DA 12-0695

IN THE SUPREME COURT OF THE STATE OF MONTANA

2013 MT 233

TIMOTHY E. WATTS,

 Plaintiff and Appellee,

 v.

HSBC BANK US TRUSTEE, ACE SECURITIES TRUST AND

REGISTERED HOLDERS OF ACE SECURITIES CORP.

HOME EQUITY LOAN TRUST, SERIES 2007-ASAP1,

ASSET-BACKED PASS-THROUGH CERTIFICATES, 

DAVID A. MARION AND DEBRA E. MARION, husband and

wife, and ALL PERSONS UNKNOWN, CLAIMING OR WHO 

MIGHT CLAIM ANY RIGHT, TITLE, ESTATE, OR INTEREST 

IN, OR LIEN OR ENCUMBRANCE UPON THE REAL PROPERTY

DESCRIBED IN THE COMPLAINT, OR ANY PART THEREOF, 

ADVERSE TO PLAINTIFF'S OWNERSHIP OR ANY CLOUD 

UPON PLAINTIFF'S TITLE THERETO, WHETHER SUCH CLAIM

OR POSSIBLE CLAIM BE PRESENT OR CONTINGENT,

 Defendants and Appellants.

APPEAL FROM: District Court of the Nineteenth Judicial District,

In and For the County of Lincoln, Cause No. DV 11-73

Honorable James B. Wheelis, Presiding Judge

COUNSEL OF RECORD:

For Appellant:

Mark C. Sherer; Mackoff Kellogg Law Firm; Dickinson, North Dakota

For Appellee:

Amy N. Guth; Attorney at Law; Libby, Montana

Submitted on Briefs: June 26, 2013

 Decided: August 20, 2013

August 20 2013
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Filed:

__________________________________________

Clerk
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Justice Patricia O. Cotter delivered the Opinion of the Court.

¶1 HSBC Bank USA, N.A., as trustee on behalf of Ace Securities Corp., Home 

Equity Loan Trust, and for the registered holders of Ace Securities Corp. Home Equity 

Loan Trust, series 2007-ASAP 1, asset backed pass-through certificates (collectively 

“HSBC”), appeal from an order of the Nineteenth Judicial District Court, Lincoln

County, denying HSBC’s motion for summary judgment and granting summary 

judgment to Timothy E. Watts (Watts) in a quiet title action.1 We reverse. 

ISSUES

¶2 HSBC raised four issues on appeal. However, we deem the following issue 

dispositive:

¶3 Did the District Court err 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?

FACTUAL AND PROCEDURAL BACKGROUND

¶4 On November 8, 2006, Watts sold real property located at 123 Meadow Lane in 

Eureka, Montana (Property), to David and Debra Marion (together “Marions”). The 

Marions financed the purchase of the Property with a loan from PrimeLending for 

$248,000 and a second loan from Watts in the amount of $62,000. Watts signed a 

warranty deed, a trust indenture to secure his loan to the Marions, and a subordination 

 

1 M. R. App. P. 2(4) provides that “On motion of a party, or on the court’s own motion, the 

caption of a pending cause may be modified to more accurately reflect the actual alignment or 

status of a party.” Because Watts was the plaintiff in the underlying action, we have modified 

the caption to accurately reflect the actual alignment of the parties.
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agreement. The subordination agreement, signed by Watts and Marions, provided that 

Watts agreed to subordinate his loan to the PrimeLending loan. On November 15, 2006, 

the Marions signed a deed of trust to PrimeLending, a trust indenture in favor of Watts, 

and the subordination agreement. First American Title Company recorded the warranty 

deed, trust indenture, deed of trust, and subordination agreement on November 17, 2006. 

¶5 On May 1, 2009, the Marions defaulted on the loan originating with 

PrimeLending. PrimeLending assigned its interest in the Marions’ loan to HSBC on 

August 11, 2009. Charles J. Peterson (Peterson), acting as trustee for HSBC, executed a 

notice of trustee sale on October 13, 2009. Peterson mailed the notice of trustee sale to 

Watts by certified mail at Watts’ address of record in Montana. The post office 

attempted service of the notice on October 21 and 27, 2009, but both attempts were 

unsuccessful. Peterson then published the notice of trustee sale for three consecutive 

weeks and posted the notice at the Property. Watts was living in New Mexico at the time 

and claims that he never received any notice concerning the Marions’ default on the 

HSBC loan or the HSBC trustee’s sale. On February 22, 2010, Peterson held the 

trustee’s sale. HSBC purchased the Property for $260,000. HSBC recorded a trustee’s 

deed on February 23, 2010. 

¶6 The Marions also defaulted on the loan from Watts. Watts, who claimed to be 

unaware of the previous HSBC trustee’s sale, recorded a notice of successor trustee on 

January 4, 2010, in anticipation of executing a foreclosure. Watts executed a notice of 

trustee’s sale on May 28, 2010. Watts provided notice to HSBC of his foreclosure 

proceeding, but HSBC did not provide notice of its previous foreclosure or respond in 
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any way. On September 30, 2010, Watts held his own trustee sale and was purchaser of 

record. Watts then recorded a trustee’s deed naming himself as the owner of the 

Property.

¶7 On March 22, 2011, after discovering that HSBC claimed ownership of the 

Property, Watts filed his complaint against HSBC, the Marions, and other parties 

claiming any interest in the Property. Watts sought to quiet title to the Property, and in 

the alternative, requested damages. HSBC answered the complaint and filed a 

counterclaim seeking to quiet title to the Property. On September 2, 2011, the District 

Court entered a default against the Marions. On August 26, 2011, HSBC filed its motion 

for summary judgment. The District Court denied HSBC’s motion for summary 

judgment on January 18, 2012. On August 3, 2012, Watts filed his motion for summary 

judgment. The District Court granted Watts’ motion for summary judgment on October 

17, 2012. HSBC appeals.

STANDARDS OF REVIEW

¶8 We review a district court’s ruling on a motion for summary judgment de novo, 

applying the same criteria of M. R. Civ. P. 56 as the district court. Mt. West Bank, N.A. v. 

Cherrad, LLC, 2013 MT 99, ¶ 25, 369 Mont. 492, 301 P.3d 796; Dubiel v. Mont. DOT, 

2012 MT 35, ¶ 10, 364 Mont. 175, 272 P.3d 66. Summary judgment “should be rendered 

if the pleadings, the discovery and disclosure materials on file, and any affidavits show 

that there is no genuine issue as to any material fact and that the movant is entitled to 

judgment as a matter of law.” M. R. Civ. P. 56(c)(3).

DISCUSSION
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¶9 Did the District Court err 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?

¶10 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’ previously subordinated lien on the Property because PrimeLending could not 

freely assign its rights under the subordination agreement to HSBC. The District Court 

noted that neither the Marions nor Watts consented to the assignment of any contractual 

rights or obligations to HSBC. Next, the District Court stated that HSBC had never 

claimed that it was an intended beneficiary of the subordination agreement. The District 

Court reasoned that even if HSBC had raised the issue, the language of the subordination 

agreement demonstrated that PrimeLending was an intended beneficiary but HSBC was 

not. After determining that Watts properly foreclosed on his trust indenture as the first 

priority lien holder, the District Court granted Watts’ motion for summary judgment and 

declared Watts the due and lawful owner of the Property. The District Court’s 

conclusions were in error. 

¶11 Under Montana law, the assignee of a mortgage obtains all rights held by the 

original mortgage holder. This Court has long held that an assignment does not create a 

new lien. Hull v. Diehl, 21 Mont. 71, 79, 52 P. 782, 783 (1898). “Its sole office is to 

transfer from one person to another title to a mortgage lien already on the land, and its 

operation is of necessity limited to that purpose.” Hull, 21 Mont. at 79, 52 P. at 783. 

“[T]he general rule in most states is that where a valid assignment of a mortgage has been 
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consummated with proper consideration, the assignee is vested with all the powers and 

rights of the assignor.” Mort v. U.S., 86 F.3d 890, 894 (9th Cir. 1996). 

¶12 Since a mortgage assignee succeeds to all of the assignor’s powers and rights, 

other jurisdictions have consistently held that an assignment of a mortgage does not 

affect its priority. See Fannie Mae v. Kuipers, 732 N.E.2d 723, 729 (Ill. App. 2d. Dist. 

2000) (“Other jurisdictions have held under their respective state laws that an assignment 

of a mortgage does not affect its priority.”); Bank Western v. Henderson, 874 P.2d 632, 

636 (Kan. 1994) (“There is nothing in the statutes or case law which indicates that an 

assignment of a mortgage . . . somehow affects the priority of the mortgage.”); Finlayson 

v. Waller, 134 P.2d 1069, 1072 (Idaho 1943) (“Upon the assignment of this mortgage, the 

assignee became vested with all the rights, powers and equities of the original mortgagee, 

and the mortgage in the hands of the assignee takes precedence over a lien which 

attached prior to the assignment but subsequent to the execution of the mortgage.”); 

Berger v. Baist, 6 P.2d 412, 413 (Wash. 1931) (“A mortgage having once obtained 

priority by record does not lose its place by being held by anyone under an unrecorded 

assignment.”); Schelling v. Thomas, 274 P. 755, 757-58 (Cal. App. 1st Dist. 1929) (“The 

assignee of a mortgage takes all the rights of his assignor, and if, in the hands of the 

assignor, it was entitled to priority over another mortgage . . . it has the same priority in 

the hands of the assignee.”). Although Montana has not previously addressed this 

question, we adopt the rationale set forth in these cases.

¶13 As noted above, Watts signed a subordination agreement, subordinating his loan to 

that of PrimeLending. Under the foregoing rule, Watts did not gain priority over the 
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PrimeLending deed of trust by virtue of the assignment from PrimeLending to HSBC. 

PrimeLending assigned “all of its rights, title and interest in and to” the deed of trust and 

note to HSBC. HSBC, as the assignee of the trust deed from PrimeLending, succeeded to 

all powers and rights previously held by PrimeLending, which included the right of 

priority over Watts’ subordinated trust indenture.

¶14 “An assignee of contract rights generally stands in the shoes of the assignor.” 

Credit Serv. Co. v. Crasco, 2011 MT 211, ¶ 17, 361 Mont. 487, 264 P.3d 1061;

Massey-Ferguson Credit Corp. v. Brown, 173 Mont. 253, 256, 567 P.2d 440, 441-42 

(1977). Montana has long recognized the rule that rights arising from contracts between 

private individuals are assignable, and that non-assignability is the exception. Winslow v. 

Dundom, 46 Mont. 71, 82, 125 P. 136, 139 (1912). In the absence of a non-assignment 

clause, either party may generally make an assignment of rights under the contract. 

Forsythe v. Elkins, 216 Mont. 108, 113, 700 P.2d 596, 599-600 (1985). There was no 

non-assignment clause in the mortgage documents between the Marions and 

PrimeLending.

¶15 HSBC is entitled to stand in the shoes of PrimeLending and receive any benefits 

that PrimeLending was entitled to under the mortgage documents, including the 

subordination agreement. The Deed of Trust between the Marions and PrimeLending 

expressly provided, as is common in the industry, that PrimeLending could sell the note 

without prior notice to the borrower. Because no notice of transfer was required, clearly 

the transfer could occur without the consent of either the Marions or Watts. Our only 

remaining inquiry, therefore, is whether the subordination agreement conferred a first 
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priority lien position upon PrimeLending. The language of the document clearly 

demonstrates that it did so. 

¶16 A subordination agreement dictates the priorities between existing interests. 

Travelers Ins. Co. v. Holiday Village Shopping Ctr. Ltd. Pshp., 280 Mont. 217, 224, 931 

P.2d 1292, 1296 (1996). The subordination agreement provided in pertinent part as 

follows:

WHEREAS, it is a condition precedent to obtaining said loan from lender 

[PrimeLending] that said Deed of Trust last above mentioned 

[PrimeLending’s deed of trust] shall unconditionally be and remain at all 

times a lien or charge upon the land hereinbefore described [Property], 

prior and superior to the lien or charge of the Deed of Trust first above 

mentioned [Watts’ deed of trust]; and

WHEREAS, Lender is willing to make said loan provided the Deed of 

Trust securing the same is a lien or charge upon the above described 

property [Property] prior and superior to the lien or charge of the Deed of 

Trust first above mentioned and provided that Beneficiary [Watts] will 

specifically and unconditionally subordinate the lien or charge of the Deed 

of Trust first above mentioned to the lien or charge of the Deed of Trust in 

favor of Lender; and

WHEREAS, it is to the mutual benefit of the parties hereto that Lender 

shall make such loan to Owner [Marions]; and Beneficiary is willing that 

the Deed of Trust securing the same shall, when recorded, constitute a lien 

or charge upon said land which is unconditionally prior and superior to the 

lien or charge of the Deed of Trust first above mentioned.

NOW, THEREFORE, in consideration of the mutual benefits accruing to

the parties hereto and other valuable consideration, the receipt and 

sufficiency of which consideration is hereby acknowledged, and in order to 

induce Lender to make the loan above referred to, it is hereby declared, 

understood and agreed as follows:

1) That said Deed of Trust securing said Note [$248,000 PrimeLending 

loan] in favor of Lender, and any renewals or extensions thereof, 

shall unconditionally be and remain at all times a lien or charge on 
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the property therein described, prior and superior to the lien or 

charge of the Deed of Trust first above mentioned.

2) That Lender would not make its loan above described without this 

subordination agreement.

3) That this agreement shall be the whole and only agreement with 

regard to the subordination of the lien or charge of the Deed of Trust 

first above mentioned to the lien or charge of the Deed of Trust in 

favor of Lender above referred to and shall supersede and cancel, but 

only insofar as would affect the priority between the Deeds of Trust 

hereinbefore specifically described, any prior agreement as to such 

subordination including, but not limited to, those provisions, if any, 

contained in the Deed of Trust first above mentioned, which provide 

for the subordination of the lien or charge thereof to another Deed or 

Deeds of Trust or to another Mortgage or Mortgages.

¶17 Neither the deed of trust nor the subordination agreement contain any provisions 

restricting the lender’s right of assignment. Further, the plain language of the 

subordination agreement demonstrates the parties’ intent to subordinate Watts’ trust 

indenture to the PrimeLending deed of trust. The subordination agreement effectively 

and firmly placed PrimeLending’s mortgage interest ahead of Watts’ interest in the 

Property. 

¶18 Watts concedes on appeal that PrimeLending was an intended beneficiary of the 

subordination agreement entered between him and the Marions, but argues that HSBC 

was not an intended beneficiary and therefore cannot enforce the terms of the document. 

We disagree. As intended beneficiary, PrimeLending was entitled to enforce the terms of 

the subordination agreement. Kurtzenacker v. Davis Surveying, Inc., 2012 MT 105, ¶ 20, 

365 Mont. 71, 278 P.3d 1002; Williamson v. Mont. PSC, 2012 MT 32, ¶ 40, 364 Mont. 

128, 272 P.3d 71. Because HSBC stepped into PrimeLending’s shoes in all respects by 

virtue of the assignment, it assumed PrimeLending’s rights as first lienholder as well as 
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its status as beneficiary of the subordination agreement. Watts cannot avoid the clear 

terms of the subordination agreement simply because a routine assignment occurred. 

¶19 Accordingly, we conclude that the District Court erred in granting summary 

judgment to Watts. HSBC’s deed of trust in the Property clearly is entitled to priority 

over Watts’ trust indenture. We therefore reverse the entry of summary judgment in 

favor of Watts and remand for entry of judgment in favor of HSBC.

¶20 Reversed.

/S/ PATRICIA COTTER

We Concur:

/S/ MIKE McGRATH

/S/ MICHAEL E WHEAT

/S/ LAURIE McKINNON

/S/ BETH BAKER