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Midfirst Bank v. Sumpter

Court of Appeals of Arkansas, Division II

November 16, 2016




          Wilson & Associates, PLLC, by: H. Keith Morrison, for appellant.

          Sheila F. Campbell, P.A., by: Sheila F. Campbell, for appellees.

          DAVID M. GLOVER, Judge.

         This case[1] involves separate appeals by appellant MidFirst Bank (MidFirst) and appellants Carolyn Bedford and her sister, Denise Bedford, from the order of the Crittenden County Circuit Court unwinding the results of a foreclosure decree that was set aside for improper service on Carolyn Bedford, the property owner. MidFirst appeals that part of the order awarding appellee Lori Sumpter a money judgment against it and from the award of indemnification to Carolyn Bedford on a separate claim. Carolyn and Denise Bedford appeal from that part of the order directing that they take nothing on their conversion claims against MidFirst and Sumpter. Carolyn Bedford also argues that the circuit court erred in failing to remove a cloud on her title. Sumpter has filed a cross-appeal. We affirm as modified in part, affirm in part, reverse in part, and remand in part on the direct appeals. We affirm on Sumpter's cross-appeal.

         Background and Procedural History

         In July 1986, Carolyn Bedford became the owner of property located in West Memphis, Arkansas. Bedford assumed the indebtedness owed under a deed of trust and note executed by Warren Taylor and his wife, Lisa Taylor. This note and deed of trust were later assigned to MidFirst. The note went into default when Carolyn Bedford failed to make the March 2007 payment.

         On January 10, 2008, MidFirst filed a judicial-foreclosure action against Carolyn Bedford and other defendants with record title interests in the property. Service on Bedford was had by certified mail, restricted delivery, return receipt requested; but the green card was signed by Bedford's sister, Denise Bedford, who was residing in the home.

         After Carolyn Bedford failed to respond to the complaint, the circuit court entered a decree of foreclosure by default on July 25, 2008. The property was offered for public sale on September 15, 2008, and Sumpter purchased the property for $35, 103.46. On October 6, 2008, the circuit court confirmed the sale and approved the Commissioner's Deed. The Commissioner's Deed to Sumpter was recorded the same day.

         On October 2, 2008, Sumpter borrowed $62, 250 from Fidelity National Bank, secured by a mortgage on the property, to finance the purchase and to make improvements to the property ($35, 103.46 was immediately drawn by Sumpter for payment of the purchase price, and the remaining balance of the loan was drawn by Sumpter for improvements and other expenses). The mortgage was recorded shortly after the Commissioner's Deed had been recorded. After evicting the Bedfords from the property, Sumpter began making improvements. In November 2008, Sumpter leased the property.

         On October 15, 2008, Carolyn Bedford moved to set aside the foreclosure decree for insufficient service of process. She alleged the service of the summons and complaint by certified mail was improper because it was signed for by Denise Bedford instead of Carolyn Bedford. Sumpter was made a party.

         In August 2009, the circuit court found service of the foreclosure complaint had been defective. The court set aside the default judgment, vacated the foreclosure sale, voided the Commissioner's Deed, and ordered possession be returned to Bedford within sixty days. The court noted that MidFirst had failed in its obligation to ensure Sumpter received good title to the property. Sumpter sought to have the order modified so Bedford would not regain possession until she paid the value of the improvements made by Sumpter, as provided by the Betterment Act.[2]

         Sumpter sought to quiet title to the property in her name and requested damages from Bedford and MidFirst alleging various legal theories. Carolyn Bedford answered the petition and denied the material allegations. MidFirst responded by asserting that the doctrine of caveat emptor applied to bar any relief to Sumpter. Sumpter later amended her petition to seek damages under the Betterment Act in the approximate sum of $60, 000, together with lost revenues in the amount of $352, 000.

         Carolyn Bedford filed a cross-claim for indemnification against MidFirst for any damages Sumpter might recover against her.[3] As an alternative theory in an amended cross-claim, Bedford asked for damages for wrongful foreclosure. She also asked that Fidelity National's mortgage lien on the property be canceled. Denise Bedford filed her motion to intervene for the purpose of asserting a conversion claim against MidFirst and Sumpter. After the circuit court granted the motion to intervene, Denise Bedford filed her third-party complaint seeking damages from MidFirst and Sumpter for conversion of personal property lost or damaged during the eviction.

         By agreed order entered on December 28, 2009, Sumpter's purchase price of $35, 103.46 was refunded to her by MidFirst. The order reserved the question of whether she should be awarded interest on the sum.

         Carolyn Bedford filed for Chapter 13 bankruptcy protection on April 15, 2010. Fidelity National and Sumpter were granted relief from the automatic stay in the summer of 2011. The bankruptcy court confirmed Bedford's Chapter 13 plan to become current on the mortgage in August 2011.

         Sumpter moved for partial summary judgment on the issue of MidFirst's liability. MidFirst responded to the motion. Following a hearing, by order entered on July 27, 2011, the circuit court granted Sumpter's motion as to MidFirst's liability only, reserving all other issues, including damages and apportionment among the parties. The court did not state the theory or the basis for its ruling but noted both Bedford and MidFirst were inattentive to their business, which led to the improper foreclosure action, and Sumpter was not to blame.

         The case proceeded to a two-day bench trial. In its order entered on November 2, 2012, the circuit court found Sumpter was entitled to recover from MidFirst the total amount she had borrowed from Fidelity Bank, plus all associated costs and interest paid and accrued, which the court found to be $81, 516.15, less the refunded purchase price of $35, 103.46, for a balance of $46, 412.69, plus interest at the maximum lawful rate until paid. The court specifically declined to give an offset for the $7, 000 in rent Sumpter had received on the property. Fidelity National was granted a lien on the net proceeds of the judgment, or such portion thereof as might be necessary, to pay off the balance Sumpter had borrowed. Finally, the circuit court found the Bedfords could not recover on their conversion claims because their claims ...

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