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Union Bank, N.A. v. North Idaho Resorts, LLC

Supreme Court of Idaho

January 27, 2017

UNION BANK, N.A., a national banking association, Plaintiff-Respondent,
v.
NORTH IDAHO RESORTS, LLC, an Idaho limited liability company Defendant-Appellant, and PEND OREILLE BONNER DEVELOPMENT, LLC, a Nevada limited liability company, JV, L.L.C. an Idaho limited liability company, DAN JACOBSON, an individual, SAGE HOLDINGS LLC, an Idaho limited liability company, TIMBERLINE INVESTMENTS, LLC, an Idaho limited liability company, STEVEN G. LAZAR, an individual, AMY KORENGUT, an individual, HLT REAL ESTATE LLC, PANHANDLE STATE BANK, an Idaho corporation, R.E. LOANS, LLC, a California limited liability company, WELLS FARGO CAPITAL FINANCE, LLC, a Delaware limited liability company, PEND OREILLE BONNER DEVELOPMENT HOLDINGS, INC., a Nevada corporation, PENSCO TRUST CO. custodian f/b/a Barney Ng, a California corporation, B-K LIGHTING, INC., a California corporation, FREDERICK J. GRANT, an individual, CHRISTINE GRANT, an individual, RUSS CAPITAL GROUP, LLC, an Arizona limited liability company, JOSEPH DUSSICH, an individual, MOUNTAIN WEST BANK, an Idaho corporation, STATE OF IDAHO, DEPARTMENT OF REVENUE AND TAXATION, MONTAHENO INVESTMENTS, LLC, a Nevada limited liability company, TOYON INVESTMENTS, LLC, a Nevada limited liability company, CHARLES W. REEVES and ANNE B. REEVES, husband and wife, ACI NORTHWEST, INC., an Idaho corporation, and DOES 1 through 20, inclusive, Defendants.

         2017 Opinion No. 8

         Appeal from the District Court of the First Judicial District of the State of Idaho, Bonner County. Hon. Michael J. Griffin, District Judge.

         The judgment of the district court is affirmed.

          James, Vernon & Weeks, Coeur d'Alene, for appellant. Susan Weeks argued.

          Stoel Rives LLP, Boise, for respondent. Christopher Pooser argued.

          HORTON, Justice.

         North Idaho Resorts (NIR) appeals from the district court's decision holding that Union Bank N.A. (Union Bank) possessed a superior lien against property known as "Trestle Creek." The district court held that NIR did not possess a vendor's lien because NIR was not the owner of record and that any lien NIR might have possessed had no value. The district court further held that if NIR possessed a valid lien, NIR released any such lien as part of a recorded agreement and that Union Bank was a good faith encumbrancer with no actual or constructive knowledge of the lien.

         On appeal, NIR argues that the district court misconstrued Idaho Code section 45-801. NIR contends that the statute does not require the seller to be the owner of record. NIR asserts that the remaining conditional purchase price constituted an unpaid and unsecured value. NIR argues that Union Bank knew NIR was still owed money under the contract and that Union Bank does not qualify as a good faith encumbrancer. We affirm.

         I. FACTUAL AND PROCEDURAL BACKGROUND

         This case originates from a real estate transaction between NIR and Pend Oreille Bonner Development (POBD). NIR was composed of several limited partners including Pend Oreille Limited. NIR presented undisputed evidence that Pend Oreille Limited transferred equitable ownership of a piece of property, referred to as "Trestle Creek, " to NIR as consideration for being granted membership in NIR. Another party, JV, LLC (JV), possessed a first priority lien, right of first refusal, and right to share in profits from future sales on another parcel owned by NIR referred to as "Moose Mountain."

         On March 9, 2006, NIR entered into a purchase and sale agreement with POBD to sell several properties around Lake Pend Oreille, including the Trestle Creek property and Moose Mountain, in addition to a golf course that POBD planned to renovate and develop. The agreement identified NIR as the seller. JV relinquished all rights relating to Moose Mountain as a part of the agreement in exchange for a first priority lien on Trestle Creek. The purchase price included a down payment of $4.75 million, a promissory note of $511, 000 payable to NIR, and POBD's assumption of two loans with JV and R.E. Loans. As part of the agreement, Pend Oreille Limited transferred ownership of record of Trestle Creek to POBD.

         On March 15, 2007, NIR recorded a Partial Termination Agreement, releasing lots that had been purchased prior to the main purchase and sales agreement by POBD's predecessor, Pend Oreille Bonner Investments, LLC. The termination agreement contained two "Exhibit 'A'" attachments (hereinafter Exhibit A[1] and Exhibit A[2]), used to reference the properties covered by the agreement. Exhibit A[2] included Trestle Creek in the description, while Exhibit A[1] did not. The Partial Termination Agreement was re-recorded on March 11, 2009, to correct the legal description and remove Exhibit A[2]. At the same time as the original Partial Termination Agreement, POBD and NIR executed a subordination agreement, whereby NIR subordinated its vendor's lien to R.E. Loans, so that POBD could increase the loan amount from R.E. Loans. That subordination agreement contained an identical Exhibit A[2] to that filed with the original Partial Termination Agreement. The exhibit filed with the subordination agreement included Trestle Creek.

         POBD sought a loan from Union Bank[1] in 2008. The loan was granted on March 7, 2008, and the mortgage on Trestle Creek securing the loan was recorded March 25, 2008. Subsequently, JV and R.E. Loans recorded subordination agreements to Union Bank's mortgage, which were filed August 6, 2008. POBD repaid the loan to R.E. Loans and completed all of the payment terms with NIR except for those conditioned on bulk sales or reaching $80 million in sales, as those conditions had not yet been fulfilled.

         POBD defaulted on the Union Bank loan. On May 12, 2011, Union Bank filed a complaint to foreclose against the Trestle Creek property. On June 14, 2012, NIR filed a counterclaim against Union Bank and a cross-claim against JV claiming a first priority lien. Other than NIR and JV, all defendants named by Union Bank in the foreclosure complaint either defaulted or stipulated that Union Bank's mortgage was superior to any lien they may have had ...


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