HORTON, Justice.
This appeal arises from a lien priority dispute between U.S. Bank National Association (U.S.Bank) and CitiMortgage, Inc. (CitiMortgage) who each hold a deed of trust to real property owned by Herbert and Julie Thomas. The district court concluded that U.S. Bank lost its first priority position on the Thomas property after finding that CitiMortgage delivered a demand for reconveyance and U.S. Bank failed to release its deed of trust as required by Idaho Code section 45-1514. U.S. Bank appeals, contending that the district court misallocated the burden of proof, that testimony offered by CitiMortgage was inadmissible, and that CitiMortgage
On August 30, 2005, the Thomases opened a $2,000,000.00 home equity line of credit (the HELOC) with U.S. Bank. To secure the obligation, the Thomases executed a deed of trust in favor of U.S. Bank (the U.S. Bank Deed of Trust) to real property located at 104 Grey Eagle Road in Sun Valley (the Thomas Property). The U.S. Bank Deed of Trust was recorded in Blaine County on September 9, 2005. Under the terms of the HELOC, the debt secured by the Thomas Property was a revolving line of credit, thus, even if the debt was reduced to a zero balance, the U.S. Bank Deed of Trust would "remain in effect until released."
In November of 2005, the Thomases approached CitiMortgage seeking refinancing. As part of this transaction, CitiMortgage sought a title commitment for the Thomas Property from Blaine County Title Associates (BCT). BCT issued a Commitment for Title Insurance under which Stewart Title Guarantee Company agreed to issue a policy to CitiMortgage so long as all prior deeds of trust, including the U.S. Bank Deed of Trust, were released so that CitiMortgage would be in first lien position with regard to the Thomas Property.
To that end, BCT contacted the local branch of U.S. Bank in Ketchum to determine the HELOC payoff amount. In response, U.S. Bank faxed BCT a screen shot of an account inquiry reflecting the balance owed on the HELOC with an interest calculation as of November 22, 2005. The payoff amount was listed at $1,840,991.52, with interest accruing at a rate of $351.9752619 per day.
On November 23, 2005, the Thomases closed with CitiMortgage and obtained a $4,990,000.00 loan (the CitiMortgage Loan). The CitiMortgage Loan was secured by a deed of trust on the Thomas Property (the CitiMortgage Deed of Trust). The Thomases also signed the loan commitment from BCT, indicating their understanding and intent that the HELOC would be closed and the property reconveyed. The CitiMortgage Deed of Trust was recorded in Blaine County on November 29, 2005.
Also on November 29, 2005, a check from BCT in the amount of $1,843,807.40 was hand delivered to the U.S. Bank branch in Ketchum. The check was made payable to U.S. Bank. Immediately below the payee line, was the notation:
The loan number referenced was that of the HELOC. The amount of the check represented BCT's calculation of the amount owed on the HELOC, including accrued interest. BCT's policy was that checks were "always" stapled together with release demand letters prior to delivery. It is undisputed that BCT delivered the check, that the check was deposited by U.S. Bank, and that the HELOC balance was reduced to zero. U.S. Bank deposited the excess funds into another account the Thomases maintained with U.S. Bank.
U.S. Bank contends that BCT did not deliver a written demand for release of the U.S. Bank Deed of Trust along with the check. CitiMortgage maintains that the demand letter was stapled to the check. The demand letter that CitiMortgage claims was delivered is undated, captioned "RELEASE DEMAND LETTER," and states, in pertinent part:
The Thomases were identified as the borrowers in the Release Demand Letter. It is undisputed that U.S. Bank did not reconvey the U.S. Bank Deed of Trust and did not close the Thomases' HELOC.
It appears that the Thomases were initially unaware that the HELOC remained open. However, once they became aware of it, they took full advantage of their good fortune (or the misfortune of one of the parties to this appeal) and began borrowing against the HELOC in January of 2006. By June of 2011, the Thomases owed U.S. Bank over $2 million for draws on the HELOC. Predictably, the Thomases defaulted on both the HELOC and the CitiMortgage Loan. When preparing to foreclose on its deed of trust in 2011, U.S. Bank discovered the CitiMortgage Deed of Trust and this litigation ensued.
U.S. Bank filed a complaint against the Thomases and CitiMortgage to judicially foreclose on the U.S. Bank Deed of Trust and seeking a declaration that its deed of trust had priority over that of CitiMortgage. CitiMortgage raised the affirmative defense that it had priority due to U.S. Bank's failure to comply with Idaho Code sections 45-915 and 45-1514 by failing to release the U.S. Bank Deed of Trust upon satisfaction of the obligation and receipt of the Release Demand Letter.
In September of 2011, the parties filed cross-motions for summary judgment. The district court granted U.S. Bank's motion for summary judgment in regard to the Thomases' default. The district court concluded, however, that there were specific genuine issues of material fact regarding the priority between the U.S. Bank and CitiMortgage deeds of trust. The district court determined that the main contested issue of fact was whether BCT actually delivered the Release Demand Letter to U.S. Bank. If the letter was delivered, the district court found that U.S. Bank had a duty to release the U.S. Bank Deed of Trust upon satisfaction of the debt. Thus, the district court issued an order limiting the factual issues that remained for trial, including, among others, whether the $1.8 million check to U.S. Bank was stapled to the Release Demand Letter.
CitiMortgage and U.S. Bank each filed second motions for partial summary judgment. The district court issued two additional orders limiting issues for trial. Prior to trial, the district court found that the Thomases intended to pay off and close the U.S. Bank HELOC as part of the CitiMortgage refinance. The district court also considered the manner in which U.S. Bank processed checks. The district court found that original checks are not preserved by U.S. Bank but that U.S. Bank retains digital images of the checks. Under U.S. Bank's check-processing policy, any documents stapled to a check are removed from the check at the receiving branch and ancillary documents, such as a release demand letter, are sent to be imaged in one location and checks are sent to a different location to be scanned. In its final order prior to trial, the district court concluded that it still could not rule on the issue of priority between U.S. Bank and CitiMortgage because there still was a genuine issue of material fact regarding the existence or non-existence of staple holes in the check.
Prior to trial, based upon a stipulation of the parties, the district court entered summary judgment in U.S. Bank's favor against the Thomases in the amount of $2,142,931.39, representing the balance they owed on the HELOC. The Thomases are not a party to this appeal.
The matter of priority proceeded to a court trial on July 10, 2012. The district court heard testimony from Keith Powers, U.S. Bank's vice-president of strategy and planning for the transaction processing group, Shannon Pearson, a paralegal for Pickens Law, and Loren Madson, who worked in the default management division of U.S. Bank.
Based on the evidence presented in the motions for summary judgment and at trial, the district court found it more probable than not that the check was stapled to the Release Demand Letter. As a result, the district court concluded that the Release Demand Letter was delivered to U.S. Bank, that this letter was sufficient to demand reconveyance of the U.S. Bank Deed of Trust under Idaho Code sections 45-1514 and 45-915, and that
Following trial, CitiMortgage filed a motion seeking costs and attorney fees. CitiMortgage argued it was entitled to attorney fees under Idaho Code sections 45-915 and 45-1514 due to U.S. Bank's refusal to reconvey the U.S. Bank Deed of Trust. CitiMortgage also argued it was entitled to fees and costs under Idaho Code sections 12-121 and 10-1210. The district court ruled that CitiMortgage was not entitled to an award of attorney fees and denied CitiMortgage's request for discretionary costs. The district court entered a judgment to this effect on December 4, 2012.
U.S. Bank appealed and CitiMortgage cross-appealed from the denial of its request for attorney fees and discretionary costs. The district court entered an Amended Judgment and Decree of Foreclosure (Order of Sale) on August 6, 2013. The district court determined that the Thomases were jointly and severally liable for a total judgment of $2,222,458.47 together with interest, attorney fees, and costs. The district court also concluded that the U.S. Bank Deed of Trust was subject to the first position CitiMortgage Deed of Trust and ordered that the Thomas Property be sold at public auction. U.S. Bank timely appealed and CitiMortgage again cross-appealed to this Court.
Following a bench trial, this Court's review "is limited to ascertaining whether the evidence supports the findings of fact, and whether the findings of fact support the conclusions of law." Borah v. McCandless, 147 Idaho 73, 77, 205 P.3d 1209, 1213 (2009). "[T]his Court will liberally construe the trial court's findings of fact in favor of the judgment entered" and "will not set aside a trial court's findings of fact unless the findings are clearly erroneous." Id. However, this Court exercises free review over matters of law and is not "bound by the legal conclusions of the trial court, but may draw its own conclusions from the facts presented." Credit Suisse AG v. Teufel Nursery, Inc., 156 Idaho 189, 194, 321 P.3d 739, 744 (2014) (quoting City of Meridian v. Petra Inc., 154 Idaho 425, 434-35, 299 P.3d 232, 241-42 (2013)).
This Court reviews a trial court's decision regarding the admission of evidence for an abuse of discretion. Hudelson v. Delta Int'l Mach. Corp., 142 Idaho 244, 249, 127 P.3d 147, 152 (2005). When reviewing a trial court's decision for an abuse of discretion, this Court considers: "(1) whether the lower court rightly perceived the issue as one of discretion; (2) whether the court acted within the outer boundaries of such discretion and consistently with any legal standards applicable to specific choices; and (3) whether the court reached its decision by an exercise of reason." Akers v. D.L. White Const., Inc., 156 Idaho 37, 45, 320 P.3d 428, 436 (2014) (quoting Goodspeed v. Shippen, 154 Idaho 866, 869, 303 P.3d 225, 228 (2013)).
U.S. Bank argues that the district court did not properly allocate the burden of proof. U.S. Bank asserts that the district court placed the burden of proving non-delivery of the Release Demand Letter upon U.S. Bank when the burden of proof should have been placed on CitiMortgage to prove its delivery. U.S. Bank argues that CitiMortgage bore the burden of proof because delivery of the Release Demand Letter was CitiMortgage's affirmative defense.
In general, the party seeking foreclosure has the burden of establishing the existence of the debt and default on that debt. See I.C. § 45-1505. The burden of proving an affirmative defense, however, rests upon the party who advances the affirmative defense. Harman v. Nw. Mut. Life Ins. Co., 91 Idaho 719, 721, 429 P.2d 849, 851 (1967). When determining priority, "[g]enerally, the party demanding the subordination of a lien that is apparently superior to its own assumes the burden of proving the facts
Here, the parties do not dispute the existence of the U.S. Bank Deed of Trust, nor the Thomases' default on the obligation secured by the U.S. Bank Deed of Trust. At issue is the priority of the deed of trusts held by CitiMortgage and U.S. Bank. "According to Idaho's recording statutes, a mortgage recorded first in time has priority against all other subsequent mortgagees." Estate of Skvorak v. Sec. Union Title Ins. Co., 140 Idaho 16, 23, 89 P.3d 856, 863 (2004). This rule applies equally to deeds of trust. See Kalange v. Rencher, 136 Idaho 192, 195, 30 P.3d 970, 973 (2001). Here, U.S. Bank recorded its Deed of Trust on September 29, 2005, and this lien was never released. CitiMortgage recorded its Deed of Trust on November 29, 2005. Thus, because U.S. Bank's Deed of Trust was recorded prior to CitiMortgage's Deed of Trust, CitiMortgage was asserting subordination of a lien that was superior to its own. As such, CitiMortgage bore the burden of proving facts sufficient to show that U.S. Bank's Deed of Trust no longer had priority over CitiMortgage's Deed of Trust.
The next issue is whether the district court misapplied the burden of proof. "The question of where a burden of proof lies is a question of law." Robinson v. State Farm Mut. Auto. Ins. Co., 137 Idaho 173, 176, 45 P.3d 829, 832 (2002). This Court has remanded for application of the correct burden of proof when a district court placed the burden of proof on the wrong party and in contradiction of well-established law. Robinson, 137 Idaho at 178, 45 P.3d at 834. In Robinson this Court found reversible error when the district court misapplied the burden of proof and the plaintiff "was excused from proving an essential element of the bad faith claim...." Id.
In its findings of fact and conclusions of law, the district court did not explicitly address which party bore the burden of proof as to whether the Release Demand Letter was delivered to U.S. Bank. Therefore, we have carefully reviewed the district court's findings of fact in order to determine the district court's approach to the burden of proof. We note that the district court consistently referred to U.S. Bank's failure to present evidence regarding delivery of the Release Demand Letter. The district court noted that, "U.S. Bank did not present evidence" regarding the visibility of staple holes, and that "no visual evidence of the difference [between staple holes and dust specks] was presented to the Court by U.S. Bank." The district court also stated that U.S. Bank's evidence "fails to explain how checks are physically moved." Proper application of the burden of proof would have directed attention to CitiMortgage's evidence that a demand for reconveyance was delivered rather than focusing on U.S. Bank's failure to present evidence on this issue. We conclude that the district court's findings of fact reflect that it erroneously placed the burden of proof on U.S. Bank.
CitiMortgage presented testimony from Pearson, a paralegal in CitiMortgage's attorney's office. Pearson conducted a "low-tech experiment" by scanning an image of a check using the office copy machine to determine whether staple holes were visible in the scanned image. U.S. Bank objected to the admissibility of her testimony and the results of her experiment. The district court overruled U.S. Bank's objection, concluding that Pearson was testifying to her own experiment which required no technical or special expertise and concluded that Pearson could testify as a lay witness regarding her opinion regarding the visibility of staple holes. The district court noted that Keith Powers had been permitted to present his lay opinion that staple holes were not visible in the digital images of the BCT check created by U.S. Bank and First Bank of Idaho.
We are inclined to the view that the substantial differences between the manner in which the BCT check was imaged by U.S. Bank
The circumstances under which Pearson performed her experiment were the subject of her own personal knowledge. The only opinion that she expressed related to the results of her experiment. She testified that she was able to discern staple holes on the scanned image of the face of the check but that she was unable to locate staple holes on the scanned image of the rear check. "So long as a lay witness does not testify on the basis of specialized knowledge, [her] opinions or inferences are admissible testimony if they are rationally based on [her] own perceptions and helpful to the trier of fact. I.R.E. 701." Carrillo v. Boise Tire Co., 152 Idaho 741, 750, 274 P.3d 1256, 1265 (2012). The district court clearly viewed lay testimony as to the visibility of staple holes in images as being helpful, as he permitted Powers to offer his lay opinion as to whether staple holes were visible in the images of the BCT check created by U.S. Bank and First Bank of Idaho. Accordingly, we hold that U.S. Bank has not demonstrated reversible error in the admission of Pearson's testimony.
Idaho Code section 45-1514 spells out the procedure for causing a deed of trust to be reconveyed upon satisfaction of the underlying obligation. The statute provides:
I.C. § 45-1514 (emphasis added).
The district court correctly observed that additional guidance as to the duty to reconvey can be obtained from Idaho Code section 45-915. Idaho Code section 45-915 addresses the reconveyance of mortgages and is identical in purpose to Idaho Code section 45-1514. See Brinton v. Haight, 125 Idaho 324, 332, 870 P.2d 677, 685 (Ct.App.1994). Thus, Idaho Code sections 45-1514 and 45-915 may be read in pari materia. Idaho Code section 45-915 provides:
Reading Idaho Code section 45-1514 in concert with Idaho Code section 45-915, the district court correctly concluded that Idaho Code section 45-1514 places the duty of reconveyance on the trustee once the underlying obligation has been satisfied and upon receipt of a written request for reconveyance of the property. See Brinton, 125 Idaho at 330, 870 P.2d at 683.
The district court found that it was more probable than not that the Release Demand Letter was stapled to the check. U.S. Bank argues that this finding of fact is clearly erroneous.
The district court stated that "U.S. Bank did not present evidence of any comparisons, independent testing, or analysis on their imaging equipment to determine the extent to which staple holes are, or are not, visible in processed checks, or what staple holes might look like on processed checks."
The record shows that U.S. Bank did present evidence at the summary judgment stage showing images of checks with the pertinent characteristics. Exhibits C and D attached to Powers' affidavit in support of U.S. Bank's second motion for summary judgment depicted two checks that had been scanned by U.S. Bank and which appear to show the presence of staple marks. At the beginning of the court trial, the parties and the district court agreed that the district court would consider
It is an understatement to say that the evidence of delivery of the Release Demand Letter was highly conflicting. CitiMortgage's claim that the demand for reconveyance was delivered rested largely on BCT's practice of "always" stapling such a demand to the payoff check (which included the notation "payoff" of the Thomases' loan and the loan number), an email in which a U.S. Bank officer acknowledged some degree of absence of controls relating to HELOCS, and the results of Pearson's experiment. In turn, U.S. Bank primarily relied on the absence of a record of receiving the demand letter, the inability of any witness to testify that the letter had actually been delivered, and the two sets of digital images which, in Powers' lay opinion, did not show the holes that would have been created by the staples.
The district court's explicit failure to consider the two exemplars of digital images of checks with staple holes, coupled with its misallocation of the burden of proof, lead us to the conclusion that we must remand this matter to the district court for consideration of all the evidence in light of the applicable burden of proof.
Although this case must be remanded, we will address a legal issue that is presented by this appeal and which, depending upon whether the district court finds that the Release Demand Letter was delivered, must be answered. U.S. Bank argues that even if the demand was delivered, it was ineffective because it did not comply with Idaho Code section 45-1203. CitiMortgage responds that Idaho Code section 45-1203 does not apply to this case. We agree.
Idaho Code section 45-1203 provides a procedure for unilateral reconveyance of a deed of trust by a title insurer or title agent when a beneficiary fails to fulfill its duty to reconvey a deed of trust. Idaho Code section 45-1203(1) requires that a notice of intent to reconvey the deed of trust be delivered to the beneficiary and that it be accompanied by a copy of the reconveyance to be recorded. U.S. Bank argues that because the letter from BCT was undated and did not contain a copy of the reconveyance to be recorded, the Release Demand Letter from BCT was insufficient. This case does not present the situation governed by the statute. BCT did not attempt to effectuate a unilateral reconveyance. Thus, the statute is inapplicable and the Release Demand Letter was sufficient under Idaho Code section 45-1514 to impose a duty upon U.S. Bank to reconvey the Thomases' property.
CitiMortgage cross-appeals from the district court's refusal to award it attorney fees. Although this issue may become moot, depending upon whether the district court's finds that the Release Demand Letter was delivered, we address this issue for guidance on remand. CitiMortgage argues that the district court erred by not awarding fees under Idaho Code sections 45-915, 45-1514 and 12-121. CitiMortgage also argues that the district court erred by failing to address its request for costs under Idaho Code section 10-1210. We address each issue in turn.
The district court concluded that Idaho Code sections 45-915 and 45-1514 are to be construed in pari materia because the grantor of a deed of trust and a mortgagor are generally in the same position. In doing so, the district court determined that CitiMortgage "can claim damages under Idaho Code § 45-915" because CitiMortgage (via BCT) was demanding reconveyance through the
Idaho Code section 45-1514 states:
Thus, Idaho Code section 45-1514 indicates that liability for refusal to reconvey a deed of trust is determined under Idaho Code section 45-915. Idaho Code section 45-915 states in pertinent part:
(emphasis added).
This Court has already determined that under Idaho Code section 45-915 and therefore, under Idaho Code section 45-1514, attorney fees may be awarded as compensatory damages. See Cornelison v. U.S. Bldg. & Loan Ass'n, 50 Idaho 1, 8, 292 P. 243, 246 (1930) ("Attorney's fees incurred as the result of necessity of bringing action to compel cancellation of the mortgage are recoverable as damages."); see also Head v. Crone, 79 Idaho 544, 547, 324 P.2d 996, 998 (1958) (noting that attorney fees incurred in the release of chattel mortgages are recoverable as damages). As a result, the plaintiff has the burden to both plead these damages and to establish these compensatory damages with reasonable certainty. See Bratton v. Scott, 150 Idaho 530, 535-36, 248 P.3d 1265, 1270-71 (2011); see also Trees v. Kersey, 138 Idaho 3, 11-12, 56 P.3d 765, 773-74 (2002).
Here, CitiMortgage did not present any evidence at trial regarding attorney fees as damages. Instead, CitiMortgage requested attorney fees under Idaho Code sections 45-915 and 45-1514 pursuant to I.R.C.P. 54(e)(1) as the prevailing party. The district court correctly denied CitiMortgage's request for attorney fees under Idaho Code sections 45-915 and 45-1514.
The district court also concluded that attorney fees were not warranted under Idaho Code section 12-121 because U.S. Bank did not defend
Pursuant to Idaho Code section 12-121: "In any civil action, the judge may award reasonable attorney's fees to the prevailing party...." An award of fees under Idaho Code section 12-121 may be awarded by the district court in its discretion "when it is left with the abiding belief that the action was pursued, defended, or brought frivolously, unreasonably, or without foundation." Garner v. Povey, 151 Idaho 462, 468, 259 P.3d 608, 614 (2011) (quoting C & G, Inc. v. Rule, 135 Idaho 763, 769, 25 P.3d 76, 82 (2001)). "A district court's denial of fees
Here, the district court correctly observed that the entire course of litigation needed to be taken into account but that it could, in its discretion, award fees if it found U.S. Bank pursued this action frivolously or unreasonably. This indicates the district court correctly perceived the issue as discretionary. The district court next considered the merits of U.S. Bank's claims, noting that there was, "at a minimum, a fairly debatable issue as to whether the demand letter was ever delivered." Thus, the district court acted consistently with the legal standards applicable to Idaho Code section 12-121, within the boundaries of its discretion, and through the exercise of reason. We conclude that the district court did not abuse its discretion by denying CitiMortgage's request for fees under Idaho Code section 12-121.
Under Idaho Code section 10-1210, the district court may "make such award of costs as may seem equitable and just" in a proceeding for declaratory judgment. The district court did not explicitly address CitiMortgage's requests for discretionary costs under Idaho Code section 10-1210. On remand, the district court should consider all grounds upon which the prevailing party seeks an award of costs or fees.
CitiMortgage requests attorney fees and costs on appeal. Because CitiMortgage did not prevail in this appeal, it is not entitled to an award of attorney fees.
U.S. Bank requests attorney fees in connection with the cross-appeal, arguing that CitiMortgage's cross-appeal was brought unreasonably and without foundation. As CitiMortgage correctly pointed out, the district court failed to address its request for an award of costs pursuant to Idaho Code section 10-1210. Thus, we are unable to conclude that CitiMortgage's cross-appeal was frivolously pursued.
We vacate the judgment of the district court and remand for proceedings consistent with this opinion. We do not award attorney fees or costs on appeal.
Chief Justice BURDICK and Justices EISMANN, J. JONES and W. JONES concur.
U.S. Bank initially processed the check by applying magnetic ink in the familiar check encoding font on the lower right hand of the face of the check to reflect the amount of the check (0184380740). The check was then forwarded to the image capturing room, which has a "limited access, humidity-controlled, dust-controlled" environment. Once there, the check was run through an IBM 3890/97 sorter camera, which processes checks at the rate of 2,000 per minute. The check was transported by means of belts and rollers into a "coffin" where both sides were imaged by a high speed camera. The environment inside the coffin was controlled for humidity, dust and light intensity. The camera captured a black and white image with a resolution of 200 dots per square inch (dpsi).
Pearson performed her experiment by stapling a blank check to a piece of paper, removing the staple using a "claw-like staple remover." She fed the check into a scanner feeder on a Sharp photocopier in her employer's law office and scanned the front and back of the check at a resolution of 400 dpsi. She forwarded the digital files to her computer and then printed the image from her computer.