Summary of a Recent
Judicial
Development in
Bankruptcy
Inaccurate Property Description in Deed of Trust
Does Not Void Trustee's Sale of Property
Walt McCarterNational AgLaw Center Research Associate
Summary of Decision
In In re Wiebe, 353 B.R. 906 (Bankr. D. Idaho 2006), the United States Bankruptcy Court for the District of Idaho held that, under Idaho law, parties may render property eligible for encumbrance by a deed of trust suitable for foreclosure by having a statement in the deed indicating that the property is either less than 40 acres or located within a city, even if it is not.
Background
Debtors obtained a home loan from Household Finance Corporation (HFC) in November 2002. The debt was secured by a deed of trust. Id. at 907. The property consisted of 80 acres, located outside the city. Id. at 908. However, the deed of trust, which was prepared by HFC and signed by the Debtors, stated that the property "is not more than twenty acres in area or the Property is located within an incorporated city or village." Id. The Debtors defaulted on the loan in February 2006, and FRC Investment Trust (Creditor) bought the property at the following trustee's sale. Id. Creditor's trustee's deed to the property was recorded in June 2006. The Debtors filed their Chapter 12 petition in July 2006, and retained possession of the property. Id. Creditor subsequently filed a motion for relief from stay, seeking authorization to bring legal action against the Debtors to obtain possession of the property. Id.
Arguments
The Debtor argued that the size and location of the property described in the trust deed was incorrect, so HFC should have been required to foreclose the deed of trust through a foreclosure action instead of a trustee's sale, and the Creditor's purchase was voId. Id. at 909.
Creditor argued that the Debtors held no enforceable interest in the property subject to the deed of trust on the date they filed their Chapter 12 petition, since the Creditor's deed was filed nineteen days before the Debtors filed their petition, and therefore was not part of the Debtors' estate protected by automatic stay. Id. at 908-09.
Analysis and Holdings
The court began by reviewing Idaho Code § 45-1502(5), which states that the following types of property can be sold in a trustee's sale: "(a) any real property located within an incorporated city or village at the time of the transfer, or (b) any real property not exceeding forty acres, regardless of its location, and in either event where the trust deed states that the real property involved is within either of the above provisions, such statement shall be binding upon all parties and conclusive as to compliance with the provisions of this act relative to the power to make such transfer and trust and power of sale conferred in this act." Id. at 909. The court noted that the statute did not say that the description must be accurate, and it did not provide a remedy for inaccuracies. Id. at 910. The court reasoned that the intent of the contracting parties should not be defeated by inaccuracies or typos. Id. at 912. The deed was a legally binding document and the Debtors manifested their assent when they signed it, so the sale was proper. Id. Therefore the court granted Creditor's motion for relief, terminated the stay, and allowed Creditor to bring an action against the Debtors to obtain possession of the property. Id. at 912.
The case was decided on October 31, 2006.