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Paul Knudson, Personally and Individually v. Primary Residential Mortgage

June 17, 2011

PAUL KNUDSON, PERSONALLY AND INDIVIDUALLY,
PLAINTIFF,
v.
PRIMARY RESIDENTIAL MORTGAGE, INC., DEFENDANT.



The opinion of the court was delivered by: Honorable Candy W. Dale Chief United States Magistrate Judge

MEMORANDUM DECISION AND ORDER

INTRODUCTION

Before the Court is the Motion for Summary Judgment (Dkt. 20) filed on March 11, 2011, by Defendant Primary Residential Mortgage, Inc. Plaintiff Paul Knudson, who appears pro se, filed a response on March 29, 2011, and Defendant filed its reply on April 15, 2011. The Court reviewed the record and determined that the motion would be decided before the Court without oral argument. (Dkt. 30.) The Court finds that judgment should be granted in favor of Defendant for the reasons explained below.

FACTS

On December 31, 2001, Plaintiff Paul Knudson and his wholly-owned entity J.R. Development, LLC (collectively, "Knudson"), entered into a Construction Loan Agreement to develop the Bishop Ranch Property. (Decl. of K. Knudson ¶ 3-4, Ex. 1 Dkt. 22; Aff. of Knudson ¶ 3 Dkt.25-2.) A Promissory Note was entered into in conjunction with the 2001 loan agreement, and the loan was secured by a Deed of Trust encumbering the Bishop Ranch Subdivision. (Decl. of K. Knudson ¶ 4--5, Dkt. 22.) A series of loan modifications extended the term of the 2001 Note and increased the amounts loaned under the Construction Loan Agreement. (Decl. of K. Knudson ¶ 6--7, Dkt. 22.)*fn1 The Construction Loan Agreement is comprised of Notes with loan numbers 888-100 and 888-400. (Id.)

Plaintiff Primary Residential Mortgage, Inc. ("PRMI") determined that as of December 22, 2007, Knudson was in default of his obligations under the Construction Loan Documents, as well as under other obligations owed to PRMI. (Decl. of K. Knudson ¶ 9, Dkt. 22.) Kenneth Knudson,*fn2 the Vice President of Finance for PRMI, reviewed Knudson's loan relationship with PRMI to explore solutions for resolving Knudson's defaults under the Construction Loan Documents, and prepared a summary of his findings and recommendations. (Decl. of K. Knudson ¶ 9--10, Ex. 5, Dkt. 22.) Knudson did not respond until April 22, 2008. In his response, Knudson requested that PRMI advance additional funds for work performed by subcontractors hired to improve the Bishop Ranch Subdivision. (Decl. of K. Knudson ¶ 13--14.)

As a condition of the Construction Loan Documents, Knudson was required to provide lien waivers when he requested funds to reimburse subcontractors, which Knudson failed to do in conjunction with the April 22, 2008 request. (Decl. of K. Knudson ¶ 13--14, Dkt. 22.) The Construction Loan Agreement specifically required that Knudson attach to each application for an advance of funds executed acknowledgments of payments of all sums due and lien releases from any party having lien rights. (Decl. of K. Knudson Ex. 1 at 10, Dkt. 22-1.) The Construction Loan Agreement prohibited the existence of a condition constituting a default under the Agreement at the time of any advance request. (Decl. of K. Knudson Ex. 1 at 10, Dkt. 22-1.) If Knudson was not in compliance with the provision of the Construction Loan Agreement, the loan documents specified that PRMI may, at its option, "refuse to make further Advances, [or] may accelerate the indebtedness . . . ." (Decl. of K. Knudson Ex. 1 at 11, Dkt. 22-1.) As of April 22, 2008, PRMI declined to advance additional funds to Knudson under the Construction Loan Documents. (Decl. of K. Knudson ¶ 16, Dkt. 22.)

The Construction Loan Documents contained a cross-default clause specifying that if the Borrower (Knudson) failed to comply with any obligation owed to PRMI in any other agreement, such failure would constitute a default under the Construction Loan Documents. (Decl. of K. Knudson Ex. 1 at 14, Dkt. 22-1.) In addition, if the Bishop Ranch Subdivision no longer provided adequate collateralization, such defective collateralization constituted an event of default. (Decl. of K. Knudson Ex. 1 at 15, Dkt. 22-1.) Finally, the filing of any lien by a subcontractor constituted an event of default. (Decl. of K. Knudson Ex. 1 at 13, Dkt. 22-1.)

On August 3, 2009, PRMI sent a Notice of Default pursuant to the provisions of the Deeds of Trust, which specified the defaults, actions required to cure, the cure period, and the consequences of failure to cure. (Decl. of K. Knudson ¶ 18, Ex. 8, Dkt. 22.) The Notice of Default specified that five loans were in default for non-payment, with a total amount due to cure the defaults of $1,497,586.83. The Notice of Default specified defaults under Loan Numbers 888-101; 888-124; 888-300; 888-400; and 888-433. (Decl. of K. Knudson Ex. 8, Dkt. 22-9.) Specifically, Knudson failed to make monthly payments on Loan No. 705-1000649 between January and July of 2008; and failed to make monthly payments on Loan No. 888-101 after April 1, 2007; on Loan No. 888-124 after December 1, 2006; and on Loan No. 888-433 after April 7, 2007. (Decl. of Arnoldus ¶¶ 6--7 Dkt. 28.)

PRMI notified Knudson that each of the Notes contained cross-default and cross-collateralization provisions. (Decl. of K. Knudson Ex. 8, Dkt. 22-9.) In addition, Anderson Excavating, LLC had filed a Notice of Claim of Lien against the Bishop Ranch Property on July 9, 2008. (Decl. of K. Knudson Ex. 7, Dkt. 22-7.)

After failing to cure the defaults, PRMI, as beneficiary under the Trust Deeds, instructed Alliance Title & Escrow Corp., as trustee, to sell certain real property in the Bishop Ranch Subdivision to satisfy Knudson's obligations under the Construction Loan Documents. (Decl. of K. Knudson ¶ 19, Dkt. 22.) Alliance Title & Escrow Corp. conducted duly noticed Trustee's Sales on April 1, 2010 and April 15, 2010. (Decl. of K. Knudson ¶ 20, Dkt. 22.) PRMI credit bid the sum of $1,034,582.03 for the foreclosed properties and was the successful buyer. (Decl. of K. Knudson ¶ 20, Ex. 9, Dkt. 22.)

On May 27, 2010, Knudson demanded that PRMI pay the final amounts due to Knudson's subcontractors. (Decl. of K. Knudson ¶ 17, Ex. 7A, Dkt. 22.) Knudson acknowledges the 2001 Construction Loan Agreement, but claims he was never in default of its terms. (Aff. of Knudson ¶ 8, Dkt. 25-2.) According to Knudson, PRMI's failure to fund draws and his claim for such is related to a prior lawsuit, Vanderford Co. Inc. v. Knudson, 165 P.3d 261 (Idaho 2007).

The prior lawsuit was commenced in 2001, when PRMI*fn3 brought an action against Knudson and his LLC to recover $500,000 in construction loan funds and foreclose on its trust deeds related to other real property. (Aff. of Knudson ¶ 4--5, Dkt. 25-2.) At the same time, PRMI and Knudson entered into the Construction Loan Agreement to fund the Bishop Ranch Development. (Aff. of Knudson ¶ 4.) The Idaho Supreme Court found that the Notes did not incorporate the real property as collateral for the loans, and therefore PRMI could not foreclose. The court remanded the case for a new trial. Vanderford Co., Inc., 165 P.3d at 273.

PRMI and Knudson settled all issues between them concerning the Vanderford lawsuit by entry of judgment dated April 29, 2002. (Aff. of Knudson ¶ 5, Dkt. 25-2.) Knudson denies that he was "in default" with respect to the terms of the judgment entered against him. (Aff. of Knudson ¶ 6, Dkt. 25-2.) Concerning the 2001 Construction Loan Agreement, Knudson similarly states that he "does not believe that he was 'In Default' on December 22, 2007, or at any time during the 'times material to this action.'" (Aff. of Knudson ¶ 8, dkt. 25-2.) Rather, Knudson claims that he and PRMI entered into an agreement in December of 2007 to change the scope of work for the Bishop Ranch ...


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