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Impact of an Assignment during a Pending Foreclosure

Posted By USFN, Tuesday, December 4, 2018
Updated: Friday, November 30, 2018

December 4, 2018

by Blair Gisi
SouthLaw, P.C. – USFN Member (Iowa, Kansas, Missouri)

In a recent case, Fannie Mae v. Sharp, 2018 Kan. App. Unpub. LEXIS 876 (Ct. App. Nov. 9, 2018), the court analyzed the impact of an assignment of mortgage during a pending foreclosure, resulting in a favorable ruling for servicers.

Background in District Court
With Fannie Mae’s motion for summary judgment pending, Fannie Mae assigned the subject mortgage to Wilmington Savings Fund Society (Wilmington) and moved for an order substituting it as the party plaintiff. The mortgage was assigned on June 2, 2016; the actual assignment of mortgage was recorded on June 15, 2016.

Within minutes of Fannie Mae moving for the substitution of party plaintiff, the borrower filed a motion to dismiss, contending that the mortgage was assigned two months prior and, therefore, the motion to substitute was not filed in a reasonable time. The borrower also asserted that the extensive discovery completed in the case would be futile if Wilmington were allowed to be substituted into the case.

After hearing arguments on both the motion to dismiss and the motion for summary judgment, the district court granted dismissal (and denied summary judgment) based on four reasons, specifically:


“1. No motion was filed to substitute for nearly two months after an assignment was made. Nothing was done and more than a reasonable time has elapsed since the assignment occurred.
“2. The Defendant has engaged in extensive discovery and will be prejudiced if forced to proceed against a new Plaintiff.
“3. The discovery sought from Fannie Mae will not apply to Wilmington, which will result in further delays and expense in litigation.
“4. The Response to the Motion for Summary Judgment will have to be modified and rewritten, causing more delay and expense for Defendant.”


Appellate Court’s Analysis & Ruling
The Court of Appeals agreed with Fannie Mae’s position that the district court erred in finding that Fannie Mae had to move to substitute within a reasonable time.

As clarified by the Court of Appeals, K.S.A. 2017 Supp. 60-225(c) governs the substitution of parties and states very clearly, “If an interest is transferred, the action may be continued by or against the original party unless the court, on motion, orders the transferee to be substituted in the action or joined with the original party.” (Emphasis is the appellate court’s.)

Relying on the legislative intent and plain language of the statute, the appellate court ruled that there is no requirement for a motion to substitute to be filed within a “reasonable time” after the assignment. If the legislature’s intent was to include a reasonable time requirement, it would set that out, as K.S.A. 2017 Supp. 60-225(a) does after the death of a party.

Furthermore, even if there were a reasonable time standard, Fannie Mae would have met it as the motion to substitute party plaintiff was filed on June 22, 2016 (20 days after the actual assignment and seven days after recording the assignment of mortgage).

Regarding the remaining reasons for the district court’s rulings, the Court of Appeals found that there was no prejudice to the borrower because Fannie Mae’s discovery responses were admissible against Wilmington. The appellate court recognized the “time-honored rule of law” that the assignee stands in the shoes of the assignor; therefore, Wilmington was bound by the admissions and interrogatories that Fannie Mae had provided. Finally, the motion for summary judgment was denied, so there was no need for a response (or modified response) to a denied motion.

Editor’s Note: The author’s firm represented the appellate Fannie Mae in the case summarized in this article.

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Note for consideration of the USFN Award of Excellence: This article is not a "Feature."

 

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