Mutual of Omaha Bank v. Watson

Nebraska Supreme Court Online Library
www.nebraska.gov/apps-courts-epub/
10/27/2017 01:12 AM CDT
- 479 -
Nebraska Supreme Court A dvance Sheets
297 Nebraska R eports
MUTUAL OF OMAHA BANK v. WATSON
Cite as 297 Neb. 479
Mutual of Omaha Bank, appellee, v. Robert W.
Watson, appellant, and Shona R ae Watson,
appellee, formerly husband and wife, and
Community Bank of Lincoln, Trustee
and beneficiary, et al., appellees.
___ N.W.2d ___
Filed August 11, 2017. No. S-16-906.
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 appel-
late court decides factual questions de novo on the record and, as to
questions of both fact and law, is obligated to reach a conclusion inde-
pendent of the trial court’s determination.
3. Contracts: Homesteads: Acknowledgments: Conveyances. A valid
acknowledgment of both spouses must appear on the face of an instru-
ment 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 mort-
gage refers to a security interest that a buyer gives for the unpaid pur-
chase 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 prop-
erty, 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
- 480 -
Nebraska Supreme Court A dvance Sheets
297 Nebraska R eports
MUTUAL OF OMAHA BANK v. WATSON
Cite as 297 Neb. 479
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 pur-
chase, 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 con-
currently 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,
K elch, 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 inter-
est in the property.
- 481 -
Nebraska Supreme Court A dvance Sheets
297 Nebraska R eports
MUTUAL OF OMAHA BANK v. WATSON
Cite as 297 Neb. 479
Both Watson and his then-spouse, Shona Rae Watson,
signed the primary deed of trust, but the notary did not cer-
tify 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 com-
pany 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
- 482 -
Nebraska Supreme Court A dvance Sheets
297 Nebraska R eports
MUTUAL OF OMAHA BANK v. WATSON
Cite as 297 Neb. 479
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 pri-
mary 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 pri-
mary deed of trust and the assignment. A title insurance com-
pany 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, includ-
ing “a document affecting Title not [being] properly cre-
ated, 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.
- 483 -
Nebraska Supreme Court A dvance Sheets
297 Nebraska R eports
MUTUAL OF OMAHA BANK v. WATSON
Cite as 297 Neb. 479
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 financ-
ing was handled. She agreed that her signature appeared to be
on the primary deed of trust. But she did not recall any signifi-
cant 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 certifica-
tion 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 pres-
ent 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
- 484 -
Nebraska Supreme Court A dvance Sheets
297 Nebraska R eports
MUTUAL OF OMAHA BANK v. WATSON
Cite as 297 Neb. 479
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 account-
ing, a determination that any other interests in the property
were junior to its interest, and a judicial foreclosure sale of
the property.
Alternatively, Mutual sought a declaratory judgment and
equitable subrogation. It alleged that the omission of Shona’s
acknowledgment in the 2009 primary deed of trust had been
corrected by the 2013 corrective deed of trust and that the cor-
rective deed should be equitably subrogated to the first prior-
ity position of the primary deed of trust.
Watson filed an answer with affirmative defenses and coun-
terclaims. Generally, he sought a setoff for Mutual’s wrongful
conduct against any amount that the court found Watson owed
to Mutual. First, Watson alleged that Mutual had breached a
contractual duty to him under the title insurance policy by
commencing a foreclosure action against him. Specifically,
he asserted the following: (1) Watson had purchased title
insurance to insure the lender against defects in the primary
deed of trust, and after the policy was issued, the insurer
was liable for any defects; (2) by accepting title insurance,
Mutual had agreed that it could not maintain an action against
Watson to cure defects in the primary deed of trust; (3)
Mutual had a contractual duty under the policy to seek remu-
neration from the title insurer for defects; and (4) Mutual
admitted in a trial brief that it had filed a claim against its
title insurer.
Second, Watson alleged that Mutual and the title insurer’s
agent in Nebraska had colluded to force a judicial sale of his
homestead property despite a facial defect in the deed of trust.
He alleged that the title insurer had provided legal services to
Mutual to protect its own interests in avoiding payment of a
claim by Mutual.
- 485 -
Nebraska Supreme Court A dvance Sheets
297 Nebraska R eports
MUTUAL OF OMAHA BANK v. WATSON
Cite as 297 Neb. 479
Third, Watson sought a judgment declaring that Mutual had
contractually indemnified him against any claim for insured
conditions and that Mutual’s only claim for defects in the deed
of trust was against its title insurer. He sought general and spe-
cial damages.
Mutual moved to dismiss Watson’s counterclaims, and the
court sustained that motion, finding that Watson was not the
insured under the title insurance policy. It rejected Watson’s
claim that he was a coinsured or an implied insured under the
policy because he had paid the premiums and was listed as the
title owner of the property. It concluded that Mutual was not
seeking damages from Watson for title defects; it was seeking a
judicial foreclosure because of Watson’s default on the loan. It
concluded that the policy covered only Mutual and that Watson
was not entitled to any of its benefits.
The court also rejected Watson’s argument that the title
insurance policy and the primary deed of trust should be con-
strued as one instrument. It concluded that provisions in the
deed of trust and title insurance policy, when read together,
showed that the parties did not intend for Watson to be a coin-
sured or covered by the policy. Instead, Watson’s payment of
the insurance premiums was merely a condition of the loan.
The court also rejected Watson’s collusion claim. It reasoned
that under the title insurance policy, the insurer had the right to
take any action to establish title or to reduce loss or damages to
its insured, which actions would not be treated as an admission
of liability or waiver of any provision of the policy. The court
concluded that these provisions showed Mutual had a right to
receive legal assistance from the insurer.
Finally, the court rejected Watson’s requests for a declara-
tory judgment, a setoff, and special damages, because his
requests depended on the validity of his contract and collusion
counterclaims, which claims the court rejected. It dismissed
Watson’s counterclaims with prejudice.
Watson then filed a second amended answer in which he
reasserted some of his affirmative defenses and a setoff claim.
- 486 -
Nebraska Supreme Court A dvance Sheets
297 Nebraska R eports
MUTUAL OF OMAHA BANK v. WATSON
Cite as 297 Neb. 479
At some point, Watson moved for summary judgment and
Mutual moved for partial summary judgment. But because
Watson did not request any motions for the transcript on
appeal, the record contains only the court’s orders.
(a) First Summary Judgment
In December 2015, the court ruled on Watson’s motion
for summary judgment and Mutual’s motion for partial sum-
mary judgment. It found that the proceeds from the primary
and secondary notes were used to pay off Reserve Design’s
indebtedness to Cattle National, for the purpose of paying the
purchase price.
The court rejected Watson’s argument that the homestead
of a married person cannot be encumbered unless the instru-
ment is executed and acknowledged by both the husband and
the wife. It agreed with Mutual that the primary deed of trust
should be construed together with the secondary deed of trust.
It considered the general rule that instruments executed at the
same time, by the same parties, for the same purpose, and dur-
ing the same transaction are treated as one instrument and con-
strued together.1 The court cited a 1922 case in which a signed
purchase contract for the sale of a homestead was enforced
against the purchaser despite the lack of the husband’s and
wife’s acknowledgments, because they signed it at the same
that they signed and duly acknowledged a warranty deed to
convey the property.2 Relying on this authority, the court con-
cluded that the defective acknowledgment in the primary deed
of trust was not fatal.
The court noted that Watson had executed the primary and
secondary promissory notes on the same day, Watson and
Shona had both signed the primary and secondary deeds of
trust, and both of their signatures had been acknowledged on
1
See, e.g., In re Estate of West, 252 Neb. 166, 560 N.W.2d 810 (1997).
2
See Farmers Investment Co. v. O’Brien, 109 Neb. 19, 189 N.W. 291
(1922).
- 487 -
Nebraska Supreme Court A dvance Sheets
297 Nebraska R eports
MUTUAL OF OMAHA BANK v. WATSON
Cite as 297 Neb. 479
the secondary deed of trust. It reasoned that Community Bank
would not have made either loan without a corresponding deed
of trust and that Watson’s and Shona’s signatures on the deeds
of trust showed their joint consent and intent to encumber
their homestead. It ruled that the documents should be read
together to accurately reflect the parties’ intent.
The court concluded that Watson had failed to present evi-
dence creating a genuine issue of fact whether Mutual’s lien
had first priority. The court further stated that even if Watson
had done so, Mutual had a first priority encumbrance on the
property under its theory of equitable subrogation. It found
that Community Bank had made the loans to pay off Reserve
Design’s debts, with the intent and understanding that Cattle
National’s deed of trust would be released and that Community
Bank’s primary deed of trust would have first priority status.
The court overruled Watson’s motion for summary judgment,
granted Mutual’s motion for partial summary judgment, and
determined that the primary deed of trust had first priority as
an encumbrance on the property.
(b) Second Summary Judgment
In September 2016, the court issued an order in which it
ruled on Watson’s motion to dismiss and Mutual’s motion for
summary judgment and a default judgment. According to the
court’s order, Mutual sought a default judgment against other
potential creditors, which motion the court granted.
In overruling Watson’s motion to dismiss, the court rejected
his argument that Mutual had failed to name all the neces-
sary parties because it had not named the title insurer and
its Nebraska agent insurer. The court reasoned that it had
dismissed Watson’s counterclaims related to the title insurer
because Watson was not an insured under the policy, which did
not preclude Mutual from seeking a first priority encumbrance
for the primary deed of trust.
The court concluded that the only remaining issue was
whether Watson and Shona were in default and concluded
- 488 -
Nebraska Supreme Court A dvance Sheets
297 Nebraska R eports
MUTUAL OF OMAHA BANK v. WATSON
Cite as 297 Neb. 479
that they clearly were. It found that Watson and Shona owed
Mutual $533,459.36 in principal, interest, and costs. It ordered
an execution sale and foreclosed Watson and Shona from
asserting any interest in the property.
III. ASSIGNMENTS OF ERROR
Watson assigns that the court erred as follows:
(1) in determining that the primary deed of trust was valid
and enforceable;
(2) in determining that the primary deed of trust and second-
ary deed of trust should be read together;
(3) in concluding that it had jurisdiction to hear Mutual’s
request for a declaratory relief;
(4) in granting Mutual a judicial foreclosure; and
(5) in dismissing Watson’s counterclaims.
IV. STANDARD OF REVIEW
[1,2] An action to foreclose on real estate is an action in
equity.3 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 conclu-
sion independent of the trial court’s determination.4
V. ANALYSIS
1. Enforceability of Primary
Deed of Trust Under
Homestead Statutes
Watson contends that the primary deed of trust failed to sat-
isfy the requirements of Neb. Rev. Stat. §§ 76-211 and 76-216
(Reissue 2009). Both of these sections are part of Nebraska’s
statutory scheme dealing with instruments which convey inter-
ests in real property. Section 76-211 governs the execution
3
See, e.g., Twin Towers Condo. Assn. v. Bel Fury Invest. Group, 290 Neb.
329, 860 N.W.2d 147 (2015); Travelers Indemnity Co. v. Heim, 218 Neb.
326, 352 N.W.2d 921 (1984).
4
Poullos v. Pine Crest Homes, 293 Neb. 115, 876 N.W.2d 356 (2016).
- 489 -
Nebraska Supreme Court A dvance Sheets
297 Nebraska R eports
MUTUAL OF OMAHA BANK v. WATSON
Cite as 297 Neb. 479
requirements for a deed: “Deeds of real estate, or any interest
therein, in this state, except leases for one year or for a less
time, if executed in this state, must be signed by the grantor or
grantors, being of lawful age, and be acknowledged or proved
and recorded . . . .” A deed is defined as “every instrument in
writing by which any real estate or interest therein is created,
aliened, mortgaged or assigned, or by which the title to any
real estate may be affected in law or equity, except last wills
and leases for one year or for a less time.”5
Section 76-216 provides that a grantor must acknowl-
edge a deed “with an acknowledgment as defined in section
64-205.” Neb. Rev. Stat. § 64-205 (Reissue 2009) sets out the
requirements for a notarial acknowledgment. As relevant here,
under § 64-205(4), an authorized officer must know or have
sufficient evidence to conclude that the person acknowledg-
ing his or her execution of an instrument is the same per-
son who is named in the instrument or the acknowledgment
certificate.
However, this court has long held that “‘[a] deed to real
estate, executed and delivered, is valid between the parties,
though not lawfully acknowledged nor witnessed, and is suf-
ficient to convey the land described therein, with the exception
of the homestead of the grantor.’”6
The homestead exception exists because of the statutory
requirements under Neb. Rev. Stat. § 40-104 (Reissue 2008).
Section 40-104 sets forth that the homestead of a married
person cannot be conveyed or encumbered unless the instru-
ment by which it is conveyed or encumbered is executed and
acknowledged by both spouses. The statute does not provide
for proving a conveyance or encumbrance without an acknowl-
edgment of the instrument.
5
Neb. Rev. Stat. § 76-203 (Reissue 2009).
6
Blum v. Poppenhagen, 142 Neb. 5, 12, 5 N.W.2d 99, 103 (1942), quoting
Wilson v. Wilson, 85 Neb. 167, 122 N.W. 856 (1909). Accord, Lindquist v.
Ball, 232 Neb. 546, 441 N.W.2d 590 (1989); Mazanec v. Lincoln Bonding
& Ins. Co., 169 Neb. 629, 100 N.W.2d 881 (1960).
- 490 -
Nebraska Supreme Court A dvance Sheets
297 Nebraska R eports
MUTUAL OF OMAHA BANK v. WATSON
Cite as 297 Neb. 479
In a long line of cases, this court has held that an acknowl-
edgment is essential when conveying a homestead.7 Similarly,
in cases extending back to the 1800’s, this court has held that
an instrument purporting to convey or encumber the homestead
of a married person is void if it is not executed and acknowl-
edged by both the husband and the wife.8
[3] Mutual contends that Schwartz’ corrective deed of trust
was a sufficient certification that she had acknowledged the
primary deed of trust 4 years earlier and that Watson presented
no evidence to show that he and Shona had not acknowledged
the instrument. Mutual cites no authority for this argument, and
it is contrary to well-established case law. A valid acknowledg-
ment 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.9
Mutual also argues that Schwartz’ corrective deed of trust is
an enforceable encumbrance standing alone, because this court
has recognized the use of a corrective deed to correct defects in
a recorded instrument. But the four cases that Mutual cites are
not helpful. In three cases, the efficacy of the corrective deed
was not at issue; nor did the corrective deed purport to validate
a fatal defect that would have rendered the instrument void.10
7
See, In re Estate of West, supra note 1; Lindquist, supra note 6; Storrs v.
Bollinger, 111 Neb. 307, 196 N.W. 512 (1923); Anderson v. Schertz, 94
Neb. 390, 143 N.W. 238 (1913); Solt v. Anderson, 71 Neb. 826, 99 N.W.
678 (1904).
8
See, e.g., Krueger v. Callies, 190 Neb. 376, 208 N.W.2d 685 (1973);
Martin v. Norris Public Power Dist., 175 Neb. 815, 124 N.W.2d 221
(1963); Trowbridge v. Bisson, 153 Neb. 389, 44 N.W.2d 810 (1950);
Storrs, supra note 7; Wilson, supra note 6; Whitlock v. Gosson, 35 Neb.
829, 53 N.W. 980 (1892).
9
See, Krueger, supra note 8; Martin, supra note 8; Storrs, supra note 7;
Anderson, supra note 7; Whitlock, supra note 8.
10
See, McCully, Inc. v. Baccaro Ranch, 284 Neb. 160, 816 N.W.2d 728
(2012); State ex rel. Counsel for Dis. v. Rokahr, 267 Neb. 436, 675
N.W.2d 117 (2004); Gustafson v. Gustafson, 239 Neb. 448, 476 N.W.2d
819 (1991).
- 491 -
Nebraska Supreme Court A dvance Sheets
297 Nebraska R eports
MUTUAL OF OMAHA BANK v. WATSON
Cite as 297 Neb. 479
In the fourth case, a grantor had gifted land to her son as
a joint tenant with herself, but the deed’s legal description of
the property was wrong. The mistake was discovered after
a feud developed between the mother and son. The son did
not ask her to record a corrective deed while she was alive,
but instead sought reformation of the deed after her death. In
her will, she left her estate to her grandson, which meant that
the disputed property would pass to her grandson if the deed
were not reformed. We explained that during the grantor’s
lifetime, a deeded gift cannot be judicially reformed without
the grantor’s consent. We held that in an action against an
heir or devisee after a grantor’s death, a court can equitably
reform a deed that gifts property only if the evidence shows
that the grantor would have consented to the reformation
after learning of the alleged mistake.11 The son’s evidence
did not.
Mutual cites no case that supports its contention that a
party benefiting from a conveyance or encumbrance of real
property can unilaterally reform such instrument without pre-
senting evidence to a court that would support a rescission or
reformation. Even if such cases exist, they would not negate
§ 40-104’s more specific requirement that both spouses execute
and acknowledge an instrument that conveys or encumbers the
homestead of a married person.
Nonetheless, in cases where a contract of sale, deed of con-
veyance, or encumbrance of a homestead was found void for
failing to comply with execution requirements, the homestead
right already existed.12 And we find merit to Mutual’s alterna-
tive argument that the acknowledgment requirement does not
apply here, because Watson and Shona took title to the prop-
erty subject to a purchase-money security instrument.
11
See Hohneke v. Ferguson, 196 Neb. 505, 244 N.W.2d 70 (1976).
12
See, e.g., Landon v. Pettijohn, 231 Neb. 837, 438 N.W.2d 757 (1989);
Christensen v. Arant, 218 Neb. 625, 358 N.W.2d 200 (1984); Wilson,
supra note 6; Whitlock, supra note 8.
- 492 -
Nebraska Supreme Court A dvance Sheets
297 Nebraska R eports
MUTUAL OF OMAHA BANK v. WATSON
Cite as 297 Neb. 479
[4,5] 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.13 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.14
[6] 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 prop-
erty, if the mortgage is given as part of the same transaction in
which the title is acquired.15 If a seller carries the mortgage, the
instrument is called a “‘vendor purchase money mortgage.’”16
If a third party carries the mortgage, it is called a “‘third party
purchase money mortgage.’”17 A purchase-money mortgage
generally takes precedence over all existing and subsequent
claims and liens against the mortgagor as to the property
sold.18 Notably, in making that determination, a purchase-
money mortgage and deed conveying title to the mortgagor
are treated as being executed simultaneously if the instruments
were intended to be part of the same transaction.19
[7] Because courts normally treat the deed to the mortgagor
and the security interest in the property as being executed
simultaneously, we long ago held that a homestead claim will
not defeat an action to foreclose a purchase-money mortgage.
13
Restatement (Third) of Property: Mortgages, Introduction (1997); 54A
Am. Jur. 2d Mortgages § 1 (2009).
14
See Commerce Savings Lincoln v. Robinson, 213 Neb. 596, 331 N.W.2d
495 (1983).
15
See Restatement, supra note 13, § 7.2.
16
Id., § 7.2, comment a. at 459.
17
Id.
18
Commerce Savings Lincoln, supra note 14.
19
See Restatement, supra note 13, § 7.2, comment b.
- 493 -
Nebraska Supreme Court A dvance Sheets
297 Nebraska R eports
MUTUAL OF OMAHA BANK v. WATSON
Cite as 297 Neb. 479
Mutual correctly argues that in 1897, we addressed this issue
in Prout v. Burke.20
In Prout, a married woman purchased a house that became
the family homestead. The seller executed the deed to the
property before the wife executed promissory notes and a
mortgage to secure the notes, as part of the purchase price.
Later, the seller’s assignee sought a foreclosure, and the wife
and husband defended that the mortgage was void because the
husband had not executed and acknowledged it. We recognized
that under the homestead statutes, a mortgage on the home-
stead of a married person is invalid unless the instrument is
executed and acknowledged by the husband and the wife. We
also recognized that the mortgage would be void if the hus-
band and wife’s homestead rights had attached to the property
when only the wife executed and acknowledged the mortgage.
But we treated the deed and the mortgage as though they were
simultaneously executed, because they were part of the same
transaction. We concluded that the wife acquired title to the
property subject to the mortgagee’s lien:
[N]o homestead right existed in the [husband and wife]
at the time the mortgage was given, inasmuch as the
purchase of the premises and the execution of the mort-
gage thereon for the unpaid purchase money were parts
of the same transaction, so that [the wife] acquired the
title to these lots subject to the lien of this mortgage
thereon. Of necessity such lien must have priority over
the homestead right, since such right could not exist until
after the purchase was effected. In other words, that a
homestead is not acquired, within the meaning of the
statute, until the claimant has obtained title of some kind
to the land, or, at least, has so complied with the contract
of purchase as to be in a position to demand title. It has
been held that mortgage given to secure the unpaid pur-
chase money of land executed simultaneously with the
20
Prout v. Burke, 51 Neb. 24, 70 N.W. 512 (1897).
- 494 -
Nebraska Supreme Court A dvance Sheets
297 Nebraska R eports
MUTUAL OF OMAHA BANK v. WATSON
Cite as 297 Neb. 479
deed takes precedence of a judgment against the mort-
gagor. . . . Upon the same principle a mortgage given by a
wife for the purchase money, delivered at the time of the
purchase, is not invalid because [it was] not executed and
acknowledged by the husband.21
[8] Accordingly, we held in Prout that 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.22
[9-11] More recently, this court has held that the validity of
a homestead right rests on a present right of occupancy or pos-
session.23 And 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. Accordingly, it is the gen-
eral rule that 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.24
Contrary to Watson’s argument in his reply brief, Community
Bank was the holder of a third-party purchase-money security
instrument that Watson and Shona executed to purchase the
property. Because Watson and Shona could not have acquired
title until they executed the deeds of trust, they had no home-
stead interest until after they executed the primary deed of
trust. Thus, the homestead statutes did not apply and Shona’s
voluntary acknowledgment could be proved by extrinsic
21
Id. at 27, 70 N.W. at 513 (citing cases from other states). Accord
Mackiewicz v. J.J. & Associates, 245 Neb. 568, 514 N.W.2d 613 (1994).
22
Prout, supra note 20 (citing authorities).
23
See, e.g., Blankenau v. Landess, 261 Neb. 906, 913, 626 N.W.2d 588, 595
(2001); Travelers Indemnity Co., supra note 3; Mainelli v. Neuhaus, 157
Neb. 392, 59 N.W.2d 607 (1953).
24
See, Annot., 45 A.L.R. 395 (1926); 2 Joyce Palomar, Patton and Palomar
on Land Titles § 398 (3d ed. 2003).
- 495 -
Nebraska Supreme Court A dvance Sheets
297 Nebraska R eports
MUTUAL OF OMAHA BANK v. WATSON
Cite as 297 Neb. 479
evidence. Watson does not contend that the extrinsic evidence
was insufficient to show that Shona voluntarily acknowledged
the instrument, and we conclude that it was sufficient.
Because we reach this conclusion, we need not address
Watson’s contention that the court lacked jurisdiction to pro-
vide declaratory relief because it failed to require Mutual to
join the title insurer as a party. That contention is relevant
only to the district court’s alternative conclusion that Mutual
was entitled to a first priority encumbrance on the property
under its theory of equitable subrogation. Because we con-
clude that the primary deed of trust is valid, the court’s alter-
native reasoning for granting relief is a moot issue.
2. Watson’s Assignment of Error
R egarding Court’s R ejection of
His Counterclaims Is Moot
Watson contends that the court erred in dismissing his coun-
terclaims, because Mutual and its title insurer owed him duties
under the policy based on his payment of the premiums. He
argues that Mutual was required to seek compensation from
its insurer for defects in the primary deed of trust and that the
insurer was required to pay its insured for damages resulting
from the unenforceability of the instrument. Having deter-
mined that the primary deed of trust is enforceable, we need
not decide whether or when a title insurer could be liable to a
purchaser of real property.
VI. CONCLUSION
Although our reasoning differs somewhat from the district
court, in our de novo review of the record, we conclude that
the court did not err in finding that the primary deed of trust
was valid and enforceable.
A ffirmed.