June 6, 2013
by Robert E. Lastelic
South & Associates, P.C. – USFN Member (Kansas, Missouri)
The Kansas Court of Appeals recently handed down three published decisions involving mortgage foreclosures.
Prime Lending II, LLC v. Trolley’s Real Estate Holdings
Here, the appellate court held that it lacked jurisdiction when the trial court failed to make a proper express determination, as required by statute, that a judgment of foreclosure was final and that there was no reason for delay in the entry of judgment on that claim when other claims remained pending. Accordingly, it dismissed the appeal. However, a judicial sale already had been held with the property having been sold to a third party and, subsequently, the lower court having retroactively certified the judgment as final.
The appellate court thus faced two issues: (1) Was the retroactive order sufficient to make the judgment final? (2) If not, what was the effect on the judicial sale of the property? Because Kansas appellate courts have adopted and follow Federal Rule 54(b), in the absence of the required express determination that the judgment was “final” and that there was reason for delay in entering judgment, the appellate court held that the grant of summary judgment was not final. Therefore, no appeal could be taken from that judgment. Furthermore, the court found that the trial court had no discretion to retroactively make its decision a final judgment, nor was it possible to amend the previous order to include the required findings. Also, the appellate court declined to determine whether certifying the judgment as final at the later hearing would have resolved the jurisdictional problem.
As a result of the appellate court’s ruling, the validity or invalidity of the sale and the consequences of it are in issue and left to be determined in the trial court. [Prime Lending II, LLC v. Trolley’s Real Estate Holdings, 2013 WL 1786022 (Kan. Ct. App. Apr. 26, 2013)].
Bank of Blue Valley v. Duggan Homes, Inc.
In this case, the appeals court held that only through a foreclosure action can a senior lienholder strip the real property of known or recorded junior liens. After taking a deed-in-lieu of foreclosure from its borrower, without merger of the mortgages held by the bank into the title, the bank sought to foreclose its mortgages against junior judgment lienholders so as to clear title to the properties. The trial court held that the bank “simply desires to quiet title to the property” and granted judgment in favor of the bank quieting its title, even though such relief was not requested by the bank.
The appeals court reversed and remanded, holding that the trial court did not have the authority to convert the bank’s foreclosure action into a quiet title action and, even if it did, title to the real properties would not have been cleared in any event as Kansas statute only “extends the right to the property owner to quiet title against ... liens which have ceased to exist or which have become barred.” Furthermore, because the bank had abandoned its foreclosure action, any foreclosure issue was not before the court. [Bank of Blue Valley v. Duggan Homes, Inc., 2013 WL 1786013 (Kan. Ct. App. Apr. 26, 2013)].
U.S. Bank v. McConnell
In the third decision summarized here, the appeals court ruled that the bank was the holder of the note and was entitled to enforce both the note and the mortgage; that the McConnells’ claims that the bank violated the Kansas Consumer Protection Act (KCPA) were not substantiated by anything of evidentiary value; and that the wife of the borrower, by signing the mortgage, consented to alienation of the homestead and, therefore, that the mortgage was enforceable against her as well.
In this case, the mortgage was not assigned until after suit was filed. However, the note was held by the bank well before the foreclosure action was initiated. Therefore, the appeals court, citing prior Kansas cases and the Restatement (Third) of Property (Mortgages) 5.4(a), and following a discussion of cases from other jurisdictions, found that the mortgage followed the note and, accordingly, that the bank had “standing” to pursue the foreclosure action. As to the KCPA violations, the appellate court held that the McConnells failed to present any evidence that would create an issue of material fact regarding their KCPA claims and bar summary judgment in favor of the bank.
The McConnells also raised issues about MERS, the chain of title of the note and mortgage, the negotiability of the note, and alleged abuse of discretion of the lower court in not allowing additional discovery, as well as concerning an affidavit submitted by the bank in support of the bank’s motion for summary judgment, all of which the appeals court found were without merit and failed to establish a genuine issue of material fact that would preclude summary judgment. In addition, the McConnells asserted that the note and mortgage had been severed when the bank held the note and MERS held the mortgage, thus making the mortgage unenforceable. The court responded by saying that even if the note and mortgage were separated, it saw no impediment if the mortgage was transferred to the bank after suit was filed so long as the transfer occurred before the bank filed for summary judgment. But, the McConnells contended, MERS had no rights in the mortgage to assign. However, the court disposed of that argument by stating that MERS as a “nominee” was an agent of the lender while the bank held the note and, thus, there was no split and that to hold otherwise would be to create an unwarranted windfall “inconsistent with principles of equity” and contrary to Restatement (Third) of Property 5.4(c), Comment (e).
Finally, the McConnells claimed that the wife of the maker of the note did not consent to the impairment of her homestead rights because she did not sign the note or loan modification agreement. She did sign the mortgage, however, and the rights described in the Kansas homestead statute do not apply when both spouses consent to the mortgage lien on the property. Having failed to create a disputed issue for trial, the court held that summary judgment in favor of the bank was proper and, accordingly, the trial court decision was affirmed. [U.S. Bank v. McConnell, 2013 WL 1850755 (Kan. Ct. App. May 3, 2013)].
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