Veristone Fund I, LLC v. Kerrigan

VERISTONE FUND I, LLC, Appellant, v. MARY-ANN KERRIGAN, and CRAIG CAMPBELL, Respondents.

No. 52934-3-II

Court of Appeals of Washington, Division 2

May 5, 2020

UNPUBLISHED OPINION

SUTTON, A.C.J.

This appeal involves which party has the superior interest in the subject property: Veristone Fund I, LLC or Mary-Ann Kerrigan. Veristone and Craig Campbell together purchased the subject property at a sheriff's sale in 2016, subject to issuance of a sheriff's deed. Veristone provided all the money for the purchase. Campbell subsequently executed a promissory note and a deed of trust on the property in favor of Veristone, but Veristone did not record the deed of trust at that time. In March or April 2017, Kerrigan loaned money to Campbell, and Campbell executed a deed of trust on the subject property to secure repayment. Kerrigan recorded her deed of trust on May 8, and at the time, she had no knowledge of Veristone's interest in the property.

The sheriff's deed transferring title to Veristone and Campbell was recorded on May 10. On May 12, Veristone conveyed to Campbell by quitclaim deed all interest it had in the property, making Campbell the 100 percent owner. Also on May 12, Veristone recorded its deed of trust. After Campbell defaulted on both loans, Veristone later acquired title to the property in a trustee's sale auction. Veristone filed a lawsuit against Campbell and Kerrigan, alleging that its deed of trust was superior to Kerrigan's, and Kerrigan filed counterclaims.^[1] The trial court ruled on cross motions for summary judgment that Kerrigan's deed of trust was superior to Veristone's.

We hold that although Campbell had only an inchoate interest in the property between the initial 2016 sale and May 10, 2017, when the sheriff's deed was recorded, once Veristone quitclaimed 100 percent of its interest to Campbell on May 12, Kerrigan's deed of trust attached to the property under the doctrine of after-acquired title. We also hold that Kerrigan did not have constructive notice of Veristone's superior interest in the property at the time she recorded her deed of trust on May 8. Thus, we hold that the trial court did not err by ruling that Kerrigan's interest is superior to Veristone's, and by granting Kerrigan's motion for summary judgment and denying Veristone's motion for summary judgment. We affirm the trial court's orders.

FACTS

I. The Veristone/Campbell Initial Purchase

On November 21, 2016, Veristone and Campbell purchased the subject property at a sheriff's sale for $36, 813.61 with Veristone fully funding the purchase. On January 9 2017, Campbell executed a promissory note in favor of Veristone in the amount of $32, 965.09 (Veristone note). As a condition of the Veristone note, Campbell agreed not to "encumber, pledge, mortgage, hypothecate, place any lien, charge or claim upon, or otherwise give as security the property or any interest therein . . . without the written consent of [Veristone]." That same day, Campbell secured repayment of the Veristone note by executing a deed of trust naming Veristone as the beneficiary. On March 7, 2017, the sheriff's certificate of sale was recorded with the Lewis County Auditor, but it does not contain any language regarding the respective interests of Veristone and Campbell. CP at 20-22.

II. Kerrigan Note and Deed of Trust

In March or April of 2017, Campbell approached Kerrigan about a loan. He informed her that he had recently purchased the subject property, but he did not mention Veristone's interest in the property. Kerrigan agreed to make a personal loan of $25, 000 to Campbell out of her retirement funds. On April 14, Campbell executed a promissory note in favor of Kerrigan (Kerrigan note) in the amount of $25, 000. On April 19, Campbell secured repayment of the Kerrigan note by executing a deed of trust to the subject property, naming Kerrigan as the beneficiary (Kerrigan deed of trust).

III. Recording of Deeds

On May 8, 2017, the Kerrigan deed of trust was recorded.^[2] On May 10, the sheriff's deed transferring title to Veristone and Campbell was recorded. On May 12, Veristone executed a quitclaim deed in favor of Campbell, conveying 100 percent of its interest to Campbell, and that deed was recorded that same day. Veristone then recorded Campbell's deed of trust on the same day, May 12.

Campbell failed to pay either loan and ultimately was found in default. In November 2017, at a trustee's sale auction, Veristone purchased the property, resulting in a trustee's deed conveying the property to Veristone.^[3]

IV. Veristone's Complaint, Kerrigan's Counterclaims, and Summary Judgment

Veristone filed a lawsuit against Kerrigan and Campbell on November 27, 2017, seeking declaratory judgment and quiet title, claiming that its interest was superior to Kerrigan's. Kerrigan filed counterclaims. Both parties filed cross motions for summary judgment. Veristone argued that the Kerrigan deed of trust had no effect because Campbell only had an inchoate interest after the initial 2016 purchase, and thus he had no interest in the property to encumber on May 8, 2017, when Kerrigan recorded her deed of trust. Kerrigan argued that although Campbell's initial interest was inchoate after the initial 2016 purchase, once Veristone quitclaimed all of its interest to Campbell on May 12, Kerrigan's interest attached to Campbell's interest in the property under the doctrine of after-acquired title. And Kerrigan argued that because she recorded her deed of trust first on May 8, before Veristone recorded its deed of trust on May 12, her interest was superior to Veristone's.

The trial court ruled that Kerrigan's interest was superior, and it granted Kerrigan's cross-motion for summary judgment and denied Veristone's motion. Veristone appeals the trial court's summary judgment orders.

ANALYSIS

I. Standard of Review

We review a superior court's summary judgment order de novo, performing the same inquiry as the superior court and viewing all the facts and reasonable inferences from the evidence in the light most favorable to the nonmoving party. Keck v. Collins, 184 Wn.2d 358, 370, 357 P.3d 1080 (2015). Summary judgment is appropriate when there is no genuine issue of material fact and the moving party is entitled to judgment as a matter of law. CR 56(c).

II. Priority of Interest

Veristone argues that Campbell only held an inchoate interest from the initial 2016 purchase to May 10, 2017, when the sheriff's deed was recorded. Thus, Veristone argues that Campbell had no title interest to convey to Kerrigan when he encumbered the property and her recording of the Kerrigan deed of trust on May 8, had no effect. We agree that Campbell's interest from the initial 2016 purchase of the property until May 10 was inchoate. However, as we discuss below, the doctrine of after-acquired title applies here, and once Veristone quitclaimed all of its interest in the property to Campbell, Kerrigan's deed of trust attached to the property. Because Kerrigan recorded her deed of trust first, her interest was superior to Veristone's.

A. Doctrine of After-Acquired Title-RCW 64.04.070

Kerrigan argues that when Veristone quitclaimed all of its interest to Campbell on May 12, 2017, making Campbell the 100 percent owner, her deed of trust attached to the property under the doctrine of after-acquired title. We agree.

The doctrine of after-acquired title is set forth in RCW 64.04.070:

Whenever any person or persons having sold and conveyed by deed any lands in this state, and who, at the time of such conveyance, had no title to such land, and any person or persons who may hereafter sell and convey by deed any lands in this state, and who shall not at the time of such sale and conveyance have the title to such land, shall acquire a title to such lands so sold and conveyed, such title shall inure to the benefit of the purchasers or conveyee or conveyees of such lands to whom such deed was executed and delivered, and to his or her and their heirs and assigns forever.

(Emphasis added). This doctrine applies when a person conveys property by deed to a second person but has no title to that property, and the conveyor subsequently acquires title to the property. See In re Estate of Frank, 146 Wn.App. 309, 320, 189 P.3d 834 (2008) (citing 17 W.B. Stoebuck and J.W. Weaver, Washington Practice: Real Estate Property Law § 7.8 at 485 (2d ed. 2004). In that situation, title immediately vests in the second person. Stoebuck and Weaver, at 485. The doctrine of after-acquired title applies to title conveyed by sheriff's deed. Gough v. Center, 57 Wash. 276, 278-79, 106 P. 774 (1910).

Here, Campbell conveyed title to the subject property to a trustee by deed of trust, with Kerrigan as the beneficiary. At that time, Campbell arguably had no interest in the property to encumber with a deed of trust because he contributed nothing to the purchase of the property. See Cummings v. Anderson, 94 Wn.2d 135, 140, 614 P.2d 1283 (1980) ("[W]hen . . . it is shown that [purchasers] contributed unequally to the purchase price, a presumption arises that they intended to share the property proportionately to the purchase price."). However, when Campbell subsequently obtained full title to the property through Veristone's quitclaim deed, Kerrigan's deed of trust immediately attached to the property. RCW 64.04.070. Therefore, the Kerrigan deed of trust attached to the property before Veristone recorded its deed of trust.

Veristone argues that the doctrine of after-acquired title does not apply because it transferred title to Campbell by quitclaim deed. This argument is misguided. RCW 64.04.050 states that a quitclaim deed does not extend to after-acquired title unless that intention is expressly stated in the deed. Therefore the...