Opinion ID: 2626405
Heading Depth: 3
Heading Rank: 1

Heading: Junior Lienholders Are Entitled to Equitable Redemption on a Deed of Trust.

Text: While this appeal concerns the extent of a statutory right, we must begin with a brief detour into the history of mortgages. The mortgage was created by the early English court as a transfer of title from the mortgagor to the mortgagee, generally as security for a loan by the mortgagee to the mortgagor. Once the mortgagor repaid the loan proceeds, title to the property would return to him. [11] If, however, the mortgagor failed to pay the mortgage by the due date, called the law day, he would forfeit all interest in the property. This deadline applied without exception, even if the mortgagor could not find the mortgagee to pay him, [12] or if the borrower was robbed on his way to Law Day, [13] and thus often resulted in injustice. In response to these injustices, the Court of Chancery created the remedy of equitable redemption. Equitable redemption allowed the borrower to come into court after default, and if he told a convincing story, he was allowed to force a reconveyance of the land. [14] When mortgagors began to take advantage of this remedy, sometimes redeeming the property years after law day, the Court created the remedy of foreclosure to end the period of equitable redemption so that the new owner could be sure that his title was secure and the previous owner could not redeem the land. [15] Thus, a mortgage is said to carry with it an equity of redemption, the right, until the foreclosure sale, to reimburse the mortgagee and cure the default. [16] But this (mortgagor's) remedy of equitable redemption is limited by the (mortgagee's) remedy of foreclosure. While at common law the execution of a mortgage required transfer of title, most American jurisdictions, Alaska included, now recognize mortgages under the lien theory, which treats the mortgage as merely a security interest in the property and confers no right to possession of that real estate on the mortgagee. [17] Accordingly, the mortgagor has the right to possession until there has been a valid foreclosure. [18] We stated, in Brand v. First Federal Savings & Loan Ass'n of Fairbanks: [19] In light of our territorial precedents, likely reliance thereon, and the provisions of AS 09.45.680, we believe that the territorial view that mortgages in Alaska convey to the mortgagee only a lien, not any sort of title, should be retained. [20] The lien theory, we noted, is said to mark `a distinct advance in legal ideas' over the `crude conception' of the title theory. [21] Mortgages under the lien theory continue to carry the equity of redemption. Alaska has partly codified the mortgagor's right of redemption. Under AS 09.35.250, The judgment debtor or a successor in interest may redeem the property before confirmation of sale on paying the amount of the purchase money, with interest and any taxes due. Alaska has also enacted a procedure for redemption by the debtor within a year after confirmation of the foreclosure sale. [22] This statutory enactment does not occupy the field, however, as we continue to recognize judicially the right of equitable redemption. [23] This view is in line with the Restatement, which declares that a performance in full of the obligation secured by a mortgage . . ., by one who is primarily responsible for performance of the obligation, redeems the real estate from the mortgage. . . . Performance may be made prior to the time the obligation is due . . . or may be made at or after the time the obligation is due but prior to foreclosure. [24]
We treat deeds of trust as identical to mortgages in almost all respects. [25] In Brand, we stated: A deed of trust is `a mortgage in effect,' being only a somewhat different device for accomplishing the same purpose, creating a security interest in land. . . . [A] deed of trust does not move title out of the trustor, but only creates a lien. [26] Because mortgages and deeds of trust are virtually identical, and because mortgages carry the equity of redemption, we conclude that deeds of trust also carry the equity of redemption. In contrast to mortgages, however, there is no statutory post-sale redemption available under a deed of trust unless the deed of trust so provides. [27] Instead of post-sale redemption, AS 34.20.070(b) provides a statutory right of cure under a deed of trust. The statute states that foreclosure may be forestalled by payment of arrearages, costs and attorney's fees. [28] Equitable redemption traditionally requires the payment of the full amount of debt owed in order to clear the property of the previous encumbrance. If only a portion of the debt is in default, however, then that portion can be redeemed separately with the consent of the obligee. [29] Alaska Statute 34.20.070(b) forces the lender to accept partial payments when a deed of trust is in default. The crux of this case is to determine from whom the lender must accept those payments.
The traditional right of equitable redemption generally extends in some manner to holders of interests junior to the obligor's interests. Under the Restatement approach, A performance in full of the obligation secured by a mortgage, or a performance that is accepted by the mortgagee in lieu of payment in full, by one who holds an interest in the real estate subordinate to the mortgage but is not primarily responsible for performance, does not extinguish the mortgage, but redeems the interest of the person performing from the mortgage and entitles the person performing to subrogation to the mortgage. . . . Such performance may not be made until the obligation secured by the mortgage is due, but may be made at or after the time the obligation is due but prior to foreclosure. [30] This right of redemption for junior interest holders exists to protect their interests since a foreclosure cuts off all interests junior to the one foreclosed. Junior interests that are protected include junior mortgagees, the holders of junior mechanics' liens and other liens, junior lessees, and easement holders. [31] As the Washington Court of Appeals has held, in order to possess equitable redemption rights, a person must have an interest in land and it must be derived in some way . . . from or through or in the right of the mortgagor so as to constitute a part of the mortgagor's original equity of redemption. [32] More than a century ago the Oregon Supreme Court stated the proposition even more broadly, holding that the right of redemption exists not only in the mortgagor himself, but in every other person who has an interest in, or legal or equitable lien upon, the mortgaged premises, and includes judgment creditors, all of whom may insist upon a redemption of the mortgage. [33] Thus, we conclude that a junior lienholder holds a right of redemption under a deed of trust. The equity of redemption, as we have stated, would normally require payment of the full amount mortgaged. We now consider whether a junior lienholder is entitled to invoke AS 34.20.070(b) and require the obligee to accept payment of arrearages to cure a senior interest holder's default.