Commonwealth Land Title Insurance v. Poe (In Re Poe)

[PUBLISH]

IN THE UNITED STATES COURT OF APPEALS

FOR THE ELEVENTH CIRCUIT FILED
___________________________ U.S. COURT OF APPEALS
ELEVENTH CIRCUIT
No. 05-16518 FEB 12, 2007
___________________________ THOMAS K. KAHN
CLERK
D.C. Docket No. 04-00357-CB-L
BKCY N. 01-14918-BKC-WS

IN RE ROBIN POE and DENISE POE,

Debtors.
________________________________

COMMONWEALTH LAND TITLE
INSURANCE COMPANY,

Plaintiff-Appellant,

versus

ROBIN R. POE, DENISE POE,
UNION PLANTERS BANK, N.A.,

Defendants-Appellees.

_____________________________

Appeal from the United States District Court
for the Southern District of Alabama
______________________________

(February 12, 2007)
Before CARNES and MARCUS, Circuit Judges, and JORDAN,* District Judge.

JORDAN, District Judge:

This bankruptcy appeal requires us to interpret Alabama’s redemption statute,

Ala. Code § 6-5-248, in the context of a messy set of facts involving two parcels of

a subdivided tract of real property. The bankruptcy court held that the right of

redemption belonging to the appellant, Commonwealth Land Title Insurance

Company, applied to both parcels, while the district court ruled that the right was

limited to one of the parcels. For the reasons which follow, we agree with the

bankruptcy court, and reverse the decision of the district court.

I

Alabama law recognizes a statutory right of redemption, which entitles certain

persons, including “debtors,” to obtain title to foreclosed property within one year of

the foreclosure sale by tendering the price paid at the sale plus interest and other

lawful charges. See Ala. Code §§ 6-5-248(a)(1) & (b), 6-5-253(a); Bockman v. WCH,

L.L.C.. 2006 WL 1361126, *2 (Ala. 2006). This statutory right of redemption may be

transferred or assigned, and the transferee of the right need not have a property

interest in the real property sold in order to redeem. See Ala. Code § 6-5-248(a)(5).

____________________
* Honorable Adalberto Jordan, United States District Judge for the Southern District of
Florida, sitting by designation.

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 A

This dispute in this case relates to the ownership of a one-acre tract of land in

Baldwin County, Alabama. Clell and Krystine Hobson purchased the tract in 1995,

and subdivided it into two parcels, “Parcel 1” and “Parcel 2,” four years later. The

Hobsons’ entire tract, comprised of Parcel 1 and Parcel 2, was subject to and secured

by a first mortgage to Long Beach Mortgage Company.

The Hobsons sold Parcel 1 to Dale Zuehlke in January of 2000, with the deed

being promptly recorded. The Hobsons kept Parcel 2, which was larger and included

their residence. As part of Ms. Zuehlke’s purchase, Long Beach agreed to release

Parcel 1 from the mortgage. The parties executed the partial release on December 16,

1999, but the release was not recorded until April 24, 2001, leaving the entire tract

subject to the mortgage, and setting in motion the events leading to this appeal.

Sometime in 2000, the Hobsons’ mortgage went into default, and on November

28, 2000, First Union National Bank, the assignee of the mortgage, held a foreclosure

sale. First Union was the high bidder at the sale, and took title to the entire one-acre

tract, including Parcel 1 – which as noted had been sold to Ms. Zuehlke – via a

foreclosure deed. The foreclosure deed stated that the transfer was subject to the

statutory rights of redemption under Alabama law. The foreclosure sale price was

insufficient to satisfy the Hobsons’ debt to First Union. As a result, the Hobsons

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remained liable on the debt for the deficiency.

On March 20, 2001, the appellees, Robin and Denise Poe, purchased the entire

one-acre tract, including Parcel 1, from First Union. The deed obtained by the Poes

stated that their interest in the property was subject to the rights of redemption of all

persons entitled to redeem the property from the earlier foreclosure sale.

B

It appears that Ms. Zuehlke’s attorney realized that there was a conflict

between the claims of Ms. Zuehlke and the Poes to Parcel 1. Ms. Zuehlke therefore

sought to purchase the Hobsons’ statutory right of redemption to protect her interest

in Parcel 1.1 The Hobsons executed an assignment of their statutory right of

redemption to Ms. Zuehlke’s agent on June 18, 2001. The agent subsequently

assigned the right to Ms. Zuehlke, who then assigned it to Commonwealth.

Ms. Zuehlke, through her agent, timely sought to exercise the Hobsons’ right

of redemption. On June 22, 2001, Ms. Zuehlke sent a letter to Robin Poe stating that

she had acquired the right of redemption and requesting a statement of the debt.

Subsequent exchanges between the parties did not result in an agreement on the

valuation of the tract.

1
If Ms. Zuehlke could purchase the Hobsons’ right of redemption, she would step into the
Hobsons’ shoes, pay the Poes the redemption price, and gain legal title to both Parcel 1 and Parcel
2.
4
 The Poes filed for Chapter 7 bankruptcy on September 28, 2001. On that same

day, Commonwealth, acting on Ms. Zuehlke’s behalf, filed an adversary proceeding

in bankruptcy court seeking a determination that it was entitled to redeem from

foreclosure the entire one-acre tract of land owned by the Poes.

C

The bankruptcy court granted Commonwealth’s motion for summary judgment

as to both parcels. The bankruptcy court concluded that the Hobsons were “debtors”

under § 6-5-248(a)(1) as to the entire one-acre tract because they remained liable on

the debt referred to in the foreclosure deed with respect to the entire tract. As debtors

under the redemption statute, the Hobsons were entitled to redeem both parcels, and

so was Commonwealth, as the ultimate transferee of the Hobsons’ right of

redemption. The bankruptcy court subsequently set a redemption price of

$147,315.00,2 and entered a judgment allocating the redemption proceeds and

ordering the Poes to convey the entire tract to Commonwealth.

The Poes appealed the grant of summary judgment in favor of Commonwealth

to the district court, which affirmed in part and reversed in part. The district court

held that Commonwealth had the right to redeem Parcel 2, but not Parcel 1. The

district court reasoned that the Hobsons did not have any debt as to Parcel 1 because

2
The parties do not dispute the amount of the redemption price on appeal.

5
Long Beach had released Parcel 1 from the mortgage in connection with Ms.

Zuehlke’s purchase. Therefore, the district court concluded, the statutory right of

redemption never arose as to Parcel 1 and the Hobsons did not have a right of

redemption as to Parcel 1. Commonwealth now appeals.

II

The only issue on appeal is the application of Alabama’s redemption statute to

undisputed facts. Our review is therefore plenary. See, e.g., Burlison v. McDonald’s

Corp., 455 F.3d 1242, 1245 (11th Cir. 2006); In re Simmons, 200 F.3d 738, 741 (11th

Cir. 2000).

III

Alabama’s statutory right of redemption entitles “debtors,” among others, to

obtain title to foreclosed property within one year of the foreclosure sale by tendering

the price paid at the foreclosure sale plus interest and other lawful charges. The right

to redeem is triggered by the foreclosure sale, and the scope of what real estate may

be redeemed is governed by what was sold at the foreclosure sale. See Ala. Code §

6-5-248(a) (“Where real estate . . . is sold the same may be redeemed by . . . (1) any

debtor” or “(5) any transferee of the debtor . . . either before or after the sale[.]”).

“The purpose of the [redemption] statutes is to allow the debtor to redeem, in all cases

of sale, that which passed by the sale.” Sibley v. Linton Coal Co., 69 So. 1, 2 (Ala.

6
1914). By allowing redemption of real estate sold via foreclosure, the statute

“prevent[s] the sacrifice of real estate at forced sales . . . and [ ] afford[s] the debtor,

or his creditors, in payment of his debts, the advantage of any increase in the value

of the lands, within the statutory period.” Memorial Shrines, Inc. v. McConnell, 117

So.2d 684, 693 (Ala. 1960).

Commonwealth argues that the Hobsons were “debtors” as to Parcel 1 under

§ 6-5-248(a)(1) given that the entire one-acre tract was foreclosed. The Poes, on the

other hand, say that the Hobsons were not “debtors” as to Parcel 1 because the

Hobsons sold Parcel 1 to Ms. Zuehlke and because Long Beach released Parcel 1

from the mortgage. We agree with Commonwealth.

A
We first conclude that the sale of Parcel 1 to Ms. Zuehlke did not prevent the

Hobsons from remaining “debtors” as to Parcel 1 under § 6-5-248(a)(1). “In

construing a statute we must begin, and often should end as well, with the language

of the statute itself.” Merritt v. Dillard Paper Co., 120 F.3d 1181, 1185 (11th

Cir.1997). Although the term “debtor” is not statutorily defined, § 6-5-248 was

amended in 1988, in part to clarify the meaning of that term. Specifically, the

Alabama legislature amended the statute to include a new subsection (e), which now

provides as follows:

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 When any debtor or mortgagor conveys his interest in property subject
to a mortgage prior to sale wherein they are released from liability for
the debt, his right of redemption under this article is terminated. . .
However, where debtors or mortgagors have conveyed their interests in
the property but remain liable on the debt and are debtors at the date
of the foreclosure sale, the debtors and mortgagors retain their right of
redemption under this article.

§ 6-5-248(e) (emphasis added). If a person does not have any interest in the property

sold, then several things are required under § 6-5-248(e) before he can be considered

a debtor: the person must have owned the property subject to the mortgage that was

foreclosed; the person must retain the liability associated with the property after

selling the property; and the person must retain the liability associated with the

property at the time of the foreclosure sale.

The official commentary to the redemption statute explains that subsection (e)

was specifically added to “clarif[y] that one could be a debtor without having any

interest in the equity of redemption.” § 6-5-248 cmt. (emphasis added). See

generally Sullens v. State, 878 So.2d 1216, 1221 (Ala. Crim. App. 2003) (looking to

official commentary to determine if statute created strict liability offense). The prior

redemption statute had been interpreted by the Alabama courts to provide for a right

of redemption only in persons “with an interest in the property.” See § 6-5-248 cmt.

As a result, under the pre-amendment version, any debtor or mortgagor who sold his

property prior to the foreclosure sale lost his statutory right to redeem the property

8
following the foreclosure sale. See, e.g., Dominex, Inc. v. Key, 456 So.2d 1047, 1052-

53 (Ala.1984) (“[A] mortgagor who has conveyed his equity of redemption cannot

seek to redeem the property, before or after foreclosure.”); Sibley, 69 So. at 2 (“The

statutes were never intended to allow a debtor to redeem property as to which he had

no title or interest, legal or equitable, at the time of sale; it is only when the sale cuts

off or forecloses rights which he would have and could exercise but for the sale, that

the statutory right of redemption is conferred.”); Commercial Real-Estate & Bldg.

Ass’n v. Parker, 4 So. 268, 269-70 (Ala. 1888) (“The very idea of redemption

necessarily involves the correlative idea of an interest in the thing sought to be

redeemed. It is the rescuing from sacrifice of the debtor's property [--] not the

property of another. We construe the statute to confer the statutory right of

redemption upon debtors only for the purpose of redeeming their own property [--]

property in which they have some interest at the time of sale. If the debtor has parted

with this interest, he has abandoned the right to redeem, because the right cannot exist

except as an incident of ownership.”).

This preoccupation with a debtor’s continued interest in property was criticized

by the Alabama Law Institute’s advisory committee on proposed revisions to the

redemption statute because it “prevented the court[s] from seeing that one could be

a ‘debtor’ under the statute at the time of the foreclosure sale, without having any

9
interest in the equity of redemption.” Alabama Law Institute, Proposed Revision with

Commentary: Redemption of Real Estate, Power of Sale, Deed in Lieu of Foreclosure

16 (1987). See also Harry Cohen, The Statutory Right of Redemption in Alabama:

A New Statute is on the Horizon, 39 Ala. L. Rev. 131, 139 (1987).3

For example, in Butler v. Fayette Seed Farms, Inc., 195 So. 2d 534 (1967) --

a case discussed in the Alabama Law Institute’s report -- Joe Butler, Sr., a one-third

tenant in common in a parcel of land, jointly executed a mortgage on the land with

the other tenants in common. Thereafter, Mr. Butler died, and his interest in the real

estate passed to his widow, who subsequently conveyed her interest to her brother-in-

law. The mortgagors then defaulted on their debt, and the mortgagee foreclosed on

the property. Joe Butler, Jr., as a child of Joe Butler, Sr., timely sought to redeem the

property under the Alabama redemption statute, which gave a right of redemption to

the child of the debtor. The Alabama Supreme Court held that Joe Butler, Jr. could

not redeem the property because he lacked “some nexus with the mortgage at the time

of the foreclosure.” Butler, 195 So. 2d at 535. Presumably, Joe Butler, Sr. or his

estate remained liable for the payment of the debt securing the mortgage, but the

Alabama Supreme Court failed to consider this possibility, and assumed that Joe

3
Mr. Cohen was the reporter for the Alabama Law Institute's advisory committee on
proposed revisions to the Alabama redemption statute.

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Butler, Sr. was not a debtor because he did not continue to have an interest in the

property. See Cohen, Right of Redemption, 39 Ala. L. Rev. at 138-139. For this

reason, the Alabama Law Institute suggested that the redemption statute be amended

to clarify the possibility that, in limited circumstances, a person may remain a debtor

even though he no longer has an interest in the property:

Under the proposed statute, . . . if the debtor or mortgagor, prior to a
foreclosure sale, conveys an interest in the mortgaged property, the
debtor’s or mortgagor’s right of redemption terminates under the
proposed legislation. . . . If, however, the debtor or mortgagor remains
personally liable on the debt and is still indebted at the date of execution
or the foreclosure sale, the debtor or mortgagor retains the right of
redemption . . . . Thus, while the concept underlying the Butler case is
recognized, the error of the decision is rectified.

Id. at 141. The Alabama legislature adopted the Alabama Law Institute’s proposal

as the new subsection (e).

In sum, the language of subsection (e) provides that a person is a “debtor”

under § 6-5-248(a)(1) -- notwithstanding the fact that he sold the property prior to the

foreclosure sale -- if he previously owned the property subject to the mortgage that

was foreclosed; retained the liability associated with the property after selling the

property; and retained the liability associated with the property at the time of the

foreclosure sale. This means that the Hobsons could remain “debtors” as to Parcel

1, notwithstanding the sale to Ms. Zuehlke, if they remained liable on the debt

11
associated with Parcel 1.

B

The district court concluded, and the Poes now argue, that the Hobsons did not

remain liable on the debt because they were released from any debt associated with

Parcel 1 when Long Beach released Parcel 1 from the mortgage. We disagree.

The Poes do not challenge the validity of First Union’s foreclosure of Parcel

1, probably because their own title derives only from the foreclosure sale. The fact

that Parcel 1 was foreclosed as a result of the Hobsons’ default on their debt compels

us to conclude that the Hobsons remained liable on the debt as to Parcel 1 for

purposes of § 6-5-248(a)(1) & (e). First, Alabama is a title theory state, meaning that

mortgaging property actually works a conveyance of legal title to the lender. See

Baxter v. South Trust Bank, 584 So.2d 801, 804 (Ala. 1991). As a general matter,

therefore, had there been no nexus between Parcel 1 and the Hobsons’ debt to Long

Beach, First Union could not have foreclosed on Parcel 1 on account of the Hobsons’

default. See Cottingham v. Citizens Bank, 859 So.2d 414, 420 (Ala. 2003) (“[I]f there

is no debt, there is no mortgage.”). Second, it has long been the law of Alabama that

a foreclosure or execution sale is binding on the purchaser for purposes of

determining what redeemable interests of the mortgagor passed as a result of the sale:

[I]t does not lie in the mouth of a purchaser at the foreclosure or

12
 execution sale, who buys, takes, and pays for whatever interest the
mortgagor or judgment debtor had in the land, to say, when they come
to redeem and repurchase precisely the interest which thus passed, that
they had not interest whatever in the land. . . . [T]he levy of the
execution upon the land as the property of the defendant therein, and its
sale and purchase as such, is conclusive on the purchaser for all the
purposes of redemption [as to the fact] that the mortgagor . . . had an
interest in the property which passed by the sale, and hence a
redeemable interest under the statute after the sale.

Henderson v. Prestwood, 22 So. 15, 16 (Ala. 1897). Here, the Poes were able to

purchase Parcel 1 only because it was part of the foreclosure sale triggered by the

Hobsons’ default. Under Henderson, the Poes are specifically bound by the fact that

the Hobsons were liable on a debt as to Parcel 1. See also Sibley, 69 So. at 2 (“[O]ne

who purchases at a foreclosure sale, and who has no other title or claim than that

which he acquired at the sale, is not in a position to dispute the title of the mortgagor,

or him from and through whom he claims to acquire title.”). That a partial release of

Parcel 1 was executed (and subsequently recorded) does not affect our determination

because the release did not prevent the foreclosure sale, and it was the foreclosure

sale that legally bound the Poes to the fact that the Hobsons were (and remained)

liable on the debt. Accordingly, we conclude that the Hobsons remained liable on the

debt as to Parcel 1, and were therefore “debtors” as to Parcel 1 under § 6-5-248(a)(1)

& (e).

IV

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 The bankruptcy court correctly determined that the Hobsons were “debtors” as

to Parcel 1. Commonwealth had a statutory right of redemption as to Parcel 1 by

virtue of the Hobsons’ transfer of their redemption rights to Commonwealth through

Ms. Zuehlke. The district court’s decision is therefore REVERSED, and the case is

REMANDED for proceedings consistent with this opinion.

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