Opinion
NO. 2015-CA-000678-MR
01-13-2017
GARY W. MCCLURE; CHERYL MCCLURE; AND PAM STEPHENS (AS TRUSTEE FOR THE PAMELA A. STEPHENS REVOCABLE TRUST APPELLANTS v. BANK OF JAMESTOWN; RALPH D. ROY, AKA RALPH ROY; WILMA L. ROY, AKA WILMA ROY; RALPH D. ROY ASSOCIATES REALTY, INC.; LEE CAROL, INC.; AND MARK FLENER, TRUSTEE OF THE BANKRUPTCY OF RALPH ROY APPELLEES
BRIEF FOR APPELLANT: Dawn Lynne McCauley Lebanon, Kentucky BRIEF FOR APPELLEE: Mark H. Flener Bowling Green, Kentucky M. Gail. Wilson Jamestown, Kentucky
NOT TO BE PUBLISHED APPEAL FROM RUSSELL CIRCUIT COURT
HONORABLE VERNON MINIARD, JR., JUDGE
ACTION NO. 11-CI-00253 OPINION
AFFIRMING
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BEFORE: DIXON, NICKELL, AND VANMETER, JUDGES. DIXON, JUDGE: Appellants, Gary McClure, Cheryl McClure and Pamela Stephens, appeal from an order of the Russell Circuit Court granting summary judgment in favor of Appellee, Bank of Jamestown, and ordering the sale of property for which the Bank holds the note and mortgage. Finding no error, we affirm.
Judge Laurence B. VanMeter concurred in this opinion prior to being elected to the Supreme Court of Kentucky. Release of this opinion was delayed by administrative handling.
In April 2004, Appellants purchased through two contracts for deed six tracts of land in the KLG Creekside Place subdivision from Ralph and Wilma Roy through their corporation, KLG, Inc. Specifically, the McClures and Stephens, as trustee for the Pamela A. Stephens Revocable Trust, purchased tracts 1-5, and Stephens, as trustee for the Pamela A. Stephens Revocable Trust, purchased tract 6. Unbeknownst to Appellants, the Roys had mortgaged multiple tracts of property, including Appellants' tracts, with Appellee, Bank of Jamestown ("Bank"), and in turn, had sold the tracts to third-party individuals on land sales contracts. The Roys' mortgage against Appellants' property was duly recorded on September 26, 2002, and had not been released at the time of the execution of the land contracts between them and Appellants. It is undisputed that Appellants did not have a title search performed prior to entering into the contracts. Appellants made all payments under the contract until 2010, when Gary McClure attempted to tender the remaining balance and was told by the Roys that the Bank had a mortgage on the property and a deed could not be produced.
As was eventually discovered, Ralph Roy, a realtor in Russell County, had mortgaged multiple tracts of property with the Bank. Specifically, Ralph and Wilma had executed six different promissory notes in favor of the Bank. In turn, Roy had sold the tracts to third-party individuals on land sales contracts. Evidently, none of the third parties was aware that the property was mortgaged with the bank. Of the six notes, only two in the total amount of $751,582.00 were executed prior to Appellants' land contracts.
Ultimately, the Roys defaulted on all six notes and, on May 12, 2011, the Bank filed the instant foreclosure action against Ralph and Wilma Roy, and Ralph Roy Realty &Associates, Inc. The Bank also named some forty-two additional parties as defendants, including Appellants, as the other individuals who had also purchased tracts of property on land contracts from the Roys that were mortgaged to the Bank. Following the Bank's filing of the foreclosure action, Appellants initially filed a pro se answer asserting general denials. Appellants subsequently retained counsel but did not file an amended answer.
On April 30, 2012, Ralph Roy filed Chapter 7 bankruptcy in the Western District of Kentucky. Roy was discharged on August 8, 2012. Eight days later, the Bank filed a motion for summary judgment against all remaining defendants at that point, arguing that there was no genuine issue of material fact that the Roys had defaulted on the notes and that the Bank was entitled to foreclose on the properties. Appellants then filed a response wherein they contended that due to the automatic stay in the bankruptcy action that was not lifted until July 24, 2012, they had been unable to conduct any discovery. Appellants argued that material issues existed regarding the Bank's knowledge of the land contracts, as well as whether the Bank had a duty to Appellants, as customers of the Bank, to disclose the existence of the Roys' prior mortgages. On October 18, 2012, the trial court entered an order denying the motion for summary judgment and granting the parties ninety days to complete discovery.
As of the filing of the parties' briefs in this Court, neither Wilma Roy nor KLG, Inc. had filed bankruptcy.
All of the defendants have now either settled with the bank or were dismissed as parties, other than Appellants herein.
The record indicates that on October 9, 2012, the trial court did grant a partial in rem summary judgment against the Roys and several defendant property owners that had not responded in the litigation, and ordered the sale of some of the Roys' property excluding that owned by the Appellants and a few other properties owners who had unresolved claims. --------
Despite the trial court's order, Appellants herein did not pursue any discovery until July 18, 2013, when they filed interrogatories and a request for production of documents, as well as requests for admissions propounded to the Bank. Appellants did not undertake to depose any Bank officials in an effort to ascertain the Bank's knowledge with respect to the land contracts. After the Bank had settled with other defendants below, it took the depositions of Appellants.
Thereafter, on June 13, 2014, the Bank again filed a motion for summary judgment and order for sale. Therein, the Bank argued that it was uncontroverted that it held a valid prior mortgage on the property Appellants purchased through the land contracts, and that the Roys had defaulted on the notes secured by the mortgage. As such, the Bank asserted that it was entitled to a judgment and sale of the property. In their response, Appellants did not dispute the facts as set forth in the Bank's motion. Rather, Appellants contended that they had recorded their land contracts, had made substantial improvements to the property and maintained the land and taxes since the date the contracts were executed. Further, Appellants argued that the Bank was aware of their land contracts with the Roys because the Appellants' checks for payment on the contracts were drawn on the Bank. Appellants argued that they were entitled to equity defenses including the doctrine of equitable subrogation because they had no knowledge of the prior lien on the property. By order entered October 31, 2014, the trial court granted summary judgment and ordered the sale of the property.
Appellants thereafter moved the trial court for additional findings of fact. The trial court denied the motion and this appeal ensued. Additional facts are set forth as necessary.
Our standard of review on appeal of a summary judgment is "whether the trial court correctly found that there were no genuine issues as to any material fact and that the moving party was entitled to judgment as a matter of law." Scifres v. Kraft, 916 S.W.2d 779, 781 (Ky. App. 1996). Summary judgment shall be granted "if the pleadings, depositions, answers to interrogatories, stipulations, and admissions on file, together with the affidavits, if any, 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." CR 56.03. The trial court must view the record "in a light most favorable to the party opposing the motion for summary judgment and all doubts are to be resolved in his favor." Steelvest v. Scansteel Service Center, Inc., 807 S.W.2d 476, 480 (Ky. 1991). CR 56 does not require that the case be void of issues, but that it be void of "material issues of fact." Martin v. Udita Mutual Insurance Co., 697 S.W.2d 951 (Ky. App. 1985). In order to defeat a motion for summary judgment, a non-moving party must present at least some affirmative evidence demonstrating that there is a genuine issue of material fact requiring trial. Hibitts v. Cumberland Valley National Bank & Trust Co., 977 S.W.2d 252 (Ky. App. 1998). Summary judgment is proper only "where the movant shows that the adverse party could not prevail under any circumstances." Id.
Appellants first argue that the trial court erred in granting summary judgment because the Bank failed to dispute their claims and prove that there was no genuine issue of material fact. Essentially, Appellants contend that in support of its motion for summary judgment, the Bank attached a single affidavit of a bank employee setting forth the amount owed by the Roys, that demand was made, and that the Roys had defaulted on their obligations, without introducing any evidence to contradict Appellants' claim that they had no knowledge of the Roys' prior liens or that the Bank was aware of the land contracts. We disagree.
Appellants concede that there is no genuine issue of material fact as to the existence and validity of the Bank's notes or that the Roys defaulted on such. While Appellants asserted in their response to the summary judgment motion that the Bank had knowledge of their land contracts and of their payments to the Roys, we agree with the trial court that they produced absolutely no evidence of such other than mere speculation. Similarly, Appellants claimed they were entitled to equity for the improvements made to the land yet they offered no supporting affidavits or other documents to back up their claims. Quite simply, the Bank met its burden by showing the existence, amount and default of a secured debt through pleadings and affidavits. There is no evidence in the record, other than Appellants' bald assertions, that there exists a genuine issue of material fact. As previously noted, a non-moving party must present at least some affirmative evidence demonstrating that there is a genuine issue of material fact requiring trial. Hibitts 977 S.W.2d at 253. Appellants failed to present any evidence to contradict the Bank's summary judgment and, as such, the trial court properly entered judgment in the Bank's favor.
Appellants next argue that the trial court should have applied the doctrine of equitable subrogation to reorder priority of the liens because they are innocent third-party purchasers and the Bank is a "sophisticated lending institution" that had, at a minimum, constructive knowledge of Appellants' interest in the property. We disagree.
Kentucky is a race-notice jurisdiction. KRS 382.270-.280. In order to have first priority, "one must not only be the first to file the mortgage, deed or deed of trust, but the filer must also lack actual or constructive knowledge of any other mortgages, deeds or deeds of trust related to the property." Wells Fargo Bank, Minnesota, N.A. v. Commonwealth, Finance and Administration, Department of Revenue, 345 S.W.3d 800, 804 (Ky. 2011). In other words, a prior interest in real property takes priority over a subsequent interest that was taken with notice, actual or constructive, of the prior interest.
Kentucky common law recognizes an equitable "exception" to the "first in time, first in right" rule, known as the doctrine of equitable subrogation. Id. at 806. "Equitable subrogation permits a creditor who pays the debt of another to stand in the shoes of the original creditor, enjoying all rights and remedies of the original creditor. In essence, '[t]he doctrine allows a later-filed lienholder to leap-frog over an intervening lien and take a priority position.'" Id. at 806 (quoting Hicks v. Londre, 125 P.3d 452 (Colo. 2005)). A party seeking to invoke the doctrine of equitable subrogation bears the burden of proving the applicability of the doctrine. "Although [equitable] subrogation is a highly favored doctrine, it is not an absolute right, but rather, one that depends on the equities and attending facts and circumstances of each case." Universal Title Ins. Co. v. United States, 942 F.2d 1311, 1315 (8th Cir.1991). "It is axiomatic that as an equitable doctrine, subrogation 'aids the vigilant, and not the negligent.' " Wells Fargo, 345 S.W.3d at 807. (Citation omitted). In fact, in Wells Fargo, our Supreme Court held that equitable subrogation is barred if the subsequent lienholder has actual or constructive knowledge of the existing lien. Id. As subsequently noted by the Court in Mortgage Electronic Registration Systems, Inc. v. Roberts, 366 S.W.3d 405, 412 (Ky. 2012),
While the Wells Fargo rule means that equitable subrogation will rarely be available, the rule ensures that full effect is given to the intent and objects of the
recording statutes. The statutory scheme will be overridden by the judicially created doctrine of equitable subrogation only in those rare circumstances in which equity truly requires it.
There is no question that the Bank's mortgage was properly recorded in 2002, and thus could have been discovered in the course of a title search. Accordingly, Appellants had at least constructive notice of the Bank's mortgage. We are of the opinion that Appellants were negligent in purchasing the property under a contract for deed without having a title search performed to insure there were no prior mortgages. As a result, they are not entitled to application of the doctrine of equitable subrogation.
Appellants also argue that the trial court's failure to address their claims for equitable relief based upon the Bank's actual knowledge and course of conduct warrants reversal. Specifically, Appellants contend that the trial court failed to address their claim that the Bank concealed the existence of its prior mortgage on the property, as well as their claim for relief for the improvements they made to the property. To the contrary, the trial court specifically noted that Appellants failed to introduce any evidence to support their claims or their entitlement to reimbursement. Quite simply, the trial court did consider Appellants' claims and found them lacking. We find nothing in the record to indicate the trial court erred in this respect.
Finally, Appellants contend that the trial court failed to address the effect of Gary McClure's purchase of part of the property at the master commissioner's sale on an easement that existed for the entire development. We would note that this issue was never raised below other than in one sentence in Appellants' motion for additional findings. Because this issue was neither raised in a timely manner nor considered by the trial court, we will not consider it herein.
For the reasons set forth herein, the order of the Russell Circuit Court is affirmed.
ALL CONCUR. BRIEF FOR APPELLANT: Dawn Lynne McCauley
Lebanon, Kentucky BRIEF FOR APPELLEE: Mark H. Flener
Bowling Green, Kentucky M. Gail. Wilson
Jamestown, Kentucky