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Reverse Mortgage Solutions, Inc. v. Goldwyn

Court of Appeals of Kansas

July 6, 2018

Reverse Mortgage Solutions, Inc., Appellee,
Paula K. Goldwyn aka Paula Joan Enlow, et al., Appellant.


         1. An appellate court reviews the district court's approval of the sale of foreclosed real estate at a sheriff's sale only for abuse of discretion. 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.

         2. Under K.S.A. 60-2415, the court may decline to confirm a sheriff's sale where the bid is substantially inadequate. In this case, in which there was no deficiency judgment against the borrower and the sheriff's sale bid was 86% of the total judgment, the district court did not abuse its discretion when it concluded the bid was not substantially inadequate.

         3.Under K.S.A. 2017 Supp. 60-261, if an error doesn't affect a party's substantial rights, it's harmless and not grounds for reversal. In this case, although the district court initially granted the motion to confirm the sheriff's sale before the time for other parties to respond had expired, the court held a hearing later on a motion to reconsider. Because the court's substantive ruling was not an abuse of discretion and it ultimately gave all parties the chance to be heard, the court's initial error in acting too quickly in approving the motion is harmless and not grounds for reversal.

         4. In a typical reverse mortgage, the borrower, age 62 or older, takes out a loan, secured by a mortgage that allows the borrower to take draws against the loan over time. Repayment isn't required during the borrower's lifetime. Because no repayments are made on the loan, the redemption period under K.S.A. 2017 Supp. 60-2414(m) will be three months, not the longer period available when loan default occurs after one-third of the original indebtedness has been repaid.

          Appeal from Riley District Court; John F. Bosch, judge. Affirmed.

          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 ...

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