Appeals from the United States District Court for the District of South Dakota.
The opinion of the court was delivered by: Bye, Circuit Judge.
Submitted: January 14, 2008
Before BYE, BEAM, and GRUENDER, Circuit Judges.
This bankruptcy proceeding involves a dispute between Rita Fix and the First State Bank of Roscoe (the Bank) over Fix's home, which the Bank sold to a third party despite representing to Fix she could possess the home as long as she lived. The district court determined Fix enjoyed a homestead right in the property. The district court also determined she did not -- by signing a settlement agreement with the Bank -- release the claims she may have against the Bank for its alleged misconduct related to selling her home.
The Bank appeals, arguing Fix only had a contractual interest in the property rather than a homestead, and released all claims she may have had against it. John S. Lovald, the bankruptcy trustee, also appeals arguing Fix's interest in the home is a personal property interest which belongs to the bankruptcy estate, and the estate is free to pursue the claims against the Bank because the estate was not a party to the settlement agreement. We reverse and remand for further proceedings.
Rita Fix lived in the same home for almost sixty years, between 1948 and 2006. In May 1997, she and her husband signed a contract for deed with their son and daughter-in-law, Jeff and Marie Fix, to convey the property that included the home -- the NW1/4 NW1/4 of Section 26, Township 120, Range 71, Faulk County, South Dakota. Fix reserved a life estate "in and to the house, outbuildings, and immediately surrounding yard." Appellee's App. 161. Two years later, Jeff and Marie approached the Bank seeking additional financing for their farm operation. The Bank agreed to give them the financing if they obtained a warranty deed on the property. Fix was reluctant to give up her life estate interest, however, which was a prerequisite to Jeff and Marie obtaining a full warranty deed. In order to facilitate the financing, the Bank wrote a letter to Fix on March 12, 1999, which stated:
This letter is to memorialize to you that you are deeding NW1/4NW1/4 26-120-71, Faulk County, South Dakota, to Jeffrey F. Fix and Marie Fix. First State Bank of Roscoe will be taking a real estate mortgage on this real estate. In the event that for any reason the bank becomes the owner of the described real estate, you will have full right of possession to the home on the premises as long as you are living.
Appellant's App. 128. The Bank's president, John Beyers, signed the letter.
As a result of the Bank's letter, Fix gave a warranty deed to Jeff and Marie on March 15, 1999. The warranty deed used the term "grant," which, under South Dakota law, carries with it the implied covenant that the grantor has not previously conveyed the same interest in the property to someone else, and the implied covenant that, at the time of the instant conveyance, the property is free from all encumbrances suffered by the grantor or any person claiming under him, e.g., there is no retained life estate. See S.D. Codified Laws § 43-25-10.
Several years passed, during which time Fix lived in the home. In March 2004, she filed a Chapter 13 bankruptcy petition. She did not claim a homestead exemption, nor did she list as personal property her interest based on the March 1999 letter from the Bank. In June 2005, she converted her petition to Chapter 7. In October 2005, about the time she received a discharge of her debts, the Bank filed an adversary complaint against her. Fix's son, Jeff, had granted the Bank a security interest in his grain. The alleged scheme involved Jeff selling grain -- covered by the Bank's mortgage -- in Fix's name. She would thereafter endorse the grain checks, deposit them in her account, and then write her son a check in the same amount. The Bank claimed the Fixes diverted over $125,000 of secured proceeds through the scheme.
In November 2005, about a month after the Bank brought the fraud claim against Fix, Jeff and Marie conveyed the home and the property on which it sits to the Bank pursuant to a non-merger deed in lieu of foreclosure. The transfer of the home and property was part of a settlement between the Bank and Jeff and Marie in their own bankruptcy proceeding.
Meanwhile, the Bank tried to reach a settlement with Fix regarding the fraud complaint against her. After being told by its attorney that a global settlement had been reached with Fix, the Bank sold the home in question outright to James and Pamela Baer. The deed was recorded on December 9, 2005. Fix was still living in the home at the time.
On February 16, 2006, Fix's bankruptcy attorney signed a "Settlement Agreement" on her behalf resolving the Bank's fraud claim against her. Fix signed the agreement on March 8, 2006, and a Bank representative signed it on March 14, 2006. Two days later, the Bank presented the agreement to the bankruptcy court for approval, and the ...