McGraw v. Premium Finance Co. of Missouri, 52641

• Citation: 7 Kan.App.2d 32,637 P.2d 472
• Decision Date: 10 December 1981
• Docket Number: No. 52641,52641
• Parties: Thomas F. McGRAW, III, Appellant, v. PREMIUM FINANCE COMPANY OF MISSOURI, Appellee.
• Court: Court of Appeals of Kansas

Page 472

637 P.2d 472

7 Kan.App.2d 32

Thomas F. McGRAW, III, Appellant, v. PREMIUM FINANCE COMPANY OF MISSOURI, Appellee.

No. 52641.

Court of Appeals of Kansas.

Dec. 10, 1981.

Syllabus by the Court

1. In order to bar a junior lienor from foreclosing his lien and securing a second sale of real estate when the senior lienor has actual or constructive knowledge of the junior lien prior to the date of judgment to foreclose the senior lien, the junior lienor must be made a party to the suit in which the senior lien is foreclosed.

2. If the junior lienor is not made a party to the suit in which the senior lien is foreclosed, his rights should be protected either by a second sale or by the court allowing him time to redeem, depending upon which is more appropriate in the particular case.

3. One who purchases property at a mortgage foreclosure sale has the option of standing in the same position and having the same right as any mortgagee or lienholder whose interest is purchased.

4. The general rule of law that a lesser estate merges with a greater estate does not apply when it is not in the best interest of the owner whose title is derived from a mortgage foreclosure sale unless it is determined that it is the intention of the owner, and that intention will not be presumed to be contrary to the owner's apparent interest with respect to others claiming an interest in the property.

5. The record is examined in a quiet title action and it is held that the trial court erred in ordering the real estate sold and in elevating the defendant to the status of a first lienor.

Andrew Heyl, of Heyl & McGraw, Chartered, Overland Park, for appellant.

Eldon J. Shields, of McDonald & Dykes, Overland Park, and C. Brooks Wood, of Hillix, Brewer, Hoffhaus & Whittaker, Kansas City, Mo., for appellee.

Before PRAGER, Justice, Presiding, ABBOTT, J., and HARMAN, C.J. Retired, Assigned.

ABBOTT, Judge:

The plaintiff, Thomas F. McGraw, III, appeals in this quiet title action from an order granting summary judgment to the defendant, Premium Finance Company of Missouri, and ordering the real estate which was the subject matter of the quiet title action to be foreclosed and the proceeds from the sale applied to the payment of a judgment lien held by defendant.

This quiet title action was commenced because of a prior mortgage foreclosure action filed by Capitol Federal Savings & Loan Association which sought to foreclose a mortgage and note executed by Harold V. Hauser and to bar the other named defendants including plaintiff from claiming any right, title, interest or lien in the real property that is the subject matter of this action. The defendant, Premium Finance Company of Missouri (Premium) was not a party in the foreclosure action. Premium had previously obtained a judgment against Hauser in Missouri for $19,530.50 plus costs. The mortgage foreclosure action was commenced on March 30, 1978, some three weeks after Premium obtained the Missouri judgment against Hauser. Premium registered its Missouri judgment in Johnson County on July 11, 1978. On August 17, 1978, judgment was entered in the mortgage foreclosure action. The real estate was sold at a foreclosure sale on September 22, 1978. The plaintiff, McGraw, purchased the property at the foreclosure sale. Although disputed, the trial court found that Premium was not aware of the mortgage foreclosure action until a few days after it was completed.

After McGraw learned of Premium's judgment lien, he filed this quiet title action seeking to quiet his title to the subject realty or, in the alternative, to have the court give Premium an opportunity to redeem the property from him. The trial court held that since Premium was not named, joined or made a party to the foreclosure action, it is not bound by or affected by the judgment and that Premium's judgment is a first lien. The court ordered the property sold and after payment of taxes and costs Premium was to be paid its judgment, accrued interest and costs before McGraw would receive anything.

Stripping aside the legal issues, the net effect of the trial judge's ruling is that it elevates Premium from near the bottom of the lienholders to the very top. If Premium had been a party to the mortgage foreclosure, it would not have received any of the money McGraw paid for the property. It, of course, would have had an opportunity to bid a larger sum than McGraw bid and could have protected its interest if it had been given an opportunity and had desired to do so. There were three other judgment lien creditors of Hauser's in the mortgage foreclosure action, none of whom received any money, who would have shared equally with Premium if Premium had protected its lien. Thus, if the trial court correctly decided this case, Premium will move to the head of the line, passing three creditors who chose not to or were unable to protect themselves by bidding what McGraw bid plus the judgment liens. Premium would also move ahead of Capitol Federal and McGraw's father, who held first and second mortgages respectively on the property and who were paid in full for their claims by McGraw. Since the trial court did not require Premium to redeem from McGraw or be barred from asserting its lien, Premium would also move ahead of the purchaser at the mortgage foreclosure sale.

McGraw contends K.S.A. 1980 Supp. 60-2414(o) prohibits a second sale of the real estate. His argument is that after the Supreme Court filed its opinion in Lenexa State Bank & Trust Co. v. Dixon, 221 Kan. 238, 559 P.2d 776 (1977), the legislature amended K.S.A. 60-2414(o) and effectively reversed that decision by barring all second sales regardless of whether a lien was adjudicated or unadjudicated. He also argues that the Lenexa State Bank case applies only to unadjudicated mechanics' liens which attached prior to a foreclosure suit being commenced but not recorded until after the foreclosure. We disagree with both arguments.

When Lenexa State Bank was decided, K.S.A. 60-2414(o) provided:

"Real estate once sold upon order of sale, special execution or general execution shall not again be liable for sale for any balance due upon the judgment or decree under which the same is sold, or any judgment or lien inferior thereto, and under which the holder of such lien had a right to redeem within the six (6) months as hereinbefore provided."

In Lenexa State Bank, the Supreme Court considered, along with other issues, the effect of the above statute on two mechanics' liens that were effective prior to the date of a foreclosure judgment but were not filed until thereafter. Much of the language in Lenexa State Bank dealt with the special nature of mechanics' liens. We are of the opinion, however, that Lenexa State Bank is much broader than McGraw suggests. The Supreme Court held:

"The upshot of the three cases is that in order to bar a junior lienor from foreclosing his lien and securing a second sale, if his lien exists when the senior lien is foreclosed and the senior lienor is on notice of its existence, the junior lienor must be made a party to the suit in which the senior lien is foreclosed. In that way the validity of the junior lien can be established and its priority determined-i.e., the lien can be 'adjudicated.' If that is done the junior lienor may make a meaningful bid at the foreclosure sale or he may redeem. If he does neither he has lost his opportunity to protect his lien, for under the nonresale statute he cannot secure a second sale." 221 Kan. at 245-46, 559 P.2d 776.

The language of the opinion does not limit the decision to mechanics' liens. More persuasive, however, is an analysis of the facts in the three cases relied on by the Supreme Court for its holding. Motor Equipment Co. v. Winters, 146 Kan. 127, 69 P.2d 23 (1937); McFall v. Ford, 133 Kan. 593, 1 P.2d 273 (1931); Stacey v. Tucker 123 Kan. 137, 254 P. 339 (1927). Two deal with the rights of junior mortgagees and one deals with a judgment lien. None dealt with mechanics' lienors. Lenexa State Bank applies to all junior liens and we reject McGraw's argument to the contrary.

McGraw also argues that in the statutory phrase, "or any judgment or lien inferior thereto," the word "any" means just that-any. The fallacy of that argument is that it is the same one that was, if not specifically then at least impliedly, rejected in Lenexa State Bank. The legislature did not change the applicable language as to this part of McGraw's argument.

The legislature has amended the statute in question and it now reads:

"Real estate once sold upon order of sale, special execution or general execution shall not again be liable for sale for any balance due upon the judgment or decree under which the same is sold, or any judgment or lien inferior thereto, including unadjudicated junior liens filed after the date of judgment in the district court to foreclose the senior lien against said real estate." K.S.A. 1980 Supp. 60-2414(o). (Emphasis denotes new language added to and replacing a portion of the amended statute.)

Our function is to reconcile statutory provisions so as to make them consistent, harmonious and sensible. E.g., Southeast Kansas Landowners Ass'n v. Kansas Turnpike Auth., 224 Kan. 357, 582 P.2d 1123 (1978). It is presumed the legislature acted with full knowledge and information as to judicial decisions with respect to prior law. E.g., Rogers v. Shanahan, 221 Kan. 221, 565 P.2d 1384 (1976). Legislative history conclusively shows that the legislature amended the statute in direct response to the Lenexa State Bank decision and intended to modify at least part of that decision. The original provision in House Bill No. 2156 would have prohibited a second sale for unadjudicated junior...