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Reeves v. US Bank National Association

Supreme Court of Montana

March 28, 2017

RYAN R. REEVES and LONI L. REEVES, husband and wife, Plaintiffs and Appellants,
v.
US BANK NATIONAL ASSOCIATION AS TRUSTEE ON BEHALF OF THE HOLDERS OF THE ASSET BACKED SECURITIES CORPORATION HOME EQUITY LOAN TRUST, SERIES NC2005-HE8, ASSET BACKED PASS-THROUGH CERTIFICATES, SHEIES NC2005-HE8, and JOHN DOES 1-3, Defendants and Appellees.

          Submitted on Briefs: January 11, 2017

         District Court of the Eighth Judicial District, In and For the County of Cascade, Cause No. BDV 12-1034 Honorable Elizabeth A. Best, Presiding Judge

          For Appellants: Gary S. Deschenes, Deschenes & Associates Law Offices, Great Falls, Montana

          For Appellants: Gary S. Deschenes, Deschenes & Associates Law Offices, Great Falls, Montana

          OPINION

          LAURIE McKINNON Justice

         ¶1 After securing two loans with deeds of trust on the same property, one for $136, 000 and another for $34, 000, Appellants Ryan R. Reeves and Loni L. Reeves (together, the Reeves) paid off the smaller loan. A title agent filed a Deed of Reconveyance containing a scrivener's error that mistakenly released the Reeves' interest in their property from the larger lien of $136, 000. Although the error was corrected through subsequently recorded instruments, the Reeves argue that the lien was invalidated by the error and remained unperfected at the time they initiated their Chapter 7 bankruptcy proceedings. The Reeves argue U.S. Bank's actions violated 11 U.S.C. § 362 (2016), which enjoins actions against property of the bankruptcy estate. The Reeves appeal from the judgment of the Cascade County District Court denying their motion for summary judgment and granting judgment on the pleadings in favor of the appellee beneficiary, U.S. Bank. We affirm.

         ¶2 We restate the dispositive issue as whether the scrivener's error contained within the Deed of Reconveyance can invalidate or discharge the underlying lien established by the trust indenture contract.

         FACTUAL AND PROCEDURAL BACKGROUND

         ¶3 On July 27, 2005, the Reeves executed a Deed of Trust (First Deed of Trust) to secure a loan of $136, 000 for the purchase of residential property located on Coyote Lane in Great Falls, Montana. The First Deed of Trust named the lender, New Century Mortgage Corporation (New Century) as beneficiary, and Chicago Title as Trustee. On the same day, the Reeves executed another Deed of Trust (Second Deed of Trust) on the same parcel to secure a loan for $34, 000, also through New Century. Just like the first loan, New Century was the beneficiary and Chicago Title was the trustee. The First Deed of Trust and the Second Deed of Trust were assigned sequential instrument numbers when they were recorded: R0108963 and R0108964, respectively.

         ¶4 Multiple sales of the deeds followed. Although U.S. Bank is now the beneficiary to the $136, 000 loan, New Century first assigned its interest in both loans to Deutsche Bank National Trust Company (Deutsche). Deutsche used Litton Loan Servicing (Litton) to service both loans. On October 3, 2006, Beneficial Mortgage loaned the Reeves more money and executed another Deed of Trust on the parcel, this time listing Beneficial Mortgage as the beneficiary. The Reeves used proceeds from this loan to pay off the $34, 000 secured in the Second Deed of Trust. At the time, First American Title Company (First American) was the successor trustee for both the First and Second Deeds of Trust. On March 1, 2007, First American executed a document entitled Deed of Reconveyance, which was recorded on March 5, 2007, and rerecorded on May 2, 2007. In consideration of the Reeves' extinguishment of their underlying obligation of $34, 000, this document purported to reconvey the Reeves' interest in the Second Deed of Trust. But in fact, it reconveyed their interest in the First Deed of Trust, which bore the underlying obligation of $136, 000. Compounding confusion, the document was rerecorded on May 2, 2007, with handwriting stating the reason for the refiling was to "re-record to add substitution of trustee."

         ¶5 After discovering the scrivener's error, Litton requested on June 21, 2007, that First American issue a corrected reconveyance document to reconvey the $34, 000 Second Deed of Trust and correctly identify the Deed of Trust recording information. First American filed a Substitution of Trustee and Request for Full Reconveyance on August 20, 2007, representing that the Reeves' debt obligation in the Second Deed of Trust in the amount of $34, 000 had been satisfied and paid in full. The August 20, 2007 reconveyance, however, failed to rescind the March 5, 2007 reconveyance, which had been rerecorded on May 2, 2007. Accordingly, on May 9, 2008, Vicki Cumbie, an Assistant Vice President of Litton, recorded an affidavit in Cascade County. The "purpose" of Cumbie's affidavit was to "rescind" the reconveyances of March 5, 2007 and May 2, 2007, which had incorrectly identified the First Deed of Trust, and to "ratify" the Deed of Reconveyance filed on August 20, 2007, which correctly identified the Second Deed of Trust.

         ¶6 The Reeves filed for Chapter 7 bankruptcy relief on August 20, 2008. On December 5, 2008, U.S. Bank became the holder of the interests in the First Deed of Trust. The record reflects that the Reeves were unaware of the scrivener's error when they filed for bankruptcy and so acknowledged the debt for $136, 000 in their petition to the Bankruptcy Court. By December of 2008, the Reeves had stopped paying on their mortgage. The Bankruptcy Court issued its Bankruptcy Discharge on December 29, 2008, permitting U.S. Bank to foreclose on the Reeves' home. Although Cumbie's recorded affidavit purportedly corrected the scrivener's error contained within the March 5, 2007 Deed of Reconveyance, First American nonetheless filed, on March 9, 2009, a Rescission of Full Reconveyance regarding the First Deed of Trust, thus indicating the lien remained attached to the parcel pursuant to the provisions of the $136, 000 loan contract. In conjunction, U.S. Bank filed a "Complaint to Rescind Deed of Reconveyance and to Reinstate Note and Deed of Trust" on April 2, 2009. After a period of discovery, the Complaint was dismissed for lack of prosecution.

         ¶7 The matter was resurrected on August 15, 2012, when U.S. Bank filed a Notice of Trustee's Sale indicating that the property would be sold on January 2, 2013. On December 28, 2012, the Reeves filed a complaint for injunctive relief to stop the sale. A hearing was held on January 8, 2013, and the parties concede that a preliminary injunction was issued for the pendency of the trial proceedings.[1] On December 18, 2014, U.S. Bank filed a Motion for Judgment on the Pleadings. The Reeves filed their own Motion for Summary Judgment the next day, December 19, 2014, but failed to authenticate the documents they filed as required by M. R. Civ. P. 56(e), and failed to file any affidavits to support their assertions. The court set a hearing on the parties' motions for March 3, 2015. At the time of the motions hearing, the Reeves had not paid on their mortgage for six years.

         ¶8 At the hearing, the Reeves contended U.S. Bank was precluded from holding the trustee's sale because U.S. Bank did not have a valid, perfected lien prior to commencement of the bankruptcy proceedings. Although the Reeves conceded that a lien properly filed and perfected prior to bankruptcy proceedings survives bankruptcy, the Reeves argued that the scrivener's error rendered the lien invalid, and thus not perfected, at the time bankruptcy proceedings were initiated. Accordingly, the Reeves maintained that the trustee's sale violated the "automatic stay" provision of the Bankruptcy Code, 11 U.S.C. § 362(a)(4)-(5), which enjoins an action to create, perfect or enforce any lien against the property of an estate when that action is commenced after the estate's case seeking a discharge ...


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