- 479 -

Nebraska Supreme Court Advance S

297 Nebraska Report

MUTUAL OF OMAHA BANK v. WATSON

Cite as 297 Neb. 479

Mutual of Omaha Bank, appellee, v. Rober

Watson, appellant, and Shona Rae W

appellee, formerly husband and wife,

Community Bank of Lincoln,

and beneficiary, et al., appelle

___ 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 appellate court decides factual questions de novo on the record and, as to 

questions of both fact and law, is obligated to reach a conclusion independent of the trial court’s determination.

3. Contracts: Homesteads: Acknowledgments: Conveyances. A valid 

acknowledgment 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.

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 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.

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 property, 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 

Nebraska Supreme Court Online Library

www.nebraska.gov/apps-courts-epub/

10/06/2017 08:11 AM CDT
- 480 -

Nebraska Supreme Court Advance S

297 Nebraska Report

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 purchasemoney mortgage.

8. Mortgages: Acknowledgments. 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.

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 concurrently gives for its purchase price.

Appeal from the District Court for Lancaster County: Joh

A. Colborn, Judge. Affirme

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,

Kelch, and Funke,

Funke, 

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 interest in the property.
- 481 -

Nebraska Supreme Court Advance S

297 Nebraska Report

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 certify 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 F

Watson was the manager of Reserve Design, LLC, a company 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 Advance S

297 Nebraska Report

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 primary 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 primary deed of trust and the assignment. A title insurance company 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, including “a document affecting Title not [being] properly created, 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 Advance S

297 Nebraska Report

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 financing was handled. She agreed that her signature appeared to be 

on the primary deed of trust. But she did not recall any significant 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 certification 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 present 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 Hist

Mutual filed its operative amended complaint in January 

2014 in which it alleged that Watson had failed to “make 
- 484 -

Nebraska Supreme Court Advance S

297 Nebraska Report

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 accounting, 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 corrective deed should be equitably subrogated to the first priority position of the primary deed of trust.

Watson filed an answer with affirmative defenses and counterclaims. 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 remuneration 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 Advance S

297 Nebraska Report

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 special 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 construed 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 coinsured 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 declaratory 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 Advance S

297 Nebraska Report

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 summary 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 instrument 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 during the same transaction are treated as one instrument and construed 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 concluded 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 Advance S

297 Nebraska Report

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 evidence 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 necessary 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 Advance S

297 Nebraska Report

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 secondary 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 conclusion independent of the trial court’s determination.4

V. ANALYSIS

1. Enforceability of Pri

Deed of Trust U

Homestead Statut

Watson contends that the primary deed of trust failed to satisfy 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 interests 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 Advance S

297 Nebraska Report

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 acknowledge 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 acknowledging his or her execution of an instrument is the same person 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 sufficient 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 instrument 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 acknowledgment 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 Advance S

297 Nebraska Report

MUTUAL OF OMAHA BANK v. WATSON

Cite as 297 Neb. 479

In a long line of cases, this court has held that an acknowledgment 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 acknowledged 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 acknowledgment 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 Advance S

297 Nebraska Report

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 presenting 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 conveyance, 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 alternative argument that the acknowledgment requirement does not 

apply here, because Watson and Shona took title to the property 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 Advance S

297 Nebraska Report

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 property, 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 purchasemoney 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 Advance S

297 Nebraska Report

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 homestead 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 husband 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 mortgage 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 purchase money of land executed simultaneously with the 

20 Prout v. Burke, 51 Neb. 24, 70 N.W. 512 (1897).
- 494 -

Nebraska Supreme Court Advance S

297 Nebraska Report

MUTUAL OF OMAHA BANK v. WATSON

Cite as 297 Neb. 479

deed takes precedence of a judgment against the mortgagor. . . . 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 possession.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 general 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 homestead 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 Advance S

297 Nebraska Report

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 provide 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 conclude that the primary deed of trust is valid, the court’s alternative reasoning for granting relief is a moot issue.

2. Watson’s Assignment of 

Regarding Court’s Reject

His Counterclaims Is

Watson contends that the court erred in dismissing his counterclaims, 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 determined 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.

Affirmed