Good News for Lenders: Missouri’s Future Advance Deed of Trust Statute Can Cover Interest (But What about Late Fees?)

January 2019

Under Missouri’s future advance statute, Mo. Rev. Stat. § 443.055, a deed of trust may secure future advances by a lender, the principal amount of which may not exceed the “face amount stated in the security instrument.” What else, besides the “principal” amount, may be secured by such a deed of trust? The statute specifically allows advances “incurred … for the reasonable protection of the lender’s security interest” to be included, and that amount can exceed the stated amount of the deed of trust. A Missouri Court of Appeals has now confirmed that interest also can exceed the stated amount and remain secured, and property taxes and attorney’s fees may also be secured as advances for the protection of the security interest. Late fees, however, do not qualify as expenses protecting the lien. Manns v. SB RE Properties, LLC, et al., ED105820 (Mo. Ct. App. E. D. Mo., Nov. 13, 2018).

The case involved SB RE Properties, LLC ("SB"), which held the senior deed of trust on the real property. D&B Guardian, LLC ("D&B") held the second. SB’s future advance deed of trust had a face amount of $237,000. SB was owed $234,000 in principal, plus default interest of $43,000, late fees of $11,000, property taxes of $21,000, and legal fees of $10,000. SB foreclosed, and the trustee sold the property for $320,000. The trustee paid $300,000 on account of SB’s lien and interpleaded the remaining $20,000 when D&B asserted a claim to that remaining amount. The trial court awarded the $20,000 to D&B, finding that SB’s recovery was limited to the face amount of $237,000 (there being no indication of a dispute regarding the other amounts in excess of $237,000 that were distributed to SB). SB appealed, arguing that the future advance statute does not limit the amount of secured interest.

The Court of Appeals reversed and awarded the $20,000 to SB. The Court confirmed that the statute’s limitation of the amount secured applies to “principal” amounts only, and the statute is silent on whether interest is secured. Because the statute is silent, the Court looked to the parties’ agreements regarding interest. SB’s maximum lien provision in the deed of trust stated that the “total principal amount of obligations … secured by this Deed of Trust, in addition to any interest and any amounts advanced by the Lender for the protection of the security interests granted herein, is $237,000.” The Court concluded that this provision is consistent with the plain language of Section 443.055, and the Court allowed the deed of trust to secure principal, plus interest on the principal amount, plus qualifying future advances to protect the lien. The Court further concluded that late fees did not qualify as expenses for the protection of the lien, but property taxes and reasonable costs and attorneys’ fees incurred in enforcing the deed of trust did.

With this clarification from the Missouri Court of Appeals, lenders should make sure that their future advance deeds of trust contain appropriate language to secure all interest on the principal amount of the loan. Lenders might also wish to consider providing “cushion” in the stated amount secured on the face of their future advance deeds of trust, as this could avoid complications regarding whether interest and other charges (such as late fees) in excess of the stated amount are secured.