286 P.3d 1150 (Kan.App. 2012), 106,846, MetLife Home Loans v. Hansen
| Judge | Before GREENE, C.J., PIERRON and ARNOLD-BURGER, JJ. |
| Parties | METLIFE HOME LOANS, a Division of MetLife Bank, N.A., Appellee, v. C.T. HANSEN a/k/a Clarence G. Hansen and Kelly L. Hansen, Appellants, Wellsville Bank, and United States of America, Appellees. |
| Citation | 286 P.3d 1150 |
| Docket Number | 106,846. |
| Court | Kansas Court of Appeals |
| Date | 28 September 2012 |
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Syllabus by the Court
1. The main purpose of a mortgage is to insure the payment of the debt for which it stands as security, and foreclosure is allowed when necessary to carry out that objective. Accordingly, in order to grant summary judgment in a mortgage foreclosure action, the district court must find undisputed evidence in the record that the defendant signed a promissory note secured by a mortgage, that the plaintiff is the valid holder of the note and the mortgage, and that the defendant has defaulted on the note.
2. A mortgage may become unenforceable when it is not held by the same entity that holds the promissory note. However, an exception exists where there is an agency relationship between the holder of the mortgage and the holder of the promissory note.
3. An agency relationship may arise between a holder of the note and the holder of the mortgage from the terms of the assignment, from a separate agreement, or from other circumstances.
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4. Promissory notes and mortgages are contracts to which the rules of contract construction apply. Absent an ambiguity in the contract, a court must give effect to the intent of the parties as expressed within the four corners of the instrument.
5. The transfer of an obligation or debt secured by a mortgage also transfers the mortgage unless the parties to the transfer agree otherwise.
6. Kansas law favors keeping the mortgage and the right of the enforcement of the obligation it secures in the hands of the same person or entity.
7. When the Mortgage Electronic Registration Systems, Inc. (MERS) holds the mortgage merely as nominee of the lender and the lender's successors and assigns, the lender and the lender's successors and assigns retain a beneficial interest in the mortgage as holders of the note which the mortgage secures. Accordingly a formal assignment of the mortgage is not necessary to secure the note holder's right to foreclose the mortgage.
When a borrower defaults on a promissory note that is secured by a real estate mortgage, the lender may foreclose on the mortgaged property to collect on the note. In this case, MetLife Home Loans, a Division of MetLife Bank, N.A. (MetLife) claims to be the holder of both the promissory note (Note) and the corresponding mortgage (Mortgage) on property owned by C.T. and Kelly Hansen (Hansens). There is no dispute that the Note is in default. Due to the default, MetLife seeks to foreclose on the property to collect on the Note. The sole issue in this appeal is whether the district court was correct to grant summary judgment to MetLife.
The Hansens argue that because the Note and the Mortgage took divergent paths, i.e., the Note was separately endorsed between various lenders, while the Mortgage remained recorded in the name of Mortgage Electronic Registration Systems, Inc. (MERS), there was an irreparable legal separation of the Note and the Mortgage, rendering the Mortgage unenforceable by MetLife. MetLife counters that the path the various assignments took is irrelevant because at the time the action was filed, MetLife held both the Note and the Mortgage. In other words, MetLife contends that even if there was a defect in assignment that split the two interests, that defect was cured when the interests were rejoined under MetLife's common holding.
The district court agreed with MetLife and granted it summary judgment. Because we find that summary judgment was proper, albeit for different reasons than the district court, we affirm.
FACTUAL AND PROCEDURAL HISTORY
Execution of the promissory note and the mortgage
On March 4, 2004, Clarence Hanson (C.T.) executed and delivered the Note to Sunflower Mortgage Company (Sunflower), promising to pay Sunflower $168,750 plus interest in monthly installments over a 15-year period. As security for the Note, the Hansens (C.T. and his then-wife Kelly) signed a Mortgage on their Baldwin City home, which was filed with the Douglas County Register of Deeds on March 10, 2004.
The definitions, powers, and obligations of the parties to the Mortgage are important here. The Mortgage names the Hansens as the " Borrower" and Sunflower as the " Lender." It also references the Note signed between C.T. and Sunflower. The Mortgage defines MERS, a separate corporation, as the mortgagee and states that MERS is acting " solely as nominee" for Sunflower and Sunflower's successors and assigns. In the Mortgage, the Hansens specifically and irrevocably
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mortgaged their home to MERS— solely as nominee for Sunflower and Sunflower's successors and assigns— and to the successors and assigns of MERS. MERS reserved the right to take any action required of the Lender including, but not limited to, releasing and cancelling the Mortgage.
The Note and the Mortgage came under MetLife's common holding through a series of nonparallel endorsements or assignments.
Both the Note and the Mortgage eventually came to be held by MetLife through a series of separate endorsements or assignments:
• The Note: Sunflower exercised its right of transfer provided for in the Note and endorsed it to Ohio Savings Bank (Ohio Savings) on March 4, 2004— the same day it was signed by C.T. The Note was thereafter twice endorsed (on dates unknown): from Ohio Savings to First Horizon Loan Corporation (First Horizon); and from First Horizon to MetLife.
• The Mortgage: The central point of contention in this appeal stems from the fact that during the course of the above endorsements of the Note between the various lenders, the original Mortgage remained recorded in the name of MERS up until MERS assigned it to MetLife, " solely as nominee for Sunflower Mortgage Co. " (Emphasis added.)
Defendants challenged MetLife's standing to foreclose.
C.T. eventually defaulted on the Note, so on February 16, 2010, MetLife filed the foreclosure petition that is the underlying subject matter of this case. In addition to the Hansens, MetLife named Wellsville Bank as a defendant because on August 29, 2008, it had recorded a $70,000 mortgage granted by C.T. on the same Baldwin City property. Wellsville Bank filed a cross-claim for foreclosure because C.T. had also defaulted on its note secured by that mortgage.
The Hansens and Wellsville Bank challenged MetLife's standing to foreclose in their affirmative defenses in their answers to MetLife's petition and in summary judgment pleadings initiated by Wellsville Bank. While their arguments took on many different angles, the gist of their complaint was that ownership of the Note and the Mortgage had irreparably split when the Note was endorsed between the various lenders while the Mortgage remained recorded in MERS's name, as the mortgagee. Consequently, Wellsville Bank and the Hansens claimed that MetLife either wholly lacked an interest in the Hansens' Baldwin City property or any interest MetLife did have was unsecured and, therefore, junior to Wellsville Bank's interest.
MetLife primarily responded that it had standing to foreclose based simply on its holding of both the Note and the Mortgage, regardless of any prior split in the holdings of each; and even if it had to establish the legality of how it came to hold both, it did so.
It should be noted that after filing its foreclosure petition, MetLife assigned both the Note and Mortgage to Fannie Mae and moved the district court to substitute Fannie Mae as the plaintiff as a result. The district court orally granted that motion at the hearing upon finding that the substitution of Fannie Mae as plaintiff did not affect any of the summary judgment arguments concerning MetLife's standing to foreclose. Because the issue was challenged below based on MetLife's standing at the time it filed the petition, Fannie Mae is not further mentioned, although it is technically now the plaintiff/appellee.
The district court held MetLife had standing to foreclose.
Following a hearing on the parties' competing motions for summary judgment, during which the sole issue argued was MetLife's standing to foreclose, the district court entered judgment in MetLife's favor. In support, the district court reasoned that the Mortgage and Note had indisputably come under MetLife's common control. And even if an agency relationship might have been lacking between the various lenders that held the Note and MERS— which could be interpreted as causing an improper split of the
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Mortgage and Note— the court found that any such split was " cured" upon the assignments of both instruments to MetLife. Upon the district court's denial of their motion to reconsider, the Hansens filed this pro se appeal. Wellsville Bank did not appeal.
ANALYSIS
Standard of review
The standards for granting summary judgment are well known. 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 reasonably be drawn from the evidence in favor of the party against whom the ruling is sought. On appeal, the same rules apply; summary judgment must denied if reasonable minds could differ as to the conclusions drawn from the evidence. ...
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...[hereinafter Stoebuck & Whitman, Property]. (17.) See supra notes 9-15 and accompanying text; see also MetLife Home Loans v. Hansen, 286 P.3d 1150 (Kan. Ct. App. 2012) ("MetLife did not need that assignment in order to vest it with a beneficial interest in the [m]ortgage. As a valid hol......