Opinion
NO. 2013-CA-000990-MR
01-23-2015
DONNA L. TEMPLE APPELLANT v. COMMUNITY TRUST BANK, INC; AND MICHAEL J. TEMPLE APPELLEES
BRIEF FOR APPELLANT DONNA L. TEMPLE: Jonathan G. Heineman Campbellsville, Kentucky BRIEF FOR APPELLEE COMMUNITY TRUST BANK, INC.: James B. Ratliff Pikeville, Kentucky
NOT TO BE PUBLISHED APPEAL FROM GREEN CIRCUIT COURT
HONORABLE DAN KELLY, JUDGE
ACTION NO. 10-CI-00216
OPINION
AFFIRMING AND REMANDING
BEFORE: DIXON, MAZE, AND TAYLOR, JUDGES. MAZE, JUDGE: Donna Temple (Donna) appeals from a judgment and order of sale entered by the Green Circuit Court in a foreclosure action brought by Community Trust Bank, Inc. (CTB). Donna argues that the there were significant issues regarding the validity of the most-recent mortgage on the property, and consequently summary judgment was not appropriate. However, we agree with the trial court that the prior mortgage continued to secure the indebtedness, notwithstanding any defects in the execution of the current mortgage. We further conclude that Donna failed to timely assert the release of the prior mortgage. Finally, we conclude that Donna has not been precluded from filing a counterclaim and third-party complaint, and those matters remain pending before the trial court. Hence, we affirm the judgment and order of sale, and remand for further proceedings on the pending motions.
Donna and Michael Temple married in 2000. During the course of the marriage, they purchased several adjacent tracts of property totaling 29 acres and located in Greensburg, Kentucky. The current action involves a note and mortgage executed on a five-acre tract of that property, located at 50 Lovers Lane in Greensburg. In October of 2007, Donna and Michael executed a note to CTB in the amount of $135,500 and secured by a mortgage on the five-acre tract.
On March 3, 2009, another promissory note in the amount of $152,000 was executed to CTB. It was also secured by a mortgage on the five-acre tract. The note was signed only by Michael Temple, but both Michael's and Donna's signatures appear on the mortgage. However, Donna denies signing the mortgage, and she presented expert evidence that it was likely forged by Michael. In addition, there is evidence that Donna did not appear before the notary who acknowledged the signature. In any event, the parties acknowledge that most of the proceeds of the 2009 note were used to pay the balance on the 2007 note, and Michael received the remaining proceeds.
In 2010, Michael filed a petition for dissolution of his marriage to Donna. They were divorced by a decree entered in 2013. While that action was pending, Michael defaulted on his payments on the note. Pursuant to the terms of the note, CTB accelerated the loan. On December 13, 2010, CTB filed this action against Michael and Donna, seeking payment on the note and foreclosure on the real property. As noted above, Donna denied any knowledge of the 2009 note and mortgage, and asserted that her signature on the mortgage had been forged.
Michael filed for bankruptcy, and CTB proceeded against Donna alone. Thereafter, CTB moved for summary judgment. CTB acknowledged that there were factual issues concerning the alleged forgery. However, CTB argued that those issues were not material because the 2007 mortgage would secure any renewals or extensions of that note. KRS 382.520(1). The trial court agreed, granting CTB's motion for summary judgment and ordering sale of the real property.
Kentucky Revised Statutes.
Thereafter, Donna moved to alter, amend or vacate the judgment pursuant to CR 59.05. She argued that KRS 382.520 was not applicable in this case. After considering CTB's response, the trial court denied the motion, finding no evidence that the parties intended to release Donna from the 2007 mortgage. This appeal followed.
Kentucky Rules of Civil Procedure.
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The parties agree that there is a factual dispute whether Donna signed the 2009 mortgage. Donna argues that the 2009 mortgage was void due to the fraudulent notary acknowledgement. The central issue on appeal, however, is whether the undisputed 2007 mortgage on the property continued to secure the 2009 note. If so, then CTB may still foreclose on the property notwithstanding any defect in the 2009 mortgage.
KRS 382.520(1) addresses this matter, providing:
In all cases where a loan is secured by a real estate mortgage, the mortgage originally executed and delivered by the borrower to the lender shall secure payment of all renewals, extensions, or interest rate reductions of the loan and the note evidencing it, whether so provided in the mortgage or not.
In Wells Fargo Fin. Kentucky, Inc. v. Thomer, 315 S.W.3d 335, 337 (Ky. App. 2010), this Court addressed the application of the statute under circumstances similar to those in this case. In that case, a married couple, the Grimmes, executed a note to Wells Fargo in 2000 that was secured by a mortgage on their residence. The following year, the Thomers obtained a judgment lien against the property which arose from an unrelated loan. In 2002, the Grimmes refinanced the original note, executing a new note and mortgage on the property. Subsequently, the Grimmes declared bankruptcy, and the court had to determine whether Wells Fargo or the Thomers had the superior lien on the Grimmes' real property.
In applying KRS 382.520(1), this Court distinguished between a renewal note, which does not extinguish the underlying obligation, and a novation, which operates to extinguish an original debt. Whether a second note is a renewal of the original obligation, or a novation thereof, depends upon the intentions of the parties. Id. at 338, citing White v. Winchester Land Development Corp., 584 S.W.2d 56, 63 (Ky. App. 1979). The Court went on to point out that
Kentucky statutes make provision for the formal release of mortgages and liens by marginal release or deed of release. KRS 382.360. However, as a matter of law, whether or not a formal release occurs, upon full payment of the indebtedness, the instrument of record becomes a nullity. Warning's Ex'r v. Tabeling, 280 Ky. 232, 133 S.W.2d 65 (1939). A recorded mortgage serves the purpose of establishing the lender's interest in the land that secures the debt and notice to the world of the lien created thereby. KRS 382.520. Thus, we must focus upon the indebtedness rather than the mortgage for without the debt, there is no mortgage. "[W]hen the debt is extinguished or barred by statute of limitations or otherwise, the mortgage is likewise at an end." Warning's Ex'r, 133 S.W.2d at 67. However, the mortgage may be relevant evidence as to the parties' intent. From the foregoing, therefore, the controlling question is whether the evidence shows that the underlying indebtedness of $152,000 was paid, thereby extinguishing the mortgage securing it, or whether the underlying indebtedness remained and continued to support the original mortgage.Id. at 338-39.
In Thomer, this Court found no evidence that Wells Fargo and the Grimmes intended a novation, which would effectively subordinate Wells Fargo's first lien position with respect to the Grimmes' mortgage. The Court specifically pointed out that, "[i]t is worthy of comment that the 2000 mortgage was not released of record." Id. at 340. Likewise, the trial court in this case found no evidence that the parties intended to release the 2007 obligation. In reaching this conclusion, the trial court stated that Donna "cannot argue that a document she says she did not sign constituted an expression of an intent to extinguish her original obligation."
However, the controlling question is not specifically whether Donna intended a release of the original obligation, but whether the parties to the 2009 note and mortgage intended the release. Nevertheless, the Court in Thomer emphasized that "[t]he burden to establish novation is on the party claiming its occurrence." Id. at 339. In support of her position, Donna submitted a copy of a release of the 2007 mortgage, executed by CTB and filed with the Green County Clerk in Mortgage Book 249, page 99. Donna argues that this release demonstrates that the parties intended a novation, rather than a renewal, of the original obligation.
We note that Donna did not assert the existence or relevance of the release until after the trial court entered the summary judgment and order of sale. As a general rule, a party cannot invoke CR 59.05 to raise issues or introduce evidence that could have been presented in the proceedings prior to entry of the judgment. Gullion v. Gullion, 163 S.W.3d 888, 893 (Ky. 2005). See also Hopkins v. Ratliff, 957 S.W.2d 300, 301 (Ky. App. 1997). Under the circumstances, we cannot find that the trial court was obligated to consider the new evidence or arguments. Therefore, the trial court did not err by denying Donna's motion to set aside the judgment.
Finally, Donna argues that the trial court erred by denying her motion for leave to file a counterclaim against CTB and a third-party complaint against the notary which acknowledged the 2009 mortgage. The trial court declined to rule on the motion, reserving the matter for adjudication after the foreclosure sale was confirmed. CTB points out that the counterclaim and third-party claim are not dependent upon the foreclosure action and can still be adjudicated at a later time. We agree that Donna has not been precluded from bringing her counterclaim and third-party claim, and those matters remain pending before the trial court. Therefore, the trial court did not abuse its discretion by reserving a ruling on her the motion to file the amended answer, counterclaim, and third-party claim.
Accordingly, the judgment and order of sale entered by the Green Circuit Court is affirmed. This matter is remanded for further proceedings on any pending claims or motions.
DIXON, JUDGE, CONCURS.
TAYLOR, JUDGE, DISSENTS AND WILL NOT FILE SEPARATE OPINION. BRIEF FOR APPELLANT
DONNA L. TEMPLE:
Jonathan G. Heineman
Campbellsville, Kentucky
BRIEF FOR APPELLEE
COMMUNITY TRUST BANK, INC.:
James B. Ratliff
Pikeville, Kentucky