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U.S. Bank Nat. Ass'n v. McConnell

Court of Appeals of Kansas

May 3, 2013

U.S. BANK NATIONAL ASSOCIATION, as Trustee of the Security National Mortgage Loan Trust 2006-2, Appellee,
v.
Steven R. McCONNELL, et al., Appellants.

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[Copyrighted Material Omitted]

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Syllabus by the Court

1. Standing is a part of subject matter jurisdiction. The issue of standing may be raised by a party or the court at any time. An appellate court has unlimited review over whether a plaintiff had standing to bring an action.

2. Standing is a question of whether the plaintiff has alleged such a personal stake in the outcome of a controversy as to warrant invocation of the court's jurisdiction and to justify the court exercising its remedial powers on the plaintiff's behalf. A plaintiff must have a sufficient stake in the outcome of an otherwise justiciable controversy in order to obtain judicial resolution of that controversy.

3. K.S.A. 60-217 requires every action to be prosecuted in the name of the real party in interest. Under the statute, commencement of an action by one who is not the real party in interest can be corrected in certain circumstances, and the correction relates back to the date the action was commenced.

4. K.S.A. 58-2323 provides that a promissory note follows the mortgage that secures it.

5. Title to a note and to the mortgage securing its payment pass by delivery, and possession of the instruments and their production by the plaintiff is prima facie evidence of the plaintiff's ownership of the note and mortgage.

6. Kansas law favors keeping a mortgage and the right of the enforcement of the obligation it secures in the hands of the same person or entity. Thus, the holder of a promissory note secured by a mortgage does not need a formal assignment of the mortgage in order to invest the note holder with ownership of the mortgage. The note holder

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acquires ownership of the mortgage by having acquired the note unless the parties to the transfer agree otherwise. Thus, the general rule is that the mortgage follows the note.

[48 Kan.App.2d 893] 7. To oppose a motion for summary judgment, a party must come forward with something of evidentiary value to establish a material dispute of fact. Mere allegations in a pleading are not an effective substitute.

8. Every factual dispute between the parties does not constitute a bar to summary judgment if the factual dispute is not material to the ultimate outcome of the case.

9. When, contrary to the general rule, a mortgage is severed from the promissory note it secures, it becomes impossible for the note holder to foreclose, unless the mortgage holder is the agent of the note holder. Without the agency relationship, the person or entity holding only the note lacks the power to foreclose on the mortgage in the event of default; and the person or entity holding only the mortgage will never experience default because only the holder of the note is entitled to payment of the underlying obligation.

10. A severance of the mortgage and the promissory note it secures may be cured by the holder of the note becoming the holder of the mortgage before any judgment of foreclosure.

11. A spouse who does not sign a promissory note but who signs the mortgage securing the other spouse's promissory note voluntarily consents to the alienation of his or her homestead rights under K.S.A. 60-2301.

James F. McMahon, of McConnell & McMahon, P.A., of Overland Park, for appellants.

Wendy M. Green and Linda S. Mock, of Shapiro & Mock, LLC, of Overland Park, for appellee.

Before McANANY, P.J., HILL and LEBEN, JJ.

McANANY, J.

This is an action to foreclose on the mortgage of a home. The district court granted summary judgment in favor of the plaintiff. The mortgagors Steven McConnell and his wife, Janet [48 Kan.App.2d 894] McConnell, appeal. The McConnells raise a number of issues regarding the propriety of U.S. Bank's foreclosure action and of the district court's entry of summary judgment. Having considered each in detail, we find no error and affirm the district court.

Facts

On July 13, 2005, Steven McConnell executed an adjustable rate promissory note in the principal sum of $94,500 to be repaid in monthly installments over 30 years. Janet McConnell did not sign the note. Flatirons Financial, LLC, originated the loan. The loan was secured by a mortgage on the McConnells' home. Both Steven and Janet signed the mortgage. The mortgage was recorded with the Johnson County Register of Deeds on the following day.

In March 2008, Steven entered into a " Balloon Loan Modification Agreement" with U.S. Bank (Bank), the holder of the note. At least by April 1, 2008, the note was in default, and the McConnells do not dispute this fact.

In October 2008, the Bank filed this action to foreclose on the mortgage. The Bank did not seek a personal judgment against Steven on the unpaid note.

On November 21, 2008, the court entered an order extending the McConnells' date for filing their responsive pleading to December 24, 2008. Then on January 13, 2009, the Mortgage Electronic Registration Systems (MERS) assigned the McConnell mortgage to the Bank. As stated in In re Martinez, 444 B.R. 192, 196 (Bankr.D.Kan.2011):

" The MERS System, a database owned by MERSCORP, Inc., the parent company of MERS, is designed to allow its members, which include originators, lenders, servicers and investors, to accurately and efficiently track transfers of servicing rights and beneficial ownership in the notes that are secured by the mortgages and deeds of trust held by MERS."

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When no responsive pleading was forthcoming from the McConnells on December 24, 2008, the district court entered default judgment in favor of the Bank on February 9, 2009. On February 20, 2009, the court ordered a sheriff's sale of the property.

Five days later, on February 25, 2009, the McConnells moved for leave to file their answer out of time and to set aside the default [48 Kan.App.2d 895] judgment. The district court granted both motions. In their answer, the McConnells admitted that Steven executed the note and that they both executed the mortgage and that " they may be delinquent in their mortgage payments." However, the McConnells disputed the Bank's ownership of the note and the mortgage. The McConnells claimed the Bank was not the real party in interest, had violated their homestead rights, and had violated the Kansas Consumer Protection Act (KCPA), K.S.A. 50-623 et seq.

On March 17, 2009, the January 13, 2009, the MERS assignment of the mortgage to the Bank was recorded.

On June 1, 2009, the Bank moved for summary judgment, asserting that it was the holder of the note and mortgage, that the promissory note was in default, and that less than 1/3 of the principle of the note had been repaid. In support of its motion the Bank included (1) an affidavit of Kathy Watson, the asset manager of the company that serviced loans for the Bank, with an accompanying ledger detailing the mortgage loan records; (2) the August 8, 2008, " Notice to Collect Debt" letters addressed to the McConnells; (3) an unofficial reinstatement letter detailing the reinstatement totals; and (4) a document dated January 13, 2009, detailing the assignment and transfer of the mortgage from MERS to the Bank.

The McConnells failed to respond to the motion, and the court entered summary judgment in favor of the Bank on July 15, 2009.

On August 5, 2009, the Bank moved to set aside the judgment, stating that " the parties have agreed to set aside the Judgment in anticipation that the Debtor will be able to bring the loan current." On August 6, 2009, the district court granted the motion and set aside the judgment.

On July 30, 2010, the McConnells filed their brief opposing the Bank's summary judgment motion. There followed various continuances. The hearing on the Bank's motion was continued from April 22, 2011, to June 27, 2011, to allow the McConnells time to review the assignment documents and to submit additional discovery requests to the Bank.

At the June 27, 2011, hearing on the summary judgment motion, the McConnells' counsel asked for a further continuance to conduct more discovery because " the note didn't transfer with the [48 Kan.App.2d 896] mortgages necessarily, or at least I can't tell.... I don't understand how MERS could then transfer what they don't own." The Bank's counsel replied, " MERS is an agent, pure and simple." Upon questioning by the court, the Bank's counsel stated, " This loan was transferred into MERS at one point in time in— it's been transferred several times. It was transferred into MERS at one point in time into the MERS system and it has since been transferred out. It was actually transferred out quite some time ago." The court denied a continuance but permitted the Bank to file a reply brief on these issues before ruling on the merits. Thereafter, the Bank filed its reply, and the McConnells filed their final response.

On July 30, 2011, the district court granted U.S. Bank's motion for summary ...


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