GT, KANSAS, LLC v. Riley County Register of Deeds

• Citation: 271 Kan. 311,22 P.3d 600
• Decision Date: 27 April 2001
• Docket Number: No. 83,692.,83,692.
• Parties: GT, KANSAS, L.L.C., Appellee, v. RILEY COUNTY REGISTER OF DEEDS, Appellant.
• Court: United States State Supreme Court of Kansas

271 Kan. 311

22 P.3d 600

GT, KANSAS, L.L.C., Appellee, v. RILEY COUNTY REGISTER OF DEEDS, Appellant.

No. 83,692.

Supreme Court of Kansas.

Opinion filed April 27, 2001.

Lewis A. Heaven, Jr., of Holbrook, Heaven & Osborn, P.A., of Merriam, argued the cause, and Richard J. Plouff, of the same firm, and Stan Morgan, of Manhattan, were with him on the briefs for appellant.

Charles S. Arthur, III, of Arthur-Green, L.L.P., of Manhattan, argued the cause, and William J. Bahr, of the same firm, was with him on the briefs for appellee.

Lewis A. Heaven, Jr., and Richard J. Plouff, of Holbrook, Heaven & Osborn, P.A., of Merriam, were on the brief for amicus curiae Kansas Register of Deeds Association.

The opinion of the court was delivered by

LARSON, J.:

We accepted the petition for review in this case to resolve a continuing controversy over the statutory exemption from payment of the mortgage registration fee when an existing indebtedness secured by a previously recorded mortgage upon which the mortgage registration fee has been paid is refinanced.

The statutory provision which is at issue in this appeal is K.S.A. 79-3102(d)(3), which states:

"(d) No registration fee whatsoever shall be paid, collected or required for or on: .... (3) any mortgage or other instrument upon that portion of the consideration stated in the mortgage tendered for filing which is verified by affidavit to be principal indebtedness covered or included in a previously recorded mortgage or other instrument with the same lender or their assigns upon which the registration fee herein provided for has been paid."

The facts are not in substantial dispute but the statutory language in issue has resulted in a mortgagee claim of exemption from a mortgage registration tax, a county register of deeds claim of taxation, a split Board of Tax Appeals (BOTA) ruling decreeing taxation, a district court decision allowing the exemption, and a Court of Appeals opinion refusing to apply the exemption.

With this highly summarized background, we first turn to the factual and procedural history of this case as set forth in the Court of Appeals' opinion:

"Bowman and Curtin Enterprises (BCE), a Kansas general partnership consisting of two partners, Ronald D. Bowman and Chris M. Curtin, owned two real estate tracts involving the Georgetown apartment complex in Manhattan. In 1994, BCE entered into two real estate mortgages on the subject property with Boatmen's First National Bank (Boatmen's) totaling $7,880,000. The first mortgage was filed with the Riley County Register of Deeds (County) on August 18, 1994, and the second was filed on December 1, 1994. Boatmen's paid a total of $20,488 for the mortgage registration tax.

"Several changes in parties occurred thereafter. Boatmen's merged with NationsBank and NationsBank became the successor to the subject mortgages. On July 22, 1998, NationsBank assigned both mortgages to Washington Mortgage Financial Group, LTD. (Washington). This assignment was recorded with the County on July 23, 1998. The mortgage assignment listed BCE as borrower. On the borrower side of the transaction, BCE transferred title of the real property to Chris Curtin and Ronald Bowman as individuals. Later, Curtin and Bowman transferred title of the real property to GT, Kansas, L.L.C. (GT), which assumed title to the real property subject to the mortgage held by NationsBank.

"On July 23, 1998, Washington issued a new mortgage on the subject property for $9,200,000. The mortgage listed GT as the mortgagor/borrower and Washington as the mortgagee/lender. GT presented the new mortgage to the County for filing, including an affidavit of mortgage registration fee paid, indicating that a portion ($7,880,000) of said mortgage ($9,200,000) was principal indebtedness included in a previously recorded mortgage. The County required a mortgage registration fee on the entire $9,200,000.

"GT paid a mortgage registration fee of $23,920 on the entire new mortgage, but paid $20,488 in protest, arguing it was exempt from a mortgage registration fee for the existing indebtedness of $7,880,000. GT argued it should only be liable for a fee for the amount in excess of the original mortgage—$1,320,000. Washington has now assigned this new mortgage to Fannie Mae.

"GT filed a mortgage registration protest with the Kansas Board of Tax Appeals (BOTA). BOTA found the ultimate issue to be whether GT was the same entity that originally mortgaged the subject property under the name of BCE. BOTA held the entity (BCE) that borrowed $7,880,000 in 1994 was legally distinct from the entity (GT) that borrowed $9,200,000 in 1998. BOTA strictly construed K.S.A. 79-3102(d)(3) to find that while the statute permits an exemption where the lender changes hands, there was no similar language for subsequent owners or their assignees of the mortgage.

"BOTA's decision was not unanimous. A dissenting opinion relied on the Kansas Supreme Court precedent of In re Application of Zivanovic, 261 Kan. 191, 929 P.2d 1377 (1996), to disagree with the majority. Recognizing Zivanovic as not the exact factual equivalent of the current case, and also conceding that GT is a different legal entity from Bowman and Curtin Enterprises, the dissent focused on the `indebtedness,' as had both the majority and the dissent in Zivanovic. Here, the dissent argued that Washington stood in the shoes of the original lender (Boatmen's) and a portion of the indebtedness represented a refinancing of indebtedness on which the mortgage registration fee had already been calculated and paid.

"GT appealed BOTA's decision to the district court. The court reversed, finding that BOTA had improperly focused on the different legal entity that executed the refinanced mortgage. The court stated K.S.A. 79-3102(d)(3) does not require the same entity as borrower; only $1,320,000 of new money was advanced; and it would amount to double taxation of Curtin and Bowman to require a registration fee for the full $9,200,000. The court ordered the County to reimburse GT the sum of $20,488." 27 Kan. App.2d at 746-48.

The Court of Appeals' opinion discussed the reasoning behind the recording act, the appellate court's unlimited review, contentions of the County, and contentions of GT. It also discussed In re Application of Zivanovic, 261 Kan. 191, 929 P.2d 1377 (1996), and the strict construction of tax exemptions, and then focused on the requirement that the one refinancing the initial indebtedness must have the legal responsibility for its payment, which the opinion believed (incorrectly) that GT did not have. The Court of Appeals' opinion concluded:

"In the case at bar, when the district court reversed BOTA's decision, it correctly stated that nowhere in K.S.A. 79-3102(d)(3) is it required that the same entity execute a new mortgage for the exception to take place. However, the statute focuses on `principal indebtedness.' Washington may still hold the indebtedness, but GT is not indebted to anyone. In Zivanovic, it was a chain of the assignment of indebtedness that was still intact, and the Zivanovics were still the party liable for that `principal indebtedness.' Here, the BCE still retains the indebtedness to Washington. GT may have legal title to the property, but it is not indebted to anyone. See Fourth National Bank v. Hill, 181 Kan. 683, 695, 314 P.2d 312 (1957) (ordinarily grantee of mortgaged property does not incur liability for payment of the mortgaged debt merely by taking title subject to the mortgage); 55 Am. Jur.2d., Mortgages §§ 1133, 1135. The problem in this case is that GT did not assume any liability for the mortgage. GT cannot refinance a loan it never originated.

"From Zivanovic, one can say that even though the lender assigns the mortgage, it is still the same indebtedness. However, subsequent assignees of the borrower, who do not assume liability for the mortgage, are not receiving an assignment of the indebtedness." 27 Kan. App.2d at 753.

After we accepted review, GT filed a supplemental brief in which it argued that the issue before BOTA and the district court had been based only on the change of legal entity of the property ownership but that in both of the deeds of record, the grantees (Bowman and Curtin in the first deed and GT in the second deed) had assumed and agreed to pay the mortgage indebtedness. GT also argued the change of entity from partnership ownership to limited liability company ownership fell under the statutory provisions of K.S.A. 1998 Supp. 17-7654 (repealed L. 1999, ch. 119, § 87), which required GT to assume the liability for the indebtedness secured by the mortgage. GT further argued that under both the majority and dissent of Zivanovic, the exception was proper because the indebtedness refinanced included the principal of the original loan to Boatmen's, and GT also repeated the double taxation argument on which the district court relied.

The County countered by contending that GT could not now raise the fact it had assumed the indebtedness because it had not been raised in the proceedings below and GT's claim was based on the bare assertions of GT's counsel and set forth in the appendix to its brief, which is not a substitute for the record itself. The County argued that even if GT's argument were considered, the statute focused on "indebtedness" and it had not been shown that GT had any enforceable liability for its payment and, therefore, no claim to the exemption.

As to the argument that K.S.A. 1998 Supp. 17-7654 resulted in the assumption of the indebtedness by GT as a matter of law, the County contended this is also a totally new argument not previously made which should not be considered and which would not change the result of the Court of Appeals' decision if it was. As to GT's Zivanovic argument, the County argues that case is clearly factually different and does not apply when the borrower changes. Finally, the County repeats its argument that the mortgage registration fee...