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Watts v. HSBC Bank U.S. Trustee

Supreme Court of Montana

August 20, 2013

TIMOTHY E. WATTS, Plaintiff and Appellee,
v.
HSBC BANK U.S. TRUSTEE, ACE SECURITIES TRUST AND REGISTERED HOLDERS OF ACE SECURITIES CORP. HOME EQUITY LOAN TRUST, SERIES 2007-ASAP1, ASSET-BACKED PASS-THROUGH CERTIFICATES, DAVID A. MARION AND DEBRA E. MARION, husband and wife, and ALL PERSONS UNKNOWN, CLAIMING OR WHO MIGHT CLAIM ANY RIGHT, TITLE, ESTATE, OR INTEREST IN, OR LIEN OR ENCUMBRANCE UPON THE REAL PROPERTY DESCRIBED IN THE COMPLAINT, OR ANY PART THEREOF, ADVERSE TO PLAINTIFF'S OWNERSHIP OR ANY CLOUD UPON PLAINTIFF'S TITLE THERETO, WHETHER SUCH CLAIM OR POSSIBLE CLAIM BE PRESENT OR CONTINGENT, Defendants and Appellants.

Submitted on Briefs: June 26, 2013

APPEAL FROM District Court of the Nineteenth Judicial District, In and For the County of Lincoln, Cause No. DV 11-73 Honorable James B. Wheelis, Presiding Judge

For Appellant: Mark C. Sherer; Mackoff Kellogg Law Firm

For Appellee: Amy N. Guth; Attorney at Law

OPINION

Patricia O. Cotter, Justice

¶1 HSBC Bank USA, N.A., as trustee on behalf of Ace Securities Corp., Home Equity Loan Trust, and for the registered holders of Ace Securities Corp. Home Equity Loan Trust, series 2007-ASAP 1, asset backed pass-through certificates (collectively "HSBC"), appeal from an order of the Nineteenth Judicial District Court, Lincoln County, denying HSBC's motion for summary judgment and granting summary judgment to Timothy E. Watts (Watts) in a quiet title action.[1] We reverse.

ISSUES

¶2 HSBC raised four issues on appeal. However, we deem the following issue dispositive:

¶3 Did the District Court err in determining that the Marion debt to PrimeLending was no longer in the first priority lien position because the debt had been assigned to HSBC?

FACTUAL AND PROCEDURAL BACKGROUND

¶4 On November 8, 2006, Watts sold real property located at 123 Meadow Lane in Eureka, Montana (Property), to David and Debra Marion (together "Marions"). The Marions financed the purchase of the Property with a loan from PrimeLending for $248, 000 and a second loan from Watts in the amount of $62, 000. Watts signed a warranty deed, a trust indenture to secure his loan to the Marions, and a subordination agreement. The subordination agreement, signed by Watts and Marions, provided that Watts agreed to subordinate his loan to the PrimeLending loan. On November 15, 2006, the Marions signed a deed of trust to PrimeLending, a trust indenture in favor of Watts, and the subordination agreement. First American Title Company recorded the warranty deed, trust indenture, deed of trust, and subordination agreement on November 17, 2006.

¶5 On May 1, 2009, the Marions defaulted on the loan originating with PrimeLending. PrimeLending assigned its interest in the Marions' loan to HSBC on August 11, 2009. Charles J. Peterson (Peterson), acting as trustee for HSBC, executed a notice of trustee sale on October 13, 2009. Peterson mailed the notice of trustee sale to Watts by certified mail at Watts' address of record in Montana. The post office attempted service of the notice on October 21 and 27, 2009, but both attempts were unsuccessful. Peterson then published the notice of trustee sale for three consecutive weeks and posted the notice at the Property. Watts was living in New Mexico at the time and claims that he never received any notice concerning the Marions' default on the HSBC loan or the HSBC trustee's sale. On February 22, 2010, Peterson held the trustee's sale. HSBC purchased the Property for $260, 000. HSBC recorded a trustee's deed on February 23, 2010.

¶6 The Marions also defaulted on the loan from Watts. Watts, who claimed to be unaware of the previous HSBC trustee's sale, recorded a notice of successor trustee on January 4, 2010, in anticipation of executing a foreclosure. Watts executed a notice of trustee's sale on May 28, 2010. Watts provided notice to HSBC of his foreclosure proceeding, but HSBC did not provide notice of its previous foreclosure or respond in any way. On September 30, 2010, Watts held his own trustee sale and was purchaser of record. Watts then recorded a trustee's deed naming himself as the owner of the Property.

ΒΆ7 On March 22, 2011, after discovering that HSBC claimed ownership of the Property, Watts filed his complaint against HSBC, the Marions, and other parties claiming any interest in the Property. Watts sought to quiet title to the Property, and in the alternative, requested damages. HSBC answered the complaint and filed a counterclaim seeking to quiet title to the Property. On September 2, 2011, the District Court entered a default against the Marions. On August 26, 2011, HSBC filed its motion for summary judgment. The District Court denied HSBC's motion for summary judgment on January 18, 2012. On ...


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