No. 92-370
IN THE SUPREME COURT OF THE STATE OF MONTANA
FARM CREDIT BANK OF SPOKANE, a
corporation, successor by merger to
The Federal Land Bank of Spokane,
Plaintiff and Respondent,
LEROY HILL and PEGGY L. HILL, husband
and wife, individually and as Trustees
under Hill Revocable Trust
dated December 19, 1978, and under
Peggy L. Hill Revocable Trust dated
December 18, 1978, and ROBERT A. HILL,
Defendants and Appellants.
APPEAL FROM: District Court of the Tenth Judicial District,
In and for the County of Judith Basin,
The Honorable Peter L. Rapkoch, Judge presiding.
COUNSEL OF RECORD:
For Appellant:
Leroy & Peggy Hill, Pro Se, Geyser, Montana
For Respondent:
Dennis Tighe, Cure, Borer & Davis,
Great Falls, Montana
Submitted on Briefs: January 7, 1993
-
Decided: June 2 3 , 1 9 9 3
Justice Terry N. Trieweiler delivered the opinion of the Court.
Farm Credit Bank of Spokane brought this action for
foreclosure against Leroy and Peggy Hill. The Bank sought
foreclosure of a mortgage on real property located in Judith Basin
County, Montana. The District Court for the Tenth Judicial
District, Judith Basin County, granted summary judgment to Farm
credit Bank. The Hills appeal. We affirm.
There are six issues on appeal.
1. Did the District Court err when it refused to dismiss
Farm Credit Bank's foreclosure action?
2. Did the District Court err when it granted summary
judgment to Farm Credit Bank?
3. Did the District Court err when it concluded that Farm
Credit Bank had the right to apply member stock to the Hills'
indebtedness?
4. Did the District Court err when it ordered that Farm
Credit Bank was entitled to a deficiency judgment?
5. Did the District Court err when it determined that the
Hills were not entitled to possession of the foreclosed property
during the one year statutory redemption period?
6. Is Farm Credit Bank entitled to an award of costs and
attorney fees on appeal?
In June 1980, Leroy and Peggy Hill (the Hills), and Robert
Hill (who is not a party to this appeal), applied for a loan with
the Federal Land Bank of Spokane (FLB) to purchase farm property in
Judith Basin County, Montana. As a condition for obtaining the
loan, the Hills were required to purchase $9800 worth of stock in
the Federal Land Bank Association (FLBA) . The FLBA then purchased
a like amount of stock in FLB and the Hills pledged their stock to
FLB in the event of default.
On August 1, 1980, FLB loaned the Hills $196,000. As evidence
of the loan, the Hills executed and delivered to FLB a promissory
note for that amount. As security for repayment of the loan, the
Hills executed and delivered a mortgage to FLB. The mortgage
encumbered approximately 1330 acres of ranch property in Judith
Basin County, but did not encumber the property where the Hills
maintained their home.
Judith Basin County was declared a drought disaster area in
1984 and 1985 by the Governor's Office of the State of Montana. It
was declared a drought disaster area again in 1988. The Hills
made their last annual payment on the promissory note in 1985.
They failed to make payments from 1986-89. On July 10, 1989, F a n
Credit Bank of Spokane (FCB), which had become the successor by
merger to FLB, declared all sums owed under the note and mortgage
due and payable in full. On the same day, FCB retired the Hills'
stock and applied the par value of the stock to the Hills'
indebtedness.
On July 18, 1989, the Hills submitted an application to
restructure their loan. The Hills claimed that they were victims
of the drought during the mid-80s. The loan agent for FCB denied
the Hillsf request on October 12, 1989. The Hills then requested
and received a review of that decision; however, on December 5,
1989, the Credit Review Committee affirmed the original denial of
the restructure application.
Two weeks later, on December 19, 1989, FCB filed a complaint
against the Hills in the Tenth Judicial District Court, Judith
Basin County, to foreclose on the note and mortgage and to recover
$339,785.75, plus accrued interest, attorney fees, and costs. On
March 22, 1990, the Hills filed a motion to dismiss FCB's
foreclosure action for failure to state a claim upon which relief
could be granted. The Hills did not file a brief in support of
their motion. On April 9, 1990, the District Court denied the
Hillsg motion to dismiss.
On October 16, 1991, FCB moved for summary judgment. On
January 23, 1992, the District Court issued an order granting
summary judgment in favor of FCB. On March 25, 1992, the court
entered its Judgment and Decree of Foreclosure in favor of FCB and
against the Hills for $437,406.78, plus interest, attorney fees,
and costs for a total judgment of $451,125.20. The court's
Judgment and Decree ordered FCB to foreclose on the mortgage and to
sell the subject property. The court also awarded FCB a deficiency
judgment, in the event that one was necessary. Finally, the court
declared that the Hills were barred and foreclosed from all claim
to the mortgaged real property, "including any right of possession
and the equity of redemption except as such right of redemption is
granted by law.I1 On May 19, 1992, the court denied the Hills1
motions for a new trial and to amend the judgment. The Hills filed
a Notice of Appeal on June 18, 1992.
I
Did the District Court err when it refused to dismiss Farm
Credit Bank's foreclosure action?
On March 22, 1990, the Hills filed a motion with the District
Court to dismiss FCB1s foreclosure action based upon a failure to
state a claim upon which relief could be granted. The Hills did
not file a brief in support of their motion to dismiss. On
April 9, 1990, the District Court denied the Hills1 motion to
dismiss because the Hills failed to file a supporting brief. The
Hills appeal the court's denial of their motion to dismiss.
The Hills assert on appeal that the District Court should have
taken judicial notice of select portions of the Farm Credit Act
(FCA) of 1971, as amended, 12 U.S.C. 5 5 2001 to -2279bb-6 and, sua
sponte, dismissed FCBtsforeclosure action based on FCBtsfailure to
comply with due process requirements in the FCA. Specifically, the
Hills refer the Court to 12 U.S.C. 55 2201(b), 2202(a),
2202a - 2202d of the Farm Credit Act of 1971 (amended 1985, 1988).
The Hills contend that the amendments to the FCA found in these
sections guarantee due process to borrowers in the Farm Credit
System and prohibit banks from foreclosing on defaulted loans until
all loan restructuring efforts have been exhausted. The Hills
assert that they were denied due process when FCB denied their
application to restructure their loan.
The record reveals that the Hills made no argument to the
~istrictCourt regarding the application of the FCA when they moved
to dismiss the foreclosure action, Therefore, there is nothing in
the record regarding the lower court's action on this issue for
this Court to review on appeal.
It is the settled rule in Montana that this Court will not
review the proposed application of a statute raised for the first
time on appeal. Haresv.Nelson (198l), 195 Mont. 463, 466, 637 P.2d
19, 21. When a party argues for the application of a statute for
the first time on appeal, the party raises a new set of questions
that were not presented to the district court; and this Court will
not find the district court to have erred on an issue that was "not
presented to or ruled on by the lower court." Hanky v. Depamnent of
Revenue (1983), 207 Mont. 302, 307, 673 p.2d 1257, 1259.
Accordingly, we decline to address on appeal the Hills1 argument
concerning the application of the FCA.
II
Did the District Court err when it granted summary judgment to
Farm Credit Bank?
The purpose of summary judgment is to encourage judicial
economy through the elimination of any unnecessary trial. However,
summary judgment is never to be a substitute for trial if there is
an issue of material fact. Reaves v. Reinbold (1980), 189 Mont. 284,
288, 615 P.2d 896, 898. Summary judgment is proper only when no
genuine issues of material fact exist and the moving party is
entitled to judgment as a matter of law. Rule 56(c), M.R.Civ.P.
The party seeking summary judgment has the burden of
demonstrating a complete absence of any genuine factual issues.
D'Agostino v. Swanson (1990), 240 Mont. 435, 442, 784 P.2d 919, 924;
Cereckv.Albertson's,Znc. (198l), 195 Mont. 409, 411, 637 P.2d 509, 511.
The burden then shifts to the nonmoving party who must show the
existence of a genuine issue in order to prevail. O'Bagy v First
.
ZnterstateBankofMksoula (1990), 241 Mont. 44, 46, 785 P.2d 190, 191.
To meet this burden, the nonmoving party must offer substantial
evidence, not mere speculation and conclusory statements. FirstSec.
BankofBozemanv. Jones (1990), 243 Mont. 301, 303, 794 P.2d 679, 681.
The record reveals that FCB demonstrated in the summary
judgment proceedings that there were no genuine issues of material
fact regarding FCB1s right to foreclose on the subject property.
To make a prima facie case for foreclosure, the bank is obligated
to prove the following three elements: (1) the debt of defendants;
(2) non-payment of the debt; and (3) present ownership of the debt
by the complaining party. First Nat. Bank v. Quinta Land and Cattle Co.
(1989), 238 Mont. 335, 339, 779 P.2d 48, 50.
Through the affidavit of Lee Signalness, an authorized agent
for FCB, and the Hills1 depositions, FCB made its prima facie case
for foreclosure to the District Court. Signalness testified by
affidavit that the Hills borrowed $196,000 from FLB, signed a
promissory note, and gave FLB a mortgage. Signalness also
testified that the ills defaulted on their loan. in ally,
Signalness testified that FCB w a s the successor by merger to FLE,
and that FCB was the owner and holder of the promissory note and
mortgage.
By their own admissions, the Hills supported FCB's prima facie
case for foreclosure. Both of the Hills admitted in their
depositions that they borrowed $196,000 from FLB- Leroy Hill
admitted that he signed a promissory note and executed and
delivered a mortgage to FLB. The Hills admitted that they
defaulted on their loan. The Hills are bound by their pleadings
and are estopped on appeal to controvert their admissions. En'mky
v.Estateof$pencer (1983) 206 Mont. 184, 199, 670 P.2d 85, 93. The
Hills asserted that FCB was not a properly chartered
instrumentality and denied that FCB was the owner and holder of the
note and mortgage; however, they did not produce any factual
foundation for these conclusory statements.
The Hills assert on appeal that the District Court erred when
it granted summary judgment to FCB because factual issues exist
regarding F C B 1 s compliance with all provisions of the Farm Credit
Act of 1971 (FCA), and its amendments. The Hills delineate 15
items in their appeal brief which they claim are conditions
precedent to foreclosure required by the FCA and its amendments.
The Hills concede that FCB complied with some of the 15 conditions
precedent; however, they assert that FCB failed to comply with all
15 of the provisions.
In particular, the Hills contend that FCB failed to satisfy
the conditions precedent set forth at 12 U-S-C, 5 s 2199 to 2202c of
the Farm Credit Act of 1971 (amended 1985, 1988). They assert that
9 5 2199 to 2202c provide due process guarantees to the borrower who
is subject to a foreclosure action and that foreclosure is
forbidden until all conditions precedent guaranteeing due process
have been satisfied. It is the Hills' contention that when FCB
denied the Hillst application for loan restructuring, FCB failed to
comply with 5 5 2199 to 2202c, and therefore, FCB should be barred
from foreclosing on the mortgage.
We conclude that FCB produced sufficient evidence before the
District Court to demonstrate that it complied with all provisions
of the FCA when it denied the Hillsv application for loan
restructuring. Furthermore, the Hills did not produce evidence to
controvert FCB's evidence of compliance. Accordingly, there are no
genuine issues of fact regarding FCB's compliance with the FCA.
The Hills also argue that FCB erred when it calculated the
Hills1 debt. The Hills assert that when they denied, in their
answer, the amount of debt calculated by FCB, the applications of
certain variable interest rates were in issue; and summary
judgment, therefore, was inappropriate.
The record reveals that at no time during the summary judgment
proceedings did the Hills set forth any facts or substantial
evidence which disputed FCBts debt calculation. The Hills merely
made conclusory statements that the amounts were incorrectly
calculated. This Court has held that conclusory or speculative
statements are insufficient to raise a genuine issue of material
fact. Kronen v Richter (l984), 211 Mont. 208, 212-13, 683 P.2d 1315,
.
1318.
We conclude that because there were no genuine issues of
material fact regarding FCB's compliance with the FCA and FCB1s
calculation of the Hills' debt, summary judgment was proper.
I11
Did the District Court err when it concluded that Farm Credit
Bank had the right to apply member stock to the ~ills'
indebtedness?
* The Hills assert that the court erred when it ordered the
seizure of the Hillst $9800 worth of stock in FLBA absent any
allegation made by FCB in its complaint that it was entitled to the
stock, and without showing in its motion or supporting documents
why the Bank should receive it. The Hills contend that based on
FCBts failure to allege that it was entitled to the $9800, the
Hills had no duty to rebut this allegation before the District
Court.
The Farm Credit Act of 1971, as amended in 1988, provides
statutory authority for Federal Land Banks, now Farm Credit Banks,
to retire and apply stock when a loan is in default. Section 2022
of 12 U.S.C. provides that FCB has a first lien on stock it issues.
Section 2097 of 12 U.S.C. provides that the FLBA has a first lien
on stock it issues. Section 2094 of 12 U.S.C. provides that the
retirement of stock is subject to Farm Credit Administration
regulation. Section 2154a of 12 U.S.C. provides that stock may be
r e t i r e d by t h e holder on repayment of the holderls loan or by
application of the stock against the indebtedness after default.
Farm Credit Administration regulations provide that FCB may retire
the stock upon which it has a lien in total or partial satisfaction
of the debt. 12 C.F.R. 5 615.5280 (1988).
Courts in other jurisdictions have recognized the right of the
Federal Land Banks, now Farm Credit Banks, to retire and apply
stock to the indebtedness secured by the mortgage when a loan is in
default. Seeln the MatterofForester (9th Cir. 1976), 529 F.2d 310, 312;
XnreStedman (D.N.D. 1987), 7 2 B.R. 49, 52-53; seeaho, Blakev. FederalLand
BankofSpringfield (N.Y. l983), 469 N.Y.S.2d 908, 910, affgd 483 N.Y.S.2d
500 (1984) (FLB had the absolute right, pursuant to the Farm Credit
Act, to cancel the stock for application on the loan where the loan
was in default) .
The record reflects that the Hills authorized the purchase
of stock at the time the loan was made, that they were put on
notice that the stock would be retired, and that the stock was
applied to the debt in accordance with the FCA and FCB1s own
bylaws. The Hills have not provided evidence to show that the
retirement of the stock was improper. We conclude, therefore, that
the court did not err when it found that FCB properly forfeited and
applied the stock.
IV
Did the District Court err when it ordered that Farm Credit
Bank was entitled to a deficiency judgment?
The Hills contend that the District Court erred when it
allowed FCB to recover a deficiency judgment because 5 71-1-232,
MCA, does not allow deficiency judgments where the loan involves a
purchase money mortgage. The Hills contend that 5 71-1-232, MCA,
is not limited to vendors where the lender knows that the purpose
of the loan is to purchase the property that is mortgaged. FCB
maintains that the anti-deficiency statute does not apply to this
foreclosure; and that the statute, by its language, clearly applies
to vendors of real property. We agree with FCB.
Under the mortgage foreclosure laws of Montana, a deficiency
judgment is not allowed on the foreclosure of a purchase money
mortgage. Section 71-1-232, MCA* This Court has held that the
anti-deficiency statute applies only to vendors of real property
who take back a mortgage for part of the purchase price of real
property. AetnaLifeIns. Co.v.Slack (1988), 232 Mont. 250, 756 P.2d
1140; Carpenters - Emp. Ret. Tr. v. Galleria Part. (1989), 239 Mont . 250, 780
P.2d 608. The FCB is not the vendor of the subject property here;
it is a lender. The FCB loaned money to the Hills so that they
could purchase the property from a third party. That third party
is the vendor. Section 71-1-232, MCA, does not apply to the
mortgage foreclosure here, and if the proceeds from the sheriff's
sale are insufficient to pay the judgment herein, FCB will be
entitled to have a deficiency judgment entered for the balance.
v
Did the District Court err when it determined that the Hills
were not entitled to possession of the foreclosed property during
the one year statutory redemption period?
The Hills contend that they are entitled to possession of the
foreclosed property during the one year redemption period, as
provided by 71-1-229, MCA. When the Hills made their loan
application to FLB on June 24, 1980, they admitted that they did
not reside on the tract of land encumbered by the mortgage. The
mortgage in this case encumbers land that is part of the Hills'
general ranch operation.
The judgment debtor must personally occupy land covered by the
mortgage as a home, to obtain possession of the foreclosed property
after the foreclosure sale. Section 71-1-229, MCA; Interstate Production
Credit v DeSaye (lggl), 250 Mont. 320, 820 P.2d 1285.
. This basic
requirement is not met in this case. Since the Hills do not
personally occupy the foreclosed land as a home, the possession
statute does not apply to them.
This case is not analogous to this Court's holding in Federal
LandBankofSpoknnev.Snider (1991), 247 Mont. 508, 808 P.2d 475. In
Snider, the debtor's residence was situated on the property subject
to the mortgage. The mortgage in Snider covered both the crop land
and the debtor's residence. This Court found that it was all one
parcel. Here, the debtors1 residence is not on the foreclosed
property. The single parcel subject to the foreclosure does not
and never did include any of the Hillst dwellings. Therefore,
possession of the foreclosed property will pass to the purchaser at
the sheriff's sale.
Is Farm Credit Bank entitled to an award of costs and attorney
fees on appeal?
The FCB asserts that it has a contractual right to costs and
attorney fees based on a provision in the promissory note.
Attorney fees are allowed when they are provided for by statute or
contractual provision. Hoven v. AmPine ( 1 9 8 6 ) , 224 Mont. 15, 17, 727
P.2d 533, 534. The promissory note signed by the Hills on
August 1, 1980, provides that tl[i]n case of suit hereon or
foreclosure, the makers hereof agree to pay a reasonable attorney's
fee in addition to other costs." An award of costs and attorney
Eees is proper on appeal when the fees are based on a contract.
Poulsenrs, Inc. v Wood (19881, 2 3 2 Mont. 411, 417, 756 P.2d 1162, 1166.
.
Accordingly, FCB is entitled to costs and attorney Eees on appeal.
This case is remanded for a determination of FCBts costs and
attorney fees on appeal.
The Judgment of the District Court is affirmed.
We concur:
June 23, 1993
CERTIFICATE OF SERVICE
I hereby certify that the following order was sent by United States mail, prepaid, to the following
named:
Leroy & Peggy Hill
Box 8
Geyser, MT 59447
Dennis Tighe
Cure, Borer & Davis
P.O. Box 2103
Great Falls. MT 59403
Leo Graybill, Jr.
Graybill, Ostrem, Warner & Crotty
#18 Sixth St. No., Ste. 205
Great Falls, MT 59401
ED SMITH
CLERK OF THE SUPREME COURT
STATE OF MONTANA
BY:
Depu