Deutsche Bank Nat. Trust Co. v. Citibank, Na

Citations: 806 F. Supp. 2d 1212; 2011 U.S. Dist. LEXIS 97284Docket: Civil Action Nos. 2:09cv324-WHA. 2:10cv001-WHA

Court: District Court, M.D. Alabama; August 29, 2011; Federal District Court

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In the consolidated cases Deutsche Bank National Trust Company v. Citibank, N.A. and Johnny M. Portis et al. v. Citibank, N.A., the court is tasked with determining the rights to redeem a property previously owned by the Marvins and currently held by Citibank, following a foreclosure sale. The cases arose from the same mortgage transaction and were removed to federal court due to diversity jurisdiction. The court previously established that Citibank's lien on the property has priority over Deutsche Bank's lien, leaving the redemption rights for trial.

Both Deutsche Bank and the Portises are seeking to exercise statutory redemption rights to purchase the property from Citibank. Citibank has indicated it does not take a position on whether either party meets the requirements for redemption under Alabama law. The stipulated facts reveal that the Marvins owned the property at 413 Parks Road, Alabama, which was subject to multiple mortgages, including a $700,000 mortgage from Regions Bank and a $180,000 home equity line of credit from Citibank. Deutsche Bank's interest arose from a $920,000 mortgage granted to Renasant Bank, which was recorded in October 2006. An appraisal of the property was conducted prior to this mortgage.

Deutsche Bank made payments of $702,078.16 to Regions Bank and $181,168.59 to Citibank in connection with the Deutsche Bank Mortgage. Title insurance was purchased by Deutsche Bank or its predecessor related to this mortgage. Citibank issued a letter and payoff statement concerning the Citibank Mortgage. On November 9, 2006, Regions Bank recorded a discharge of its mortgage. Deutsche Bank foreclosed on its mortgage on September 11, 2008, with a credit bid of $833,000, and recorded the foreclosure deed on September 26, 2008. 

Sherwin Williams recorded a judgment against Theresa Marvin on October 19, 2008. Citibank subsequently foreclosed its mortgage on November 14, 2008, with a credit bid of $194,149.60, and recorded the deed on November 24, 2008. On February 24, 2009, Deutsche Bank filed a Complaint for Declaratory Judgment against Citibank and recorded a lis pendens. 

The Portises acquired an Assignment of Statutory Right of Redemption from Sherwin Williams and the Marvins for $100 each on November 3 and November 13, 2009, respectively. They filed a complaint against Citibank and Deutsche Bank in Montgomery County Circuit Court on November 13, 2009, and recorded an amended lis pendens on November 17, 2009. 

On November 24, 2009, before receiving notice of the Portises' complaint, Citibank and Deutsche Bank jointly motioned to stay the action, indicating they were collaborating to sell the disputed property. The court granted the stay until June 1, 2010. Deutsche Bank and Citibank removed the Portises' case to federal court on January 4, 2010, and subsequently, a joint motion to consolidate and continue the stay was filed. The court consolidated the cases and extended the stay until February 8, 2010. The stay was lifted on February 18, 2010, and Deutsche Bank filed an Amended Complaint on April 5, 2010.

The court previously determined that Citibank holds priority as the legal owner of the property in question. The current issue is whether Deutsche Bank, the Portises, or any other party is entitled to exercise the statutory right of redemption under Alabama law to repurchase the property. In Alabama, when real property is mortgaged, legal title transfers to the mortgagee while the mortgagor retains the equity of redemption, which can be conveyed. A valid foreclosure sale extinguishes this equity; however, a post-foreclosure right of redemption is conferred to the mortgagor or their vendee as a personal privilege, not a property right. The court cites case law affirming that the mortgagor retains equitable title even after executing a second mortgage, which transfers their equity of redemption to the second mortgagee. 

In this case, the Marvins, having conveyed their equity of redemption to Deutsche Bank via a second mortgage, lost that equity upon Citibank's foreclosure. Both Deutsche Bank and the Portises are attempting to exercise their statutory rights of redemption, which are defined under Ala. Code 6-5-247 et seq. The statute outlines who may redeem property post-foreclosure, including debtors, mortgagors, and junior mortgagees, among others. It also specifies that if a debtor or mortgagor conveys their interest in the property and is released from liability, their right of redemption is terminated. However, if they remain liable on the debt, they retain their redemption rights. The priority of these rights is established such that mortgagors and debtors have precedence over other redeeming parties, with mortgagors prioritized over debtors.

The Portises assert their right to redemption as judgment creditors, mortgagors, debtors, and spouses of debtors. The court examines the definition of "debtor" under Ala. Code 6-5-248, emphasizing that to qualify as a debtor, an individual must have previously owned the foreclosed property, retain liability for the associated debt at the time of foreclosure, and not possess any interest in the property sold at the time of the foreclosure.

Deutsche Bank contends that the Portises, as successors to the Marvins, are not considered "debtors" since evidence suggests the Marvins were not liable for any deficiency post-Citibank foreclosure. However, stipulated facts indicate that Citibank's credit bid covered the full debt amount, resulting in no deficiency. The relevant statute, Ala.Code. 6-5-248(e), allows for a right of redemption if debtors were liable at the foreclosure date, not necessarily after. The Marvins were still liable at that time, thus qualifying as debtors under the statute. The Portises assert a right of redemption as "transferees of the Marvins" according to Ala.Code. 6-5-248(a)(5). They have identified themselves as "mortgagors" and "debtors." Under prior Alabama law, a mortgagor who transferred their equity of redemption lost the right to redeem (Dominex, Inc. v. Key, 1984). The 1988 amendment to the redemption statute aimed to address scenarios where a liable party lacked property interest for redemption. Consequently, while the Marvins conveyed their equity of redemption to Deutsche Bank, both the Marvins and Portises retain a redemption right as "debtors." 

Deutsche Bank claims a statutory right to redeem the property due to its foreclosure on a second mortgage, while the Portises argue that Deutsche Bank does not fit into any statutory redemption categories. Historically, prior to the 1988 amendment, the statute allowed redemption by various parties including debtors and junior mortgagees. The Alabama Supreme Court has previously established that a second mortgagee acquires the equity of redemption through foreclosure on a second mortgage. Although the 1988 statute removed the category of "assignee of the equitable right of redemption," no legislative intent to exclude such owners from redemption rights is evident in the amendment.

Deutsche Bank has been recognized as having the right to redeem the property due to its ownership of the equity of redemption in the Citibank Mortgage. To exercise this right, Deutsche Bank must meet specific statutory requirements, including filing suit within one year from foreclosure as stipulated in Ala.Code. 6-5-252. Deutsche Bank asserts that its original Complaint was filed within this one-year period and that its Amended Complaint, which includes a redemption claim, relates back to the original filing. The court notes that Citibank does not take a position on whether Deutsche Bank or the Portises have satisfied the statutory requirements but does not waive any such requirements.

The legal principle at issue is the relation back of amendments under Fed. R.Civ. P. 15(c)(1)(A), which allows an amendment to relate back to the original pleading if it arises from the same conduct or transaction. The Portises argue that Deutsche Bank's redemption claim does not relate back, asserting that they are the only party entitled to redeem. However, they fail to cite relevant case law that supports their position. The case cited by the Portises, Bank Indep. v. Jenkins Builders, Inc., does not address relation back and instead emphasizes the necessity of protecting one’s rights in redemption claims. The court finds that the facts supporting the right to redeem are consistent between the original and amended complaints, aligning with Alabama law principles on relation back. Additionally, the Portises' claim of differing transactions between the original and amended complaints is countered by the fact that foreclosure sale facts are included in the original Complaint.

The redemption claim seeks a legal determination regarding the redemption statute based on facts presented in both complaints. Citibank has not shown any prejudice regarding the relation back of the Amended Complaint. The court finds that Deutsche Bank timely filed its request for redemption, but did not fully comply with statutory requirements. Under Alabama law, a party entitled to redeem must request a written statement of the debt and charges from the purchaser, who then has ten days to respond. Failure to provide this statement results in forfeiture of the purchaser's claims to compensation for improvements, allowing the redeeming party to file a complaint without tendering payment. Deutsche Bank did not make such a written demand or tender payment. The Portises argue that compliance with this provision is mandatory. However, the statute's language is permissive, as interpreted in Spencer v. West Ala. Properties, which allows redemption despite the absence of a demand for a statement. The court concludes that Deutsche Bank's failure to demand a written statement does not prevent its redemption claim. Moreover, the statute permits filing a suit instead of tendering lawful charges if a statement is not provided. Although tender may typically be a pre-condition, it can be excused under certain circumstances. Deutsche Bank contends that the redemption statutes should be interpreted liberally in favor of redemption and cites Robino v. Green to support its position against being barred from its claim due to non-tendering.

In Robino, a complainant sought to exercise a statutory right of redemption without alleging a written demand or tendering payment. The court acknowledged that strict adherence to redemption statutes has been previously excused, particularly when the failure to comply was due to another party's fault. Additionally, the court reasoned that a complaint aiming to vacate a foreclosure as void does not necessitate an averment of tender if the complainant submits to the court's jurisdiction and offers to do equity. In contrast, a case cited by the Portises highlighted that failing to mention redemption and not tendering payment resulted in a lack of statutory compliance. In the current case, Deutsche Bank, which filed a complaint to declare Citibank's foreclosure void, also requested to redeem the property should it not receive the initial relief sought. The court found Deutsche Bank's failure to tender payment excused under Robino's reasoning, as it indicated an intention to redeem and offered to pay the appropriate price.

Regarding the priority of redemptive rights, Alabama law grants priority to debtors and mortgagors over other redeeming parties. Deutsche Bank claims it qualifies as a "mortgagor" since it acquired the Marvins' equity of redemption in the Citibank mortgage through a second mortgage. The bank contends it assumes the position of the Marvins as mortgagor, noting that a mortgagor can exist without being liable for the debt. The 1988 amendment to the redemption statute removed the term "assignee of the equitable right of redemption," which would have been applicable to junior mortgagees. Deutsche Bank argues that for it to be considered a mortgagor under current law, the legislature would have needed to replace the omitted term with "mortgagor," a point that remains unclear.

The Alabama Supreme Court clarifies that when real property is mortgaged, the mortgagor retains the equitable right of redemption, which can be conveyed to a grantee who then succeeds to that right. According to Ala.Code 6-5-230(a)(5), a "transferee of the interests of the mortgagor" is entitled to redeem, which includes the transfer of the equity of redemption. The Marvins' acquisition of a second mortgage constituted a transfer of their equity of redemption to Deutsche Bank, making it a "transferee of an interest of the mortgagor."

The priority statute, Ala.Code 6-5-248(g), indicates that the mortgagor and debtor have priority over other redeeming parties. The Portises, as transferees of the Marvins, acknowledge their right of redemption based on Ala.Code 6-5-248(a)(5). Deutsche Bank, standing in the Marvins' position as mortgagor, holds priority over the Portises as they are merely transferees of the Marvins' redemption interest.

Historical Alabama law supports the assignability of the statutory right of redemption, allowing assignees to enforce it as their assignors could. Consequently, Deutsche Bank is entitled to exercise the right of redemption and pay the required amount to redeem the property from Citibank. The court declares in favor of Deutsche Bank, granting it the statutory right of redemption for the specified property and ordering both Deutsche Bank and Citibank to resolve the redemption amount within 30 days.

Deutsche Bank and the Portises both claim the right to redeem from the same mortgage foreclosure on a property, leading the court to evaluate arguments supporting each party's redemption rights. Deutsche Bank contends that the Marvins did not sell the property, but by taking out a second mortgage, they effectively transferred the equity of redemption to Deutsche Bank. The Portises assert a right of redemption as assignees of Sherwin Williams, a judgment creditor, under Ala.Code. 6-5-248(a)(4). Deutsche Bank disputes the Portises' claim, arguing that Theresa Marvin lost her interest in the property before the judgment was issued. However, the court does not need to address this issue, as it finds the Portises have a valid redemption right as debtors. 

The Portises point out that Deutsche Bank has indicated certain facts regarding mortgage priority are irrelevant to the redemption claim, although this was in response to a separate argument regarding Deutsche Bank's negligence regarding mortgage priority. The court also notes that the Portises have not made a tender of lawful charges and their only action towards redemption has been to file suit, similar to Deutsche Bank. Historically, prior to a 1988 amendment, the Marvins would not have had a right of redemption against Citibank due to the nature of the equity transfer. Both parties have acquired redemption rights from the Marvins as transferees under Ala.Code. 6-5-248(a)(5). Despite the Portises referencing a potential right to redeem further from Deutsche Bank, no such claim is formally made, and it seems inappropriate under the current legal framework.