Local Realty Co. v. Lindquist Et Ux. , 96 Utah 297 ( 1938 )

This action presents the question: Is the owner-mortgagor who is in actual possession of real estate from the time of sale under mortgage foreclosure to expiration of the redemption period, — when he does not redeem, — liable to the mortgagee-purchaser at the sale for the rental value of the premises during the redemption period?

This involves a construction of Section 104-37-37, R.S.U. 1933, which reads as follows:

"The purchaser from the time of sale until a redemption, and a redemptioner from the time of his redemption until anotherredemption, is entitled to receive from the tenant in possession the rents of the property sold or the value of the use and occupation thereof. But when any rents or profits have beenreceived by the judgment creditor or purchaser, or his or their assigns, from the property thus sold preceding such redemption,the amounts of such rents and profits shall be a credit upon theredemption money to be paid; and if the redemptioner or judgment debtor, before the expiration of the time allowed for such redemption, demands in writing of such purchaser or creditor, or his assigns, a written and verified statement of the amounts of such rents and profits thus received, the period for redemptionis extended five days after such sworn statement is given by such purchaser or his assigns to such redemptioner or debtor. Ifsuch purchaser or his assigns shall for a period of one month from and after such demand, fail or refuse to give suchstatement, such redemptioner or debtor may, within sixty days after such demand, bring an action in any court of competentjurisdiction to compel an accounting and disclosure of suchrents and profits, and until fifteen days from and after thefinal determination of such action the right of redemption isextended to such redemptioner or debtor." (Italics added.)

This section however must be read in connection with certain others which we now set forth. Chapter 55 of Title 104 deals with "Foreclosure of Mortgages," and two sections therein are important, which so far as material here read:

104-55-1: "There can be but one action for the recovery of any debt or the enforcement of any right secured by mortgage upon real estate or personal property, which action must be in accordance with the provisions of this chapter. Judgment shallbe given adjudging the amount due, with costs and disbursements,and the sale of the mortgaged property, or some part thereof,to satisfy said amount and accruing costs, and directing thesheriff to proceed and sell the same according to the provisionsof law relating to sales on execution, and a special execution or order of sale shall be issued for that purpose." (Italics added.)

104-55-6: "Sales of real estate under judgments of foreclosure of mortgages and liens are subject to redemption as in case of sales under executions generally. * * *"

Chapter 37 of Title 104 deals with executions and as far as material here reads:

104-37-29: "Upon a sale of real property the purchaser is substituted for and acquires all the right, title, interest and claim of the judgment debtor thereto; and when the estate is less than a leasehold of a two-years' unexpired term the sale is absolute. In all other cases the real property is subject to redemption as provided in this chapter. * * *"

104-37-35: "Until the expiration of the time allowed forredemption, the court may restrain the commission of waste on theproperty by order granted, with or without notice, on the application of the purchaser or the judgment creditor. But it isnot waste for the person in possession of the property at thetime of sale, or entitled to possession afterwards, during theperiod allowed for redemption, to continue to use it in the samemanner in which it was previously used, or to use it in the ordinary course of husbandry, or to make the necessary repairs of buildings thereon or to use wood or timber on the property therefor, or for the repair of fences, or for fuel for his family while he occupies the property." (Italics added.)

104-37-36: "When real property has been sold on execution,the purchaser thereof, or any person who may have succeeded to his interest, may, after his estate becomes absolute, recoverdamages for injury to the property by the tenant in possessionafter sale and before possession is delivered under the conveyance." (Italics added.)

The last section of the chapter (104-37-40) deals with "redemptions on Sales under Trust Deeds." It provides for redemption from such sales in the same way as from execution sales; provides for giving of a similar certificate of sale, and the execution and delivery of a deed at the expiration of six months if there is no redemption.

These statutes give rise to the following questions:

1. Do the provisions quoted above from Chapter 55 fix the rights as between the purchaser and the mortgagor or owner of the premises on foreclosure sale as the same rights which exist between the purchaser at an execution sale and the judgment debtor on an unsecured debt, or are those sections referring to executions merely procedural sections covering only the way or method in which a sale and redemption shall be made and not attempting to define, limit, or grant rights to either?

2. Under Section 104-37-29, supra, when is the purchaser substituted to all the right and title, etc., of the judgment debtor — at time of the sale or at time of the deed?

3. Who is entitled to the possession during the redemption period?

4. Is such possession merely a naked one, or does it carry with it the usufruct or use and benefit of the property?

5. Can the purchaser or a redemptioner compel the judgment debtor in possession to pay rent or the value of the use and occupation during the redemption period?

We shall note them in order.

1. Even a casual reading of Section 104-55-1, supra reveals that the reference to provisions of the law relating to sales on execution, in that section, has merely procedural significance, i.e., it does not attempt to fix or define any rights of the mortgagor or mortgagee in reference to the 1 property, but merely directs that in making the sale under foreclosure proceedings the sheriff shall proceed in the same way as he does in making sales under executions generally.

But Section 104-55-6, supra, is more than a procedural section; it involves more than the method by which redemptions may be made. It declares in effect that all persons who could redeem were the sale made on an execution issued on a straight money judgment in personam, shall have the same rights to redeem, and in the same way, when the sale is made 2 in foreclosure proceedings. This section confers and defines the extent of the right to redeem as well as providing the method in which a redemption shall be made. Both the right and the method shall be as provided in the law governing sales on execution.

2. This question has never before been considered in this state and our attention has not been called to any case which has considered or answered the same. The statute 3 reads:

104-37-29: "Upon a sale of real property the purchaser is substituted for and acquires all the right, title, interest and claim of the judgment debtor thereto; and when the estate is less than a leasehold of a two-years' unexpired term the sale is absolute. In all other cases the real property is subject to redemption as provided in this chapter. * * *"

When does the purchaser acquire all the right, title,interest and claim of the judgment debtor? Does he acquire it at the time the property is bid in at the sale, or upon expiration of the redemption period? We have no hesitancy in holding it is at the end of the redemption period, and not at the time of bidding in the property. It is self-evident that the purchaser does not have all the right or title of the judgment debtor until redemption has expired. The right of possession is one the judgment debtor has at the time of sale, and that right remains in him until the execution of the sheriff's deed. So too the legal title is often in the judgment debtor and that cannot vest in the purchaser until after the redemption period, and he cannot under any circumstance obtain that at the sale, and so too is the right of redemption. So also all crops harvested during the redemption period belong to the debtor or person in possession and cannot be claimed by the purchaser under the sale.

It is evident from both logic and other provisions of the statute that it was not intended that this provision should be effective until the expiration of the redemption period. That is to say, that the sale which is initiated when the property was offered for sale by the sheriff and bid in by the purchaser is a continuing matter and not concluded and 4 completed until the expiration of the redemption period. Then when the sale is consummated and completed, the purchaser is subrogated to and acquires all the right, title, interest, and claim of the judgment debtor in and to the property. Until that time the interest of the purchaser is an equitable interest, subject to be lost or cancelled or taken away by the debtor or any redemptioner or their assigns upon payment of the sale price with interest. A redemption is not a resale or repurchase. It is generally consummated without the knowledge of the purchaser at the time, and without his consent and perhaps often against his will. The money is generally paid to the sheriff who voids or annuls as it were the sale and cancels the certificate. This interpretation is further evidenced by the provisions of Section 104-37-35 and 104-37-36. R.S.U. 1933.

The courts of New York have designated the purchaser's estate during the redemption period as a lien of a new species acquired by the sale, and somewhat different from the judgment lien.Bissell v. Payn, 20 Johns., N.Y., 3; Van Rensselaer v.Sheriff of Onondaga County, 1 Cow., N.Y., 443, 449; Smith v.Colvin, 17 Barb., N.Y., 157, 162; Snyder v.Stafford, 11 Paige, N.Y., 71, 76. To call it a lien, 5 even under their practice is a somewhat loose designation and was made in connection with establishing the principle that title does not pass to the purchaser until execution and delivery of the deed. And such is the recognized rule now in practically all states. If the legal title had already passed there would be no necessity for a conveyance.Page v. Rogers, 31 Cal. 293, 301; McLaughlin v. Bank ofPark City, 22 Utah 473, 63 P. 589, 54 L.R.A. 343.

In a very general way and speaking loosely, the interest of the purchaser on execution sale and during redemption period may be called a lien, as it signifies an interest in the property which may be cancelled, lost, or voided upon payment of a certain sum of money. But it is more than this. The purchaser obtains a right, which is somewhat inchoate and may be 6 perfected into a perfect title by no other act than the execution of a deed pursuant to a sale already made. It is more than a right to have satisfied out of the property a sum charged against it. It is a right which may be defeated by payment of such sum. The purchaser has bought the land from the sheriff and paid for it, upon a sale, which may be voided or in effect rejected by the debtor by the simple expedient of him repaying to the purchaser the amount paid with interest within a limited time. It is also conditioned that the purchaser may lose the property by the repayment to him of his bid with interest by a lienor on the property. If such repayment be not made within the time, the right to a conveyance becomes absolute, that is, the conditions upon which it was predicated have not materialized, and the sale is completed and consummated. Until this time the purchaser had an equitable estate in the land under a conditional sale, which becomes absolute by lapse of time without performance of the conditions indicated above, the only ones which can defeat the purchase. Said the Vice-Chancellor in New York Life Ins.Co. v. Bailey, 3 Edw. Ch., N.Y., 416, 417: "A sale by the sheriff gives the purchaser, under a certificate, an inchoate right to the land, if not an interest in the land itself; and it is such a right as will ripen into a title unless the property be redeemed from him." In such sale the purchaser is not subrogated to and does not acquire all the right, title, estate, interest, or claim of the judgment debtor until the expiration of the redemption period.

3. The judgment debtor or his assigns or the person in possession at time of sale is entitled to the possession of the premises during the redemption 7 period, as evident from the cases cited on that question, supra.

4. 5. Is such possession a mere naked one, or does it carry with it the usufruct or use the benefit of the property? California has held that such possession is a mere naked right of possession and the purchaser is entitled to the usufruct or value of the use and possession of the property during redemption period. But that was under a statute different from ours, as we shall point out. Our statute under consideration (Section 104-37-37, R.S.U. 1933) was adopted in February, 1870. While California now has a corresponding section substantially similar, it was not adopted in that state until 1872, so the constructions there made are not implied as read into our statute. Prior to 1872 the California statute (the one under which her courts laid down the interpretation relied upon by appellants, to-wit: Harris v. Reynolds, 13 Cal. 514, 515, 73 Am. Dec. 600; andWalker v. McCusker, 71 Cal. 594, 12 P. 723; Hill v.Taylor, 22 Cal. 191) contained only the first sentence of the paragraph reading:

"The purchaser from the time of sale until a redemption, and a redemptioner from the time of his redemption until another redemption, is entitled to receive from the tenant in possession the rents of the property sold or the value of the use and occupation thereof."

Under that section the California courts held that the rents belonged wholly to the purchaser as of right and he was not required to account for them on the redemption price. They were a sort of bonus to induce someone to bid on the property. And if redemption were had the owner or a redemptioner paid the purchase price with interest, and without credit for any rents collected by the purchaser. Moreover none of those early cases held that the owner in possession was liable for rents. In the earliest case to lay down the California rule, Reynolds v. Lathrop,7 Cal. 43, the court under the limited statute just quoted held that the purchaser could collect the rents from a renter or tenant of the owner, holding that the effect of the sale under the statute was equivalent to an assignment of the lease, and expressly declined to hold that the term "tenant in possession" included the judgment debtor in possession at the time of sale. It is interesting to note at this point that Stephen J. Field, the author and sponsor of the California Practice Act, in his points as counsel in Reynolds v. Lathrop, supra, says:

"By our statute, a purchaser of real estate at a sheriffs sale, is not at once put into possession. He must wait six months; and if, during this period, the judgment-debtor chooses to redeem, he can do so by paying the purchase money, and eighteen per cent besides; but in the meantime, the purchaser receives the rents of the property sold, which are held not bythe debtor, but by tenants of his. This last provision was inserted in the statute really for the benefit of the debtor — to increase the amount of bids upon a sale." (Italics added.)

And in Harris v. Reynolds, 13 Cal. 514, 73 Am. Dec. 600, the court said that the purchaser's right to the rents was purely statutory and enforced merely because the statute last above quoted gave the purchaser the rents outright, independent of redemption. It seems it was considered a sort of bonus to induce purchasers to bid. And not until 1887 or 17 years after we adopted our statute did California directly hold (Walker v.McCusker, 71 Cal. 594, 12 P. 723) that the owner was included within the term "tenant in possession" without discussion, and citing as authority the Lathrop Case, supra, which had declined to so hold, and Hill v. Taylor, supra, which was an action to enjoin waste during redemption and compel an accounting for the proceeds of a mine worked out during redemption period, when there was no redemption.

With the holdings of the California cases we do not agree. They are based upon a statute very different from ours. We opine that our statute was written as it is to avoid the California rule, and deny to the purchaser the rights to the rents from the owner in possession. Be it noted that the California Practice Act made an absolute grant of rents or value of use and occupation to the purchaser, with or without 8, 9 redemption, and the court held he was entitled to them because of the express and unqualified grant of the statute.Harris v. Reynolds, supra. Our statute when adopted in 1870, and continued to the present day, specifically denied the grant of rents and profits to the purchaser and expressly recognizes them as the property and money of the owner. Let us note again some provisions of our statute (104-37-37):

"The purchaser from the time of sale until a redemption, and a redemptioner from the time of his redemption until another redemption, is entitled to receive from the tenant in possession the rents of the property sold or the value of the use and occupation thereof. But when any rents or profits have beenreceived by the judgment creditor or purchaser, or his or their assigns, from the property thus sold preceding such redemption,the amounts of such rents and profits shall be a credit upon theredemption money * * *" (Italics added.)

We note that any rents collected prior to redemption shall bea credit upon the redemption money. How could it be a Credit upon the redemption money, the debt, if it was the property of the creditor? It is the property of the judgment debtor or owner, and as such when it comes into the hands of the creditor (the purchaser is in the status of creditor), the law expressly applies it as a credit upon the debt, the redemption money, and the debt is reduced by that amount. Of course if the debt be thus reduced down to a small amount, but be not paid in full and redemption period expires the deed issues. Petersen v.Jurras, 2 Cal. 2d 253, 40 P.2d 257. If however there are any rents due and owing to the owner when the deed issues, they may vest in the purchaser or his assigns, for he then is subrogated to and acquires all right and title to everything the owner could assert with respect to the property, including title, possession, growing crops, rents, etc. The purchaser can only receive the rents until a redemption from him for he then ceases to be a creditor and has no debt upon which he can apply the money otherwise due the owner. So likewise a redemptioner can only receive the rents during the period until redemption from him, because he must stand as a creditor with a debt upon which he can apply the rents, the money of the owner. It may be further noted in the section of the statute that when an accounting of rents or profits is demanded of the purchaser by the owner, the right of redemption is extended by such time as elapses between demand and the rendering of an accounting. If an action be instituted to compel an accounting, the time of redemption is extended until 15 days after final determination of such suit, even though it may take years, and even though no redemption is had. And how can an action for accounting be maintained to compel the application of the rents to the mortgage debt, if the rents belong to the purchaser? The fact that such suit is authorized by the statute is in effect a statutory declaration that the rents belong to the owner of the property sold and not to the purchaser. One further phrase may be noted at this point. The statute says: "receive from the tenant in possession the rents of the property sold or the value of the use and occupation thereof." It may be argued that "value of the use and occupation" includes the owner in possession. It may well cover other things than rents reserved, including situations of tenants at will, or at sufferance; leases when there are no rents reserved, royalties, croppers' shares, and numerous other rights. Let us bear in mind that the purchaser acquires only the rights of the owner in the property, and that includes the right to receive rents or value of use and occupation from third parties in possession but not from self. A man cannot be indebted to himself, nor can he owe rent to himself for use of premises he holds. Even the California courts have held that, "the estate remains that of the mortgagor in the character of owner, and must continue so, with all the incidents of ownership, until, by a foreclosure and sale, a new owner is substituted." Guy v.Ide, 6 Cal. 99, 65 Am. Dec. 490. No new owner is substituted until the sale under decree is consummated by a conveyance.Carlquist v. Coltharp, 67 Utah 514, 248 P. 481, 47 A.L.R. 765; McLaughlin v. Park City Bank, 22 Utah 473, 63 P. 589, 54 L.R.A. 343; McMillan v. Richards, 9 Cal. 365, 70 Am. Dec. 655; Knight v. Fair, 9 Cal. 117; Goodenow v. Ewer,16 Cal. 461, 462, 76 Am. Dec. 540. And the California court inFirst National Trust Savings Bank of San Diego v. Staley, 1933, 219 Cal. 225, 25 P.2d 982, took the position that the mortgagor or owner in possession could not be restrained from collecting rents for the use of the premises during the redemption period, from the tenants in possession, and such mortgagor or owner in possession was entitled to the rents, use, occupation and benefit of the premises during redemption period. The Utah court in McLaughlin v. Park City Bank, supra, said this: "An execution creditor is not entitled to possession and rents of the property levied upon, before sale, and before the time for redemption has expired." It is clear and undoubted that the judgment debtor is, in contemplation of law, the owner of the property during the six months allowed for redemption, and that he has a right to its use and occupation. We note briefly three other reasons why the owner in possession should not be chargeable with rents during redemption period.

The right of redemption, and the redemption period are provided by statute to give the owner an opportunity to save the property to himself. If he is chargeable with rents or the payment for his use and occupation, an added burden is imposed upon him, thus handicapping him in his efforts to redeem rather than helping him to the opportunity to save the property. If however the property is not in the actual possession of the owner but in the hands of a lessee or renter, the payment of the rents reserved to the purchaser and their application to the debt which must be paid before the owner saves the property decreases the debt to be paid and thereby increases the chances of redemption. Furthermore, to say that the owner is entitled to the possession of the property during redemption but is not entitled to the use and occupation thereof is a paradox that destroys itself. Property is the right to the use and occupation of a thing or to the usufruct and enjoyment thereof, and without such right there is no such thing as property rights in it. Ownership of property is the right to enjoy the beneficial interest, the use and occupation, or to receive the usufruct thereof. Without such right there is no ownership. Such thing as an ownership of realty without any beneficial interest or a possession of real property without right of use and occupancy is an absurdity if not an impossibility. The very statement refutes itself.

There are three cases in which one may be, by law and against his will, divested of his title to real property by forced sales. These are execution sales generally, foreclosure sales and tax sales. While tax sales are slightly different from the others in some particulars yet on principle they are analogous. All are sales by operation of law; all are sales made to effect payment of an obligation of the owner which he has failed to pay; all are based upon a lien attaching to the property for nonpayment of the debt; each sale can only be made after notice by advertising as prescribed by law; each initiates as sale, subject to being defeated by payment of the debt, called a redemption; in case of default in payment, in redemption, each requires the completion and consummation of the sale by the execution, issuance, and delivery of a deed by an officer of the law, instead of the owner; in each case if the proceedings were regular such deed divests the owner of his title and invests the purchaser with title and the right to possession; and in each case the purchaser obtains no right to possession until he has received the deed. It would seem therefore that in each of such cases the law would sell the same interests and rights in the property and the purchaser would receive the same rights and interests as against the owner. In tax sales the rule is definite that until the deed issues the owner is entitled to the possession, use and occupation, usufruct, and beneficial interest of the property, and is not liable to the purchaser at the sale for rent or value of use and occupation. We fail to see any reason, in law or logic, why a different rule should apply in foreclosure sales.

The judgment of the District Court of Salt Lake County is affirmed. Costs to respondents.

HANSON and MOFFAT, JJ., concur.