Watts v. HSBC Bank

Watts v. HSBC Bank, 2013 MT 233 (Aug. 20, 2013) (5-0) (Cotter, J.)

Issue: Whether the district court erred in determining that the Marion debt to PrimeLending was no longer in the first priority lien position because the debt had been assigned to HSBC.

Short Answer: Yes.

Reversed

Facts: In Nove,ber 2006, Timothy Watts sold real property in Eureka to the Marions, who financed the purchase with a $248,000 loan from PrimeLending and a second loan from Watts for $62,000. Watts signed a warranty deed, a trust indenture to secure his loan to the Marions, and a subordination agreement, in which he agreed to subordinate his loan to the PrimeLending loan.

In May 2009, the Marions defaulted on the PrimeLending loan. PrimeLending assigned its interest to HSBC in August 2009, which executed a notice of trustee sale in October 2009. The HSBC trustee mailed the notice to Watts by certified mail. The post office attempted service twice, unsuccessfully. The trustee then published the notice for three consecutive weeks and posted the notice at the property. Watts, who eas living in New Mexico, claims he never received any notice of the default or the sale.

The sale was held in February 2010 and HSBC bought it for $260,00. It recorded a trustee’s deed the next day.

Marions also defaulted on their loan to Watts, who recorded a notice of successor trustee in January 2010, and executed a notice of trustee’s sale in May 2010. Watts provided notice of his foreclosure proceeding to HSBC, which did not respond. In September 2010 Watts held a trustee’s sale and was purchaser of record. He recorded a trustee’s deed naming himself as owner of the property.

Procedural Posture & Holding: In March 2011, after discovering HSBC claimed to own the property, Watt filed a complaint seeking to quiet title, or alternatively, for damages. HSBC answered and counterclaimed to quiet title. The district court entered default judgment against the Marions. The district court denied HSBC’s motion for summary judgment and granted Watts’. HSBC appeals, the Supreme Court reverses.

Reasoning: Watts argued, and the district court agreed, that when PrimeLending assigned its interest in the deed of trust and promissory note to HSBC, HSBC lost its priority over Watts’ lien. The court further found that HSBC was not an intended beneficiary of the subordination agreement; PrimeLending was. However, under Montana law, the assignee of a mortgage obtains all rights held by the original mortgage holder. This is an issue of first impression in Montana. Other jurisdictions have held that assigning a mortgage does not affect its priority, and Montana adopts their rationale.