Opinion ID: 1206085
Heading Depth: 1
Heading Rank: 4

Heading: the state's mortgage interest and entitlement to restitution

Text: We next consider the effect of the county's tax lien foreclosure upon the interests of the previous owners  the Richardses  and of the state. We conclude that while the proceedings were effective to foreclose the Richardses' interest in Section 34, because the state had not consented to have its lien interests in land adjudicated in such proceedings, they did not extinguish the state's mortgage interest. Consequently, the county took title to Section 34 subject to the state's mortgage interest in the land, and the later deed purporting to convey the Richardses' interest to the state conveyed nothing. Where the state has not consented to be named a party defendant in a foreclosure proceeding, the courts are powerless to adjudicate the state's lien interest in realty in such a suit. Federal Land Bank v. Schermerhorn, 155 Or. 533, 64 P.2d 1337 (1937). The state argues that it had not consented to have its interests in land adjudicated in tax foreclosure actions and that the county's foreclosure was therefore ineffective to extinguish the state's mortgage. We agree. The statutes in effect at the time of the county's foreclosure of its lien do not evince an intent on the state's part to consent to the adjudication of its interests in a tax foreclosure proceeding; we therefore conclude that the county's foreclosure was ineffective to extinguish the state's mortgage interest. [7] Though the county's foreclosure of its tax lien was ineffective to foreclose the state's mortgage, it was effective to extinguish the Richardses' interest. [8] When the county took title to Section 34 as the result of the sheriff's sale in October 1935, that title was subject to the state's mortgage interest. Because the Richardses' ownership interest ended with the county's foreclosure of its tax lien, the deed accepted in lieu of foreclosure by the state was ineffective to transfer an interest in Section 34. The satisfaction of mortgage filed by the state did not necessarily extinguish the state's mortgage interest, however. Because the deed accepted by the state conveyed no interest in Section 34, the satisfaction was unsupported by consideration. In addition, it does not appear that permitting the state to revoke the satisfaction at this time will prejudice the rights or interests of any party. Holzmeyer v. Van Doren, 172 Or. 176, 139 P.2d 778 (1943). Consequently, we hold that the state's mortgage lien against Section 34 survived the purported satisfaction. Because the state is not bound by the presumption of satisfaction prescribed by ORS 88.110, State Land Board v. Lee, 84 Or. 431, 165 P. 372 (1917), it is free to seek satisfaction of its lien. The state argues that if title to Section 34 is quieted in the county, the state is entitled to restitution of the increased value of Section 34 attributable to the state's management of the land. The allowance of a recovery from the owner for the value of improvements mistakenly put on the owner's premises is an application of the equitable rule which prevents unjust enrichment. Comer v. Roberts, 252 Or. 189, 193, 448 P.2d 543 (1968). Restitution is available to persons who in good faith erect improvements on land they mistakenly believe to be theirs, though the owner has not sought the aid of equity or requested a judgment against the improvers. Id. It is not necessary that the landowner be the source of the mistake. McKay v. Horseshoe Lake Hop Harvesters, Inc., 260 Or. 612, 491 P.2d 1180 (1971). The mistake may be one concerning the legal effect of a deed, and notice of the true owner's adverse claim to the realty does not vitiate the improver's entitlement to restitution so long as the improvements were made under a good faith belief in the legitimacy of the improver's claim. Sugarman v. Olsen, 254 Or. 385, 459 P.2d 545 (1969). In this instance the state seems to have acted under the good faith belief that the deed accepted from the Richardses conveyed good title to Section 34, despite the county's earlier tax foreclosure. Under Oregon's law the state is consequently entitled to restitution of the value of its improvements on Section 34. This court has held that where the improvements are removable equity requires that the occupant be required to remove them. Brumbaugh v. Ashton, 208 Or 521, 302 P2d 1018 (1956).   . Where the occupant is entitled to compensation for his improvements, and the owner is not guilty of inequitable conduct, equity dictates that the owner be given his option whether he pays for the increase in the value of his property which was brought about by the improvements or whether he receives the value of the land upon which the improvements have been made. (Citations omitted.) Comer v. Roberts, supra, 252 Or. at 193-94, 448 P.2d 543. The improver cannot obtain reimbursement for his costs, only for the enhancement of market value resulting from the improvements. McKay v. Horseshoe Lake Hop Harvesters, Inc., supra, 260 Or. at 617, 491 P.2d 1180. The state has presented no evidence as to the exact nature and value of any improvements as opposed to the portion of the increased value of Section 34 resulting from economic and botanic forces operating independently of the state's efforts. On remand the state may present such evidence. The decision of the Court of Appeals that Coos County is equitably estopped from asserting its title to Section 34 is reversed. The decree is reversed and the cause is remanded to the trial court for an order declaring Coos County the owner in fee simple of Section 34, and for further proceedings on the issue of restitution.