Wilson v. Glancy

1995 OK 141, 913 P.2d 286, 1996 Okla. LEXIS 40, 1995 WL 731244

• Court: Supreme Court of Oklahoma
• Decided: March 12, 1996
• Docket: 79357
• Status: Published

Opinions

HARGRAVE, Justice.

Certiorari to Court of Appeals, Temporary Lawyer Staffed Panel LXXX, to review an unpublished opinion of the Court of Appeals. The issue, on summary judgment, is whether a second mortgagee who bid in the full amount of his secured debt at the foreclosure sale in order to obtain his portion of the mortgaged property, subsequent to the fire loss, retains any insurable interest entitling him to proceeds from a fire insurance policy containing a standard mortgage clause.

SUMMARY OF FACTS AND PROCEDURAL HISTORY

Jo Dell Glancy owned residential property that had two mortgages. The Commonwealth Mortgage Company held the first mortgage of $30,908.11 and Harold Wilson held the second mortgage of $10,000.00. Glancy had a homeowner’s fire-insurance policy in effect, in which both mortgagees were covered by a standard or union mortgage clause. When Glancy was in default, Wilson, the second mortgagee, began foreclosure proceeding. On April 20, 1990, the foreclosure and order of sale were entered, The order directed that the property be sold by the Sheriff to the highest and best bidder, subject to the first mortgage. Wilson had in personam judgment against Glancy for $10,-000.00 and in rem judgment of interest and cost and a first-priority judgment for $3,174.60, and also further interest and costs totaling $6,700.40. The total of all judgments was $19,875.00.

On August 23, 1990 the improvements on the property were damaged by fire. The undisputed amount of the damages was $43,-171.85. Glancy and Wilson disputed as to who would own the insurance proceeds. Glancy had moved for a stay and to prevent the sale because, she argued, the property was covered by the insurance policy and Wilson would recover his judgment from the insurance proceeds. Wilson opposed the motion and prevailed.

On October 23,1990, the property was sold at the Sheriff’s sale, without any move to modify the court’s order of April 20, 1990, and without any notice or mention of the fire damage, or the insurance policy. At the auction, Wilson bid on the property, subject to the first mortgage, for the full amount of the second mortgage indebtedness. That bid in the full amount of the his mortgage lien was accepted and ultimately confirmed by the court. The notice of the sale did not include any mention of the fire damage of the insurance policy.

After Wilson became the partial owner of the property, he argued that his second mortgagee lien survived the foreclosure and judicial sale so that he, as mortgagee, still retained his interest as a beneficiary under the insurance policy and thus was entitled to the insurance proceeds. Glancy argued that the sale of the property for the full amount of the mortgage constituted a satisfaction of the entire indebtedness secured by the mortgage and, therefore, extinguished any right Wilson would have to the insurance proceeds. The trial court granted summary judgment for Glancy and ordered the insurer to pay the first mortgage holder and pay Glancy the balance. The second mortgagee appealed and the Court of Appeals affirmed.

In Willis v. Nowata Land and Cattle Co., Inc., 789 P.2d 1282 (Okl.1989), this court addressed a claim similar to the present fact pattern. In that case, the mortgagee purchased the foreclosed property at sheriff’s sale for the entire amount owed by the mortgagor. The sheriff’s sale to the mortgagee stood confirmed but the effect of the sale was stayed pending appeal. The day after confirmation, the premises were destroyed by fire. The trial court ruled the insurance proceeds should be paid to the mortgagee. The trial court also refused to give the mortgagor credit on the adjudicated mortgage debt for the amount of the mortgage proceeds. This Court held:

Had the lender pressed for a deficiency judgment, the borrower clearly would not have been barred from counterclaiming for surplus or any other credit. Similarly, here, the borrower raises a genuine post-confirmation issue by its quest of the fire loss indemnity; if allowed to reduce the amount due lender on the judgment, the insurance proceeds would not so much alter the terms of the now confirmed judicial sale as they would create postconfirmation credit in borrower’s favor.

There are two types of insurance policy clauses which protect the mortgage lender against hazards of loss or damage to mortgaged premises: (1) the loss payable clause and (2) the standard mortgage clause.

Under the loss payable clause the mortgage lender has a derivative right to recover the insurance proceeds, which is completely dependent upon the validity of mortgagor’s (borrower’s) claim against the insurer, The mortgage lender’s interest in the funds is treated as a security for Ms debt and ceases when that debt is extinguished.

The standard mortgage clause on the other hand, operates to create an independent contract between the msurer and the mortgage lender so as to protect the latter from the borrower’s misconduct and to sMeld the lender’s own interest in the property.

789 P.2d at 1286-1286 (footnotes omitted).

In the present case Wilson, the Mortgagee, claims that the insurance policy covering the property destroyed by fire contained a standard mortgage clause. The policy in the case at bar reads in pertinent part:

12. Mortgage Clause. The word “mortgagee” includes trustee:

a. If a mortgagee is named in tMs policy, any loss payable under Coverage A shall be paid to the mortgagee and you, as interests appear. If more than one mortgagee is named, the order of payment shall be the same as the order of precedence of the mortgages.

In Fidelity-Phenix Fire Insurance Co. v. Cleveland, 57 Okl. 237, 156 P. 638, 639 (1916) this Court held that a umon or standard mortgage clause must not only contain the language that the loss should be payable to the mortgagee as Ms mterest may appear, but must also contain the language which in essence states that the policy will not be invalidated by acts or neglect of the insured. TMs language creates an mdependent contract between the mortgagee and the insurer. See also, Willis v. Nowata Land and Cattle Company, Inc., 789 P.2d 1282, 1285 [footnote 19] (Okl.1989); Western Assurance Co. v. Hughes, 179 Okla. 254, 66 P.2d 1056 (1936); National Fire Insurance Co. v. Dallas Joint Stock Land Bank, 174 Okla. 596, 50 P.2d 326 (1935). We find the mortgage clause m the present case to be a standard mortgage clause.

The question presented m this case was more specifically addressed m National Fire Insurance Co. v. Finerty Investment Co., 170 Okla. 44, 38 P.2d 496 (1934). In that case the second Mortgagee attempted to recover on a fire insurance policy wMch contained a standard or umon mortgage clause1. Mortgagee moved to foreclose on the second mortgage in 1926. Judgment of foreclosure was taken on the second mortgage on February of 1927. Order of sale was issued in October of 1927. In November of 1927, the mortgaged property was completely destroyed by fire. After the fire, the Mortgagee bid on the property at the foreclosure sale for approximately half of the second mortgage amount. At trial the court awarded the Mortgagee the full amount of the policy. On appeal tMs Court affirmed the trial court holdmg that the insurance policy contained a umon or standard mortgage clause and was an independent contract that contemplated the possibility of foreclosure of the mortgage and afforded full protection to the mortgagee or its assigns at all stages involved in the foreclosure. TMs Court then held that under a standard or umon mortgage clause:

The time of the fire and of the loss establishes the rights of the parties and the amount of the loss payable to the mortgagee or its assigns up to the sum fixed in the policy. [Citing Savarese v. Ohio Farmers’ Insurance Co., 260 N.Y. 45, 182 N.E. 665 (1932).]

38 P.2d at 498.

The body of case law that permits the mortgagor to collect msurance proceeds under similar mstances of loss have dealt with msurance policies that contained loss payee clauses rather than a standard or union mortgage clause². Under such policies, the mortgagee’s interest in the insurance proceeds is treated as a security for his debt and ceases when that debt is extinguished. See, Willis v. Nowata Land and Cattle Company, Inc., 789 P.2d 1282, 1286 (Okl.1989). Had the mortgage clause in the present case been a loss payee clause, then the act of purchasing the property at the sheriffs sale would have extinguished the debt and the mortgagee would have been barred from recovery of the insurance proceeds. See, Aetna Insurance Co. v. O.E. Woods Lumber Co., 182 Okl. 65, 76 P.2d 273, 275-276 (1938).

D

Also inherent in the present ease was the mortgagor’s right to redeem the property which would have entitled the mortgagor to the insurance proceeds. The mortgagor may not be divested of title until the right to redeem is extinguished by foreclosure decree and foreclosure sale. Coursey v. Fairchild, 436 P.2d 35, 39 (Okl.1967) The right to redeem is defined by 42 O.S.1991, § 18, which reads:

Every person having an interest in property subject to a lien, has a right to redeem it from the lien, at any time after the claim is due, and before his right of redemption is foreclosed.

Furthermore, the right to redemption is not foreclosed until the sheriffs sale is confirmed. Mills v. Reneau, 411 P.2d 516, 520 (Okl.1965). Hence, the mortgagor has a right to discharge the debt prior to the confirmation of the foreclosure and, if discharged, the lien and entire estate is restored as if the mortgage never existed. See, Sooner Federal Savings and Loan v. Oklahoma Central Credit Union, 790 P.2d 526, 528 (Okl. 1989); Lincoln Mortgage Investors v. Cook, 659 P.2d 925, 928 (OM.1982). There is no evidence in the present case that the mortgagor ever attempted to redeem the property. The rights of the mortgagor to redeem the property were divested in the present case when the sheriffs sale was confirmed. Therefore, the mortgagor is not entitled to any of the insurance proceeds³. Had the price received at the sheriffs sale for foreclosed property exceeded the debt secured by that property, the money over and above what was owed to the creditor would not be retained by the creditor, but would, in fact, be returned to the debtor ⁴. That is not the scenario in the present matter. The insurance policy in the present case was of the type designed to protect the mortgagee’s interest in the payment of the debt owed on the property, even through foreclosure. The second mortgagee in this matter was named in the policy as a beneficiary under a standard mortgage clause. The mortgagor, Glancy, at no time attempted to redeem the property. The second mortgagee suffered a loss and is entitled to the insurance proceeds. Therefore, the grant of summary judgment was in error under the law of Oklahoma and the second mortgagée, Wilson, is entitled, as a matter of law, to the insurance proceeds and this case is remanded with instructions to enter judgment in Wilson’s favor for the insurance proceeds as his interest may appear.

If, on any sale made as aforesaid, there shall be in the hands of the sheriff or other officer more money than is sufficient to satisfy the writ or writs of execution, with interest and costs, the sheriff or other officer shall, on demand, pay the balance to the defendant in execution.

CERTIORARI PREVIOUSLY GRANTED; TEMPORARY LAWYER STAFFED PANEL LXXX COURT OF APPEALS OPINION VACATED; TRIAL COURT’S GRANTING OF SUMMARY JUDGMENT REVERSED AND REMANDED WITH INSTRUCTIONS.

All Justices concur.

1 . Under a policy provision making insurance payable to the mortgagee as his interest may appear, a “simple loss payable clause” or an "open loss payable clause” is to be distinguished from a standard or union clause. The simple clause merely provides, in effect, that the proceeds of the policy shall be paid first to the mortgagee to the extent of his interest. Under a loss payable clause, a mortgagee's only right is to be repaid money it loaned and to have the security of the value of the unburned mortgaged property as collateral for the debt ...

The standard or union clause is somewhat more specific than the loss payable clause in that it provides, in addition to having the proceeds paid to the extent of the mortgagee’s mterest, that the mortgagee shall be protected against loss from any act or neglect of the mortgagor or owner.

46A C.J.S. Insurance § 1404.

2 . Calvert Fire Insurance Co. v. Environs Development Corp., 601 F.2d 851 (5th Cir.1979); Rosenbaum v. Funcannon, 308 F.2d 680 (9th Cir.1962); Mann v. Glens Falls Insurance Co., 541 F.2d 819 (9th Cir.1976); Insurance Co. of North America v. Citizens Insurance Co. of New Jersey, 425 F.2d 1180 (7th Cir.1970); Fireman's Fund. Mortgage Corp. v. Allstate Insurance Co., 838 P.2d 790 (Ala. 1992); Hellman v. Capurro, 92 Nev. 314, 549 P.2d 750 (1976); Lembo v. Parks, 6 Mass. App. 850, 372 N.E.2d 1316 (1978); Campagna v. Underwriters at Lloyd’s London, 549 S.W.2d 17 (Tex.Civ.App.1977); Smith v. General Mortgage Corp., 73 Mich.App. 720, 252 N.W.2d 551 (1977); Lutheran Brotherhood v. Hooten, 237 So.2d 23 (Fla.App.1970); Nationwide Mutual Fire Insurance Co. v. Wilborn, 291 Ala. 193, 279 So.2d 460 (1973); Whitestone Savings & Loan Ass’n v. Allstate Insurance Co., 28 N.Y.2d 332, 321 N.Y.S.2d 862, 270 N.E.2d 694 (1971).

3 . 46AC.J.S. § 1404 states:

... if a loss occurs after the mortgage has been foreclosed, the mortgagor is entitled to the proceeds of the insurance during the period of redemption, even if the mortgagee is the purchaser at the foreclosure sale; and, where the mortgagee receives the proceed, if the mortgagor redeems, he is entitled to have the proceeds applied pro tanto on the redemption, or to recover the insurance collected and held by the mortgagee.

However, a policy containing a standard or union mortgage clause contemplates the possibility of a foreclosure and provides full protection to the mortgagee during a foreclosure, and the mortgagee in such a case is entitled to the proceeds of the policy if the mortgagor fails to redeem the property, although the mortgagee is the purchaser at the foreclosure sale, and insurance proceeds, plus the value of the remaining property, exceed the amount of the mortgage debt.

See also, 5A Appleman, Insurance Law and Practice, § 3403.

4 .Title 12 O.S.1991, § 773. reads: