Reverse Mortg. Solutions, Inc. v. Goldwyn

• Decision Date: 06 July 2018
• Docket Number: No. 118,370,118,370
• Citation: 425 P.3d 617,56 Kan.App.2d 129
• Parties: REVERSE MORTGAGE SOLUTIONS, INC., Appellee, v. Paula K. GOLDWYN aka Paula Joan Enlow, et al., Appellant.
• Court: Kansas Court of Appeals

56 Kan.App.2d 129

425 P.3d 617

REVERSE MORTGAGE SOLUTIONS, INC., Appellee,

v.Paula K. GOLDWYN aka Paula Joan Enlow, et al., Appellant.

No. 118,370

Court of Appeals of Kansas.

Opinion filed July 6, 2018.

Paula K. Goldwyn, appellant pro se.

Mark M. Haddad, and Beverly M. Weber, of Martin Leigh PC, of Kansas City, Missouri, for appellee.

Before McAnany, P.J., Leben and Schroeder, JJ.

Leben, J.:

Paula Goldwyn appeals the confirmation of the foreclosure sale of a house she had inherited from her mother. Resolution of some issues she raises may be instructive to Kansas citizens and lawyers because of the context in which this case arises—the use of what's known as a reverse mortgage.

Goldwyn's mother, Bernice Enlow, took out the reverse mortgage for $262,500 in 2007 from Urban Financial Group. Using her home as collateral, the reverse mortgage gave her the ability to take loans—up to $262,500—from Urban Financial Group. And unlike traditional real-estate loans secured by a mortgage, Enlow wouldn't have to make payments to repay the loans she took out. Instead, the loan wouldn't become due and payable until her death (assuming, as was true here, that the home wasn't also the residence of a co-borrower, which would have postponed repayment until both borrowers had died).

As structured, this was essentially the reverse of a traditional real-estate loan and mortgage. In the typical mortgage and loan, the borrower receives the full loan amount at the outset to buy the house. The borrower then pays the loan off in installments over a period of years, with the mortgage released when the loan (plus interest) is fully paid. In the reverse mortgage, the borrower takes the loan proceeds out over time and no payments are made on the loan balance during the borrower's lifetime. Among other things, this lets a retired person live off the equity in their home while continuing to live there. See generally 24 C.F.R. § 206.1 et seq. (2017) (containing regulations for federally insured reverse mortgages, which are available to homeowners age 62 or older); Schieke, The Advisability of Reverse Mortgage to Pay for Care Needs , 47 Md. B.J. 26 (May-June 2014) (providing an overview of reverse mortgage programs).

When Enlow died, Goldwyn became the homeowner—but, at the lender's option, all the advances received under the reverse mortgage became due. When Goldwyn didn't pay that balance—through refinancing or otherwise—that led to a foreclosure judgment for $190,446 in favor of Reverse Mortgage Solutions, Inc., which had purchased the mortgage from Urban Financial Group.

Although Goldwyn, now the homeowner, was the defendant in that foreclosure lawsuit, the judgment was taken "in rem" (Latin for "against a thing"), meaning that the lender's sole recourse was against the property. With an in rem judgment, the lender can take the real estate and sell it to pay the judgment, but it can't collect from the debtor's other assets.

With that background on how Goldwyn ended up owning this house, which was subject to a reverse mortgage, let's turn next to how the mortgage-foreclosure process works. It came into play here when Goldwyn either chose not to pay off the outstanding loan (perhaps by getting a new loan from another lender) or wasn't able to do so.

In Kansas, mortgage-foreclosure proceedings happen in two steps. First, the mortgage holder must obtain a foreclosure judgment. In that stage, the court must determine whether there has been a default in the mortgage, whether the mortgage holder is entitled to judgment, and the amount and form of the judgment. Second, after getting the foreclosure judgment, the mortgage holder can proceed with a sheriff's sale of the property. Title to the property transfers to a new owner when the court approves the sheriff's sale. The foreclosure judgment and the order approving the sheriff's sale are separately appealable judgments.

Since this sale took place in Riley County, which has a consolidated Riley County Police Department headed by a director, the sheriff's sale was done under that director's authority. The director carries out the statutory duties of a sheriff. See K.S.A. 19-4436. We will refer to the sale in our case as a sheriff's sale since that's the terminology used in most Kansas counties and in the statutory provisions authorizing the sale of foreclosed properties.

Our court has already considered Goldwyn's appeal of the foreclosure judgment. We concluded that it was properly entered by the district court. Reverse Mortgage Solutions, Inc. v. Goldwyn , No. 117,449, 2017 WL 6625225, at *14 (Kan. App. 2017) (unpublished opinion), petition for rev. filed January 29, 2018. Goldwyn now challenges the district court's approval of the sheriff's sale.

Two of the issues Goldwyn raises could arise in any mortgage foreclosure but look a bit different in the reverse-mortgage context. First, she complains that the judge shouldn't have approved the sale. Her main complaint seems to be that the district court approved the sale only a short time after Reverse Mortgage Solutions filed its motion seeking approval. Based on the timing, she seems to suggest that the court didn't carefully consider the matter.

We review the district court's approval of a foreclosure sale only for abuse of discretion. Citifinancial Mortgage Co. v. Clark , 39 Kan. App. 2d 149, 151, 177 P.3d 986 (2008). A court abuses its discretion if no reasonable person would agree with its decision or the decision is based on a factual or legal error. In re Marriage of Johnston , 54 Kan. App. 2d 516, 536, 402 P.3d 570 (2017), rev. denied 307 Kan. 987, ––– P.3d –––– (2018).

I. The District Court Did Not Err When It Approved the Sheriff's Sale.

Goldwyn first argues that the district court shouldn't have approved the sheriff's sale. Although her complaint focuses on the timing of the court's initial action (complaining that it approved the sale the same day Reverse Mortgage Solutions filed a motion seeking approval), we must consider the court's approval within the context of the applicable statutes.

The district court's review of the sale of foreclosed property on court order by a sheriff is governed by K.S.A. 60-2415. It provides that the court "shall confirm" the sale "[i]f the court finds the proceedings regular and in conformity with law and equity." K.S.A. 60-2415(a). The court's authority in equity to decline to approve the sale is spelled out in the next subsection, K.S.A. 60-2415(b) : "The court may decline to confirm the sale where the bid is substantially inadequate...." So the first question we must consider is whether the court had discretion to approve the sheriff's sale under these substantive provisions. If so, we must also consider Goldwyn's complaint that the court acted too quickly.

Here, Reverse Mortgage Solutions was the only bidder at the sheriff's sale. It purchased the property for $163,000. That was 86% of the total judgment—and because it was an in rem judgment, Goldwyn was not liable for the 14% deficiency. We find no abuse of discretion in the district court's decision not to find the bid "substantially inadequate."

We've already cited the key legal provisions. The court's authority to decline to confirm the sale is limited to situations in which "the bid is substantially inadequate." K.S.A. 60-2415(b). Even on appeal, Goldwyn hasn't shown that to be true here. In a similar case—one in which there was no deficiency judgment entered against the borrower—our court found a 15% variance between the fair-market value of the property and the price paid at the sheriff's sale didn't make the sheriff's sale bid substantially inadequate. Farm Credit Bank of Wichita v. Zerr , 22 Kan. App. 2d 247, 257, 915 P.2d 137 (1996). In our case, Goldwyn cites no evidence of the fair-market value, and the sheriff's-sale bid was 14% less than the amount of the total judgment. But even if the bid was less than the property's fair-market value, that wouldn't have caused harm to Goldwyn.

The price paid at foreclosure for the property can have an impact in two ways on the borrower. First, if there's to be a deficiency judgment, that bid price has an obvious impact—the lower the amount paid for the property, the greater the deficiency. Here, the judgment was in rem, so there wasn't a deficiency judgment to consider at all. Second, the bid price sets the amount the property owner can pay to "redeem" the property, thus reclaiming it. See K.S.A. 2017 Supp. 60-2414(a). So if the bid price was lower than fair-market value, it would have been to Goldwyn's benefit, giving her the opportunity to reclaim the property at the lower price and still have some equity in it.

We should note one other provision of the statute on sheriff's sales, even though it doesn't factor into the result here. The statute also provides authority for the court, "as a condition of confirmation [of the sheriff's sale to] require the fair value of the property be credited upon the judgment, interest, taxes and costs." K.S.A. 60-2415(b). Under that provision, if the bid is less than fair-market value but not so low as to be substantially inadequate, the court can make sure that there's no unfairness to the borrower by crediting "fair value" against the judgment. Judicial decisions, including Olathe Bank v. Mann , 252 Kan. 351, 845 P.2d 639 (1993), provide factors to consider in determining the fair value under this statute. But this provision doesn't apply here because there's no deficiency judgment at all. See Kaw Valley Bank v. Ebenezer Evangelical Church , No. 103,653, 2010 WL 5490744, at *4 (Kan. App. 2010) (unpublished opinion) (holding that the fair-value rule of Mann did not apply in case in which no deficiency judgment had been entered).

That this was an in rem judgment—and not one that could be collected against Goldwyn's other assets—is another feature of reverse mortgages. At least for ones that are federally insured, the lender's recovery is limited to what can be obtained through sale of...