May 6, 2014
by Blair T. Gisi
South & Associates, P.C. – USFN Member (Kansas, Missouri)
A residential mortgage foreclosure case involved, among other issues, the effect of the borrowers’ failure to execute and to timely return a loan modification agreement. The bank had obtained summary judgment, relying on K.S.A. §§ 16-117 and 16-118. The Kansas Court of Appeals affirmed the trial court’s decision granting summary judgment to the bank on all issues. SunTrust Mortgage, Inc. v. Giardina, No. 109,840, 2014 WL 1193433 (Kan. Ct. App. Mar. 21, 2014), slip op.
The borrowers defaulted on a mortgage loan, but proceeded to work with the bank to modify their loan. The borrowers made all required loan modification trial payments and were approved for a loan modification. A proposed loan modification agreement was sent to the borrowers with explicit instructions to sign, notarize, and timely return the proposed agreement along with the first required payment. The borrowers did make the monthly payments for August and September 2011 as set forth in the proposed agreement, but failed to timely return the loan modification agreement itself and provided no proof at all that they ever executed the document.
SunTrust viewed the borrowers’ failure to both sign and timely return the loan modification agreement as a rejection of the offer to modify the loan. Accordingly, SunTrust advised the borrowers that they remained in default and that failure to cure the default would result in foreclosure proceedings. There was no cure, so SunTrust proceeded with a foreclosure suit, which ultimately resulted in the lower court granting judgment in favor of SunTrust, despite the borrowers’ raised defenses. The borrowers’ appeal followed.
The Kansas Court of Appeals held that the proposed loan modification agreement fit within the state statutory definition of “credit agreement” and, as such, that the material terms of the credit agreement must be in writing and signed by both the creditor and the debtor for it to be relied upon for any legal or equitable action. The appellate court found that the failure of the borrowers to come forward with a copy of the loan modification agreement signed by the parties precluded the defense of an implied agreement based on course of dealing or partial performance. In addition, the court concluded that under the plain language of the mortgage and the note that SunTrust’s acceptance of the borrowers’ payments did not waive the bank’s rights to file the foreclosure action.
In addition to the loan modification issue, the appellate court considered two other issues. The first was the oft-repeated argument that SunTrust holding the note and Mortgage Electronic Registration Systems, Inc. (MERS), as nominee for SunTrust, holding the mortgage resulted in a splitting of the note and mortgage. The appellate court held that by the language of the mortgage, MERS acted as the express agent of SunTrust and, therefore, that the note and mortgage were never separated. Secondly, the appellate court found that a consent order entered into by SunTrust and the Federal Reserve was not a material issue to bar summary judgment because the borrowers were not a party to the consent order and the consent order did not have the force and effect of law.
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