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Oklahoma Foreclosure Judgments Subject to Dormancy Statute

Posted By USFN, Monday, June 15, 2020

by Kim Pogue Jenkins, Esq.

Baer & Timberlake, P.C.

USFN Member (OK)

 

The Supreme Court of Oklahoma has issued an opinion holding that foreclosure judgments are subject to Oklahoma’s five-year dormancy statute. In HUB Partners XXVI, Ltd. V. Barnett, 453 P.3d 489 (2019), the Court also held that the defendant’s payments made during a Chapter 13 bankruptcy do not toll or extend the dormancy statute.

 

Facts of the Case
Plaintiff/Appellant HUB Partners XXVI, Ltd. (“HUB”) obtained a foreclosure judgment against Defendant/Appellee Thomas Barnett (“Barnett”) on February 24, 2011 in the District Court of Oklahoma County, Case No. CJ-2010-6158. HUB timely issued Execution on its judgment, but Barnett filed a Chapter 13 bankruptcy on March 4, 2011, thereby staying the foreclosure action. HUB received and applied payments from the Bankruptcy Trustee until the Chapter 13 case was dismissed by the Bankruptcy Court on July 13, 2016, for Barnett’s failure to make plan payments.

 

HUB then issued its Alias Execution on the foreclosure judgment on August 19, 2016, and its Second Alias Execution September 22, 2016. The real property was sold at Sheriff’s Auction on December 1, 2016, but Barnett filed his motion to release the judgment and to vacate the Sheriff’s Sale on November 30, 2016. In his motion, Barnett contended that the judgment rendered on February 24, 2011, was unenforceable under Oklahoma’s dormancy statute, 12 O.S. §735.

 

In its response, HUB first argued that Barnett made payments on the judgment through the Chapter 13 Plan, and each of those payments extended the statute of limitations. The final payment made by the Bankruptcy Trustee was on August 1, 2016, so HUB claimed the five-year statute of limitations began on that date. HUB also maintained that the bankruptcy stay tolled the statutory period, relying on Lee v. Epperson, 32 P.2d 309 (1934), which states:

 

“Where the character of legal proceedings is such that the law restrains one of the parties from exercising a legal remedy against another, the running of the statute of limitations applicable to the remedy is postponed, or if it has commenced to run, is suspended, during the time the restraint incident to the proceedings continues.”

 

HUB also claimed that it timely issued its Alias Execution pursuant to 11 U.S.C. §108(c)(2). This provision of the Bankruptcy Code provides that if the statute of limitations had not expired prior to the bankruptcy filing, then it would not expire until “30 days after notice of the termination or expiration of the stay. . .” Although HUB issued its execution 31 days after the Bankruptcy Court sent notice of the dismissal of the case, HUB maintained that the Federal Rules of Civil Procedure allowed it an additional three days, thereby making its Alias Execution a timely issuance under the dormancy statute.

Finally, HUB argued that the dormancy statute did not apply to foreclosure judgments, per Methvin v. Am. Sav. & Loan Ass’n of Anadarko, Okl., 151 P.2d 370 (1044).

The trial court ruled that the foreclosure judgment was dormant under 12 O.S. §735, that the bankruptcy stay did not toll the statute of limitations, and that HUB missed the 30-day extension under 11 U.S.C. §108(2).  The trial court also ruled that the note and mortgage merged into the judgment. HUB timely appealed these rulings, and the Supreme Court of Oklahoma granted certiorari. The two issues considered by the Court were (i) whether the foreclosure judgment was dormant; and (ii) whether the mortgage merged with the foreclosure judgment.

Foreclosure Judgments are Subject to the Dormancy Statute
12 O.S. §735 reads as follows:

 

A.    A judgment shall become unenforceable and of no effect if, within five (5) years after the date of filing of any judgment that now is or may hereafter be filed in any court of record in this state:

(1)   Execution is not issued by the court clerk and filed with the county clerk as provided in Section 759 of this title;

(2)   A notice of renewal of judgment substantially in the form prescribed by the Administrative Directors of the Courts is not filed with the court clerk;

(3)   A garnishment summons is not issued by the court clerk; or

(4)   A certified copy of a notice of income assignment is not sent to a payor of the judgment creditor.

The statute only provides for two exceptions: judgments against municipalities and child support judgments.

Previously the Oklahoma Supreme Court held that a foreclosure judgment did not expire under the statute. See Methvin, above, and Anderson v. Barr, 62 P.2d 1242 (1936). In its de novo analysis of the issue, the Court in this case defined a foreclosure judgment as “the order determining the amount due and ordering the sale to satisfy the mortgage lien.” Since foreclosure judgments do not fall under the two excepted categories, the Court reasoned that foreclosure judgments are within the scope of the statute. In support of this reasoning the Court cited North v. Haning, 229 P.2d 574 (1950), which held that a judgment foreclosing a special assessment lien was subject to the dormancy statute. Extending North to the foreclosure of a mortgage, this Court held, “HUB’s foreclosure judgment is dormant.”

The Court also rejected HUB’s argument that payments applied through the Chapter 13 plan extended the limitation period, quoting Chandler-Frates & Reitz v. Kostich, 630 P.2d 1287 (1081), “(i)n the absence of a statute to the contrary a partial payment will not prevent the running of a dormancy statute.” The Court also noted that the legislature did not carve out an exception to the statute for partial payments, and concluded its analysis of this issue by holding, “We conclude HUB’s payments under the bankruptcy plan did not prevent the dormancy period from running.”

Mortgage does not Merge into Foreclosure Judgment
After deciding that the foreclosure judgment was dormant, the Court went on to analyze whether the subject mortgage merged into the dormant judgment. The Court addressed this question in Anderson and Methvin, cited above. In Anderson the Court examined the very nature of a mortgagee’s rights, finding that “he has a property right in the premises, the value of which is in proportion to the amount which the mortgage bears to the value of the property.” The foreclosure judgment was described as “no more than a direction that the interest and rights of all parties be sold; it is the sale that changes any such rights or interests. A mortgage lien is not merged into a decree of foreclosure, nor is it extinguished by the mere rendition of a decree of foreclosure. It is extinguished only by a sale.” This understanding that the mortgage does not merge into the Court confirmed the judgment in Methvin, stating “a mortgage lien on realty is not merged nor extinguished by a foreclosure decree or judgment.”  In keeping with these prior rulings, here the Court again held that “the mortgage lien did not merge into HUB’s foreclosure judgment.”


In summary, the Court in this case held as follows:

 

“The dormancy statute extinguished HUB’s foreclosure judgment. However, the foreclosure judgment did not extinguish the mortgage lien. The lien can only be extinguished by a sale and application of the proceeds to the judgment, which has not yet occurred. . . . We hold that the dormancy statute does not operate to invalidate the mortgage, which continues to secure the obligation owed by Barnett to HUB; the district court erred in finding that the mortgage merged into the dormant judgment. HUB may prosecute a new action for a judgment based upon its mortgage lien.”

HUB has, with leave of Court, filed its Second Amended Petition in the foreclosure. Oklahoma attorneys and lenders will want to monitor as this case progresses through the District Court.

 

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