Lewis v. Columbus Investments

Opinion by Judge KAPELKE. In this quiet title action involving a challenge to the validity of a treasurer's deed to certain real property, defendant, Columbus Investments, appeals from the summary Judgment entered by the trial court in favor of plaintiffs, Richard G. and Patricia A. Lewis. We affirm. The property here was conveyed to plaintiffs by a warranty deed that was duly recorded. To finance the purchase of the property, plaintiffs obtained a loan from two individuals (lenders). In connection with that loan, plaintiffs executed a promissory note and also a deed of trust, which was recorded. Thereafter, in connection with a loan the lenders obtained from a bank, they executed a "Collateral Assignment of Interest in Deed of Trust," which provided in pertinent part as follows: Assignment: As security for indebtedness owing by assignor to bank, assignor has granted to Bank a security interest in a promissory note or other obligation secured by the above-described Deed of Trust and Assignment of Rents. For good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, Assignor hereby assigns to the Bank all of Assignor's right, title, and interest in and to the Deed of Trust and Assignment of Rents as additional security for Assignor's indebtedness owing to the Bank. (emphasis added) As a result of plaintiffs' failure to pay the real property taxes on the property from 1992 through 1995, a tax lien was offered for sale and was purchased by Columbus Investments. Following expiration of the applicable three-year period, Columbus Investments, as holder of the certificate of purchase, obtained issuance of a treasurer's [77] deed from the county treasurer. Relying on a "memorandum of ownership interests" received from a title company, the treasurer gave notice of the application for the treasurer's deed to various parties, including plaintiffs, Columbus Investments, and the bank. However, notice was not given to the lenders. In their quiet title complaint, plaintiffs alleged that they had not received actual notice of the sale. They also alleged that because the treasurer failed to provide the lenders with statutory notice of the application for a treasurer's deed, the deed issued to Columbus Investments is invalid. Columbus Investments moved for summary judgment arguing that because the lenders were no longer interest holders they were not entitled to notice. Plaintiffs filed a cross-motion for summary judgment. The trial court granted plaintiffs' motion, based on its determination that the deed issued to Columbus Investments was void because the treasurer failed to comply with § 389-11-128, C©.R.8.2000. This appeal followed. Columbus Investments contends that the trial court erred in concluding that the lenders had an interest in the property that entitled them to statutory notice of the application for a treasurer's deed. We disagree. We review a judgment entered on a motion for summary judgment de novo. Aspen Wilderness Workshop, Inc. v. Colorado Water Conservation Board, 901 P.2d 1251 (Colo.1995). Before issuing a tax deed to property, a county treasurer must first comply with the mandates of § 39-11-128(1)(a), C.R.S.2000, which provides, in pertinent part, as follows: The treasurer shall serve or cause to be served ... a notice of such purchase ... upon all persons having an interest or title of record in or to the same if, upon diligent inquiry, the residence of such persons can be determined.... (emphasis added) As the supreme court recognized in Winter Park Devil's Thumb Investment Co. v. BMS Partnership, 926 P.2d 1258 (Colo.1996), § 839-11-128(1)(a) requires that the treasurer give notice to all persons who have a right to redeem following a tax lien sale. Pursuant to § 89-12-108(1), those with a right to redeem include "any person having a legal or equitable claim" to the property. The dispositive issue is whether the lenders had an interest of record in the property at the time notice was given of the application for issuance of treasurer's deed. Because we conclude that they had such an interest, we agree with the holding of the trial court. The beneficiary of a deed of trust has a security interest in the real property and, as such, is entitled to notice under § 39-11-128(1)(a). See Schmidt v. Langel, 874 P.2d 447 (Colo.App.1998). Here, the lenders were the named beneficiaries of the deed of trust executed by plaintiffs. Generally, one who receives a security interest in a note and deed of trust (like the bank here) obtains an interest in instruments, which is characterized as personal property. Citicorp v. Fremont National Bank, 788 P.2d 29 (Colo.App.1987); Swofford v. Colorado National Bank, 628 P.2d 184 (Colo.App.1981). The rights of one receiving such an interest are thus governed by the Uniform Commercial Code. See § 4-9-102(2), ©.R.S.2000. When the debtor on the indebtedness covered by such a security interest defaults and the secured party elects to retain the collateral and complies with the requirements set forth in $ 4-9-505, C.R.98.2000, the interest of the secured party ripens into an interest in real property. Swofford v. Colorado National Bank, supra. In Swofford, a division of this court ruled that the party that held a recorded security interest in a promissory note and deed of trust was entitled to notice of a request for issuance of a treasurer's deed where the loan was in default. Under those cireumstances, the secured party had a sufficient legal or equitable record interest in the property to require that it be provided such notice. Here, however, the lenders' loan with the bank was not in default, Thus, the bank was the holder of an interest only in the instruments-not in the real property itself. Un [78] less and until a default under lenders' loan had occurred, the lenders remained the holders of the deed of trust and had, at a minimum, a record interest in the real property entitling them to notice. We recognize that the collateral assignment agreement quoted above states that lenders were assigning to the bank all of their "right, title and interest in and 'to" the deed of trust "as additional security for" lender's indebtedness to the bank. Nevertheless, the instrument discloses that the assignment was only for the purpose of providing collateral. It would not ripen into an interest in the real property until there had been a default by the lenders. Finally, in urging that it became the holder of the promissory note and the deed of trust itself and that lenders no longer had an interest in the real property entitling them to notice, Columbus Investments relies on § 4-3-204(c), C.R.S.2000. That section provides: "For the purpose of determining whether the transferee of an instrument is a holder, an endorsement that transfers a seeu-rity interest in the instrument is effective as an unqualified endorsement of the instrument." That section is inapplicable here, however, because, as counsel acknowledged at oral argument on appeal, the record does hot show that the lenders indorsed the promissory note over to the bank. The record indicates only that physical possession of the note was delivered to the bank. The lack of an in-dorsement would prevent the bank from being a "holder" under Colorado law. See Barclay Receivables Co. v. Mountain Majesty, Ltd., 908 P.2d 37 (Colo.App.1995). Accordingly, we conclude that because the lenders still had an interest in the real property and were not given notice as required by § 89-11-128, the trial court properly determined that the treasurer's deed issued to Columbus Investments was void and that plaintiffs were entitled to judgment as a matter of law. The judgment is affirmed. METZGER, J., concurs. JONES, J., dissents.