Eastern Idaho Production Credit Ass'n v. Placerton, Inc.

BISTLINE, Justice,

specially concurring.

Although I have joined the Court’s opinion, I feel constrained to write my views for any benefit which may accrue to the parties on what is a most perplexing case. It would seem to me that EIPCA should be required to foreclose its mortgage in the ordinary manner, as it started out to do. Because proceedings on remand as directed by the Court’s opinion may produce an ultimate result not much dissimilar to foreclosure and sale, I will accordingly state my views briefly.

When the Kansas City Life Insurance mortgage was foreclosed, EIPCA, as a purchaser at the sale, bid the sum of $51,020.71, which bid was accepted. It debited Placer-ton’s account in that amount and quotes in its brief 55 Am.Jur.2d Mortgages § 259 (1971) for the proposition that a junior mortgagee should have the right to pay off prior mortgage liens and stand subrogated. In fact, generally I have always understood as an economic factor that a lender does not loan on a second or third mortgage without realizing that he may eventually have to pay those prior mortgage debts. But he will also have subrogation rights.

As I understand EIPCA’s position, however, it would make a distinction, and a vital one, as to a different legal effect in the paying off of a prior mortgage lien depending on when it takes place in point of time, and how. If I follow its argument correctly, here it claims that, although it merely tacked the Kansas City mortgage onto the account of its own mortgage transaction with Placerton, in regard to the other two prior mortgages with Mutual of New York and with Metropolitan, its position is better by reason of having not bid in, instead redeeming from the purchasers who bought at the two sales. Then, claims EIP-*872CA, as to these two transactions, when Placerton did not redeem in turn, EIPCA acquired Placerton’s legal title, and it is not obliged to foreclose its mortgage. As compared to the result it says followed from the manner in which it handled the Kansas City foreclosure in order to protect itself, this seems on its face to be an incongruous result.

In the first place EIPCA made its loan and accepted a junior mortgage knowing that it might have to take care of the prior mortgages. It also knew that when it did foreclose Placerton had a right of redemption. And it knew that Idaho law requires a foreclosure of a mortgage before an independent action on the indebtedness may be brought, so long as the security has not become valueless. Had EIPCA taken an outright deed to the property rather than a mortgage, the teaching of Fond v. McCreery, 55 Idaho 144, 39 P.2d 766 (1934), is that a mortgage foreclosure action would be required, where the deed was found to be a security device. There the Court quoted from what is now I.C. § 6-104: “A mortgage of real property shall not be deemed a conveyance, whatever its terms, so as to enable the owner of the mortgage to recover possession of the real property without a foreclosure sale." 55 Idaho at 152, 39 P.2d at 769. (Emphasis added)

A clear implication of I.C. § 6-108 is that where the mortgagee intends to seek a deficiency there must be a foreclosure decree in which the court will determine the totality of the mortgage indebtedness and the reasonable value of the mortgaged property.

All considered, it seems to be policy of this state that mortgages do not convey title, and mortgages must be foreclosed with mortgagors afforded the protections of I.C. § 6 — 108. Which is not to say, however, that a junior mortgagee may be unable or elect not to pay the debts of prior mortgages. Where prior mortgages go to foreclosure and sale, the junior mortgagee who does not redeem does lose his lien, and is reduced to suing on the indebtedness. But here the junior mortgagee, EIPCA, did redeem from the purchasers at the Metropolitan and Mutual of New York mortgage foreclosure sales, and we have for examination and decision its contention that it need not foreclose because it became the legal owner of those premises subject to its mortgage.

To my mind the answer is found in the fact that it could redeem only because it had the status accorded to it by its mortgage transaction with Placerton.

It would seemingly be an anomaly of the law if EIPCA, because of its mortgagee status, is allowed to redeem and at the same time is allowed to discard its mortgage on the basis that the owner’s failure to redeem made it the owner of the full title, thereby eliminating any obligation to foreclose, go to sale, and acknowledge any right in the mortgagor to redeem, even though it is clearly the policy of the law in Idaho that a mortgagor shall have such right of redemption.

All considered, it seems to me that the basic redemption statutes as written long prior to the enactment of I.C. § 6-108 must be interpreted and construed with proper regard for the ameliorative purposes of that statute, thereby requiring a foreclosure of a mortgage, the ascertainment of the total indebtedness secured, and the ascertainment of the reasonable value of the property-

Undoubtedly, and as suggested above, a purchaser at the foreclosure sales of the Mutual of New York and Metropolitan, if he were not a junior mortgagee, would, absent any redemption, obtain all of the mortgagor’s title free of liens subsequent to the mortgage which was foreclosed. But, then when a junior mortgagee, here EIP-CA, redeems from that purchaser in order to protect the security for the debt due him, the question narrows down to whether the redeeming junior mortgagee is subrogated to the position of the purchaser from whom he redeems. The Supreme Court of Illinois addressed such a proposition in Harper v. Sallee, 376 Ill. 540, 34 N.E.2d 860, 135 A.L.R. 189 (1940), and as I understand the opinion in that case, it affirmed its previous holding “that a junior mortgagee who re*873deems may foreclose his second mortgage and have the land sold for the satisfaction of the mortgage debt plus his redemption money . . . Id. at 863. The court there added that, if the junior mortgagee was truly subrogated to all of the purchaser’s rights, he would be entitled to a deed merely by waiting out the redemption period. “It is obvious that this is not true,” said that court. Id.

Although in this technical field I confess that to me it is not all that obvious, the result reached in Illinois seems to me the result that should be reached here, especially in view of the applicability of I.C. §§ 6-108 and 6-101. EIPCA apparently concluded that it had a right to foreclose its junior mortgage, and in fact had commenced just such an action. Obligated to pay the prior mortgages in order to protect its security, it did so, and it should have merely amended its complaint to allege the total amounts of its mortgage indebtedness and its various redemption payments. If it contemplated seeking a deficiency judgment, I.C. § 6-108 required that it also establish to the court’s satisfaction the reasonable value of the property.

If EIPCA was omitted in the actions brought to foreclose the prior mortgages, as appears to be the case, it becomes necessary to distinguish between “equity of redemption” and “statutory right of redemption.” Naming a junior mortgagee as a party defendant in the foreclosure of a senior mortgage will have the effect of cutting off the junior mortgagee’s equity of redemption if he does not exercise it within the time limited by the foreclosure decree.

Remaining to him, and coming into play only where he has been made a party to the foreclosure, is his statutory redemption right which is sixty days after the date of sale or after any prior redemption.

The applicable statutes in our sister state of Oregon are similar to ours. That state’s high court has been called upon to decide the very question here presented:

“The defendant intimates that a lien creditor is a necessary party to a mortgage foreclosure. This is true only in a limited sense. The statute provides that any person having a lien subsequent to the plaintiff upon the same property shall be made a defendant in a suit to foreclose a mortgage. O.C.L.A. §§ 9-501, 9 — 502. But it is established that although junior lien claimants are necessary parties if the decree is to affect them, nevertheless the decree of foreclosure is valid as to all parties who are properly joined even though other lienors are not joined. The omitted junior lienholder is in the same position as if no foreclosure had ever taken place, and he has the same rights, no more and no less, which he had before the foreclosure suit was commenced. Monese v. Struve, 155 Or. 68, 62 P.2d 822; Gaines v. Childers, 38 Or. 200, 63 P. 487; Koerner v. Willamette Iron Works, 36 Or. 90, 58 P. 863; Sellwood v. Gray, 11 Or. 534, 5 P. 196. One of the rights available to the junior lienholder is to redeem the mortgage and thus become subrogated to the position of the senior mortgagee. Brown v. Crawford, D.C., 252 F. 248; Coughanour v. Hutchinson, 41 Or. 419, 69 P. 68. This right was therefore available to the defendant unless it was cut off by the act of the plaintiff in paying into court the amount of the judgment which was a lien on the mortgaged property. It would appear that the rights of a junior judgment lien claimant attach to him only so long as he has an unpaid judgment which alone constitutes the basis for his lien.
“Just as the omitted junior lienholder retains the rights he had in the property subject to the lien, so the senior mortgagee retains rights with respect to the junior lienholder which are the equivalent of those held by him before the foreclosure of his mortgage. The purchaser at the foreclosure sale, whether he be the mortgagee or a third party, is vested with the rights of the mortgagee as against any omitted parties in the foreclosure suit, and may proceed to cut off the junior lien by suit for strict foreclosure. By the decree the junior lienor will be required to redeem or be barred of any *874rights in the property. This is the procedure sanctioned by the courts of this state. Gaines v. Childers; Koerner v. Willamette Iron Works; Sellwood v. Gray, all supra.
“The defendant claims that his right to redeem in this case is granted by statute and relies on O.C.L.A. § 6 — 1602(2), which provides that a creditor having a lien by judgment may redeem property sold subject to redemption. It is evident from defendant’s argument and brief that it has confused the equitable right of redemption or equity of redemption with the statutory right of redemption. A clear distinction must be made between these two concepts.
“The difference between the equity of redemption and statutory redemption has been made clear by the decisions of this court. Higgs v. McDuffie, 81 Or. 256, 157 P. 794, 158 P. 953; and Sellwood v. Gray, supra. The classic statement is that of Mr. Justice Lord in Sellwood v. Gray [11 Or. 534, 5 P. 198]. We quote:
“ ‘ * * * His equity of redemption is the right to redeem from the mortgage — to pay off the mortgage debt— until this right is barred by a decree of foreclosure; but until this right is barred, his estate, in law or in equity, is just the same after as it was before default. It is a right, though, of which the law takes no cognizance, and is enforceable only in equity, and has nothing to do with our statute of redemptions. [Citing cases.] This is a valuable right, and exists not only in the mortgagor himself, but in every other person who has an interest in, or legal or equitable lien upon, the mortgaged premises, and includes judgment creditors, all of whom may insist upon a redemption of the mortgage. [Citing authorities.] Nor can one against his consent be deprived of this right without due process of law. To bar his right of redemption he must be made a party to the foreclosure, or the proceeding as to him will be a nullity. * * * ’
“The exercise of the equitable right of redemption has the effect of discharging the lien if the redemption is by the mortgagor or his successor in interest, but if a junior lien claimant redeems, the effect is to substitute the junior for the senior lienholder. In the latter case, the aggregate of the liens will be unchanged, but the persons holding the liens will be different. A junior lien, and the right of redemption which is an incident thereof, will remain in existence unless and until the same is foreclosed by a senior lien-holder. When the junior lien is foreclosed, then the statutory right of redemption as to junior lien creditors given by O.C.L.A. § 6-1602(2) comes into existence. If there has never been a foreclosure of the junior lien, then there is no statutory right of redemption, only the equitable right of redemption. Concerning the rights of an omitted junior lien-holder, a learned author states:
“ ‘ * * * This man’s rights remain as they were, because the foreclosure does not bind him; and so, as a participant in the equity of redemption which, as to him, was never foreclosed, he can redeem in equity. That, indeed, is not only his proper course, but it is the only procedure that should be open to him. He cannot resort to statutory redemption, because he is not within the terms of the statute. The latter comes into effect at and with foreclosure, as we have seen, but the statute envisages those only whom the foreclosure has barred. It follows that one who has never been foreclosed cannot resort to statutory redemption. His remedy remains where it always was, regardless of whether the particular State had provided for statutory redemption. The remedy is redemption in equity after the ancient mode.’ 2 Glenn on Mortgages, § 238.
“It is apparent, therefore, that the defendant cannot rely on the statutory provisions as a basis for his claim of an absolute right to redeem. The obvious purpose of the statutory right of redemption is to give an additional opportunity *875to the mortgagor to recover his land and to the subsequent lien creditors to protect their interest. But, as has been indicated, the defendant herein can protect his interests without resort to the statutory right of redemption, and we therefore hold that the defendant does not come within the provisions of O.C.L.A. § 6 — 1602(2). The provisions of O.C.L.A. § 6-1603 limiting the right of a lien creditor to redeem to the period of 60 days from date of sale clearly indicates that the statutory right of redemption does not apply in cases such as the one at bar. It was provided in the interlocutory decree that the defendant ‘shall have a period of sixty days from the date of this decree within which to redeem in the manner and mode provided by the statutes of the State of Oregon for redemption by a lien creditor from an execution sale of real property * * *.’ The quoted provision did not constitute a holding that the defendant had a statutory right of redemption. The decree only adopted the procedure of statutory redemption as that which should be followed by the defendant if it should choose to redeem.
“The junior lienor, who was omitted in the foreclosure of the senior mortgage, still has the valuable right of redemption available to him, but, when such a right is exercised, the authorities are clear that the redeeming junior lienholder is not entitled to a conveyance of the property, but rather to an assignment of the security interest of the senior mortgage. Renard v. Brown, 7 Neb. 449; Smith v. Shay, 62 Iowa 119, 17 N.W. 444; O’Brien v. Perkins, Tex.Civ.App., 276 S.W. 308; Shelton v. O’Brien, Tex.Com.App., 285 S.W. 260. This rule is stated in 2 Jones, Mortgages, 8th ed., § 1376, as follows:
“ ‘A junior incumbrancer who, not having been made a party to a foreclosure of a prior mortgage, afterward redeems, redeems not the premises, strictly speaking, but the prior incumbrance; and he is entitled, not to a conveyance of the premises, but to an assignment of the security. Therefore if the prior mortgagee in such case has become the purchaser at the foreclosure sale, and has thus acquired the equity of redemption of the mortgaged premises, the junior mortgagee upon redeeming is not entitled to a conveyance of the estate, but to an assignment of the prior mortgage; whereupon the prior mortgagee, as owner of the equity of redemption, may, if he choose, pay the amount due upon the junior mortgage, redeeming that. * * * ’
“When a junior lienholder has redeemed the senior incumbrance and steps into the shoes of the prior mortgagee, he must foreclose his lien and have the property sold, in order to realize on his security, unless the purchaser at the prior foreclosure, who has acquired the mortgagor’s equity of redemption, chooses to redeem from him. The equity of redemption acquired by the purchaser at the foreclosure sale, when perfected by delivery of a sheriff’s deed, constitutes the basis of his right to re-redeem from a junior lienholder who by redemption from the purchaser has acquired the rights of the senior mortgagee but has not acquired the property. We quote:
“ ‘Redemption by a junior lienor, however, means a correlative privilege on the part of the senior whose mortgage has gone through foreclosure. The junior lien, in the beginning, was subject to redemption on the part of the mortgagor. The latter, of course, lost all of his rights and interest when the decree of foreclosure was entered against him. But let us remember that the junior’s security consisted only if the equity of redemption, or a share in it. Hence if he redeems after a foreclosure from which he has been omitted, he is not redeeming the premises as the mortgagor would have done, but is merely acquiring the senior mortgage for the protection of his own interest. It follows that he can be met at the gate by the purchaser at the sale, whether he be the senior mortgagee or *876a third party, with a tender of money in payment of his debt with interest. In other words, the purchaser at the sale can dispose of the junior mortgagee by redeeming the land from his lien.’ 1 Glenn, Mortgages, § 86.5.” (Emphasis added.)

Portland Mortgage Co. v. Creditors Protective Ass’n., 199 Or. 432, 262 P.2d 918, 922-924 (Or.1953).