Opinion ID: 3014377
Heading Depth: 2
Heading Rank: 2

Heading: Foreclosure Proceedings in the

Text: of foreclosure.” The moving papers on District Court both sides were captioned as cross-motions UMLIC commenced this action in for summary judgment. On December 5, the District Court on June 1, 2001, seeking 2002, the District Court filed a a declaratory judgment of the amount memorandum opinion and order granting owed under the Matthias Enterprises note, summary judgment to UMLIC. On a judgment of foreclosure on the three December 20, 2002, the District Court properties, and an award of costs and entered a declaratory judgment and attorneys fees. Originally, UMLIC had ordered the U.S. Marshal to conduct a also sought an in personam judgment foreclosure sale of the properties. The against the Matthiases, Parsons, and defendants filed a notice of appeal, and Venzens (i.e., a deficiency judgment for moved the District Court to stay the sale. the amount owing on the notes but The District Court refused, but this Court unsatisfied by foreclosure on the granted the stay pending appeal. mortgages), but later amended its The District Court of the Virgin complaint to drop those counts (apparently Islands had 28 U.S.C. § 1332 diversity because the statute of limitations had jurisdiction under 48 U.S.C. § 1612(a). clearly run on any in personam contract The plaintiff, UMLIC, is a citizen of North claims). Carolina, and none of the defendants are On June 4, 2002, the District Court citizens of North Carolina. The order of the District Court was entered on December 20, 2002. The defendants filed 4 As part of its preparation to begin timely notices of appeal. This Court has foreclosure, UMLIC discovered that real jurisdiction under 28 U.S.C. § 1291. property records showed that Barclays Our review of a grant of summary had assigned its mortgage interest to judgment is plenary. See Anderson v. Treadstone Carribean Partners LLC Conrail, 297 F.3d 242, 246-47 (3d Cir. (“Treadstone”). This seems to have been 2002). Summary judgment must be an error on Barclays’ part, since this granted “if the pleadings, depositions, assignment was recorded after Barclays answers to interrogatories, and admissions had transferred the loan to the SBA. For on file, together with the affidavits, if any, the reasons given by the District show that there is no genuine issue as to Court—which we need not revisit—even any material fact and that the moving party though Barclays’ transfer to the SBA was is entitled to judgment as a matter of law.” not recorded, it was valid. To uncloud Fed. R. Civ. P. 56(c). In considering the the titles, Treadstone, the SBA, and motion, “we must grant all reasonable UMLIC executed a series of corrective inferences from the evidence to the nonassignments recorded May 29, 2001. moving party.” Knabe v. Boury Corp., 5 114 F.3d 407, 410 n.4 (3d Cir. 1997). The The strongest authority that the chronology recounted above is not in defendants cite for this proposition is an dispute. The only questions before us are Alaska case which held as they would legal. have us hold.6 Dworkin v. First National Bank of Fairbanks, 444 P.2d 777, 781-82 II. Discussion (Alaska 1968), acknowledged that opinion A. The Mortgage and the Personal was divided over whether a suit to recover Guarantee security could be maintained even after the statute had run on collection of the The defendants contend that the underlying debt. Authority is still divided mortgages are no more than security for today. See 55 Am. Jur. 2d Mortgages §§ their personal guarantees, and that, absent 680, 683 (2003). The Dworkin Court an ability to sue in contract for ultimately held that “the sounder result is enforcement of those guarantees, UMLIC reached by those authorities which hold cannot recover on the mortgages. Because that in the absence of a controlling statute the Virgin Islands statute of limitations for the foreclosure action is subject to the contract claims, 5 V.I. Code § 31(3)(A), same period of limitations as the and the federal statute of limitations for underlying debt.” 444 P.2d at 782. The contract claims, 28 U.S.C. § 2415(a), both only authority supplied by the Court was a provide for a six-year limitations period, discussion from a contemporary treatise on and the lawsuit was filed outside that real property that discussed the contrary period, the defendants assert that irrespective of which statute applies, a suit on the security for the guarantees (i.e., the of decision. Second, it appears that a mortgages) is barred along with an in full analysis under United States v. personam suit on the guarantees.5 Kimbell Foods, Inc., 440 U.S. 715 (1979), would demonstrate either that Virgin Islands law applies of its own 5 The question whether federal or force, or that federal law applies but territorial law provides the statute of looks to local law to provide the rule of limitations—noted in the text—is but decision. one facet of a larger choice-of-law 6 question here. One could well ask It is not unreasonable to look to whether federal or territorial law governs decisions from Alaska in this case, a claim to relief on a mortgage granted because the limitations laws of the Virgin pursuant to a federal loan guarantee Islands were borrowed from Alaska’s program after suit on the principal laws. See James v. Henry, 157 F. Supp. obligation is barred. We do not address 226, 227 (D.V.I. 1957) (Maris, J.). Thus, this in detail, however, for two reasons. Alaska court decisions that postdate the First, the papers of both parties assume Virgin Islands’ adoption of Alaska law, that Virgin Islands law provides the rule while not binding, may be persuasive. 6 approach, and pronounced it mortgagee may proceed to “undesireable.” foreclose, either by action for foreclosure, or by But there is an equally compelling advertisement pursuant to a rationale supporting decisions from reserved power of sale, jurisdictions that adopt the contrary being barred only from the rule—i.e., those that permit recovery on obtaining of a deficiency the mortgage even after the statute of judgment.” limitations has expired. It is this: “The time limit set for the c o m m e n c e ment of an Id. at 782 n.24 (quoting 3 R. Powell, The equitable action to foreclose Law of Real Property 461, at 682-83 is frequently longer than the (1967)). This persuasive logic undermines period prescribed for a law the position of the defendants. Accord action on debt and, in some Bank of Nova Scotia v. St. Croix Drive-In states, is unlimited except Theatre, Inc., 552 F. Supp. 1244, 1251 by the rule of laches. This (D.V.I. 1982) (holding that “the law is difference interposes a clear that separate actions are available in problem where the actions for debt and against a mortgage.”), mortgagee has permitted the aff’d on other grounds 728 F.2d 177 (3d time to run out within which Cir. 1984). he could bring an action We reject the defendants’ argument upon the debt, yet wishes to and endorse the view adopted by the enforce his lien. Since the District Court in St. Croix Drive-In.7 The debt is not usually regarded great benefit in using a mortgage on real as extinguished by any property as security is the certainty it passage of time, but only the affords: The property will not go away. remedy is barred by the The legal complement to the physical statute of limitations, there stability of real property is the long statute is no application here of the of limitations for actions on real property. rule applied in other Adopting the rule proposed by defendants situations, that the mortgage cannot stand independently of the obligation which it 7 purports to secure. This holding, of course, has no effect Accordingly, it is generally on UMLIC’s inability to collect a accepted that the lien is not deficiency judgment from the thereby destroyed, and that, defendants; as we have noted, such a in the absence of a statute contract suit is clearly time-barred, and providing otherwise, the UMLIC has dismissed that cause of action. 7 would sap real property in the Virgin apply to it as they would if the United Islands of its appeal as a security under States itself brought a foreclosure action. certain guarantee structures, and would We agree, and join every other appellate likely deter offshore real estate investment. court to consider the issue. Three cases in Moreov er, w e believe that this particular command our attention: Tivoli interpretation is in line with the settled Ventures, Inc. v. Bumann, 870 P.2d 1244 expectations of parties that have entered (Colo. 1994); United States v. Thornburg, into transactions secured by mortgages on 82 F.3d 886 (9th Cir. 1996); and FDIC v. real property in the Virgin Islands. Bledsoe, 989 F.2d 805 (5th Cir. 1993). We briefly discuss each of them. We also think the rule we adopt is superior because it can be applied In Tivoli Ventures, the question uniformly to this situation, and to the arose in the context of whether an assignee situation where a mortgage stands alone could sue on the U nited States’ without a personal guarantee, while the (unexpired) cause of action, or was limited rule that defendants propose cannot. See to an antecedent (and now-expired) cause Hilpert v. Commissioner, 151 F.2d 929, of action. There, the FDIC as receiver of 932 (5th Cir. 1945). Finally, the Virgin a failed bank had assigned to a private Islands Legislature is free to overrule by party a note held by the bank. The parties statute this part of our decision. Indeed, did not dispute that the FDIC’s cause of one treatise notes that the rule barring action accrued only when the bank was foreclosure when the statute of limitations placed in receivership, not when the note has run on the secured note is “frequently first came overdue, hence the FDIC’s the result of express statutory provision.” claim expired later. The private party sued 55 Am. Jur. 2d Mortgages § 683 (2003). to collect on the note, and was met with Thus we conclude that UMLIC may the argument that the action was barred by foreclose on the mortgages irrespective of Colorado’s six-year limitations period, whether it may sue in personam to enforce which started to run from the date the note the defendants’ personal guarantees. was overdue. The private party plaintiff argued that as the assignee of the FDIC, it B. Federal Versus Virgin Island was entitled to the six-year limitations Limitations Period period in 28 U.S.C. § 2415 that started to Having settled that mortgage run from the time the bank was put into foreclosure is an independent action under receivership. The Colorado Supreme Virgin Islands law, we must determine the Court agreed, holding that the privatestatute of limitations applicable to such an party assignee of the FDIC stood in the action when it is brought by an assignee of shoes of the United States. the United States. UMLIC claims that an Like the case before us, Thornburg assignee stands in the shoes of the involved the guarantor-mortgagor’s assignor— here the United States—and liability when a corporation defaulted on thus that the federal limitations periods 8 an SBA-backed loan. The guarantee and UMLIC. mortgage were first assigned to a private Bledsoe’s facts are between Tivoli party, and then assigned back to the SBA Ventures and Thornburg. Like Tivoli which brought the case. The mortgagor Ventures, Bledsoe involved a note that first argued that the state statute of limitations came to the United States as receiver (the ran out on the note while it was in the FSLIC) in an S&L insolvency. The note hands of the private party, and thus that the was assigned to a private party (unlike action by the SBA was time barred as well Thornburg, this seems to have been a true because a transfer (back) to the United sale, and not a consignment) and then (via States cannot revive a time-barred cause of another insolvency) back to the United action. See FDIC v. Hinkson, 848 F.2d States as receiver. Like Thornburg, the 432, 434 (3d Cir. 1998) (“If the state defendant asserted that the four-year state statute of limitations has expired before statute of limitations ran on the note while the government acquires a claim, it is not it was in private hands, and could not revived by transfer to a federal agency.”).8 thereafter be resuscitated by transfer to the The Court of Appeals for the Ninth Circuit United States. The Court of Appeals for held that the federal statute applied. After the Fifth Circuit held that the six-year discussing (and approving) cases that hold federal statute applied to the note while it that an assignee of the United States stands was in the hands of the assignee of the in the shoes of the United States, the United States, and thus concluded that the Thornburg Court ultimately rested its cause of action had not expired. holding on the fact that the assignment to the private party was only for collection Thornburg lists as adhering to this purposes (referred to by some courts as a rule a number of state courts and federal “consignment”), and the United States district courts, in addition to the Courts of never divested itself of the note. See Appeal for the Fifth and Ninth Circuits; it Thornburg, 82 F.3d at 891-92. This may notes only one contrary decision, Wamco, make Thornburg a more compelling case III, Ltd. v. First Piedmont Mortgage Corp., for application of federal limitations law 856 F. Supp. 1076 (E.D. Va. 1994). See than this case, because in the case before Thornburg 82 F.3d at 890-91. Since 1996, us now, title to the mortgage has passed to when Thornburg was decided, the Court of Appeals for the Tenth Circuit has joined this group. See UMLIC-Nine Corp. v. 8 Hinkson does not apply here because Lipan Springs Dev. Corp., 168 F.3d 1173 the earliest date of default was late 1988, (10th Cir. 1999). We too now join the and the note was transferred to the SBA majority view. in early 1994, a period of less than six years. No party proposes as pertinent to In view of the thorough discussions this case any statute of limitations, in Tivoli Ventures, Bledsoe, and federal or Virgin Islands, shorter than six Thornburg, we simply summarize what we years. regard as the best doctrinal and public 9 policy reasons for the rule that the assignee limitations period (or preempt any existing of the United States stands in the shoes of state limitations period). Rather it seems the United States and is entitled to rely on to clarify that the other subsections of § the limitations periods prescribed by 2415—w hich we shall come to federal law. Doctrinally, an assignee stood shortly—do not extend to certain actions in the shoes of the assignor at common involving real property. That said, we do law, and the Uniform Commercial Code not think § 2415(c) applies to this action. provides that “[t]ransfer of an instrument At common law, a mortgage was . . . vests in the transferee any right of the “title to . . . real . . . property,” § 2415(c), transferor to enforce the instrument.” because under the common law, a UCC § 3-203(b). Moreover, the mortgage granted an estate in land. See Restatement (Second) of Contracts § 336 Black’s Law Dictionary 1009-10 (6th ed. cmt. b, ex. 3 explains that “A lends money 1990): to B and assigns his right to C. C’s right is barred by the Statute of Limitations when Mortgage. . . . At common A’s right would have been.” We see no law, an estate created by a reason that the inverse should not hold as conveyance absolute in its well. In public policy terms, affording form, but intended to secure assignees of the United States the same the performance of some rights as the United States is desirable act, such as the payment of because it improves the marketability of money . . . and to become instruments held by the United States, void if the act is performed thereby giving the United States greater . . . . The mortgage operates flexibility in monetizing its claims. as a conveyance of the legal title to the mortgagee, but