Koch v. Swanson

Harold and Molly Koch and Gordon and Lorraine Koch (plaintiffs) loaned money to Ernest B. and Estelle A. Swanson. On June 15, 1965, as security for the loan, the Swansons gave the Kochs a real estate mortgage covering certain property in Spokane County, which the agreement identified, in relevant part, as “Tract 125.” The Kochs did not obtain a title report or search the official records to verify that the Swansons owned the property described in the agreement. On June 30, 1965, the Kochs recorded their mortgage in the Spokane County Auditor’s office. The real estate description in the Kochs’ recorded document identified the property as Tract 125. In July 1965, the Swansons gave a real estate mortgage to Pacific First Federal Savings & Loan Association (Pacific First Federal). Pacific First Federal properly recorded its mortgage. The real estate description in Pacific First Federal’s recorded document closely matched the Kochs’ description apart from identifying the property as “Tract 124” instead of Tract 125. The Swansons intended for both mortgage agreements to cover the same property. Further, the Swansons only owned Tract 124 (the subject property), not Tract 125. Thereafter, the Swansons sold the subject property to Alvin J. and Jane H. Wolff subject to Pacific First Federal’s interest. When the Wolffs’ title insurance company performed a title search, the search did not show the Kochs’ mortgage. The Kochs sued the Swansons, Pacific First Federal, and the Wolffs (defendants) and sought to foreclose on its mortgage on the subject property. The trial court held that Pacific First Federal and the Wolffs’ interests had priority over the Kochs’ interest. The Kochs appealed and argued that their recorded document containing a similar description apart from the incorrect Tract number put Pacific First Federal and the Wolffs on inquiry notice of their senior interest.