No. 92-267 IN THE SUPREME COURT OF THE STATE OF MONTANA

MIDFIRST BANK, STATE SAVINGS BANK, Plaintiff and Respondent,

LARRY D. RANIERI; UNITED STATES OF AMERICA 

## - DEPARTMENT OF THE TREASURY 

## - INTERNALREVENUE SERVICE: and STATE MONTANA 

## - DEPARTMENT

APPEAL FROM: District Court of the First Judicial District, In and for the County of Lewis and Clark, The Honorable Thomas Honzel, Judge presiding.

COUNSEL OF RECORD: For Appellant: Carl A. Hatch; Small, Hatch, Doubek & Pyfer, Helena, Montana

For Respondent: Mark E. Noenning; Hendrickson, Everson & Noennin, Billings, Montana

Submitted on Briefs: December 3, 1992 Decided: March 18, 1993 Filed:Justice Karla M. Gray delivered the Opinion of the Court. Larry Ranieri appeals from an order of the First Judicial District Court, Lewis and Clark County, granting summary judgment in favor of Midfirst Bank. We affirm. We state the issues on appeal as follows: 1) Did the District Court err in concluding that a deficiency judgment was available following judicial foreclosure of a deed of trust securing a single familydwelling that the borrower operated

as rental property? 2) Did the District Court err in determining that Midfirst Bank could cancel nonjudicial foreclosure proceedings prior to the trustee's sale and elect to foreclose judicially? The parties do not dispute the relevant facts in this case. Appellant Larry Ranieri (Ranieri) is 

### a retiredArmy officerwho has sold real estate and owned various rental properties. In 1982, Ranieri's daughter, Vicki, moved to Helena and purchased a townhouse located at 911 Hialeah in Helena. She attempted to finance the home through a 

### HUD loan, but that financing fell through, leaving her with monthly payments significantly higher than anticipated. In July of 1983,Vicki moved to Wisconsin, and asked her father to either sell or rent the townhouse to cover the monthly loan payments. Ranieri obliged, although the rent he received was about $200 less than the monthly payment. In January of 1984, Ranieri began paying the difference between the rent and the loan payment for his daughter. He also claimed rental income and depreciated the property for tax purposes beginning in 1984. 2In October of 1985, Ranieri attempted to refinance Vicki's loan in his name in hopes of lowering the monthly payments and possibly moving into the townhouse until he sold it. He withdrew his application, however, when his wife refused to move into the townhouse. Six days later, Ranieri accepted a warranty deed for the townhouse from his daughter. Renters continuedto occupy thetownhouse. Between renters in April of 1985,Ranieri stayed at the townhouse for approximately fifteen days while briefly separated from his wife. After reconciling, his wife agreed to move into the townhouse, and Ranieri again applied for refinancing. On November 4, 1985, he executed a Note and Trust Indenture toMidfirst Bank (Midfirst)to

secure the new loan. Prior to closing, however, his wife rented another home; Ranieri and his wife did not move into the townhouse

as planned. The current renters continued to reside at 911 Hialeah. Shortly after the refinancing was completed, the Ranieris separated for approximately one year. During this separation, Ranieri livedwith a friend or inhis real estate office, "sleeping out of a suitcase." Between renters, he stayed at the townhouse twice, for approximately a week each time. He collected mail at his real estate office, however, and considered it his permanent residence. Throughout his ownership of the townhouse, Ranieri rented the townhouse to various tenants. From 1984 through 1990, Ranieri claimed rental income, depreciation and business deductionsgenerated by the townhouse on his federal and state income tax returns. In total, he claimed in excess of $20,000 in rental income and over $50,000 of deductions. Ranieri defaulted on 

### the trust indentureon November 1, 1989. In September of 1990,Midfirst initiated 

### a nonjudicial foreclosure and sent notice of the trustee's sale; the salewas postponed once and then canceled altogether. Ranieri made no further payments. Midfirst then initiated judicial foreclosure proceedings. On November 9, 1990, Midfirst filed a complaint seeking a personal judgment and a deficiency judgment against Ranieri. Both parties moved for summary judgment. The District Court granted summary judgment for Midfirst, and entered a judgment and decree of foreclosure on April 27, 1992. Ranieri appeals. Did the District Court 

### err in concluding that a deficiency judgment

### was available following judicial foreclosure of a deed of trust securing a single familydwelling that theborrower operated as rental property? Summary judgment is appropriate if no genuine issues of material fact exist and if themoving party 

### is entitled to judgment

as a matter of law. Rule 56(c), M.R.Civ.P. In this case, the parties do 

### not dispute 

### any genuine 

### issue of material fact. Therefore, 

### we review the District Court's legal conclusions to determine if they are correct, Steer, Inc. 

### v. Department of Revenue (19901, 245 Mont. 470, 475, 803 P.2d 601, 603. The District Court concluded that Midfirst could collect 

### a deficiency judgment following judicial foreclosure of Ranieri's 

### trust indenture. The courtdetermined that ~anieri did not qualify for the exception to deficiency judgments set out by this Court 

### in 4First State

### Bank of Forsyth

### v. Chunkapura (1987)

## , 226Mont. 54, 734 P.2d 1203, which prohibits deficiency judgments foLlowing judicial foreclosureof trust indenturessecuredby occupied, single family residential property. 

### The court reasoned that, because Ranieri resided at the townhouse for an insignificant amount of time and collected rents and depreciated 

### the property, the Chunka~ura exception did not apply. On appeal, Ranieri argues that collecting rent from 

### the property to make the loan payment does not make the property commercial in nature; therefore, he asserts, the rental of the townhouse does not prevent him from invoking the Chunkapura exception. 

### He also argues that renters can occupy the property without disqualifying the borrower from Chunkamma's protection, claiming thathis intent tomake 

### the townhouse

### his residence should bring him within Chunkapura. In Chunkapura, 

### we held 

### that 

### a creditor seeking judicial foreclosure of 

### an occupied, single family residentialhome secured by 

### a trust 

### deed cannot obtain 

### a deficiency judgment. Chunkapura, 734 P.2d at 1211. ~nterpreting Montana's Small Tract ~inancing Act, 

### we concluded that a deficiency judgment under those circumstances would 

### be inconsistent with the provisions and legislative intent of the Act. On rehearing,

### we carefully limited the holding to the facts of Chunka~ura--atrust deed secured by an occupied, single family residential property--and expressly excluded those trust 

### deeds securing loans 

### in commercial settings. Chunkapura, 734 P.2d 

### at 1211.We subsequently have interpreted Chunka~urain relation to three different factual scenarios. We refused to apply Chunkawura to a trust deed securing a commercial warehouse in Carpenters Employers Retirement Trust 

### v. Galleria Partnership (1989), 239 Mont. 250, 780 P.2d 608, 

### We stated that 

### the limited holding of Chunka~ura did not apply to a purely commercial loan. Galleria, 780 P.2d at 613. Here, Ranieri has operated the townhouse as a rental unit since he obtained 

### title fromhis 

### daughter. He has claimed rental income and taken significantdeductions 

### onhis federal income taxes related to the townhouse. The Internal Revenue Code allows these deductions only if incurred in the taxpayer's trade or business or for theproduction of income. See 26 U.S.C. 58 162-167. Ranieri's tax returns evidence his own perceptions and intentions regarding the commercial nature of the townhouse. Ranieri disagrees that the townhouse is commercial 

### in nature. He argues that 

### our decision 

### in First Fed. Sav. & Loan 

### v. Anderson (1989), 238 Mont. 296, 777 P.2d 1281, allows the borrower to rent out the property without changing its residential character to commercial. Ranieri overstates our fact-specific holding 

### in Anderson. InAnderson, the family executed 

### a trust deed to secure their residential dwelling, which they occupied for the following seven years. When they put theproperty up for sale, they rented it out for eighteen months to 

### make the payments. Anderson, 777 P.2d 

### at 1282. We 

### concluded that 

### when the 

### lender accepted 

### the trust

### indenture, the deed related to occupied, single family residential property, and the fact that the family had rented it out briefly before saledid not preclude application of Chunkapura. Anderson, 777 P.2d at 1284. Anderson involved residentialpropertypurchased and occupied

as the family's primary residence; the family purchased the home with the loan secured by the trust indenture and immediately occupied it. In contrast, when Midfirst accepted the trust deed from Ranieri,Ranieri was operating theproperty as a rental unit,

ashe had for thepreceding twoyears: indeed,hehas never resided permanently in the townhouse. In addition, the eighteen month rental period prior to sale 

### in Anderson, which followed a seven yearoccupation of theproperty as a residentialdwelling, doesnot compare to the seven year rental arrangement managed by Ranieri. At the time of the trust indenture, Ranieri operated the townhouse

as 

### a rental unit, generating income and 

### tax deductions, and he continued to do so throughout his ownership of the property. We conclude that the townhouse is commercial in nature. Ranieri also contends that Chunkapura does not require that the borrower reside in the property. We addressed this argument recently in First Western Fed. Sav. Bank

### v. Lence (Mont. 1992)

### , 839 P.2d 1277, 49 St.Rep. 857. In Lence, the borrower purchased a condominium at Crystal Lake and secured the loan with a deed of trust. Hisprimary residence was inWhitefish, although from 1977 to 1985, he spent the summer months at the condominium; he also rented it out intermittently in 1990. 

### Lence defaulted and thelender instituted judicial foreclosure proceedings, seeking a deficiency judgment. Lence, 839 P.2d at 1278. In allowing a deficiency judgment against Lence, we first focused on Lence's admission that the condominium was not his primary residence. Under Montana law, a person has only one legal residence,andwe concluded that the Chunka~ura protection against deficiency judgments applies solely to that one legal residence. We alsodistinguishedthenature of Lence's summercondominium from the residential properties in Chunkaoura and Anderson, which were purchased and utilized as the families1primary residence. We stated: We conclude that the condominium at issue here, never intended or occupied as Lence's primary residence,does not qualify for the limitation on deficiency judgments established in Chunkapura and Anderson. To accept Lence's argumentwould pervert the limitednature of the Chunka~uraexception; it would allow a person to avoid the possibility of deficiency judgment on virtually unlimited numbers of properties by merely ensuring that each property was a residential unit and without regard to whether the property was ever intended or used as a personal, primary residence. Indeed, under Lence Is interpretation of Anderson, it would not be necessary that theborrower ever occupy theproperties, so long as they were occupied by someone. Such results were not contemplated or intendedby Chunka~ura and Anderson. 

# . . w, 839 P.2d at 1280. Thus, we rejected in Lence Ranieri's argument that Chunka~uraapplies if renters, rather than the borrower, occupy theproperty. Our decision in Lence requires that the property secured by the trust deed be the borrower's actual, personal, primary residence. As in Lence, the townhouse was never Ranieri's actual, personal,primary residence. Ranieri admits that the townhousewasnothisprimary residence; evenduring thetimes of separation from his 

### wife, he considered his real estate office his primary residence. Even though Ranieri

### has claimed a continuing intent to move into the townhouse, this intent did notmaterialize, Ranieri has spent, at themost, one month at the townhouse over the seven year span. As such, pursuant to Lence, the Chunka~ura exception does not apply. In sum, the Chunkapura exception is limited to single family residentialproperty occupiedby theborrower ashis orherprimary legal residence. As discussed, Ranieri has not ltoccupiedtl 

### the property, as required by our decision in Lence. Further, the townhouse is commercial, not residential, property 

### in Ranierils hands. Thus,Ranieri isnot eligible forthe Chunkapuraprotection from a deficiency judgment. We hold that the ~istrict Court did not err in concluding that Midfirst 

### was entitled to a deficiency judgment after judicial foreclosure of Ranieri's trust indenture.

Did the District Court err 

### in determining that Midfirst Bank could cancel nonjudicial foreclosure proceedings prior to the trustee's sale and elect 

### to foreclose judicially? The District Court concluded that no provision in the Small Tract Financing Act prohibited Midfirst from cancelingnonjudicial foreclosure

### and initiating judicial foreclosureproceedings against Ranieri. Ranieri contends that because Midfirst initiated nonjudicial foreclosureproceedingsundertheSmall TractFinancing Act, it elected its remedy and could not thereafter cancel those proceedings and begin judicial foreclosure proceedings. Ranieri bases

### his argument primarily 

### on § 71-3-315, MCA,whichreads in pertinent part: Notice

# - sale

# - payment. A trust deed be foreclosed by advertisement and sale 

### in the manner hereinafter provided: 

## . 

# . .

(3) On the date and at the time and place designated in the notice of sale, the trustee 

### or his attorney shall sell the property at public auction to the highest bidder. 

# . 

# . . [Emphasisadded.] He concedes that thepermissive "mayw 

### in the introductory language gives the trustee the option of foreclosing 

### by advertisement and sale; he contends, however, that once that option is chosen, the word lrsha1l1' in subsection (3) requires that the trustee complete the trustee's sale and all other procedures of nonjudicial foreclosure. 

### A straightforward reading of the statute mandates 

### our conclusion that the term qtshallll 

### in subsection (3), and throughout the remainder of 5 71-1-315, MCA, merely describes the requisite procedures a trustee must follow 

## if a sale is held. Here, the trustee's sale was not held; thus, those requirements are not applicable. The Small Tract Financing Act does not contain 

### any provision prohibiting a 

### trustee from canceling 

### a noticed sale. Ranieri bases his 

### next argument on 

### 5 71-1-312, MCA, which allows the trustee to cancel nonjudicial foreclosure proceedings when the debtor

### pays the entire amount in arrears. He argues that because this statute describes a situation 

### in which a trustee's salemay be canceled, a trustee cannot cancel a sale for 

### any other

reason. Ranieri claims thatbecause he did not pay the arrearage, Midfirst cannot cancel the sale. 

### Again, Ranieri misinterprets the statute and the purposes behind 

### it. 10Section 71-1-312, MCA, represents one of the distinguishing factors of nonjudicial foreclosure. Under traditional mortgage law,payment of the entirebalance of the loan is required to halt foreclosure proceedings once instituted. With nonjudicial foreclosure, payment of only the amount in arrears reinstates the trust indenture. See Dietrich, David S

# .,The

### MorttanaJudicial altdNOIE

### Judicial

### Foreclosure Sale:Analysisand

### Suggestionsfor

### Reform, 49 MONT

## .L

# . REV. 285

### , 294-297. Section 71-1-312,MCA,merely codifies this unique aspect of trust indentures. ~anieri'sinterpretation of the Act would preclude 

### a trustee from canceling a sale if the debtor paid off the entire obligation

or if the lender chose for whatever reason to release the debtor from the obligation. The "quid pro quo" which supported the enactment of the Small Tract Financing Act did not include this concession by borrowers; Ranieri's interpretation would 

### restrict trustees and burden borrowers to an extent not contemplatedby the legislature. 

### See Chunka~ura, 734 P.2d at 1210;Dietrich,

### p. 295. Finally,Ranieri contendsthat 

### the legaldoctrineof l'election of remediesT1bars Midfirst's subsequent judicial foreclosure. Ranieri argues that by sending out the notice for the trustee's sale,Midfirst waived its remedy of 

### judicial foreclosure. As a legal doctrine, election of remedies is the exercise of

a choice of an alternative and inconsistent right or course of action. Massett v. Anaconda Copper Co. (1981),193 Mont. 131, 136, 630P.2d 736, 739. It is well settled inMontana that an election 

### exists only when a remedy is pursued to a final conclusion. Stateex. re1 Crowleyv. District Court (l939), 108Mont. 89, 96, 88 P.2d 23, 26; Glacier Campground v. Wild Rivers, Inc. (1978), 182 Mont. 389, 401, 597 P.2d 689, 695. Here, althoughMidfirst sent notice of the trustee's sale, it did not pursue this remedy to its final conclusion. As such, Midfirst's initiationofnonjudicialforeclosure proceedings, later abandoned, did not constitute an election of remedies that precluded judicial foreclosureproceedings. We conclude that the District Court did not err in concluding that Midfirst could cancel nonjudicial foreclosure proceedings prior to the trustee's sale and proceed with judicial foreclosure. Affinned

We concur:March 18, 1993 

### CERTIFICATE

### OFSERVICE 

### Iherebycertifythat the following

### orderwas sentby United Statesmail,

### prepaid, tothe 

### followingnamed:

Carl

### A.Hatch 

### SMALL,

### HATCH,DOUBEK&

### PYFER LiverySquare 39Neil

### Avenue Helena, 

### MT 59601 

### MARK

### E.NOENNXNG Attorney

### atLaw 324Hart-AlbinBuilding BiIlings,

### MT591.01 Bruce

### R.McGinnis,

### TaxCounsel DepartmentofRevenue MitchellBuilding Helena,MT59620 Bernard

### F.Hubley AttorneyatLaw 6915BristolLane Bozeman,

### MT 59715 

### EDSMITH CLERKOF

### THE

### SUPREMECOURT STATEOF

### MONTANA