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Boresek v. United States Department of Agriculture

United States District Court, D. Oregon

September 23, 2014

F.J. BORESEK, TRUSTEE OF THE. F.J. BORESEK TRUST, Plaintiff,
v.
UNITED STATES DEPARTMENT OF AGRICULTURE, FARM SERVICE AGENCY; CHRISTIAN BUSSMAN and DEANA BUSSMAN, Defendants.

OPINION AND ORDER

MICHAEL McSHANE, District Judge.

This action deals with the priority of competing mortgages. The main question presented is whether the United States has waived sovereign immunity from an equitable subrogation claim against a senior government lien when that government lien is not a tax lien. This specific issue appears to be a matter of first impression in any court, state or federal. Because the caselaw indicates the United States has in fact waived such claims, plaintiffs motion for summary judgment, ECF No. 29, is GRANTED in part. Defendants' motions, ECF No. 27 and 35, are DENIED.

BACKGROUND

Defendants Christian and Deana Bussman own a house and a separate 50 acre cranberry farm in Coos Bay. When buying the house, the Bussmans obtained two loans from a bank, both secured by a deed of trust on the house. The bank recorded the mortgages.

In 2000, the Bussmans obtained several loans, secured with mortgages on both the house and the faun, from defendant United States Department of Agriculture, Farm Service Agency (FSA). The FSA recorded those mortgages.

The Bussmans ran into financial difficulties. They obtained a loan from plaintiff F.J. Boresek, Trustee of the F.J. Boresek Trust. On their applications to Boresek, the Bussmans neglected to mention the FSA loans. Boresek hired a title company to run a preliminary title report. The report did not mention the FSA loans. In fact, the report only mentioned the smaller of the original loans the Bussmans obtained to first buy the house. The report did not mention the larger of the original home loans, nearly $150, 000 by that time.

Relying on the report, Boresek figured he could pay off the original loans and lend the Bussmans $250, 000 on a 12% interest only loan. As Boresek was unaware of the recorded FSA mortgages, Boresek believed that if the Bussmans defaulted, he would have a first position security interest. Boresek made the loan and recorded the mortgage (secured by the home only Unfortunately for Boresek, the FSA recorded its loans years earlier and Boresek in fact was second-in-line, behind about $400, 000 in FSA loans.

Two years later, in 2009, the Bussmans needed to refinance the FSA loans. The FSA refinanced all the loans, added the accumulated interest into the principal, and then recorded another mortgage. The 2009 notes specifically state they are not paying off the 2000 loans, and are not changing the priority of the 2000 recorded mortgage, but are simply refinancing. The 2000 loans and the 2000 mortgage contain language stating this is permissible. Additionally, specific Oregon statutes explicitly allow this sort of refinancing without affecting the priority of the previously recorded mortgage.

A few years later, the Bussmans defaulted on the Boresek loan and Boresek attempted a non-judicial foreclosure of the home. The FSA alerted Boresek to its senior interests.

Boresek filed this action bringing three claims. First, Boresek seeks to quiet title, arguing its interest has priority over the FSA's interests. In the alternative, Boresek brings claims for equitable subrogation and marshaling. The subrogation claim is based on the equitable doctrine that one who makes a loan intending to pay off prior interests, who is unaware of other interests, should be placed in the shoes of the interest they paid off. The third claim is for equitable marshalling. As the FSA loans are secured by the home and the fans, and the Boresek loan is secured solely by the home. Boresek requests an order that the FSA take its recovery first from the farm and then, if necessary, from the home.

STANDARD OF REVIEW

The court must grant summary judgment if there is no genuine issue of material fact and the moving party is entitled to judgment as a matter of law. Fed.R.Civ.P. 56(a). An issue is "genuine" if a reasonable jury could return a verdict in favor of the non-moving party. Rivera v. Phillip Morris, Inc., 395 F.3d 1142, 1146 (9th Cir. 2005) (citing Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986)). A fact is "material" if it could affect the outcome of the case. Id. The court reviews evidence and draws inferences in the light, most favorable to the non-moving party. Miller v. Glenn Miller Prods., Inc., 454 F.3d 975, 988 (9th Cir. 2006) (quoting Hunt v. Cromartie, 526 U.S. 541, 552 (1999))

DISCUSSION

Sovereign immunity limits a district court's subject matter jurisdiction over actions brought against the United States. Vacek v. United States Postal Service, 447 F.3d 1248, 1250 (9th Cir. 2006). The United States "is immune from suit unless it has expressly waived such immunity and consented to be sued." Dunn & Black P.S. v. United States, 492 F.3d 1084, 1087-88 (9th Cir. 2007). The scope of any waiver of sovereign immunity is to be strictly construed in favor of the United States. Id. at 1088 (citation omitted). The party suing the United States bears the burden of demonstrating the existence of "an unequivocal waiver of immunity." Holloman v. Watt, 708 F.2d 1399, 1401 (9th Cir. 1983).

28 U.S.C. § 2410(a)(1) states:

[T]he United States may be named a party in any civil action or suit in any district court, or in any State court having jurisdiction of the subject matter H to quiet title to... real or personal property on which the United States has or claims a mortgage or other lien.

The parties agree the United States has waived sovereign immunity as to the quiet title claim. They disagree as to whether sovereign immunity bars the equitable subrogation or marshaling claims.

1. Quiet Title

"In an action to quiet title, plaintiffs must prove that they have a substantial interest in, or claim to, the disputed property and that their title is superior to that of defendants." Howe v. Greenleaf 260 Or.App. 692, 700 (2014) (internal quotations omitted). It is undisputed that the FSA recorded its interests before Boresek recorded his interest. Boresek argues that the parties intended that the 2009 notes extinguished the 2000 notes because the FSA assigned a new loan number with the 2009 refinancing and then recorded a new mortgage. Boresek argues the 2000 mortgage must be extinguished as a matter of law, and the Boresek mortgage is actually senior to the FSA mortgage. Boresek argues the 2009 notes were a "novation" of the earlier loans.

A "novation" is "the substitution by mutual agreement of one debtor or of one creditor for another, whereby the old debt is extinguished, or the substitution of a new debt or obligation for an existing one, which is thereby extinguished." Credit Bureaus Adjustment Dept., Inc. v. Cox Bros., 207 Or. 253, 257 (1956) (quoting 66 C.J.S., Novation, § 1 a, 681). Whether a novation occurred depends on the intentions of the parties. Id. at 258. Absent "a clear and definite intention on the part of all concerned to extinguish the old obligation by substituting the new one therefore, a novation is not effected." Id. Boresek bears the burden of demonstrating the defendants intended that the 2009 loans were a novation of the 2000 loans. Id.

The language of the FSA notes and mortgages clearly state the 2009 loans are not meant to impact the priority of the 2000 mortgages. The 2009 note states that the note is simply a "rescheduling" of the earlier notes. Thompson Decl., Ex. E, 1 ¶ 9. Specifically, it states "this note is given to... reschedule... but not in satisfaction of, the unpaid principal and interest on the [2000 notes]." Id. at ¶ 17. Regarding the underlying security interest, the note states:

Security interests taken in connection with the loans evidenced by these described notes and other related obligations are not affected by this consolidation, write down, rescheduling, or reamortization. These security interests shall continue to remain in effect and the security given for the loans evidenced by the described notes shall continue to remain as security for the loan evidenced by this note, and for any other related obligations.

Id. at ¶ 18. In addition to the express language of the 2009 notes indicating they were not intended as a novation of the earlier obligations, the Bussmans testified the 2009 loans were simply a refinance. Finally, Oregon Revised Statute 86.095(1) specifically allows parties to adjust the interest rate or extend the tent' of a loan without affecting the priority of a lien. In this instance, defendants did just that. It is clear the 2009 loans were simply intended to refinance the 2000 loans.

Recording statutes are intended to provide notice to persons buying property or persons intending to loan funds that will be secured by property. Because the FSA recorded the 2000 and 2009 mortgages, a person checking the land records could think there were separate mortgages and conclude the property was encumbered with twice the amount of the actual debt secured by the property. Boresek appears to argue the 2009 mortgages provided too much notice and therefore the court must order the 2000 loans extinguished. Although the FSA was not required to record the 2009 mortgages, that does not mean the FSA and the Bussmans clearly intended the 2009 loans to extinguish the 2000 loans. An unnecessary ...


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