Opinion
No. 108,706.
2013-05-17
FV–I, INC. in Trust for Morgan Stanley Mortgage Capital Holdings, LLC, Appellant, v. Constance M. KALLEVIG, et al., Defendants, (Bank of the Prairie), Appellee.
Appeal from Miami District Court; Steven C. Montgomery, Judge. Stephanie L. Mendenhall, of South & Associates, P.C., of Overland Park, for appellant. Timothy H. Girard, of Woner, Glenn, Reeder & Girard, P.A., of Topeka, for appellee.
Appeal from Miami District Court; Steven C. Montgomery, Judge.
Stephanie L. Mendenhall, of South & Associates, P.C., of Overland Park, for appellant. Timothy H. Girard, of Woner, Glenn, Reeder & Girard, P.A., of Topeka, for appellee.
Before HILL, P.J., PIERRON and SCHROEDER, JJ.
MEMORANDUM OPINION
PER CURIAM.
Bank of the Prairie was granted summary judgment by the district court finding FV–I had no standing as its note and mortgage were split, thus elevating Bank of the Prairie's mortgage liens to a priority status superior to the claim of FV–I. Finding there are material facts in dispute, we reverse the district court's granting of summary and unliquidated damages judgments in favor of Bank of the Prairie.
Facts
The facts of this case are undisputed. However, the timing and significance of various facts are highly disputed and affect the application of caselaw.
Constance Kallevig and her husband, Kermit, took out several loans starting in 2002. They secured these loans through mortgages on their property in Bucyrus. Four of these mortgages are at issue in this case. The loan at issue was from GMAC Bank in September 2005. The other three loans were from Bank of the Prairie. Each loan will be discussed in turn.
On September 16, 2005, the Kallevigs obtained a loan in the amount of $450,000 from GMAC Bank on the property. GMAC Bank held the promissory note on this loan upon execution. The mortgage executed with the note was delivered to Mortgage Electronic Registration Systems (MERS), which acted solely as the nominee for GMAC Bank.
On October 11, 2002, the Kallevigs obtained a loan from Bank of the Prairie in the amount of $88,000, secured by a mortgage on the property in Bucyrus. Bank of the Prairie subordinated this mortgage on the Kallevigs' property to “MERS–GMAC Bank.”
On October 11, 2006, the Kallevigs obtained a loan from Bank of the Prairie not to exceed $50,000. On August 30, 2007, the Kallevigs obtained a loan from Bank of the Prairie not to exceed $100,000. Both loans are secured by a mortgage on the property. Both parties admit Bank of the Prairie holds the note and mortgage for all three loans.
On June 15, 2011, MERS, as a nominee for GMAC Bank, assigned the September 2005 mortgage to FV–I. On June 24, 2011, FV–I petitioned to foreclose the Kallevigs' 2005 mortgage. The petition for foreclosure identified the three mortgages held by Bank of the Prairie, which FV–I considered junior liens.
Bank of the Prairie responded and filed a counterclaim against FV–I, along with a crossclaim against the Kallevigs asking for forclosure of its three mortgages. FV–I moved to dismiss Bank of the Prairie's counterclaim. Bank of the Prairie responded by claiming the note and mortgage were split in 2005, when GMAC Bank transferred its rights in the note to GMACB.
The promissory note was transferred with greater frequency than the mortgage. The note is stamped by a printed “Stamped in Error,” as an endorsement in blank from GMACB. The second endorsement states “pay to the order of GMACB Asset Management Corp. without recourse” from GMAC Bank. The endorsements are not dated, and Bank of the Prairie argued the endorsements occurred immediately after the Kallevigs received the 2005 loan, creating a split of the note and mortgage.
The record is unclear but appears to reflect the note was assigned by GMAC Bank to GMACB, then to GMACB Asset management Corp., then to Ally Bank, by allonge, as successor in interest to GMACB, and finally to FV–I. Some of the assignments are clearly shown on the note and some are blank endorsements. Bank of the Prairie's motion for summary judgment argued the promissory note and mortgage were split in 2005 when GMAC Bank transferred the promissory note to GMACB without correspondingly assigning the mortgage to GMACB. According to Bank of the Prairie, the intent to split was evidenced by GMAC Bank's assignment to FV–I in June 2011, indicating that GMAC Bank retained the rights to the mortgage after the many promissory note assignments. Bank of the Prairie also argued FV–I lacked standing at the time of the filing of the foreclosure petition because FV–I did not demonstrate it had possession of the promissory note.
FV–I responded, claiming it was the holder of the promissory note prior to filing the foreclosure petition, which was endorsed in blank and it had standing to bring the foreclosure action. The property owners, the Kallevigs, did not participate in the litigation and were in default.
The district court granted Bank of the Prairie's motion for summary judgment, ruling FV–I did not show it had possession or assignment of the promissory note. The district court found the mortgage had been held by GMACB until the assignment to FV–I just before the petition was filed. The court concluded by finding FV–I had no standing and granted Bank of the Prairie's request for summary judgment and a judgment for liquidated damages.
In this appeal, FV–I raises two issues: did the district court err in granting summary judgment to Bank of the Prairie, and did the district court err in awarding unliquidated damages to Bank of the Prairie?
Summary Judgment
We acknowledge the standard of review on motions for summary judgment, and it provides:
When the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, show that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law, summary judgment is appropriate. The district court is required to resolve all facts and inferences which may be reasonably drawn from the evidence in favor of the party against whom the ruling is sought. When opposing a motion for summary judgment, an adverse party must come forward with evidence to establish a dispute as to a material fact. In order to preclude summary judgment, the facts subject to the dispute must be material to the conclusive issues in the case. On appeal, the same rules apply; summary judgment must be denied if reasonable minds could differ as to the conclusions drawn from the evidence. O'Brien v. Leegin Creative Leather Products, Inc., 294 Kan. 318, 330, 277 P.3d 1062 (2012).
When there is no factual dispute, appellate review of an order regarding summary judgment is de novo. David v. Hett, 293 Kan. 679, 682, 270 P.3d 1102 (2011). When the controlling facts are based on the parties' joint stipulation, an appellate court determines de novo whether the moving party is entitled to judgment as a matter of law. See In re Tax Appeal of LaFarge Midwest, 293 Kan. 1039, 1043, 271 P.3d 732 (2012).
FV–I alleges the district court failed to view the facts of the case in a light most favorable to FV–I. FV–I alleges the court failed to consider its possession of the note and mortgage in a light that was most favorable to FV–I. FV–I's claims are grounded in questions of law and fact.
To prevail on its summary judgment claim, Bank of the Prairie must demonstrate there is no genuine issue as to any material fact regarding FV–I's standing to enforce its petition to foreclose. To have standing to enforce its petition to foreclose, FV–I must be entitled to enforce the promissory note as a negotiable instrument under K.S.A. 84–3–301. Under this statute, FV–I can be a holder of the note, a nonholder in possession of the note who has the rights of a holder, or a person not in possession of the note who can enforce because the note was lost, stolen, destroyed, or paid and revoked or recovered. See K.S.A. 84–3–301; K.S.A. 84–3–309; K.S.A. 84–3–418(d). The facts do not support the third alternative. In order for Bank of the Prairie to be successful, it must be undisputed FV–I was neither a holder or a nonholder with rights of a holder at the time it filed its petition to foreclose.
No evidence in the record clearly shows whether FV–I is a holder in due course or a holder who can enforce the note. It is undisputed FV–I produced a color copy of the original promissory note, the allonge that purportedly proved the transfer of the promissory note, and other copies of the note. FV–I's possession, or lack thereof, of these documents at the time of their filings would determine its status as a holder or nonholder with rights of a holder. FV–I, at the time of summary judgment, provided the court with various note assignments creating a material fact question. Thus, when the note and mortgage assignments are viewed by the district court, it is required to resolve all facts and inferences which may be reasonably drawn from the evidence favorable to FV–I and the granting of summary judgment in favor of Bank of the Prairie was premature. See O'Brien, 294 Kan. at 330.
In Kansas, a mortgage ordinarily follows the promissory note. MetLife Home Loans v. Hansen, 48 Kan.App.2d 213, 224, 286 P.3d 1150 (2012) (citing Army Nat'l Bank v. Equity Developers, Inc ., 245 Kan. 3, 17, 774 P.2d 919 [1989] ). The converse is also true. K.S.A. 58–2323 states the assignment of a mortgage also carries with it the debt thereby secured. Thus, the note and the mortgage ordinarily follow one another. Notes are negotiable instruments freely transferable, and the mortgage is not a negotiable instrument—it is the security for the note.
However, Kansas caselaw recognizes the possibility that a promissory note and a mortgage can be split. See Landmark Nat'l Bank v. Kessler, 289 Kan. 528, 539–41, 216 P.3d 158 (2009); Mortgage Electronic Registration Systems v. Graham, 44 Kan.App.2d 547, 553–54, 247 P.3d 223 (2010). Generally, a mortgage is unenforceable when it is not held by the same entity holding the promissory note. An exception exists where there is an agency relationship between the holder of the mortgage and the holder of the promissory note. U.S. Bank v. Howie, 47 Kan.App.2d 690, 695, 280 P.3d 225 (2012).
“This concept is one of practicality: In the absence of an agency relationship between the holder of the mortgage and the holder of the note, the entity holding only the note lacks the power to foreclose in the event of a default, and the entity holding only the mortgage will never experience a default because it has no right to payment under the note.”
MetLife, 48 Kan.App.2d at 220 (citing Landmark, 289 Kan. at 540 [citation omitted] ).
In MetLife, the Kansas Court of Appeals determined whether an agency relationship could exist between a subsequent assignee of the promissory note and MERS, the holder of the mortgage. The borrowing party took out a loan from Sunflower Mortgage Company. The borrowers mortgaged their home to MERS, solely as nominee for Sunflower and its successors and assigns, and to the successors and assigns of MERS. The promissory note was transferred to various parties and was eventually held by MetLife. The mortgage was held by MERS until MERS assigned it to MetLife “solely as nominee for Sunflower Mortgage Co.” The borrowers challenged MetLife's standing to enforce the mortgage, claiming that the note and mortgage had been split by various endorsements on the note without corresponding assignments of the mortgage.
The court held that despite MetLife not having an independent agency relationship with MERS, the language of the mortgage alone established an agency relationship between MERS, Sunflower, and Sunflower's assignees. The court cited the Restatement (Third) of Property: Mortgages § 5.4 (1996), which urges courts to be vigorous in finding an agency relationship between the holder of a note and a mortgage to avoid windfalls or frustration of the expectation of security. The mortgage clearly granted the property to MERS as nominee for the lender and its successors and assigns and the note and mortgage cross-referenced one another, the court held that the plain language of both documents indicated the parties' intention to keep them together as part of one transaction. Because MetLife established its interest at all times in the promissory note, its interest in the mortgage, and a default on the note, the court held that MetLife was entitled to summary judgment. MetLife, 48 Kan.App.2d at 222–26.
Similar to the fact pattern in MetLife, FV–I was not the original holder of the note; it was a subsequent assignee of the original lender, GMAC Bank. Likewise, MERS assigned the mortgage to FV–I “as the nominee of GMAC Bank.” Because MERS is simply a “straw man” and the mortgage and the note in this case reference one another, it is clear the parties intended for the instruments to remain together. There is no evidence in the record of an expressed agreement to split the note and the mortgage.
Based on MetLife, FV–I argues it is entitled to judgment as a matter of law as the present holder of the note and mortgage. However, as Bank of the Prairie points out, this case bears some notable differences to MetLife. In MetLife, the district court held that the note and mortgage had “indisputably come under MetLife's common control.” MetLife, 48 Kan.App.2d at 217. Here, FV–I has failed to demonstrate the note was under its control at time of filing or even now. These gaps in the record fail to demonstrate FV–I was in possession of the note at the time of filing and are insufficient to conclusively prove FV–I is the holder of the note and mortgage. Thus, FV–I is not entitled to a judgment as a matter of law.
Deficient records cut both ways. Just as FV–I has failed to prove it had possession of both instruments, Bank of the Prairie has failed to prove that FV–I did not have possession of these instruments to show standing. As reasonable people could differ as to the conclusions reached by the various documents produced during discovery, this issue is not sufficiently clear to be decided summarily. The court in O'Keeffe v. National Bank, 49 Kan. 347, 349–50, 30 Pac. 473 (1892), held: “The note and mortgage were in the possession of the bank and were produced by it at trial. A negotiable note may be transferred without written indorsement and by mere delivery. The possession of the note and its production at the trial furnished prima facie evidence of ownership.”
This panel is mindful of the recent decision in U.S. Bank N.A. v. McConnell, 48 Kan.App.2d ––––, ––– P.3d –––– (No. 107,300, filed May 3, 2013), slip op. at 14, which found:
“Because the mortgage followed the note and there is no genuine fact issue about the Bank being the holder of the note at the time suit was filed, we conclude that the Bank had standing to pursue this foreclosure action. The formal assignment of the mortgage after the date suit was filed did not create a genuine issue of material fact that stood in the way of summary judgment because, under the analyses in [McLean v.] JP Morgan Chase [Nat. Ass'n, 79 So.3d 1790 (2012), Fla. Dist.App.] and CitiMortgage[, Inc. v. Patterson, –––Ohio App.3d ––––, 984 N.E.2d 392 (2012),] and the Kansas cases discussed above, the fact that the Bank held the promissory note was sufficient to give it standing to pursue this action.”
The district court erred in granting summary judgment in favor of Bank of the Prairie. However, FV–I is not entitled to judgment as a matter of law on this issue.
Awarding Unliquidated Damages to Bank of the Prairie
The unliquidated damages judgment to Bank of the Prairie is reversed with the reversal of the summary judgment.
We acknowledge Supreme Court Rule 118 (2012 Kan. Ct. R. Annot. 231) applies to default judgments, but this was not a default judgment.
The district court prematurely granted summary judgment as there are genuine issues to material facts involving the note and mortgage assignments. With this not being a default judgment proceeding, Supreme Court Rule 118 does not apply. We reverse.
Reversed and remanded.