August 1, 2013
by Stephanie Mendenhall
South & Associates, P.C. – USFN Member (Kansas, Missouri)
In recent months, the Kansas Court of Appeals has heard an increased number of mortgage foreclosure cases, leading to definitive decisions on the issues of standing and note and mortgage enforcement. See, e.g., U.S. Bank, N.A. v. Howie, 47 Kan. App. 2d 690 (2012), MetLife Home Loans v. Hansen, 48 Kan. App. 2d 213 (2012), Bank of America, N.A. v. Inda, 2013 WL 856468 (Kan. Ct. App. March 8, 2013), and U.S. Bank, N.A. v. McConnell, 2013 WL 1850755 (Kan. Ct. App. May 3, 2013). In its latest opinion (unpublished), FV-I, Inc. v. Kallevig, 2013 WL 2321198108 (Kan. Ct. App. May 17, 2013), the court of appeals reversed a grant of summary judgment to a defendant/junior lienholder, finding that an issue of material fact existed regarding the plaintiff/senior lienholder’s standing and, specifically, possession of the promissory note at the time the foreclosure petition was filed.
In the underlying foreclosure action filed by FV-I, Inc. (FVI), defendant Bank of the Prairie (BOP) challenged the validity of FVI’s note and mortgage (on a splitting theory) and FVI’s standing to enforce the note (based on a lack of possession). The district court granted summary judgment to BOP, holding that the note and mortgage were split by express agreement and that FVI lacked standing to bring the foreclosure action because it did not possess the original note. As a result, the district court elevated BOP’s liens to a senior priority status and entered a judgment of foreclosure. On appeal, the court of appeals reversed the district court’s grant of summary judgment and remanded the case.
The appellate court first determined that the note and mortgage sought to be enforced by FVI were not split. This was based on its holdings in Howie and Hansen that a mortgage follows a note, and that the converse is also true. The court further relied on those decisions for the general rule that a mortgage may be unenforceable if not held by the same entity that holds the note, but that an agency exception exists. Additionally, the court of appeals held that there was no evidence of an express agreement to split the note and mortgage in this case.
Distinguishing the facts of Hansen, and being mindful of its opinion in McConnell, the appellate court then determined that a genuine issue of material fact existed regarding FVI’s standing to enforce the note. In Hansen and McConnell, the court of appeals found that the plaintiffs possessed the note at the time of filing their foreclosure petitions and, therefore, had standing to foreclose. Here, the appeals court determined there were gaps in the record regarding FVI’s possession of the note. FVI created an issue of fact regarding possession at the time of filing, and BOP failed to undisputedly prove a lack of possession or standing. Thus, the court held neither party was entitled to judgment and remanded the case to district court for FVI to prove possession of the note at the time of filing the foreclosure petition.
Editor’s Note: The author’s firm represented the appellant in the case summarized in this article.
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