Klein v. Oakland/Red Oak Holdings, LLC

294 Neb. 535

883 N.W.2d 699

Jeremy L. Klein and Kimberly J. Klein, husband and wife, and Robert D. Lynch and Elaine M. Lynch, husband and wife, appellees,

v.Oakland/Red Oak Holdings, LLC, a Nebraska limited liability company, appellant.

No. S–15–380

Supreme Court of Nebraska.

Filed August 26, 2016

Mark J. LaPuzza, Omaha, and Ashley Dieckman, of Pansing, Hogan, Ernst & Bachman, L.L.P., for appellant.

Natalie G. Nelsen, of Dier, Osborn, Cox & Nelsen, P.C., L.L.O., for appellees.

Heavican, C.J., Wright, Connolly, Miller–Lerman, Cassel, and Stacy, JJ.

Miller–Lerman, J.

NATURE OF CASE

Jeremy L. Klein and Kimberly J. Klein, husband and wife, and Robert D. Lynch and Elaine M. Lynch, husband and wife, (both couples collectively the appellees) purchased a trust deed at a trustee's sale for certain real estate. Prior to the trustee's sale, treasurer's tax deeds for the same real estate had been issued to a third party. By operation of law, a treasurer's tax deed passes title free and clear of all previous liens and encumbrances, and therefore, the treasurer's tax deeds had divested the trust deed of title. The treasurer's tax deeds were recorded prior to the trustee's sale, but the appellees failed to examine the record prior to the trustee's sale. The appellees brought this action in equity against Oakland/Red Oak Holdings, LLC (Oakland), the appellant, which was the beneficiary of the trust deeds, seeking to set aside the sale and to be reimbursed the purchase price of $40,001. The district court determined that the trustee's sale was void and ordered that Oakland return the purchase price to the appellees. Oakland appeals. For the reasons set forth below, we determine that the district court erred in its determination, and we reverse, and remand with directions.

STATEMENT OF FACTS

Our statement of facts is taken from the parties' stipulated statement of facts on which the case was tried to the district court. The parties' stipulated statement of facts provided as follows:

1. Oakland State Bank was the beneficiary under five deeds of trust from David Sickels and Debra Sickels. The Deeds of Trust are attached hereto as Exhibits 1 through 5. 2. Larry Jobeun was named as Trustee under each deed of trust and T. Randall Right was substituted as Trustee on May 20, 2004. The substitution of Trustee is recorded with the Register of Deeds of Phelps County and is attached hereto as Exhibit 6.

3. The Deeds of Trust were recorded against the following real estate owned by David Sickels and Debra Sickels: Lot Seven (7) and Eight (8), Einsel's Second Addition to Holdrege, Phelps County, Nebraska (such property being hereinafter called the “real estate”).

4. Oakland State Bank was merged into Great Western Bank in November of 2004, pursuant to Articles of Merger filed with the Nebraska Secretary of State's office attached hereto as Exhibit 7. Great Western Bank assigned the Deeds of Trust to the Defendant, Oakland ... on December 5, 2005, and such assignment is attached hereto as Exhibit 8. Neither the merger of Oakland State Bank with Great Western Bank nor the assignment from Great Western Bank to Oakland ... were recorded with the Phelps County Register of Deeds or indexed against the real estate at issue.

5. On or about March 1, 2010, the real estate taxes on the property had become delinquent to such an extent that the Phelps County Treasurer offered the taxes for sale pursuant to Neb. Rev. Stat. § 77–1801 et.seq. [ (Reissue 2009).] Situs, LLC purchased a Phelps County Treasurer's Certificate of Tax Sale for the real estate which was subsequently assigned to Vandelay Investments, LLC on February 13, 2013. On or about April 18, 2013, Vandelay Investments, LLC provided notice in accordance with Neb. Rev. Stat. § 77–1801 et.seq. Vandelay Investments, LLC subsequently applied for a Treasurer's Tax Deed and a Treasurer's Tax Deed was issued by the Phelps County Treasurer to Vandelay Investments LLC, on July 25, 2013. Said deed was filed in the office of the Register of Deeds on August 1, 2013. A second Treasurer's Tax Deed was issued by the Phelps County Treasurer to Vandelay Investments, LLC on August 28, 2013 and filed in the office of the Register of Deeds on September 9, 2013. The Treasurer's Tax Deeds are attached hereto as Exhibits 9 and 10.

6. The parties do not dispute the validity of the Treasurer's Tax Deed. The parties agree that the delinquent real estate taxes, notice of sale, and Treasurer's Tax Deed were matters of public record at the time of the Trustee's sale of the real estate.

7. Michael C. Klein was named Substitute Trustee on or about July 31, 2013, for the five (5) deeds of trust assigned to the Defendant, Oakland .... The Notice of Default and Notice of Sale associated with the Trustee's sale are attached hereto as Exhibits 11 and 12, respectively.

8. On October 2, 2013, Defendant, Michael C. Klein conducted a trustee's sale for the real estate. [The appellees] were the highest bidder at the Trustee's sale and [the appellees] paid to ... Michael C. Klein as Trustee the sum of $40,001.00. A copy of the Tellers Check given to the Trustee is attached hereto as Exhibit 13. None of the Defendants [sic] gave notice to the [appellees] or any other bidders that a Treasurer's Tax Deed had been issued with respect to the property. On or about October 3, 2013, ... Michael C. Klein as Trustee, executed a Trustee's deed conveying to the [appellees] the following described property: Lot Seven (7) and Eight (8), Einsel's Second Addition to Holdrege, Phelps County, Nebraska.

The Trustee's Deed is attached hereto as Exhibit 14.

9. Prior to the Trustee's sale, neither [the appellees] nor Defendants [sic] received actual knowledge of the Treasurer's Tax Deed.

10. Following the Trustee's Sale, the [appellees] became aware of competing claims to the title of the Property, specifically the Treasurer's Tax Deed issued to Vandelay Investments.

On January 21, 2014, the appellees filed their complaint against Oakland and the substitute trustee, Michael C. Klein. In their complaint, the appellees alleged that at the time of the trustee's sale, Oakland had no interest in the trustee's deed and, therefore, no interest in the real property. The appellees alleged that they were owed $40,001 plus interest. The appellees did not allege in their complaint a specific basis for recovery, such as rescission due to mistake or unjust enrichment because of a failure of consideration; accident; inadvertence; mutual mistake; relief from caveat emptor based on fraud, misrepresentation, or mistake; or constructive fraud. Nor was the case prosecuted on a specific theory. Compare, French Energy, Inc. v. Alexander , 818 P.2d 1234 (Okla. 1991) ; First Nat. Bank v. Board of Managers , 252 Ill.App.3d 139, 625 N.E.2d 79, 192 Ill.Dec. 119 (1993).

On February 18, 2014, Oakland filed its answer in which it generally denied the allegations set forth in the appellees' complaint. Michael filed a motion to dismiss, and on May 2, the district court filed an order in which it sustained Michael's motion to dismiss. The court allowed the appellees 14 days to amend their complaint to state a cause of action against Michael, and the court stated that if no amended complaint was filed, the matter would proceed with Oakland as the only defendant. The appellees did not file an amended complaint. Accordingly, Michael is not a party to this appeal.

On April 3, 2015, the district court filed an order in which it found in favor of the appellees and against Oakland. With respect to whether Oakland had an obligation to notify bidders at the trustee's sale of the treasurer's tax deeds, the court stated that the parties were in equal positions prior to the trustee's sale and that both parties could have examined the public records. Thus, the court determined that Oakland “did not have an obligation to disclose the tax deeds and there was no implied warranty to do so.”

With respect to whether the trustee's deed contained a representation or warranty that was breached by Oakland, the district court cited Neb. Rev. Stat. § 76–1010(2) (Reissue 2009), which provides in part:

The trustee's deed shall operate to convey to the purchaser, without right of redemption, the trustee's title and all right, title, interest, and claim of the trustor and his or her successors in interest and of all persons claiming by, through, or under them, in and to the property sold, including all such right, title, interest, and claim in and to such property acquired by the trustor or his or her successors in interest subsequent to the execution of the trust deed.

Based on § 76–1010(2), the district court determined that the trustee's deed contained “no representations or warranty as to the quality of title granted by the” trust deed.

With respect to whether the trustee's deed served to convey any rights to the appellees, the district court determined that the trustee's deed did not convey any rights to the appellees because the trustee had no rights to convey. Therefore, the district court determined that the trustee's sale was “improper and a ity.” In making this determination, the district court noted that the parties had stipulated that the treasurer's tax deeds were valid and that the treasurer's tax deeds were recorded on August 28 and September 9, 2013, which was prior to the trustee's sale on October 2. Citing Knosp v. Shafer Properties , 19 Neb.App. 809, 820 N.W.2d 68 (2012), the district court stated that a treasurer's tax deed passes title free and clear of all previous liens and encumbrances. Therefore, the district court stated that “[a]ll of [Oakland's] right, title and interest in the real estate was extinguished by issuance of the tax deeds and therefore [Oakland] had no interest to convey. The trustees [sic] sale should be voided and the money returned to [the appellees].” The district court ordered that Oakland pay the appellees $40,001 plus interest. The court also ordered that costs be taxed to Oakland and...