JP Morgan Chase Bank, NA v. Wright

2015 UT App 301

THE UTAH COURT OF APPEALS

JP MORGAN CHASE BANK, NA,
Appellee,
v.
SHANNON WRIGHT AND RUSSELL S. WALKER,
Appellants.

Memorandum Decision
No. 20140625-CA
Filed December 17, 2015

Third District Court, Salt Lake Department
The Honorable Robert P. Faust
No. 120900600

Russell S. Walker, David R. Williams, and Anthony
M. Grover, Attorneys for Appellants
Leslie Van Frank and Bradley M. Strassberg,
Attorneys for Appellee

SENIOR JUDGE RUSSELL W. BENCH authored this Memorandum
Decision, in which JUDGES JOHN A. PEARCE and KATE A. TOOMEY
concurred.1

BENCH, Senior Judge:

¶1 Shannon Wright2 appeals the district court’s order
granting summary judgment in favor of JP Morgan Chase Bank,

1. The Honorable Russell W. Bench, Senior Judge, sat by special
assignment as authorized by law. See generally Utah R. Jud.
Admin. 11-201(6).

2. The other appellant, Russell S. Walker, is also a party to this
action in his capacity as trustee for the all-inclusive trust deed.
But for simplicity, we refer only to Wright throughout this
opinion.
JP Morgan Chase Bank v. Wright

NA (Chase) and denying Wright’s motion for summary
judgment. She also challenges the district court’s award of
attorney fees to Chase. We affirm.

¶2 In 2004, Daniel and Eden Ellingson agreed to purchase
Wright’s home. The Statement of Settlement, dated June 25, 2004,
indicated that the parties agreed to a purchase price of $650,000,
that Wright would provide a ‚New Loan‛ in the amount of
$341,000 to the Ellingsons, and that the balance due from the
Ellingsons, after a credit for interest and taxes, was $307,061.96.
A promissory note (the first promissory note) and an all-
inclusive trust deed (the AITD), also dated June 25, 2004,
evidenced a secured debt to Wright in the amount of $341,000.
The AITD indicated that it was ‚subject and subordinate to‛ a
previous mortgage from Countrywide Bank, also in the amount
of $341,000 (the Countrywide mortgage). The AITD further
provided, ‚Nothing in this Trust Deed, the Note, or any deed in
connection herewith shall be deemed to be an assumption by the
Trustor of the [Countrywide mortgage+.‛

¶3 Another promissory note (the second promissory note)
and trust deed (the $309,000 trust deed), both dated August 11,
2004,3 were drafted to secure the additional $309,000 debt owed
to Wright and her ex-husband as joint tenants. The promissory
note provided that the full $309,000 would be due five years
from the date of the note. The $309,000 trust deed was not
recorded until October 2005. Wright maintains that she was
unaware of these two instruments until after 2009.4

3. Although both documents are dated August 11, 2004, Eden
Ellingson indicated in her deposition that she did not sign the
trust deed until October 6, 2005, when it was notarized, and that
she did not remember when she signed the promissory note.

4. Wright’s ex-husband, Travis Wright, handled the details of the
sale to the Ellingsons.

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JP Morgan Chase Bank v. Wright

¶4 In August 2004, the Ellingsons borrowed $400,000 from
Chase.5 Chase recorded a trust deed securing the loan on August
12, 2004. From that loan, $333,667.07 was remitted directly to
Countrywide to pay off the balance remaining on the
Countrywide mortgage at that time. An additional $7,332.93—
the difference between the $341,000 secured by the AITD and the
payoff amount of the Countrywide mortgage—was disbursed to
Wright. By virtue of these payments, Chase believed that the
AITD had been satisfied and that its trust deed would be in first
position.

¶5 The Ellingsons made no additional payments to Wright
and subsequently filed for bankruptcy. On April 29, 2011,
Wright filed a notice of default and sought to foreclose the AITD.
Chase demanded that Wright release the AITD based on the
satisfaction of the Countrywide mortgage, but she refused.
Chase then filed a complaint against Wright, requesting that the
court order Wright to release the AITD or, alternatively, that the
court equitably subrogate the AITD to Chase’s trust deed.

¶6 The parties filed cross-motions for summary judgment.
Because the AITD refers to both a new loan from Wright in the
amount of $341,000 and the Countrywide mortgage, also in the
amount of $341,000, Wright asserted in the district court that the
AITD ‚references and secures a total debt of $682,000.‛ Chase,
on the other hand, argued that the AITD secured only $341,000
of the purchase price and that Wright was to use that
$341,000 to pay off the Countrywide mortgage. According to
Chase, the balance of the purchase price was secured by the
$309,000 trust deed, which was recorded after Chase’s trust
deed. The district court granted Chase’s motion and denied
Wright’s, concluding that ‚*w+hen the Countrywide loan of
$341,000 was paid off, it also satisfied the promissory note and

5. The loan was actually obtained from Washington Mutual
Bank, Chase’s predecessor in interest, but for simplicity, we refer
to both entities as Chase.

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JP Morgan Chase Bank v. Wright

trust deed recorded for $341,000 by virtue of being an all
inclusive trust deed.‛ The district court accordingly entered
judgment declaring that the AITD was ‚invalid and of no further
force and effect‛ and awarding Chase attorney fees. Wright
appeals.

I. Summary Judgment

¶7 Wright asserts that the district court erred in granting
Chase’s motion for summary judgment and denying her motion.
‚We review a district court’s grant of summary judgment for
correctness and afford no deference to the court’s legal
conclusions.‛ Salt Lake City Corp. v. Big Ditch Irrigation Co., 2011
UT 33, ¶ 18, 258 P.3d 539.

¶8 In the district court, Wright argued that the AITD secured
a total debt of $682,000—a $341,000 obligation to Wright and an
additional $341,000 obligation equal to the amount owing on the
Countrywide mortgage. On appeal, she instead states that the
AITD should have been drafted in this way but acknowledges
that, as prepared, the AITD secured ‚only . . . the $341,000
*promissory note+.‛ Nevertheless, she asserts that the $341,000
promissory note ‚requires the Ellingsons to pay Wright, and
Wright alone‛ and that no provision in the note or the AITD
permitted the Ellingsons to satisfy their obligation under those
instruments by paying off the Countrywide mortgage on
Wright’s behalf.6

6. As far as we can tell, this variation of Wright’s argument
appeared for the first time on appeal, but because Chase has not
challenged the argument as unpreserved, and because Wright’s
argument is, admittedly, complicated, we will assume that the
argument is preserved. We do not, however, address Wright’s
unpreserved argument regarding alleged mistakes made by the
title company.

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JP Morgan Chase Bank v. Wright

¶9 The district court determined that ‚by virtue of being an
all inclusive trust deed,‛ the AITD was satisfied when Chase
paid off the Countrywide mortgage. We agree and hold that this
is so even under Wright’s reframed argument that the first
promissory note and the AITD required the Ellingsons to pay
Wright directly rather than Countrywide.

¶10 An all-inclusive trust deed or

wraparound mortgage may be defined as a second
mortgage which includes or ‚wraps around,‛
but does not assume or extinguish the amount
of an obligation under a prior mortgage on the
property conveyed, with the buyer-wraparound
mortgagor’s payments being calculated on the
aggregate, plus interest, of the seller-wraparound
mortgagee’s outstanding first-mortgage obligation
plus the balance of the purchase price owed by the
buyer-wraparound mortgagor.

James L. Isham, Annotation, Validity and Effect of “Wraparound”
Mortgages Whereby Purchaser Incorporates into Agreed Payments to
Grantor Latter’s Obligation on Initial Mortgage, 36 A.L.R. 4th 144,
§ 2[a] (1985) (footnote omitted); see also id. § 1[a] n.1 (indicating
that ‚‘wraparound mortgage,’ . . . ‘all-inclusive mortgage,’ ‘hold
harmless mortgage,’ *and+ ‘overlapping mortgage’‛ are
synonymous). Here, rather than secure the entire amount of the
purchase price using an all-inclusive trust deed, the parties
drafted a promissory note covering the amount of the
Countrywide mortgage and secured it with the AITD. They then
drafted a second promissory note and trust deed to secure the
rest of the purchase price. This $309,000 trust deed, despite being
dated the day before Chase’s trust deed was recorded, was
ultimately recorded in second priority to the trust deed securing
Chase’s loan to the Ellingsons, indicating the parties’ intent that
Wright’s interest in the remaining $309,000 be subrogated to
Chase’s mortgage.

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JP Morgan Chase Bank v. Wright

¶11 Wright’s argument essentially asks that the funds paid to
Countrywide on her behalf be credited against the second
promissory note rather than the first promissory note, leaving
intact her first priority interest under the AITD. While we
acknowledge Wright’s point that no provision in the $341,000
promissory note explicitly permitted the Ellingsons to pay
Countrywide directly rather than Wright, the parties’ use of an
all-inclusive trust deed, as well as their reference to the
Countrywide mortgage in the AITD, directly links payment of
the Countrywide mortgage to satisfaction of the first promissory
note.

¶12 ‚The principal defining characteristic of a *wraparound
mortgage] is the ‘wrapping’ of the existing debt owed by the
seller to a prior seller or lending institution. The new buyer
obligates herself or himself to the seller, who in turn remains
obligated to pay the existing mortgage debt.‛ Adams v. George,
812 P.2d 280, 282 (Idaho 1991). ‚*I+n the usual wraparound
situation, the seller-wraparound mortgagee remains primarily
responsible for paying his prior first mortgage, and makes
payments on such first mortgage out of the amounts forwarded
to him by the buyer-wraparound mortgagor.‛ Isham, 36 A.L.R.
4th 144, § 2[a]. Thus, even if the Ellingsons had used the Chase
loan to pay Wright directly, Wright would have been obligated,
consistent with the AITD, to use those funds to pay off the
Countrywide mortgage and she would be in the same position
she is in now.

¶13 Furthermore, the parties’ explicit declaration that
‚*n+othing in this *AITD or promissory note+ . . . shall be deemed
to be an assumption by the Trustor of the [Countrywide
mortgage+‛ indicates that the parties did not anticipate that the
Ellingsons would be required to pay off the Countrywide
mortgage in addition to paying off the first promissory note. The
second promissory note and its accompanying trust deed
confirm this, as they secure the remainder of the purchase price

20140625-CA 6 2015 UT App 301
JP Morgan Chase Bank v. Wright

owed to Wright in excess of what was owed to Countrywide—
$309,000.7 Indeed, if the Ellingsons were required to pay the total
$341,000 owed to Wright under the first promissory note in
addition to the funds already remitted to pay off the
Countrywide mortgage, they would ultimately end up paying
approximately $24,667 more than the contracted purchase price
of the home.

¶14 ‚*W+hen *a+ debt is paid . . . the lender no longer has a
legitimate interest in the security . . . .‛ Hector, Inc. v. United Sav.
& Loan Ass’n, 741 P.2d 542, 545 (Utah 1987); see also 55 Am. Jur.
2d Mortgages § 318 (‚*A+ mortgage cannot survive the extinction
of the debt.‛). Thus, because the parties’ use of an all-inclusive
trust deed demonstrated their intent that repayment of the
$341,000 promissory note be used to pay off the Countrywide
mortgage, the Ellingsons’ action in paying Countrywide directly
had the effect of extinguishing the debt on the $341,000
promissory note. Accordingly, the district court did not err in
declaring the AITD to be ‚of no further force or effect‛ and in
granting Chase’s motion for summary judgment.

II. Attorney Fees

¶15 Wright next argues that the district court erred in
awarding Chase its attorney fees pursuant to Utah Code section
57-1-38. ‚Generally the grant or denial of attorney fees is left to
the district court’s sound discretion. However, to the extent that
the *court’s ruling+ depends upon an interpretation of the
applicable statute, the district court’s determination about what

7. Despite Wright’s implicit assertion that payment of the
Countrywide mortgage should be credited against the portion of
the purchase price secured by the second promissory note,
Wright has since assigned the second promissory note and trust
deed to her mother to settle a debt owed by Wright’s ex-
husband, and Wright’s mother has made demand on the
Ellingsons to pay the note.

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JP Morgan Chase Bank v. Wright

the law requires is reviewed for correctness.‛ Warner v. Warner,
2014 UT App 16, ¶ 16, 319 P.3d 711 (citations omitted).

¶16 Utah Code section 57-1-38 provides that

[a] secured lender . . . who fails to release the
security interest on a secured loan within 90 days
after receipt of the final payment of the loan is
liable to another secured lender on the real
property or the owner or titleholder of the real
property for . . . reasonable attorneys’ fees and
court costs.

Utah Code Ann. § 57-1-38(3) (LexisNexis 2010). Nevertheless, an
award of attorney fees for failing to release a trust deed ‚is penal
in nature and . . . is not meant to penalize one who honestly,
though mistakenly, refuses to release or discharge [the trust
deed] because he believes that there has been no full
satisfaction‛ of the debt. Shibata v. Bear River State Bank, 205 P.2d
251, 254 (Utah 1949) (discussing the propriety of a fee award
against a party who fails to release a mortgage); see also Hector,
741 P.2d at 545 (indicating that the statute governing release of
mortgages is ‚similar in wording and purpose‛ to the statute
governing release of trust deeds). Thus, a party’s good faith in
failing to release a trust deed is ‚an affirmative defense to an
action brought under‛ section 57-1-38. See Hector, 741 P.2d at 545
(considering an award of attorney fees under the predecessor
statute to section 57-1-38).

¶17 Wright maintains that she should not be required to pay
attorney fees because she acted in good faith in refusing to
release the AITD. However, parties are required to plead
affirmative defenses in their responsive pleading. See Utah R.
Civ. P. 8(c). Although Chase requested attorney fees pursuant to
Utah Code section 57-1-38(3) in its complaint, Wright did not
raise good faith as an affirmative defense in her answer, and we
are not aware of any attempt by Wright to amend her answer.

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Furthermore, the district court observed that ‚none of the ‘facts’
set forth in *Wright’s+ memorandum‛ in opposition to the award
of attorney fees ‚are supported by any citation to the record, and
no affidavit has been submitted.‛ Thus, Wright waived her
good-faith defense, and the district court properly granted
attorney fees to Chase. See id. R. 12(h).

III. Conclusion

¶18 We conclude that the first promissory note was satisfied
when Chase paid off the Countrywide mortgage and remitted
the balance of the $341,000 to Wright. Accordingly, the district
court correctly granted summary judgment in favor of Chase.
Furthermore, because Wright failed to plead good faith as an
affirmative defense to an award of attorney fees, the district
court did not err in awarding Chase its fees. Because Chase was
awarded its fees in the district court and requested fees on
appeal, Chase is also entitled to an award of its fees incurred on
appeal. See Pack v. Case, 2001 UT App 232, ¶ 39, 30 P.3d 436
(‚When a party who received attorney fees below prevails on
appeal, the party is also entitled to fees reasonably incurred on
appeal.‛ (citation and internal quotation marks omitted)). Thus,
we affirm the district court’s rulings but remand for the district
court to calculate an award of fees and costs on appeal.

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