American Pension Services, Inc., Appellant/cr-respondent v. Thomas Barth, Respondent/cr-appellants ( 2015 )

IN THE COURT OF APPEALS OF THE STATE OF WASHINGTON
THOMAS BARTH and SANDRA
BARTH, husband and wife, No. 72049-0-1
Respondents/Cross-Appellants, DIVISION ONE
UNPUBLISHED OPINION
PATRICK D. HAFEY and GINA
LORAE HAFEY, husband and wife,
en
and their marital community,
I
Defendants,
and
rv>
AMERICAN PENSION SERVICES,
INC.,
FILED: August 3, 2015
Appellant/Cross-Respondent.
Trickey, J. —An owelty lien, also referred to as an equalizing lien, is narrower in
scopethan a general judgment lien. Unlike a general judgment lien, a judgment for owelty
secures a debt by creating a lien on a specific property.
Here, in a dissolution proceeding not currently before us, Patrick Hafey's former
spouse, Tammy Hafey, was awarded an owelty lien that attached to their former family
home. Tammy1 later assigned her interest in the lien to American Pension Services, Inc.
(American). In this partition action now before us, between cotenants Patrick and his
sister, Sandra Barth, the parties challenge the trial court's order of disbursement of sale
of property that Patrick and Sandra had inherited.
The trial court's order of disbursement of sale proceeds found that American's
For ease of reference, we refer to the parties by their first names. No disrespect is intended.
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owelty lien attached to Patrick's one-half interest in the property. Because the owelty lien
attached only to Patrick's former family home, and not to the property at issue in this
separate partition action, we accept the Barths' position on cross-appeal that the trial
court erred. Accordingly, we reverse the trial court's order and remand to amend the
order consistent with this opinion. On all other grounds, we affirm.
FACTS
In September 2002, siblings Patrick and Sandra acquired title to their mother's
residence (the Property) located in Everett, Washington as tenants in common.
In July 2009, Patrick and his wife, Tammy, dissolved their marriage. As part of the
dissolution decree, Tammy obtained an owelty lien against Patrick in the amount of
$150,000 to equalize distribution of their former family home that had been awarded to
Patrick. On October 14, 2009, Tammy assigned her interest in the owelty lien to
American.
Patrick's sister, Sandra, resides in Minnesota with her husband, Thomas
(collectively, the Barths). After inheriting the Property, Patrick and Sandra agreed to allow
their mother's boyfriend, Bob Hysong, to live at the Property so long as he maintained the
Property in good condition and paid property taxes and insurance. He did so until his
death in February 2009.
In 2009, following the death of Hysong, the Barths traveled to Washington to settle
the affairs and issues with the Property. The Barths entered into an agreement with
Patrick in which Patrick would be permitted to live at the Property on the condition that he
pay the Barths $700 per month in rent. Patrick resided at the Property for five months,
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between March and July 2009, while he was going through the divorce with Tammy.
Patrick then leased the Property to another person between August and October 2009.
On or around November 2009, Patrick's son, Andrew Hafey, moved into the
Property. Patrick did not consult with the Barths before Andrew moved in, and the Barths
did not give permission for Andrew to live there. The Barths received no rent payments
from Patrick or Andrew.
During this time, Patrick stopped responding to the Barths' effortsto communicate
with him regarding how the Property would be managed and whether to lease or sell the
Property. Thomas sent two registered letters to Patrick to which Patrick did not respond.
From that point on, the Barths were excluded from any participation in the management
of the Property.
In September 2011, the Barths traveled to Washington. They spoke with Andrew
while visiting the Property. Andrew told them he was living there. After numerous
unanswered telephone calls to Patrick's residence, the Barths wentto Patrick's residence
to discuss the Property's management. Patrick was angry with the Barths and refused to
discuss the subject matter with them. In May 2012, the Barths discovered that the
property taxes for the Property had not been paid and that the Property had been not
insured. They sent a letter to Patrick in an effort to resolve this problem, but received no
response.
The Barths filed a complaint against Patrick and Gina Hafey (another former wife
of Patrick) on August 31, 2012, for partition and ejectment. In November 2012, upon
stipulation by the parties, the trial court entered an order joining American as an additional
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defendant. American claimed an owelty lien interest against Patrick's one-half interest in
the Property.
On May 29, 2013, the trial court entered an order of default and default judgment
against Patrick. The order authorized the issuance of a writ of assistance/ejectment. On
June 20, 2013, during the execution of the writ, it became apparent that Patrick had
recently vacated the Property. The Barths gained possession and access to the Property
that day.
The Barths soon discovered the Property had been neglected and was in
extremely poor condition. In July and August 2013, the Barths worked diligently to make
significant and critical repairs and improvements to prepare the Property to be sold. An
experienced real estate broker stated in a declaration that the repair and improvement
work completed by the Barths enhanced the value of the Property by $53,700.
In August 2013, the trial court entered an order dismissing defendant Gina from
the case. Additionally, according to the Barths' motion for disbursement of sale, on
August 21, 2013, the trial court issued an order setting the terms of sale of the Property
subject to the partition action. The order authorized a private sale ofthe Property through
a real estate agent and set terms of the sale as the mechanism to terminate the tenancy
in common.
The Property sold in November 2013 for $246,200. The sale proceeds, after court
authorized deductions, amounted to $219,348.07, and were placed in the court registry.
The Barths filed a motion for disbursement of sale proceeds on May 12, 2014.
They argued that the owelty lien "is more limited in scope than a general judgment lien
No. 72049-0-1 / 5
and does not attach to the half interest of Defendant Hafey in the property."2 The Barths
contended that even if the owelty lien did attach to Patrick's one-half interest, it was
subordinate and lower in priority to the claims and offsets on the interests asserted by the
Barths.
On May 20, 2014, the trial court entered an order disbursing the sale proceeds.
The court agreed with the Barths that the owelty lien was limited in scope and ruled that
the lien did not attach to Patrick's one-half interest in the Property. Even if it did attach,
the court ruled, it was lower in priority and subordinate to the Barths' claims and offsets.
The court ordered Patrick to reimburse the Barths the amount of $52,327.29 of his one-
half share in the Property. This sum included (1) one-half of the Barths' attorney fees and
costs, (2) one-half of the sums paid by the Barths for property taxes and insurance, and
(3) one-half of the reasonable rental value of the Property from November 2009 through
June 30, 2013. The trial court also awarded the Barths the enhanced value of the
Property resulting from the Barths' time and labor expended in repairing and improving
the Property.
The Barths' total reimbursements and offsets were $106,027.29, all of which were
to be distributed to the Barths out of Patrick's one-half share in the sale proceeds. This
left a balance of $3,646.74 as Patrick's one-half share in the sale proceeds. In all, the
Barths were awarded $180,282.01, Patrick was awarded $3,646.74, and the Barths'
attorney was awarded $35,419.32.
Two days later, the trial court amended the judgment to award the sum of
$3,646.75 to American instead of Patrick. The court decided that the owelty lien claimed
Clerk's Papers (CP) at 119.
No. 72049-0-1 / 6
by American did attach to the one-half interest of Patrick, but that it was subordinate and
lower in priority to the Barths' claims and offsets on Patrick's one-half interest.
American appeals the trial court's orders disbursing the sale of proceeds; the
Barths cross-appeal.3
ANALYSIS
American first contends that the trial court erred because it ruled that the owelty
lien was subordinate to the Barths' claims of offsets and reimbursements against Patrick's
one-half interest in the Property. We disagree.
A partition action is an equitable one wherein the court has great flexibility in
fashioning appropriate relief for the parties. Friend v. Friend, 92 Wash. App. 799, 803, 964
P.2d 1219 (1998); Cumminqs v. Anderson, 94 Wash. 2d 135, 143, 614 P.2d 1283 (1980). A
court has broad power respecting liens against real property to provide equitable
remedies. McKniaht v. Basilides, 19 Wash. 2d 391, 408, 143 P.2d 307 (1943); see MGIC
Financial Corp. v. HA. Briqqs Co., 24 Wash. App. 1, 6, 600 P.2d 573 (1979). We review
an equitable remedy for abuse of discretion. In re Foreclosure of Liens, 123 Wash. 2d 197,
204, 867 P.2d 605 (1994). "Atrial court abuses its discretion if its decision is manifestly
unreasonable or based on untenable grounds or untenable reasons.'" In re Marriage of
3In its opening brief, American submits an appendix to summarize how the sale proceeds were
disbursed. The Barths contend that the appendix should be stricken under RAP 10.3(a)(8)
because the appendix includes materials not contained in the record on review. The appendix
contains an item labeled "Costs of Fix Up" in addition to "EnhancementValue." Br. of Appellant
at 15. "Costs of Fix Up" were not identified as such in the record. Moreover, the appendix
indicates that the enhancement value of $53,700 was divided in half between the Barths and
American. In fact, American was charged with the full amount of the enhancement value. RAP
10.3(a)(8) prohibits a party from submitting an appendix that includes "materials not contained in
the record on review." Accordingly, we agree to strike American's appendix.
No. 72049-0-1 / 7
Muhammad, 153 Wash. 2d 795, 803, 108 P.3d 779 (2005) (quoting In re Marriage of
Littlefield. 133 Wash. 2d 39, 46-47, 940 P.2d 1362 (1997)).
RCW 7.52.220 provides authority for the distribution of sale proceeds in a partition
by sale:
The proceeds of the sale of the encumbered property shall be distributed
by the decree of the court, as follows:
(1) To pay its just proportion of the general costs of the suit.
(2) To pay the costs of the reference.
(3) To satisfy the several liens in their order of priority, by payment of the
sums due, and to become due, according to the decree.
(4) The residue among the owners of the property sold, according to their
respective shares.
"[A] court in the exercise of its equitable powers may fashion remedies to address
the particular facts of each case, even ifthe partition statute does not strictly provide for
such a remedy." Kelsev v. Kelsev, 179 Wash. App. 360, 369, 317 P.3d 1096, review denied,
180Wn.2d 1017. 327 P.3d 54 (2014) and cert, denied, 135 S. Ct. 451, 190 L. Ed. 2d 330
(2014). Thus, "[wjhile the statutory provision provides guidance to a court in a partition
action, it does not mark the outer limits of a court's exercise of its equitable powers."
Kelsev, 179 Wash. App. at 368.
The trial court here properly exercised its broad equitable powers in finding that
American's claims to Patrick's one-half interest in the proceeds were subordinate to the
Barths' claims. Patrick was exclusively in control of the Property for 44 months, benefited
from possession, and left the Property in total disrepair. To compensate the Barths for
Patrick's actions, the trial court fashioned an equitable remedy of reimbursing the Barths
for (1) the enhanced value of the Property resulting from the Barths' improvements to the
No. 72049-0-1 / 8
Property, (2) the reasonable rental value of Patrick's ongoing possession of the Property,
(3) property taxes and insurance, and (4) attorney fees incurred in litigating the action.
The trial court did not abuse its discretion in finding the Barths' offsets were superior to
American's owelty claim.
Next, American challenges the trial court's award to the Barths of one-half the
reasonable rental value of $30,653.63 during the time period of November 2009 (the time
Andrew moved into the Property) through June 20, 2013 (the time of Patrick's court-
authorized ejectment). We reject American's contention.
In Cummings v. Anderson, our Supreme Court stated:
It is the rule in Washington that, in the absence of an agreement to pay rent,
or limiting or assigning rights of occupancy, a cotenant in possession who
has not ousted or actively excluded the cotenant is not liable for rent based
upon his occupancyofthe premises. In orderfor ouster to exist, there must
be an assertion of a right to exclusive possession.
94 Wash. 2d 135, 145, 614 P.2d 1283 (1980) (internal citations omitted). As an equitable
remedy, a cotenant is entitled to reasonable rental value of the time period during which
the other tenant effects an ouster. See Yakavonis v. Tilton, 93 Wash. App. 304, 309, 968
P.2d 908 (1998).
Here, the evidence indicates that through his words and acts, Patrick excluded the
Barths from possession of the Property. Patrick ceased communication with the Barths
and rejected their attempts to discuss the future plans for the Property. When the Barths
traveled from Minnesota to Washington to speak with Patrick in person about the
Property, Patrick refused to discuss the Property with them. The trial court did not err in
charging Patrick one-half ofthe reasonable rental value of the period ofouster.
No. 72049-0-1 / 9
American next challenges the trial court's award to the Barths the enhanced value
of the Property resulting from their efforts in repairing and improving it. Again, we
disagree.
It is well established law in Washington "that improvements placed upon the
property by one cotenant cannot be charged against the other cotenant unless they were
either necessary or actually enhanced the value of the property." Cummings, 94 Wash. 2d
at 144; see also Kelsev, 179 Wash. App. at 365 ("If one cotenant improves property, the
trial court has discretion to reimburse him or her for the improvement values.").
Here, the Barths presented evidence establishing that their investment of time and
money enhanced the value of the Property by $53,700. The Property was in total
disrepair when the Barths repossessed it. Prior to the Barths' repairs and improvements,
the Property was valued at $192,500; after the repairs and improvements, the Property
was sold for $246,200. The trial court was well within its discretion in awarding the Barths
the full enhancement value of the Property.
The Barths argue on cross-appeal that the trial court erroneously permitted
American's owelty lien to attach to Patrick's one-half interest in the Property. The trial
court is afforded wide discretion in fashioning equitable remedies. However, Washington
case law holds that owelty liens are more limited in scope than judgment liens, and attach
only to property at issue in the partition, which, in this case, was the former family home.
Accordingly, we hold that the trial court erred.
When property cannot be fairly divided in a partition action, the trial court may
adjudge compensation to be made by one party to another. RCW 7.52.440; In re
Marriage of Wintermute. 70 Wash. App. 741, 745, 855 P.2d 1186 (1993). A judgment for
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owelty secures the debt by creating an equitable lien on the property at issue.
Wintermute, 70 Wash. App. at 745.
Here, as part of Tammy and Patrick's 2009 dissolution decree, Patrick was
awarded the former family home. Tammy was awarded an owelty lien to equalize this
division of property. Under the decree, Tammy's right to payment of the equalizing lien
was secured by a promissory note and a deed of trust. Under the promissory note, Patrick
promised to pay Tammy the sum of $150,000 within 24 months of entry of the decree of
dissolution or upon the sale or refinance of the former family home. Tammy assigned her
interest to American. According to American, thereafter, Patrick failed to make his
judgment payments and the mortgages on the former family home were foreclosed. Out
of the foreclosure sale proceeds, American collected $44,253.
American relies on RCW 4.56.190, which states in part: "The real estate of any
judgment debtor, and such as the judgment debtor may acquire, not exempt by law, shall
be held and bound to satisfy any judgment of the . . . superior court." American argues
that any real estate owned bythe judgment debtor—including the propertyat issue here—
is subject to attachment by its owelty lien.
But the owelty lien in this case is distinguishable from a general judgment lien in
that it only attached to the former family home, not to the Property, or any other property
owned by Patrick. "The owelty lien is like a vendor's lien in that it attaches to a particular
piece of real property to assure payment of a debt related to that property." Wintermute,
70 Wash. App. at 745. "By attaching to a particular piece of real property to secure an
equalizing award of money, an owelty lien is significantly more focused and limited in
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No. 72049-0-1 /11
scope than a general judgment lien. It is a compensating device tailored by the court or
the parties to address a specific situation." Wintermute, 70 Wash. App. at 745-46.
American's reliance on Hartley v. Liberty Park Associates, 54 Wash. App. 434, 774
P.2d 40 (1989), is unavailing for similar reasons. There, a dissolution decree awarded
the wife the family home and the husband an equalizing lien on the home in the amount
of $40,000. Hartley, 54 Wash. App. at 435. The Court of Appeals affirmed the trial court's
determination that the husband's owelty lien attached to the property and was superior to
all other liens on the home. Hartley, 54 Wash. App. at 435. Contrary to American's
assertion, the facts in Hartley are not analogous to those here. Here, the owelty lien
attached to the former family home, not to the Property owned by Patrick and Tammy.
Indeed, American already has collected proceeds from the foreclosure of the former
family home as a result of the owelty lien that attached to it.
The trial court in a partition action is conferred broad power in crafting equitable
remedies. But the trial court's determination that the Property was subject to American's
owelty lien was an abuse of that discretion.
The parties request attorney fees on appeal. Both rely on the same statute, RCW
7.52.480, as authority for such fees. That statute provides:
The cost of partition, including fees of referees and other disbursements
including reasonable attorney fees to be fixed by the court and in case the
land is ordered sold, costs of an abstract of title, shall be paid by the parties
respectively entitled to share in the lands divided, in proportion to their
respective interests therein, and may be included and specified in the
decree. In that case there shall be a lien on the several shares, and the
decree may be enforced by execution against the parties separately. When,
however, a litigation arises between some of the parties only, the court may
require the expense of such litigation to be paid by the parties thereto, or
any of them.
RCW 7.52.480. Because the Barths prevail on appeal, they are entitled to attorney fees.
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No. 72049-0-1/12
We reverse the trial court's order of disbursement and remand to the trial court to
amend the order consistent with this opinion. On all other grounds, we affirm.
I^VoK" t Z3
WE CONCUR:
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