Articles Stenquist v. JMG Holdings – A Lesson in Addressing Nonperforming Debts, 0817 UTBJ, Vol. 30, No. 4. 38

AuthorThomas N. Jacobson, J.

Articles Stenquist v. JMG Holdings – A Lesson in Addressing Nonperforming Debts

Vol. 30 No. 4 Pg. 38

Utah Bar Journal

August, 2017

July, 2017

Thomas N. Jacobson, J.

The recent Utah Court of Appeals decision in Stenquist v. JMG Holdings, LLC, 2016 UT App 180, 379 P.3d 941, cert. denied sub nom. Stenquist v. McBride, 387 P.3d 508, held that a senior lienholder accepting a deed in lieu of foreclosure extinguished the security interest held by the senior lienholder and did not affect the priority of remaining lienholders. Id. ¶¶ 22–23. This case is an important reinforcement of the Utah real property security laws and a practical reminder to carefully work through all scenarios when agreeing to extinguish a debt secured by real property in exchange for conveyance to the creditor of the secured real property. As the real estate market enters a new cycle in 2017, issues of priority will once again become very important when addressing alternatives for the resolution of existing debts.

The facts of the Stenquist case are typical of situations when a property is encumbered by multiple security interests.

Before 2006, Lavon McBride, owner of McBride Construction, owned the property that was the subject of the dispute (the Property). Id. ¶ 2. McBride developed the Property into a residential subdivision. Id. In June 2006, McBride sold and conveyed the Property to Golden Crest Homes, Inc. Id. Golden Crest then executed a trust deed in McBride’s favor (the McBride Trust Deed), securing the repayment of a $240,000 promissory note (the McBride Note). Id.

In September 2006, Golden Crest conveyed the Property to JMG Holdings LLC. Id. ¶ 3. JMG then executed a trust deed (the Stenquist Trust Deed) in the Stenquists’ favor, securing the repayment of a $300,000 promissory note by June 30, 2008 (the Stenquist Note). Id. JMG eventually defaulted on its obligations to McBride and the Stenquists. Id.

In January 2011, in lieu of foreclosure and in full satisfaction of the McBride Note, JMG conveyed, and McBride accepted, a quitclaim deed of the property. Id. ¶ 4. Specifically, in a document executed by JMG and McBride entitled “Estoppel Affidavit,” JMG and McBride agreed that the consideration for the quitclaim deed was the full cancellation of the McBride Note secured by the McBride Trust Deed. Id.

In December 2012, the Stenquists filed an action seeking foreclosure of the Stenquist Trust Deed...

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