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Mutual of Omaha Bank v. Watson

Supreme Court of Nebraska

August 11, 2017

Mutual of Omaha Bank, appellee,
v.
Robert W. Watson, appellant, and Shona Rae Watson, appellee, formerly husband and wife, and Community Bank of Lincoln, Trustee and beneficiary, et al., appellees.

          1. Actions: Foreclosure: Equity. An action to foreclose on real estate is an action in equity.

         2. Equity: Appeal and Error. On appeal from an equity action, an appellate court decides factual questions de novo on the record and, as to questions of both fact and law, is obligated to reach a conclusion independent of the trial court's determination.

         3. Contracts: Homesteads: Acknowledgments: Conveyances. A valid acknowledgment of both spouses must appear on the face of an instrument purporting to convey or encumber the homestead of a married person or the instrument is void.

         4. Property: Mortgages: Deeds: Debtors and Creditors. In considering the use of property as security for a debt, a deed of trust that a buyer gives for the purchase money of real property is generally treated the same as a mortgage that a buyer gives for the same purpose.

         5. Mortgages: Deeds: Security Interests: Sales. A purchase-money mortgage refers to a security interest that a buyer gives for the unpaid purchase money on a sale of land, as part of the same transaction as the deed, when its funds are actually used to buy the land.

         6. Mortgages: Title: Sales. A purchase-money mortgage can refer to a mortgage that a buyer gives to the seller or to a third-party lender in order to acquire title to real estate or to make improvements to a property, if the mortgage is given as part of the same transaction in which the title is acquired.

         7. Mortgages: Deeds: Security Interests: Homesteads: Foreclosure. Because courts normally treat the deed to the mortgagor and the [297 Neb. 480] security interest in the property as being executed simultaneously, a homestead claim will not defeat an action to foreclose a purchase-money mortgage.

         8. Mortgages: Acknowledgments. A mortgage given by a married person for the purchase money of land, delivered at the same time of the purchase, is not invalid because it was not executed and acknowledged by the person's spouse.

         9. Homesteads. The validity of a homestead right rests on a present right of occupancy or possession.

         10. Mortgages: Security Interests: Vendor and Vendee. When a purchaser must obtain a purchase-money mortgage to acquire real property, the purchaser cannot show a present right of occupancy or possession until after he or she gives the lender the security interest.

         11. Homesteads: Security Interests: Vendor and Vendee. Restrictions on the encumbrance of a homestead without a spouse's consent or signature do not invalidate a security interest in the property that a purchaser concurrently gives for its purchase price.

         Appeal from the District Court for Lancaster County: John A. Colborn, Judge. Affirmed.

          Robert W. Watson, pro se.

          John D. Stalnaker and Robert J. Becker, of Stalnaker, Becker & Buresh, P.C., for appellee Mutual of Omaha Bank.

          Heavican, C.J., Wright, Miller-Lerman, Cassel, Stacy, Kelch, and Funke, JJ.

          FUNKE, J.

         I. NATURE OF CASE

         The appellant, Robert W. Watson (Watson), appeals from the district court's summary judgment orders that determined Mutual of Omaha Bank (Mutual) held a valid and enforceable deed of trust against Watson's homestead property. The court determined that the instrument, the primary deed of trust, had first priority as an encumbrance on the property, ordered an execution sale, and foreclosed Watson from asserting any interest in the property.

          [297 Neb. 481] Both Watson and his then-spouse, Shona Rae Watson, signed the primary deed of trust, but the notary did not certify that Shona had acknowledged the instrument. The notary did certify that Watson and Shona had both acknowledged a secondary deed of trust before the notary on the same day. Watson contends that the court erred in reading these two deeds of trust together to conclude that Watson and Shona intended to encumber their homestead through the primary deed of trust.

         In our de novo review of the record, we conclude that even if the court erred in that conclusion, it nonetheless reached the correct result. The undisputed facts show that Watson and Shona could not have acquired title to the property except by giving a security interest for the purchase money through the primary and secondary deeds of trust. Accordingly, the acknowledgment requirement under the homestead statutes did not preclude enforcement of the primary deed of trust and Watson's homestead interest was subject to the seniority of that instrument. We affirm.

         II. BACKGROUND

         1. Historical Facts

         Watson was the manager of Reserve Design, LLC, a company which designed, built, and sold homes in Lancaster County, Nebraska. In April 2008, Watson, as the manager of Reserve Design, executed a deed of trust to secure a loan or line of credit from Cattle National Bank and Trust Company (Cattle National). Under the deed of trust, Reserve Design conveyed a residential property in Lancaster County to Cattle National as trustee and beneficiary if Reserve Design defaulted on its loan obligations. The maximum loan amount was $525, 000.

         On October 26, 2009, Watson and Shona purchased the same home, which Reserve Design had built but had been unable to sell. Watson and Shona were both members of Reserve Design, but they purchased the home in their personal [297 Neb. 482] capacities. The property became their homestead. On October 26, Watson executed and delivered a promissory note for $417, 000 and a second promissory note for $118, 414.50 to Community Bank of Lincoln (Community Bank) to fund the purchase price of the residential property and to pay off the prior indebtedness owed to Cattle National by Reserve Design. Upon receiving the payoff, Cattle National released its deed of trust for the property.

         Watson and Shona signed the primary deed of trust to secure the $417, 000 note and a secondary deed of trust to secure the $118, 414.50 note. The instruments conveyed the same property in trust that had been security for the deed of trust in favor of Cattle National. Angela Schwartz, a Community Bank officer, notarized the instruments, but her certification on the primary deed of trust stated that only Watson had acknowledged the instrument before her. That same day, Community Bank assigned the primary deed of trust to TierOne Bank.

         Later on October 26, 2009, Watson signed an addendum to a settlement statement in which he verified that $532, 140.08 was the payoff to Cattle National. The next day, October 27, Community Bank transferred by wire $532, 140.08 to Cattle National.

         On November 5, 2009, Community Bank recorded the primary deed of trust and the assignment. A title insurance company issued a title insurance policy, which stated that the insured was TierOne Bank, and its successors or assignees. Subject to exclusions, the policy covered the insured against defects in the deed caused by various circumstances, including "a document affecting Title not [being] properly created, executed, witnessed, sealed, acknowledged, notarized, or delivered."

         After TierOne Bank was placed in receivership in June 2010, the receiver sold TierOne Bank's servicing rights to a different bank. In October, the receiver and the other bank assigned all their rights in the primary deed of trust to Mutual.

          [297 Neb. 483] Watson eventually defaulted on the note, and in January 2013, Mutual brought suit for judicial foreclosure.

         On December 16, 2013, Mutual deposed Shona. She and Watson had divorced in 2010, and, at some point, she moved to Missouri. She stated that they had purchased a new home while they were married, but she did not know how the financing was handled. She agreed that her signature appeared to be on the primary deed of trust. But she did not recall any significant facts regarding the execution: i.e., signing the document, being at the closing, which bank she would have been at, or whether a notary was present. She said that Watson would just tell her when to show up and sign papers if he needed her signature and that this happened several times while they were married. She said that she did not know the purpose of the documents. She also did not recall signing the secondary deed of trust for Community Bank but agreed that it looked like her signature.

         On December 31, 2013, an unspecified party filed a "Corrective Deed of Trust" that purported to correct Schwartz' certification for the primary deed of trust. The new certification stated that on October 26, 2009, the primary deed of trust had been acknowledged before Schwartz by both Watson and Shona. Schwartz' statement was undated, and neither Watson nor Shona signed the corrective deed.

         In a 2015 deposition, Watson testified that he could not recall (1) signing the primary deed of trust, (2) whether he had signed the loan documents at Community Bank, (3) whether Shona was present, or (4) whether the loan officer was present when he signed them. Watson said that he had sometimes signed loan documents at his office or his home. He admitted that the signature on Mutual's copy of the primary deed of trust looked like his.

         2. Procedural History

         Mutual filed its operative amended complaint in January 2014 in which it alleged that Watson had failed to "make [297 Neb. 484] the payments . . . which became due on May 1, 2012, and thereafter" and that Mutual had elected to declare the whole indebtedness due at once. It alleged that it was the holder of a deed of trust that "is, or in equity should be determined to be, a first lien" on the property. Mutual also sought an accounting, a determination that ...


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