead confirmed a Joint Chapter 11 Plan supported by ConsumerInfo and the Trustee. Under the Joint Plan, the Adversary Proceeding was transferred to a Liquidating Trust which continued to litigate it for the estate and ConsumerInfo. The bankruptcy court resolved the Adversary Proceeding in the Liquidating Trustee’s favor in 2009. The Liquidating Trustee transferred the Domain Name to ConsumerInfo and the Joint Plan was otherwise substantially consummated.”

On appeal, the Court found that the “Joint Plan was properly confirmed because it was proposed in good faith and was fair and equitable.” It also held that “the bankruptcy court did not err in denying confirmation of the SMDI Plan for lack of feasibility.” Additionally, the Court held “that the issues SMDI raises in the Adversary Appeal are not moot. Nonetheless, [it rejected] SMDI’s argument that the Trustee lacked standing to prosecute the AP and obtain turnover of the Domain Name.

Tenth Circuit: Person Entitled to Enforce an Instrument May Be a Holder, and Need Not Be an Owner, of the Instrument

The Tenth Circuit Court of Appeals published its opinion in McDonald v. OneWest Bank on Monday, June 11, 2012.

The Tenth Circuit affirmed the district court’s decision. Petitioner took out a secured by a deed of trust on Colorado real property in favor of the lender, IndyMac Bank. Petitioner “made payments on the loan from its 2003 inception until April 2009, including while IndyMac was operated in receivership by the Federal Deposit Insurance Corporation (“FDIC”).” The FDIC sold IndyMac to a holding company that operated it as Respondent OneWest which, as the new loan servicer, notified Petitioner of the sale. Petitioner stopped making payments because, claiming that OneWest “did not provide [him] with the instrument or reasonable evidence of authority to make such a presentment” in accordance with his demands for the original Note. However, OneWest did provide him with a copy of the Note and deed of trust. “Ultimately, OneWest foreclosed on the property and obtained a Rule 120 Order authorizing the sale of the property, after it produced the original Note, the deed of trust, and a pooling and servicing agreement governing the Note.”

Petitioner claims on appeal that “OneWest was not entitled to foreclose because it was not ‘a holder in due course,’ and did not own the underlying Note.” The Court found that this “attempt to graft ‘holder in due course’ requirements onto this process, though obvious in its purpose, is meritless and clearly distorts the law. In Colorado, non-judicial foreclosure based upon a violation of a deed of trust provision can be accomplished by ‘a holder of an evidence of debt.’ The ‘holder of an evidence of debt’ includes a ‘person entitled to enforce an evidence of debt’ and presumptively includes ‘[t]he person in possession of a negotiable instrument evidencing a debt, which has been duly negotiated to such person or to bearer or indorsed in blank.’ As the commercial code makes clear, a person entitled to enforce an instrument may be a holder, and need not be an owner, of the instrument. Contrary to [Petitioner]’s position, nothing in the law states that ‘holder in due course’ status is required.”

Colorado Court of Appeals: Relation-Back Doctrine Not Applicable When No Actual Notice of Second Judgment Lien Given to Lienholder in Priority Dispute

The Colorado Court of Appeals issued its opinion in Goodman Associates, LLC v. Winter Quarters, LLC on June 7, 2012.

Priority Between Lienholders—Amended Judgment Lien Versus Deed of Trust.

In this priority dispute between competing lienholders, plaintiff Goodman Associates, LLC (Goodman) appealed the trial court’s order that Goodman’s amended judgment lien does not have priority over a deed of trust given by defendant Winter Quarters, LLC (Winter Quarters) to defendant Capital West National Bank (Capital West) for the purchase price of certain property in Grand County. Goodman also appealed the trial court’s order denying its motion for reconsideration. The judgment was affirmed.

On October 22, 2008, Goodman filed a complaint in Eagle County District Court alleging claims against WP Mountain Properties, LLC (WPMP) for declaratory judgment and breach of contract arising out of a failed purchase and sale agreement between the parties (Eagle County case). WPMP filed no responsive pleadings and Goodman moved for entry of a default judgment. On December 4, 2008, the Eagle County District Court entered a default judgment. Goodman filed a transcript of the default judgment with the Grand County Clerk and Recorder, which identified a judgment amount of $152,289.98, plus 8% interest “per annum compounded annually from the date of judgment until paid in full,” and a judgment date of December 4, 2008 (December 2008 judgment lien). The transcript of judgment encumbered all real property owned by WPMP in Grand County, including the subject property, Lot 13 within the Lakota Park subdivision.

On January 9, 2009, Winter Quarters purchased Lot 13 from WPMP, financed by a promissory note secured by a deed of trust in favor of Capital West. The deed of trust was recorded on January 23, 2009.

On April 3, 2009, WPMP filed a motion to set aside the default judgment, and Goodman objected. The Eagle County District Court granted WPMP’s motion to set aside the default judgment.

On June 10, 2009, Goodman filed a petition for relief pursuant to CAR 21 with the Colorado Supreme Court, seeking to overturn the order setting aside the default judgment. On January 11, 2010, the Supreme Court issued a rule made absolute granting Goodman’s requested relief and directing the Eagle County District Court to reinstate the default judgment. On February 11, 2010, pursuant to the Supreme Court’s mandate, the Eagle County District Court vacated the order, setting aside the default judgment and directing that the order filed on December 7, 2008 should be reinstated nunc pro tunc.

Goodman filed a motion for an award of attorney fees and costs against WPMP and a supplement thereto in the amount of $134,138.90, plus interest. On June 17, 2012, the Eagle County District Court entered the amended judgment. Goodman recorded the transcript of judgment with the Grand County Clerk and Recorder on July 1, 2010. The transcript identified the judgment amount as $307,081.27 and the judgment date as December 4, 2008, plus 8% post-judgment interest per annum “compounded annually from the date of judgment until paid in full” (July 2010 amended judgment lien).

While the Eagle County case was pending, a foreclosure action involving Lot 13 had been commenced in Grand County. Goodman filed a cross-claim for priority and foreclosure of the July 2010 amended judgment lien. The parties filed cross-motions for determination of a question of law regarding whether Capital West’s interest in Lot 13 was subject to the July 2010 amended judgment lien.

The trial court determined that Capital West had notice of the December 2008 judgment and accrual of interest but not the subsequent litigation that resulted in the July 2010 amended judgment lien. It ruled that Capital West purchased Lot 13 subject only to the December 2008 judgment lien.

On appeal, Goodman argued it was error to conclude that the July 2010 amended judgment lien did not relate back to the December 2008 judgment lien. The Court of Appeals disagreed.

Colorado’s Recording Act is a “race-notice” system. Colorado courts recognize actual notice, constructive notice, and inquiry notice. There was no dispute that Capital West had actual notice of the December 2008 judgment lien, which has priority over Capital West’s deed of trust. The Court found that Capital West did not know nor should have known about the possibility of future litigation between Goodman and WPMP that resulted in the increased July 2010 amended judgment lien.

Summary and full case available here.

Colorado Supreme Court: Recorded Deed of Trust that Omits Legal Description Is Defectively Recorded and Cannot Provide Constructive Notice

The Colorado Supreme Court issued its opinion in Sender v. Cygan (In re Rivera) on June 4, 2012.

Real Property – Recording – Sufficient 11 notice

In response to a certified question posed by the United States Bankruptcy Court for the District of Colorado, the supreme court holds that a recorded deed of trust that completely omits a legal description is defectively recorded and cannot provide constructive notice to a subsequent purchaser of another party’s security interest in the property. The supreme court holds that, under the circumstances of this case, actual knowledge cannot be imputed to the trustee, and the deed of trust did not otherwise provide sufficient notice of the defendant’s security interest in the debtor’s property.  The supreme court therefore answers the certified question in the negative and returns the case to the United States Bankruptcy Court for the District of Colorado for further proceedings.

Summary and full case available here.

Thirteen More Bills Signed Into Law This Week

Governor Hickenlooper has signed 124 bills into law in the 2012 legislative session, including thirteen bills that he signed on Thursday, April 12. A complete list of the bills he signed Thursday can be found here. Five of these bills are highlighted below.

  • SB 12-023Improve Eligible Persons Access To PACE Program
    • Concerning The Program Of All-Inclusive Care For The Elderly, And, In Connection Therewith, Addressing Enrollment Of Persons Who Are Eligible For The PACE Program And Addressing How The Pace Program Works With Integrative Initiatives Involving The Medicaid Population In Colorado.
  • SB 12-030Public Trustee & Foreclosure Sales
    • Concerning Administrative Matters Related To A Foreclosure Sale.
  • SB 12-033Child Fatality Reviews
    • Concerning Adding Near Fatalities To The Responsibilities Of The Department Of Human Services Child Fatality Review Team.
  • SB 12-062Voting By Military Personnel
    • Concerning Procedures That Facilitate Voting By Military Personnel.
  • HB 12-1299Lessee Can Claim Innovative Motor Vehicle Tax Credit
    • Concerning The Specification That A Motor Vehicle Lessee Is Entitled To Claim The Innovative Motor Vehicle Tax Credit.

For a complete list of Governor Hickenlooper’s 2012 legislative decisions, click here.

HB 12-1299: Specifies that Innovative Tax Credit for Environmentally Friendly Motor Vehicles Applicable to Motor Vehicle Lessees, Not Lessors

On February 13, 2012, Rep. Jonathan Singer and Sen. Brandon Shaffer introduced HB 12-1299 – Concerning the Specification that a Motor Vehicle Lessee Is Entitled to Claim the Innovative Motor Vehicle Tax Credit. This summary is published here courtesy of the Colorado Bar Association’s e-Legislative Report.

For income tax years commencing on or after January 1, 2012, the bill specifies that it is the motor vehicle lessee, not the lessor, that is entitled to claim the innovative motor vehicle tax credit. The bill has cleared both houses and now heads to the Governor’s desk for action.

Summaries of other featured bills can be found here.

Colorado Court of Appeals: Statute of Limitations Was Extended by Partial Payment Doctrine; Defense of Laches Not Applicable to Bar Claim to Recover on Promissory Note

The Colorado Court of Appeals issued its opinion in Vessels v. Hickerson on February 16, 2012.

Promissory Note—Partial Payment Doctrine—Laches—Statute of Limitations.

In this action brought to recover on a promissory note, plaintiff Thomas J. Vessels, acting as personal representative of the estate of his deceased mother, Mary Walsh Vessels, appealed the trial court’s judgment in favor of defendant Alva J. Hickerson. The judgment was reversed and the case was remanded.

In a promissory note dated April 13, 1989, Hickerson promised to pay plaintiff’s father’s company, Vessels Oil & Gas Company (VOGC), $386,063 to settle an outstanding debt. By its terms, the note was due in full in ten years, on April 12, 1999, and was to be paid in monthly installments of $5,103.75. The note was secured by Hickerson’s royalty interest in an oil and gas lease located in Louisiana. Under the terms of the note, Hickerson agreed to make payments to VOGC from “cash or other proceeds” generated by his royalty interest in the Louisiana oil and gas lease, and Hickerson assigned his royalty interest to VOGC. Thereafter, the operators of the Louisiana oil and gas well made payments on the note directly to VOGC, bypassing Hickerson entirely. Between 1989 and 2009, the well operators, on behalf of Hickerson, made partial payments on the note; however, these payments often were insufficient to cover the amount due under the note’s monthly installment plan.

Eventually, VOGC assigned the note, and the estate of the deceased note holder (Vessels) sued Hickerson for the remaining amount due on the note. Although the trial court found that the lawsuit was timely filed pursuant to the statute of limitations, the court dismissed with prejudice all of Vessels’s claims and entered judgment in favor of Hickerson based on laches.

On appeal, Vessels contended that the trial court erred, as a matter of law, in ruling that laches is available as a defense to his legal claim under the note filed within the statutory limitations period. Under the partial payment doctrine, every time a debtor makes a partial payment, the debtor is acknowledging the existence of the debt for which the law implies a new promise to pay, thus starting the limitations period anew. Here, the fact that Hickerson did not personally make the payments on the note was immaterial, because he had authorized the well operators to make payments on his behalf. Therefore, the well operators’ partial payments were sufficient to invoke the partial payment doctrine. Because the applicable statute of limitations was extended by the partial payment doctrine, not by equitable tolling principles, and the claim was filed within the period of the applicable statute of limitations, the trial court erred in ruling that the equitable defense of laches was applicable to bar Vessels’s claim to recover on a promissory note. The judgment was reversed and the case was remanded for entry of judgment in favor of Vessels and for a determination of Vessels’s reasonable attorney fees as allowed under the terms of the promissory note.

This summary is published here courtesy of The Colorado Lawyer. Other summaries for the Colorado Court of Appeals on February 16, 2012, can be found here.

Tenth Circuit: Trust Deeds Explicitly Granted Authority to Foreclose, Even If Securitization Deprived Implicit Power to Do So

The Tenth Circuit Court of Appeals published its opinion in Commonwealth Property Advocates, LLC v. Mortgage Electronic Registration Systems, Inc. on Tuesday, January 31, 2012.

The Tenth Circuit affirmed the district court’s decision. Petitioner acquired title to three pieces of real property in Utah from three defaulting borrowers and then filed three diversity lawsuits against various Respondents who held interests in the property, seeking to prevent foreclosure. Petitioner argued that Respondents “had no authority to foreclose because the notes in each case had been securitized and sold on the open market. Because the security follows the debt, [Petitioner] argued, once [Respondents] sold the security they could not foreclose absent authorization from every investor who had purchased an interest in the securitized note.” Respondents filed motions to dismiss, which the district court granted.

The Court agreed with the district court’s decision. “Even assuming [Petitioner] is correct that securitization deprives [Respondents] of their implicit power to foreclose as holders of the trust deeds, the trust deeds explicitly granted [Respondents] the authority to foreclose. Contrary to [Petitioner]’s contention, § 57-1-35 in no way prohibits such an authorization. The statute merely says the transfer of a debt operates as the transfer of the security. It says nothing about who is or is not authorized to foreclose on a trust deed.” The Utah Court of Appeals has said that the statute does not prohibit parties from contracting for such arrangements, and the state court’s decision is consistent both with the statute and with numerous federal district court cases that have addressed the same arguments. Because the Court saw nothing to suggest the Utah Supreme Court would reach a different conclusion, it deferred to the Utah Court of Appeals’ decision. “Because [Petitioner]’s diversity jurisdiction claims have no legal basis under Utah law, the district court properly dismissed all three complaints.”