District Court, Salt Lake Department The Honorable Robert P.
Faust No. 080904328
Bradley L. Tilt and Sara E. Bouley, Attorneys for Appellant
G. Russell, Bentley J. Tolk, and Jeffery A. Balls, Attorneys
for Appellee and Cross-appellant American Home Mortgage
Stephen L. Roth authored this Opinion, in which Judges J.
Frederic Voros Jr. and David N. Mortensen concurred.
This case involves multiple competing claims related to a
parcel of real property (the Property). After a trial, the
district court quieted title to the Property in Short Sale
Services LLC. Off-Piste Capital LLC appeals, arguing that its
claim to title is superior to Short Sale's for a variety
of reasons. American Home Mortgage Servicing Inc.
cross-appeals, claiming that the court improperly determined
that it was bound by a default judgment entered against a
different party. We affirm in part and reverse in part.
Involvement with the Property
The Property is a parcel of residential real estate located
in a Draper development, which Todd Smith bought in 2005. To
finance the purchase, Smith borrowed money from various
entities. As security for one of his loans, Smith executed a
trust deed on the Property and conveyed it to Smart Assets
LLC (the Smart Trust Deed), a company managed by Brian Smart.
Smith defaulted on this loan almost immediately, which
initiated a procession of transfers and proceedings that
ultimately resulted in this action.
Smart Assets, acting in concert with Smith after he
defaulted, assigned the Smart Trust Deed to "SS
Services, LLC"in November 2006 (the SS Services
Assignment). Smith later told Smart Assets that the SS
Services Assignment had been lost and asked Smart Assets to
execute a duplicate, which Smart Assets did in March 2007.
However, the replacement document Smith presented for
signature was not a duplicate of the original assignment to
SS Services. Instead, the second document was an assignment
of the Smart Trust Deed to a different entity, Capital 360
LLC (the Capital 360 Assignment), something Smart Assets did
not realize at the time it signed what it believed was a
replacement of the original. These two competing assignments
are the root of the direct appeal.
In January 2007-before execution of the Capital 360
Assignment-SS Services recorded a Notice of Interest based on
the SS Services Assignment, though it did not record the
assignment itself. The Notice of Interest explained the
nature of SS Services' interest in the Property,
specifically identifying its acquisition of the Smart Trust
Deed through the SS Services Assignment. According to the
court, the Notice of Interest "specifically and clearly
[gave] notice that 'an unrecorded Assignment of Deed of
Trust' relating to and specifically concerning the
Property exists." The Notice of Interest contained an
accurate legal description of the Property and correctly
identified the trustor, trustee, beneficiaries, and recording
information (including recording date, entry number, book,
and page) for the Smart Trust Deed. And the court found that,
in addition to describing the "legal interest SS
Services had" under the assignment, the Notice of
Interest provided "a valid address where further
information about the unrecorded assignment could be
After recording the Notice of Interest, SS Services began a
foreclosure proceeding that concluded in a trustee's sale
under the Smart Trust Deed. On April 30, 2007, SS Services
recorded a trustee's deed conveying full title to the
Property to SS Services. However, on April 2, 2007-after SS
Services recorded the Notice of Interest in January but
before it recorded its trustee's deed on April 30-Capital
360 recorded the Capital 360 Assignment. Capital 360 then
moved ahead with its own foreclosure proceeding based on the
Capital 360 Assignment.
It was through Capital 360's foreclosure proceeding that
Off-Piste became entangled in the Property. Off-Piste agreed
to loan $1.75 million for the purchase of the Property to
Canyon Vines Holding and Investments LLC. Canyon Vines
secured the loan with its own trust deed to the Property in
favor of its lender Off-Piste. Off-Piste recorded the Canyon
Vines trust deed on March 2, 2008. Under the terms of the
loan, Canyon Vines was to repay Off-Piste in full within
fourteen days, but Canyon Vines immediately defaulted on the
Eventually, another claimant to an interest in the Property,
Shane Morris, brought this lawsuit, originally a judicial
foreclosure action. Morris named multiple parties including
Off-Piste in an attempt to clear the tangled web of title.
Off-Piste instituted its own quiet title action via
At trial, Off-Piste argued that its predecessor, Capital 360,
had a superior claim to the Property compared to SS
Services' claim. Specifically, Off-Piste sought to prove
that Capital 360 was a bona fide purchaser of the Property
and, because Capital 360 recorded the Capital 360 Assignment
before the SS Services Assignment was recorded, its interest
took priority over SS Services' interest by operation of
The district court ruled in favor of SS Services. It found
that SS Services paid valuable consideration for its
assignment from Smart Assets and that, in an abundance of
caution, SS Services had obtained an assignment of the
underlying promissory note from Smart Assets as well.
According to the court, the additional assignment was
"further evidence that a valid and legal assignment
was made to SS Services."
Regarding the purported assignment of the Smart Trust Deed to
Capital 360, the court made three key determinations. First,
it found that Smart Assets had no intent to assign the Smart
Trust Deed to Capital 360 because Smart Assets was not aware
that the second assignment it executed named a party
different from the first assignment to SS Services. Second,
it found that Capital 360 paid no consideration for its
purported assignment from Smart Assets. And third, it found
that Capital 360 did not take its interest in good faith
because the Notice of Interest put it on notice of the prior
assignment of the Smart Trust Deed to SS Services. The court
set aside Capital 360's interest in the Property-which
also extinguished Off-Piste's interest-and quieted title
to the Property in SS Services.
Home Mortgage's Involvement with the Property
Cross-appellant American Home Mortgage Servicing Inc.
(AHM) also claims an interest in the Property,
which arose as a result of Smith conveying the Property to
Zach Sorensen by warranty deed in 2006, after the Smart Trust
Deed had been recorded. Sorensen financed his purchase with
loans from Castle & Cooke Mortgage LLC, and he secured
the loans' promissory notes by executing trust deeds to
the Property. The trust deeds named Castle & Cooke as the
lender and Mortgage Electronic Registration Systems Inc.
(MERS) as the beneficial interest holder of the deed and the
nominee of the lender as well as the lender's
"successors and assigns." These trust deeds were
recorded, and the title company's failure to clear the
Property of prior encumbrances, among them the Smart Trust
Deed, was a matter of contention below but is not an issue on
appeal. Castle & Cooke then apparently endorsed one or
both notes in favor of AHM, which endorsements carried with
them an assignment of interest in the trust deeds securing
the notes. See Utah Code Ann. § 57-1-35
(LexisNexis 2010) ("The transfer of any debt secured by
a trust deed shall operate as a transfer of the security
therefor."). Because under the terms of the deeds MERS
remained the nominee and continued to hold the deed for AHM
(as a successor or assign of Castle & Cooke), this set of
transactions was apparently not recorded.
Shane Morris did not name AHM as a defendant when he
initiated the original lawsuit. Seeking "Notice[s] of
Non-Interest" from various parties, Morris received a
letter from Castle & Cooke's attorney that disclaimed
his client's interest in the Property. But the letter
also informed Morris that the reason Castle & Cooke
disclaimed any interest was because it had assigned its
interests to AHM, "who [was] the current party in
interest to the first mortgage originated by Castle &
Cooke." Morris later amended his complaint to add a
quiet title action. But despite the letter, Morris continued
to name Castle & Cooke as a defendant and did not add AHM
or MERS as a party.
Later, Off-Piste filed a third-party complaint also seeking
to quiet title in the Property, the essence of which we
explained above. The third-party complaint did not name AHM,
but Off-Piste eventually named MERS as a defendant. Within a
month of joining MERS in the quiet title case, Off-Piste
learned, through a telephone conversation between the manager
of Off-Piste and counsel for AHM, that AHM claimed an
interest in the Property. Despite that information and
Off-Piste's acknowledgement that it understood the
importance of "bring[ing] all the parties [with an
interest] to the litigation; otherwise, they are not covered,
" Off-Piste never named AHM as a defendant. Off-Piste
did, however, obtain a default judgment against MERS after
MERS failed to answer the third-party complaint. The default
purported to extinguish any claims that MERS had to the
Roughly a year later, AHM moved for and was granted
permission to intervene in the lawsuit. Off-Piste then moved
for summary judgment against AHM on the ground that the
default judgment against MERS was binding on AHM as well.
Specifically, Off-Piste argued that AHM's interest flowed
through the Castle & Cooke trust deeds, which named MERS
as the beneficiary, and thus AHM's interest flowed
through MERS itself. Because the default judgment stated that
"[MERS] and all persons claiming under [MERS] have no
right, title, lien, or estate in or to the [Property], "
Off-Piste contended that AHM's interest had already been
adjudicated-and eliminated-by the court.
AHM opposed the summary judgment and also filed motions to
set aside the default judgment and for leave to conduct
discovery. After a hearing, the court agreed with Off-Piste.
It denied AHM's motions and granted summary judgment
against AHM, concluding that "[t]he default judgment
entered against MERS . . . is binding upon and applicable to
AHM." As a result, AHM did not participate at trial. AHM
now cross-appeals from the summary judgment decision.