No. 8 6 - 2 1 6
IN THE SUPREME COURT OF THE STATE OF MONTANA
1987
FIRST STATE BANK OF FORSYTH,
a Montana corp., Beneficiary,
and WILLIAM F. MEISBURGER, Trustee,
Plaintiffs and Appellants,
-vs-
THOMAS J. CHUNKAPURA and CICILY
CHUNKAPURA, husband and wife,
Defendants and Respondents.
APPEAL FROM: District Court of the Sixteenth Judicial District,
In and for the County of Rosebud,
The Honorable C. B. Sande, Judge presiding.
COUNSEL OF RECORD:
For Appellant:
William F. Meisburger argued, Forsyth, Montana
For Respondent:
John Houtz argued, Forsyth, Montana
For Amicus Curiae:
William F. Conklin argued for Concerned Citizens,
Great Falls, Montana
George T. Bennett, Montana Bankers Association,
Helena, Montana
David J. Dietrich, First Interstate Bank of Missoula,
Missoula, Montana
John Paul, United Savings Bank, Great Falls, Montana
George Goodrich, First Bank & Western Bank, Missoula
Submitted: February 1 0 , 1987
Decided: March 1 0 , 1 9 8 7
2zxLL *
Z
Clerk
Mr. Justice John C. Sheehy delivered the Opinion of the
Court.
We hold in this case that a lender, electing to
foreclose on its security under a trust deed by judicial
procedure, is not entitled to remedies inconsistent with the
Small Tract Financing Act of Montana, Title 71, Chapter 1,
Part 3, MCA. Specifically, the lender (mortgagee) may not
recover a deficiency judgment against the borrower
(mortgagor), and the borrower has no right of redemption as
is accorded borrowers in judicial foreclosures of
conventional mortgages.
First State Bank of Forsyth and William F. Meisburger
appealed from an order of the District Court, Sixteenth
Judicial District, Rosebud County, the Honorable C. B. Sande,
District Judge, presiding, that S 71-1-317, MCA, prohibits
the Bank from recovering a deficiency judgment on judicial
foreclosure. No final judgment has been entered in the cause
pending this appeal, and the cause has been properly
certified to us for appeal under Rule 54(b), Montana Rules of
Civil Procedure.
On October 20, 1980, the Chunkapuras executed a
promissory note to the First State Bank of Forsyth in the
amount of $17,000 with interest on the unpaid principal
thereon accruing at the rate of 14% per annum to be paid by
the Chunkapuras in monthly payments. The note was secured by
a deed of trust executed the same day from the Chunkapuras to
First Montana Title Insurance Company as trustee, naming the
Bank as beneficiary, covering Lots 17 and 18 in Block 54 of
the original town, now city, of Forsyth, Montana.
Under the terms of the note the Chunkapuras would have
paid to the Bank $226.40 per month until October 20, 1995 to
pay off the note, and under the terms of the deed of trust,
were to provide such additional sums monthly as would be
sufficient to pay taxes, assessments, insurance premiums, and
other charges.
William S. Meisburger succeeded First Montana Title
Insurance Company as trustee under the deed of trust. He
appears in this action as a plaintiff trustee, and as
attorney for the Bank and himself as plaintiffs. (He has
also made the return of sheriff's sale but no point is made
in this appeal as to the validity of the return. See S
25-13-404, MCA.)
The Chunkapuras made payments under the note and deed of
trust to the Bank until April 20, 1985, at which time they
went into default, the principal of the indebtedness having
been reduced to $14,957.02. On September 11, 1985, the
plaintiffs filed an action in the District Court to foreclose
judicially the security interest of the Bank. Their
complaint was amended on October 4, 1985. Under the amended
complaint plaintiffs prayed for judgment against the
defendants for the unpaid principal, accrued interest and
other costs, for a sale of the real estate premises by the
sheriff of Rosebud County, and for a deficiency judgment
against the defendants after applying all the proceeds of the
sale of the premises.
By stipulation, the parties agreed that the District
Court could enter judgment, issue an order for a sheriff's
sale, and proceed with the sheriff's sale, reserving until a
later time the question of whether a deficiency judgment
could be recovered. At the sheriff's sale, the Bank, being
the only bidder, bid on the property in the sum of $10,000.00
which after deducting sheriff's fees and attorneys fees, left
a net sum of $8,965.50. Thereupon the plaintiffs sought a
deficiency judgment in the amount of $8,556.93.
Following this activity in the action, the matter was
briefed before District Judge Sande and on January 6, 1986,
District Judge Sande entered his order as aforesaid,
determining that S 71-1-317, MCA, prohibited the plaintiffs
from recovering a deficiency judgment. Upon certification
under Rule 54 (b), M.R.Civ.P. by the Honorable Alfred B.
Coate, District Judge, the cause came to us on appeal.
I.
The issues in this case involve interpretation of the
Small Tract Financing Act of Montana, enacted in 1963. The
history of the legislative adoption of that Act, not unknown
to some members of this Court, needs telling at this point
for perspective.
Prior to 1963, Montana was a "one action" state with
respect to foreclosures of mortgages. Our statute provided
that there was but one action for the recovery of debt, or
the enforcement of any rights incurred by mortgage upon real
estate, which action had to be in accordance with the
foreclosure provisions of our statutes. Section 71-1-222,
MCA (formerly $ 93-6001, R.C.M. (1947)) . Whereas in other
states with differing statutes the lender had the option of
suing on the promissory note, or suing to foreclose the
mortgage securing the note, our "one action" statute was
construed by us to mean that a creditor could not waive the
mortgage and sue on the debt but was limited to foreclosure
of the mortgage indebtedness. Barth v. Ely (1929), 85 Mont.
310, 278 P.2d 1002. A mortgage instrument could and still
may contain a power of sale provision to which the mortgagee
could resort for foreclosure without judicial proceedings.
Section 71-1-223, MCA. No provision however is made in our
statutes for a deficiency judgment where foreclosure under
power of sale occurs. In a judicial foreclosure, after the
court entered judgment that the mortga-ger had defaulted on
his obligations and that the mortgagee was entitled to the
benefit of his security, the court could and still can order
sale of the secured premises by the sheriff of the county
involved. If the proceeds from the sheriff's sale are
insufficient and a balance still remains due, a deficiency
judgment can then be docketed against the defendant or
defendants personally liable for the debt which becomes a
lien upon the real estate of the judgment debtors. Section
71-1-222, MCA.
Two legal consequences attended, and still attend a
judicial foreclosure of mortgaged real property. The
judgment debtor has the right to redeem the property from the
purchaser at the sheriff's sale any time within one year
after the sale. Section 25-13-802, MCA. The purchaser was
not and is not now entitled to the possession of the real
property as against the judgment debtor during the period of
redemption while the debtor personally occupied the land as a
home for himself and his family. Section 25-13-821, MCA.
The banking and lending industry came to the legislature
in 1963, contending that the "one action" rule and the
attendant right of redemption and right of possession rules
hampered the financing of improvements on small tracts in
Montana because banks and investors were unwilling to invest
in mortgages when on default their funds would be tied up
during the period of redemption. A quid pro quo was proposed
to the legislature: the lenders would give up their
deficiency judgment rights on default, if the borrowers would
give up their rights of possession and redemption. The
result was the adoption by the legislature of the Small Tract
Financing Act of Montana, originally limited to tracts of
three acres, but now may involve tracts as large as fifteen
acres.
Under the Small Tract Financing Act, instead of
mortgages, trust indentures (sometimes called "deeds of
trust" or "trust deeds") are authorized. Such instruments
have the effect of transferring the title of the borrower to
a private trustee to be held by the trustee to secure the
performance of the obligation by the borrower. A power of
sale is by the law granted to the trustee to be exercised
after a breach of the obligation for which the trust transfer
is security. Section 71-1-304 ( 2 ) , MCA. The trust indenture
is considered to be a mortgage on real property, 5 71-1-305,
MCA, and provisions are made in the law for the method
whereby a trustee may foreclose a trust indenture by
advertisement and sale. Section 71-1-313, MCA. It is
certain that when a trustee conducts a foreclosure sale, a
deficiency judgment is not allowed, 5 71-1-317, MCA, and the
purchaser at the trustee sale is entitled to possession of
the property on the tenth day following the sale. Section
71-1-319, MCA.
It may be safely said, although it does not appear in
this record, that in the time since the enactment of the
Small Tract Financing Act, the use of trust deeds for
security purposes has become nearly exclusive in this state.
11.
The issues in this cause arise out of certain provisions
of the Small Tract Financing Act which are subject to
judicial interpretation. Section 71-1-304 (3), MCA, provides
that a trust indenture may be foreclosed by an advertisement
and sale through the trustee, or at the option of the
beneficiary (lender) by judicial procedure as provided by law
for the foreclosure of mortgages on real property. The
foreclosure of a trust indenture by advertisement and sale or
by judicial procedure is limited to the times provided by law
for the foreclosure of a mortgage on real property. Section
. . 1 ' I..
71-1-311, MCA. The provision prohibiting deficiency judgment
states:
Deficiency judgment - allowed.
not When a trust
indenture executed in conformity with this part is
foreclosed by advertisement and sale, no other or
further action, suit, or proceedings shall be taken
or judgment entered for any deficiency against the
grantor or his surety, guarantor, or successor in
interest, if any, on the note, bond, or other
obligation secured by the trust indenture or
against any other person obligated on such note,
bond, or other obligation.
Section 71-1-317, MCA.
With respect to possession, the Act provides:
Possession. The purchaser at the trustee's sale
shall be entitled to possession of the property on
the 10th day following the sale, and any persons
remaining in possession after that date under any
interest, except one prior to the trust indenture,
shall be deemed to be tenants at will.
Section 71-1-319, MCA.
The First State Bank of Forsyth contends that under the
Act, it has the option of either foreclosing on the security
by means of a trustee sale, or by resorting to judicial
foreclosure. It further contends that when it elects to
proceed by judicial foreclosure, it then becomes entitled to
the legal consequences that follow the judicial foreclosure
of a conventional mortgage, that is, the right to a
deficiency judgment. It admits that if it is entitled to a
deficiency judgment, the borrower also then becomes entitled
to the right of redemption granted in the foreclosure of
conventional mortgages.
The Chunkapuras on the other hand, contend that because
the lender chose to finance this obligation under the Small
Tract Financing Act, it thereupon elected the benefits
conferred upon lending institutions by the Act, the immediate
transfer 05 title in exchange for no deficiency judgment, and
that these results apply whether the lender elects to proceed
by trustee sale on default, or by judicial foreclosure. The
Chunkapuras rely especially on 71-1-305, MCA, which
provides :
Trust indenture considered - -be a mortgage - -
to - on real
property. A trust indenture is deemed to be a
mortgage on real property and is subject to all
laws relating to mortgages on real property except
to the extent that such laws are inconsistent with
the provisions of this part, in which event the
provisions of this part shall control. For the
purpose of applying the mortgage laws, the grantor
in a trust indenture is deemed the mortgagor and
the beneficiary is deemed the mortgagee.
They point also to the provisions of S 71-1-317, MCA,
which we have quoted above, contending that whether a trustee
sale occurs or a judicial foreclosure is utilized, the trust
indenture is foreclosed "by advertisement and sale" in either
case, and under S 71-1-317, a deficiency judgment is not
allowed. To grant a deficiency judgment, the Chunkapuras
contend, would be in effect giving life to a provision of the
judicial foreclosure statutes which is inconsistent with the
provisions of the Small Tract Financing Act under § 71-1-305.
111.
This Court is confronted in this case with a statutory
situation wherein it is clear that in cases of trustee sales
under trust deeds, there is no right of redemption given to
the borrower, and the borrower must surrender possession
within ten days; and the lender under a trustee sale has no
right to a deficiency judgment. The provisions of the Small
Tract Financing Act, permitting an election to the lender to
resort to judicial foreclosure, S 71-1-304 (3), MCA, and
setting out time limitations, S 71-1-311, MCA, do not clearly
provide that under judicial foreclosures, the legal
consequences of redemption and deficiency judgment follow.
It becomes a matter of judicial interpretation whether the
sense and intent of the legislature, in adopting the Small
Tract Financing Act, and permitting judicial foreclosure, was
also to permit deficiency judgments to the lenders and the
rights of redemption to the borrowers.
In resolving these issues we have not only the briefs of
the parties to the action, but amici briefs presented by the
Montana Bankers Association, the First Bank (N.A.)--Western
Montana Missoula, First Interstate Bank of Missoula, N.A.,
and United Savings Bank, F.A. in support of the First State
Bank of Forsyth. Supporting the Chunkapuras is an amicus
brief from the Concerned Citizens' Coalition. We have found
the briefs helpful, because they illuminate the importance of
this case and the gravity of the issues involved.
F e are directed to the case law of other states. The
J
State of Washington has a Deeds of Trust Act, similar to our
Small Tract Financing Act. Wash. Rev. Code § 61.24.010
-.24.130 (1985). The Washington Act provides for foreclosure
either by advertisement by the trustee, or by judicial
proceedings. Wash. Rev. Code 61.24.100 (1985). The
Washington Court of Appeals has held in Helbling Brothers,
Inc. v. Turner (Wash. 1975), 542 P.2d 1257, 1259, that if the
lender elects to proceed by judicial foreclosure, the lender
is not precluded from obtaining a deficiency judgment.
We are told that the California Supreme Court allows the
lender a choice of remedies, either no deficiency judgment
and no right of redemption on one hand, or a deficiency
judgment with the right of redemption on the other hand.
Roseleaf Corp. v. Chierighino (Cal. 1963), 378 P.2d 97, 102;
Cornelison v. Kornbluth (Cal. 1975), 542 P.2d 981, 989.
Even so, there are ameliorating effects for the borrower
under the California and Washington laws that do not accrue
to a borrower in Montana if the full consequences of judicial
foreclosure are applied. In California, no deficiency
judgment is recoverable if the property securing a trust deed
or mortgage is for a loan which the financier intends to be
used to pay all or part of a purchase price. Cal. Civ. Proc.
Code S 580 (b) (West 1976) ; Union Bank v. Wendland (Cal.App.
1976), 126 Cal.Rptr. 549, 554.
Furthermore, under California law, special provisions
are applied to sales under judicial foreclosure. A
deficiency judgment is limited to the difference between the
fair market value of the secured property at the time of the
foreclosure sale, regardless of a lesser amount realized at
the sale, and the outstanding debt for which the property was
secured. Goodyear v. Mack (Cal.App. 19841, 205 Cal.Rptr.
702, 704. "Fair value" is the intrinsic value of the real
property at the time of sale under judicial foreclosure,
without consideration of the impact of the foreclosure
proceedings on the fair market value. Rainer Mortgage v.
Silverwood Ltd. (Cal.App. 1985), 209 Cal.Rptr. 294, 298.
We have examined the pertinent statutes of other states.
Under Oregon law, where trust deeds are used to secure
indebtedness, foreclosure sale may be made by the trustee "or
under judicial foreclosure." Or. Rev. Stat. S 86.770 (2)
(1985). However, no deficiency can be recovered for the
indebtedness of a noncommercial trust deed.
In the State of Washington, it is true, as amici has
informed us, that deficiency judgments may be obtained on
judicial foreclosure. There is however, an "upset" provision
in the Washington statutes which applies. Thus, Washington
law provides that there can be no deficiency judgment if
there is a trustee sale, but that the indebtedness may be
foreclosed as a mortgage. Wash. Rev. Code S 61.24.100
(1985). However, in a judicial proceeding, the court may set
an "upset price" to be determined by the court, based on fair
value, and the upset price must be credited to the debt if
the amount recovered on the foreclosure sale is less than the
upset price. Wash. Rev. Code § 61.12.060 (1985).
In Arizona, no deficiency judgment is allowed on tracts
of two and a half acres or less where sales occur under deeds
of trust. If judicial foreclosure is followed the fair
market value of the property at time of sale determines the
amount of deficiency. Ariz. Rev. Stat. Ann. 5 33-814 (1974).
In Utah, in "any" sale of property under a trust deed a
deficiency is allowed, but not for more than the amount that
the unpaid debt exceeds the fair market value of the property
at the time of the sale. Utah Code Ann. $ 57-1-32 (1986).
In Nevada, a lender may apply for a deficiency judgment no
matter how the property is sold. Nev. Rev. Stat. 5 40-455
(1986). The deficiency however is limited to the fair market
value or the amount received on the sale, whichever results
in the smaller deficiency judgment.
Only Alaska, whose statutes apparently are similar to
Montana, seems to grant the result sought here by First State
Rank of Forsyth. In Alaska there is no deficiency if the
trustee sells the property. Alaska Stat. 5 34.20.100 (1985).
However the Alaska Supreme Court has held that the provision
against deficiency judgment does not apply if judicial
foreclosure is pursued. Hull v. Alaska Federal Savings &
Loan Ass'n. (Alaska 1983), 658 P.2d 122, 124.
In Idaho, the deficiency judgment on judicial
foreclosure is limited by the fair market value of the
property at the time of the foreclosure sale. Idaho Code $
45-1512 (1977).
It may be stated therefore, as a broad general policy in
the western states, with Alaska the sole exception, the
lender has the option of proceeding by trustee sale under
trust instruments, or by judicial foreclosure under the
mortgage statutes; but if the latter procedure is elected,
the deficiency judgment provisions of those statutes limit
the deficiency judgment to the difference between the amount
of the indebtedness sought and the fair market value of the
property at the time of the sale, or the amount realized at
the sale, whichever figure results in the lesser deficiency.
Montana statutes on judicial foreclosure do not have a "fair
market value" provision. A consideration of those provisions
brings us to the crux of the problem in this case.
IV.
Generally, since 1963, with the exception of the last
few years, real estate values in Montana have been subjected
to the same inflationary pressures that existed elsewhere in
the nation. At or about the time that the Chunkapuras
borrowed on their property in this case, inflation had
reached its highest stage. But Montana, since 1981, has been
enduring a depressed economy of sorts, which has resulted in
a marked depreciation in the values of real property. In the
past five to six years foreclosures because of defaulted
debts on farms, businesses, and homes have increased notably
in this state. In this case, the Bank was the only bidder
for the Chunkapura property. Its bid of $10,000 may
represent the fair market value of the property at the time
of the sheriff's sale, or it may be an opportunistic bid
which takes advantage of the circumstances so that later the
Bank may sell the property for a sum in excess of $10,000.
In the meantime the deficiency judgment of $8,556.93, plus
accrued interest and costs, if allowed would become a lien on
any other real estate the Chunkapuras now own or may own
during the period that the judgment lien is in effect. The
right of possession of their home which the Chunkapuras would
have for one year might have some value, but the right of
redemption is valueless, because if the Chunkapuras redeemed,
the deficiency judgment lien would immediately adhere to the
redeemed property. This result is not the quid pro quo which
the legislature intended when it acceded to Ule lending
industries' urging and adopted the Small Tract Financing Act
in 1963.
We therefore determine and hold that District Judge
Sande was correct when he determined that under § 71-1-317,
MCA, a deficiency judgment may not be allowed when trust
indentures are executed in conformity with the Act, and are
foreclosed by advertisement and sale, whether through the
trustee or by judicial proceedings; and that to allow a
deficiency judgment would be inconsistent with the provisions
of the Small Tract Financing Act of Montana and accordingly
forbidden by 5 71-1-305, MCA.
The decision in the District Court therefore that no
deficiency judgment may be obtained against the Chunkapuras
is affirmed. It should go without saying that in like
manner, the Chunkapuras are not entitled either to a right of
possession after ten days from the sale, or to a right of
redemption for a period of one year.
v.
We are mindful that there may be other cases pending or
decided in Montana where lenders have resorted to judicial
foreclosure of indebtedness secured by trust deeds. To
ensure finality, and the safety of real estate titles, we
order that the effect of this Opinion shall be prospective
only, except as to the Chunkapuras, and that deficiency
judgments in judicial foreclosures under trust deeds which
have been entered and docketed on or prior to the date of
this Opinion are hereby held to be valid and legal; but that
deficiency judgments under such proceedings entered and
docketed from and after this date are invalid and of no
effect.
We are also mindful that this Opinion relates to a
subject which is deserving of the immediate attention of the
legislature which is now sitting in session in our capitol
city. We therefore direct the Clerk of this Court to send
forthwith a copy of this Opinion to the FIonorable Ted
Schwinden, Governor of the State of Montana, to the Honorable
Robert Marks, Speaker of the House of Representatives, and to
the Honorable William Norman, President of the State Senate,
for their attention and consi
We Concur: /
/ / .
Chief Justice4
~ l
Justices
Mr. Justice Fred J. Weber dissents as follows:
The majority opinion demonstrates a genuine concern for
Montana borrowers who have executed trust indentures in the
purchase of their homes. Unfortunately, a similar concern
has not been demonstrated for the lenders. I conclude that
the majority opinion is unjust in its disregard of the con-
tracts between lenders and borrowers.
The issue before us can be determined by the text of the
controlling statutes. If the meaning of the statutes can be
determined from the plain meaning of the words in the stat-
utes, this Court may not go further and apply other means of
interpretation. State ex rel. Sol v. Bakker (1982), 199
Mont. 385, 390, 649 P.2d 456, 459.
Section 71-1-304 (3), MCA, states:
A trust indenture executed in conformity with this
part may be foreclosed by advertisement and sale in
the manner hereinafter provided or, at the option
of the beneficiary, by judicial procedure as pro-
vided by law for the foreclosure of mortgages on
real property ...
This statute clearly provides two options for foreclosure:
(1) advertisement and sale "in the manner hereinafter provid-
ed," and (2) judicial procedure as provided by law for the
foreclosure of mortgages on real property.
The statute prohibiting deficiency judgments,
S 71-1-317, MCA, applies " [w]hen a trust indenture executed
in conformity with this part - foreclosed by advertisement
is
and sale" (emphasis supplied).
-- Under the plain meaning of
the words of the statute, S 71-1-317, MCA, does not prohibit
a deficiency judgment when the lender elects the second
option, that being judicial procedure for the foreclosure of
mortgages on real property. I therefore conclude that the
statutory prohibition of deficiency judgments does not apply
in the present case and the District Court incorrectly ruled
to the contrary.
I find no inconsistency between foreclosure by adver-
tisement and sale under the Small Tract Financing Act of
Montana (Act) and the judicial procedure for the foreclosure
of mortgages on real propery. The two are alternative reme-
dies available to the lender after the borrower fails to pay
according to the provisions of his note. Judicial mortgage
foreclosure allows the lender to obtain a deficiency judgment
against the borrower, and also allows the borrower a one year
period in which to redeem. In contrast, foreclosure under
the Act does not allow the lender to obtain a deficiency
judgment. It eliminates the one year right of redemption for
the borrower, while giving to the borrower a right to pay up
all delinquencies and reinstate the obligation without pay-
ment of the entire balance of principal and interest as may
be required following default under a normal note and real
estate mortgage. I find the proceedings under the two types
of foreclosure to be both logical and consistent.
The majority opinion points out that in various western
states, protection is given to borrowers by fair market
provisions which set minimums which the lenders must bid on
foreclosures. Some states also have various types of prohi-
bitions against judicial foreclosure. These protections are
contained in the statutes of the various western states. As
I review the majority opinion I conclude that it contains an
excellent argument for legislative modification of the Act.
If I were in the legislature, I would tend to support such
legislative modification. However, our obligation is to
construe the statutes as now in existence.
We must recognize that the Act and in particular
§ 71-1-304, MCA, with its provision for foreclosure by either
judicial procedure or advertisement and sale, certainly was
considered by the lenders of Montana as a part of all trust
indenture financing. The Act plainly granted alternative
foreclosure rights. The effect of the majority opinion is to
modify all of the contracts between lenders and borrowers who
have used trust indentures. This Court would not presume to
eliminate a written remedy contained in an existing contract
between a borrower and a lender. That would clearly be
unjust. It is no more appropriate to eliminate judicial
foreclosure and a right to a deficiency judgment when those
were conditions in existence at the time of the making of the
contracts. The majority ignores the reality of the promise
to pay on the part of borrowers. The majority in effect has
modified that promise by adding a provision which releases
the borrowers from having to pay any more money where the
value of the property has dropped below the balance due on
the note. All of Montana is concerned with the losses taking
place because of the reduction in the values of homes and
land in Montana. However, I can find no basis for requiring
the lenders to assume all of that loss without some appropri-
ate prior warning.
In eliminating the statutory right of judicial foreclo-
sure with its companion right to a default judgment, the
majority opinion has decreed an unjust taking of a valuable
property right from every lender in Montana who has used
trust indentures. This Court should enforce the plain mean-
ing of the statutes and leave to the legislature changes in
t-he Act. T would reverse the District Court.
Mr. Justice L. C. Gulbrandson he foregoing
dissent.
IN THE SUPREME COURT OF THE STATE OF MONTANA
No. 86-216
FIRST STATE BANK OF FORSYTH
a Montana corp., Beneficiary O R D E R
and WILLIAM F. MEISBURGER, Trustee,) ON REHEARING
plaintiffs and Appellants I 1 '- "
-A 4 ., %.,
V. 1 >'
9
THOMAS J. CHUNKAPURA and CTCJLY 1
CHUNKAPUPA, husband and wife 1
Defendants and Respondents-
First State Bank of Forsyth, the principal party-lender
in this case has petitioned for rehearing, and its petition
for rehearing has been joined in by First Interstate Bank of
Missoula, NA, and the Montana Bankersf Association, as amici
curiae. Counsel for Chunkapura opposes the petition, as does
amicus Concerned Citizens Coalition.
The briefs of amici for the Bank point out that the
prospective effect of our decision could adversely affect
lenders,.-andinvestors who have financed loans in commercial
lending or investment settings and who have used trust
indentures to secure all or part of those loans or
investments.
The rationale of our decision in Chunlcapura is based
upon the "quid pro quo" suggested to the legislature to
secure passage of the Small Tract Financing Act, that is the
e
giving up of a deficiency judgment on the one hand by the
lenders in exchange for the giving up by the borrowers of the
right of possession to the property for one year and the
right of rcclemption after foreclosure sale. Such quid pro
quo does not apply to loans made in commercial settings, nor
to trust deeds secured by residential or other property which
are only part of larger, more complex loans for commercial or
agricultural purposes.
In Chunkapura, we have before us only a trust deed
related to an occupied, single family residential property.
It is suggested by amicus First Interstate Bank of Missoula
that our opinion should be limited in effect to the kind of
security before us in Chunkapura and similar cases involving
residential prcperty. We asree.
Our opinion in this cause is limited to the Chunkapura
property, and is to be considered as precedent only for trust
deeds related to occupied, single family residential
property. We keep in effect our determination that to insure
finality and the safety of real estate titles, that the
effect of this opinion shall be prospective only except to
the Chunkapuras and that deficiency judgments in judicial
foreclosures under trust deeds which have been entered and
4
docketed prior to the date of our oplnion, and which relate
to occupied, single family residential property are hereby
held to be valid and legal; and that deficiency judgments
under such proceedings for like property entered and docketed
after the date of our opinion (March 10, 1987) are invalid
and of no effect.
As so modified, our original opinion is affirmed. Let
remittitur issue.
b
Justice
We Concur: A
-
' thief Justice "
Mr. Justice Fred J. Weber dissents as follows:
In my dissent to the original opinion, I concluded that
in its elimination of the statutory right of judicial fore-
closure with its companion right to a default judgment, the
majority had decreed an unjust taking of a valuable property
right from every lender in Montana who had used trust inden-
tures. I then concluded that this Court should enforce the
plain meaning of the statute and leave to the legislature any
changes in the Small Tract Financing Act. I reaffirm that
position.
I do approve the action of the majority in at least
limiting the adverse effect of the majority opinion in the
matter set forth in the Order on Rehearing. As I again
review the statutes, I am unable to find any statutory justi-
fication for the distinction between trust indentures on
0
occupied, single-family residential property, and trust
indentures on other types of real property.
I encourage the Montana Legislature to review the Small
Tract'--FinancingAct and the effect of the present opinion.
In doing so they properly can consider a modification to - _-
include fair market value provisions.
I would still reverse the District Court.
Mr. Justice L. C. Gulbrandson
dissent.