Cadleway Properties Inc. v. Bayview Loan Servicing Llc, 2009–CA–001428–MR.
| Decision Date | 24 September 2010 |
| Docket Number | No. 2009–CA–001428–MR.,2009–CA–001428–MR. |
| Citation | 338 S.W.3d 280 |
| Parties | CADLEWAY PROPERTIES, INC., Appellant,v.BAYVIEW LOAN SERVICING, LLC; Dehoney Travel, Inc.; and KB Building, LLC, Appellees. |
| Court | Kentucky Court of Appeals |
OPINION TEXT STARTS HERE
Mason L. Miller (argued) and Will E. Messer, Lexington, KY, for appellant.T. Morgan Ward, Jr. and Chadwick A. McTighe (argued), Louisville, KY, for Appellee, Bayview Loan Servicing, LLC.No Brief Filed for Appellee, Dehoney Travel, Inc.No Brief Filed for Appellee, KB Building, LLC.Before COMBS, KELLER, and LAMBERT, Judges.
Cadleway Properties, Inc. (Cadleway) appeals from the Jefferson Circuit Court's entry of summary judgment in favor of Bayview Loan Servicing, LLC (Bayview). This dispute arises from the interpretation of a subordination agreement (the Subordination Agreement) and whether it gives Cadleway's mortgage priority over a mortgage held by Bayview. The trial court concluded that Bayview's mortgage was superior to Cadleway's mortgage. For the reasons set forth below, we reverse and remand.
The relevant facts are not disputed. On June 15, 2002, KB Building, LLC (KB Building) entered into a promissory note with Fifth Third Bank of Kentucky, Inc. (Fifth Third) in the amount of $246,027.55 (the First Note), which was secured by a mortgage (the First Mortgage). The First Mortgage encumbered property located at 1026 S. 3rd Street, Louisville, KY 40203 (the Third Street property), and was recorded on July 22, 2002, in Mortgage Book 6854, Page 471 in the office of the Jefferson County Clerk.
On March 24, 2004, KB Building entered into a second note with Fifth Third in the amount of $570,000 (the Second Note), which was secured by a second mortgage (the Second Mortgage). The Second Mortgage also encumbered the Third Street property and was recorded on April 7, 2004, in Mortgage Book 8587, Page 568, in the office of the Jefferson County Clerk.
On September 28, 2004, KB Building entered into a promissory note with InterBay Funding, LLC (InterBay) in the amount of $682,500 (the Third Note), which was secured by a mortgage on the Third Street property (the Third Mortgage). Also, on September 28, 2004, KB Building executed an Assignment of Leases and Rents (the Assignment) whereby it assigned its rights to leases and rents from the Third Street Property secured by the Third Mortgage to InterBay. In connection with this transaction, Fifth Third and InterBay entered into the Subordination Agreement, which is dated September 17, 2004.
The Third Mortgage, Assignment, and Subordination Agreement were all recorded within two minutes of each other on October 7, 2004, in the office of the Jefferson County Clerk. The Third Mortgage was recorded first in Mortgage Book 8974, Page 653. Next, the Assignment was recorded in Deed Book 8501, Page 301. Finally, the Subordination Agreement was recorded in Deed Book 8501, Page 313.
At issue in this appeal is the language in the Subordination Agreement. The opening paragraph of the Subordination Agreement states that Fifth Third is the holder of a mortgage on property owned by KB Building that is recorded at Mortgage Book 6854, Page 471 in the office of the Jefferson County Clerk. In the second paragraph, the Subordination Agreement states that KB Building has requested a loan in the amount of $750,000 from InterBay, which is to be secured by a mortgage on the property subject to the Fifth Third mortgage. The Subordination Agreement further states that:
[Fifth Third] has agreed that the lien of the mortgage to [InterBay] shall be a prior lien upon said real estate and shall be prior to the lien of their above described Mortgage recorded in Mortgage Book 6854, page 471, in the office of the Clerk of Jefferson County, Kentucky.
The third paragraph states in relevant part the following:
[F]or the purpose of inducing [InterBay] to make said proposed loan to [KB Building], secured by a mortgage lien shown under Mortgage Book 8974, Page 653 in the Jefferson County Clerk's Office, [Fifth Third], for the purpose of any release that might be necessary by them does hereby agree and waive priority of their above described lien of mortgage recorded in Mortgage Book 6854, page 471 in favor of the lien and priority of said mortgage shown as Mortgage Book 8501, Page 301 in the amount of Seven Hundred Fifty Thousand and 00/100 ($750,000.00) dollars to be executed in favor of [InterBay], and said mortgage shall be in all respects prior and superior to the lien of mortgage to [Fifth Third] recorded in Mortgage Book 6854, page 471 to the same extent and purpose as if said Mortgage and said loan in favor of [InterBay] had been made, executed and recorded prior in time to the making, execution and recording of said above described mortgage in favor of [Fifth Third] recorded in Mortgage Book 6854, page 471.
The underlined portions in the above quotation reflect handwritten entries. The first handwritten numbers correctly refer to the Third Mortgage being recorded at Mortgage Book 8974, Page 653. However, the second handwritten numbers, Mortgage Book 8501, Page 301, refer to a mortgage unrelated to the case at bar.1 While the numbers 8501 and 301 match the numbers to the book and page number where the Assignment was recorded, the Assignment was recorded in the Deed Book and not the Mortgage Book.
On June 24, 2005, InterBay assigned the Third Note and Third Mortgage to Bayview. Further, on September 25, 2005, Fifth Third assigned the First Note and First Mortgage to Cadleway.
On December 19, 2005, Bayview initiated this action against KB Building alleging that KB Building had defaulted under the terms of the Third Note secured by the Third Mortgage. On April 17, 2006, Bayview filed an Amended Complaint naming Cadleway as a defendant as a competing lien holder.2 Specifically, Bayview alleged that the Third Mortgage was a prior and superior lien to the First Mortgage. On May 12, 2006, Cadleway filed an Answer, Crossclaim and Counterclaim alleging that KB Building defaulted on the note secured by the First Mortgage. Further, Cadleway alleged that the First Mortgage was a prior and superior lien to the Third Mortgage and that the First Mortgage was only subordinate to the Assignment.
On February 18, 2008, Bayview filed a Motion for Summary Judgment, Default Judgment and Order of Sale, seeking summary judgment against Cadleway on the issue of lien priority. On December 4, 2008, Bayview filed a Renewed Motion for Summary Judgment, Default Judgment, and Order of Sale. In its motion, Bayview argued that the language in the Subordination Agreement was clear and that it subordinated the First Mortgage to the Third Mortgage. In support of its motion, Bayview attached an Affidavit of Theresa M. Fach (Fach), who acted as the closing agent for Bayview's predecessor in interest, InterBay, and negotiated with Fifth Third on behalf of InterBay.
In her affidavit, Fach stated that InterBay was not going to make a loan to KB Building without a subordination agreement for the First Mortgage. Specifically, she stated that when InterBay was considering making a loan to KB Building, there were multiple liens against the property, including the First Mortgage for approximately $246,000 and the Second Mortgage for $570,000. According to Fach, the proceeds of the InterBay loan were used to pay off the Second Mortgage and to bring the First Mortgage current. Fach further stated that in connection with the transaction, Fifth Third received a payoff check in the amount of $571,721.88 for the Second Mortgage. Additionally, Fach stated that in a telephone conversation, Fifth Third agreed to subordinate the First Mortgage to the Third Mortgage.
Fach also said that prior to closing on the Third Note and Third Mortgage, she prepared the Subordination Agreement for the First Mortgage, and left two blanks in the subordination agreement for the county clerk to fill in with the recording information for the Third Mortgage. Fach subsequently received the executed Subordination Agreement from Fifth Third, and at the time of closing, the Subordination Agreement was sent to the Jefferson County Clerk's office. According to Fach, the Third Mortgage was recorded first, and the clerk then filled in the blanks on the Subordination Agreement prior to recording it. While the first set of blanks was filled in correctly, the clerk incorrectly filled in the second set of blanks.
Cadleway filed a Cross–Motion for Summary Judgment on January 13, 2009, arguing that it was entitled to judgment on the issue of lien priority because the Subordination Agreement failed to subordinate the First Mortgage to the Third Mortgage. On February 4, 2009, the Master Commissioner issued his report finding that the Subordination Agreement subordinated the First Mortgage to the Third Mortgage. On February 13, 2009, Cadleway filed its Objection to the Master Commissioner's Report arguing that the report should be set aside so that the parties could complete briefing. On February 23, 2009, Bayview filed its Notice–Motion to Adopt Commissioner's Report. On February 27, 2009, the trial court entered a Judgment and Order of Sale consistent with the Master Commissioner's Report in favor of Bayview. The trial court concluded that the Third Mortgage was superior to the First Mortgage.
Subsequently, Cadleway filed a Motion to Alter, Amend or Vacate Judgment pursuant to Kentucky Rule of Civil Procedure (CR) 59.05, and the trial court entered an order denying that motion on April 23, 2009. Cadleway did not file a notice of appeal within the thirty-day time limit after entry of that order, and the property was sold by the Master Commissioner on May 26, 2009. During oral argument to this Court, counsel for both parties conceded that the funds received from the sale of the Third Street property are currently being held in an escrow account.
On June 18, 2009, Cadleway filed a motion pursuant to CR 60.02,...
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