Opinion
NO. 2012-CA-000216-MR
02-15-2013
RAY PEARSON AND DELORES PEARSON APPELLANTS v. EMOGENE M. HOGG TRUST; EMOGENE M. HOGG-HARTMAN, TRUSTEE APPELLEE
BRIEF FOR APPELLANT: Rebecca Marie Babarsky Somerset, Kentucky BRIEF FOR APPELLEE: Steven Connelly Berea, Kentucky
NOT TO BE PUBLISHED
APPEAL FROM ROCKCASTLE CIRCUIT COURT
HONORABLE JEFFREY T. BURDETTE, JUDGE
ACTION NO. 11-CI-00085
OPINION
AFFIRMING
BEFORE: ACREE; CHIEF JUDGE; COMBS AND STUMBO, JUDGES. COMBS, JUDGE: Ray and Delores Pearson appeal an order of the Rockcastle Circuit Court granting summary judgment to the Emogene Hogg Trust and to Emogene Hogg-Hartman, trustee. After our review, we affirm.
In 2009, Trinity Collins inherited a piece of property from her mother. The property was encumbered by a debt owed to William Barnett. On November 24, 2009, the Trust lent fifteen thousand dollars ($15,000) to Collins and her boyfriend, Jeffrey Meese, to pay off the debt to Barnett. The loan was secured by Collins's property. The title to a mobile home located on the property listed the Trust as a primary lien-holder. During November and December of 2009, however, Meese and Collins were in the process of relocating to Indiana.
On December 23, 2009, Meese and Collins entered into an agreement with the Pearsons, who agreed to purchase the property. The Pearsons took possession of it on January 2, 2010. On January 13, 2010, Meese and Collins solemnified their agreement with the Trust by executing a promissory note and mortgage. The Trust recorded its mortgage with the Rockcastle County Clerk on January 19, 2010. However, the Pearsons' agreement with Meese and Collins was not recorded until July 20, 2010 - some six months later.
On March 21, 2011, the Trust filed an action for foreclosure against Meese and Collins and against the Pearsons. It alleged that Meese and Collins had violated the terms of the mortgage by failing to make payments and by selling the secured property. The Trust sought a judicial sale in order to recoup the money owed. Process on both Meese and Collins was served by warning order attorney; they never participated in the underlying proceedings, and they are not parties to this appeal.
The Trust filed a motion for summary judgment on May 23, 2011. The court granted the motion on November 17, 2011. The Pearsons filed a motion for reconsideration on November 28, 2011, which the court overruled on December 27. This appeal follows.
Summary judgment is a device utilized by the courts to expedite litigation. Ross v. Powell, 206 S.W.3d 327, 330 (Ky. 2006). It is used cautiously because it "takes the case away from the trier of fact before the evidence is actually heard." Steelvest, Inc. v. Scansteel Service Center, Inc., 807 S.W.2d 476, 482 (Ky. 1991). In Kentucky, the movant must prove that no genuine issue of material fact exists, and the movant "should not succeed unless his right to judgment is shown with such clarity that there is no room left for controversy." Id.
The trial court must view the evidence in favor of the non-moving party. City of Florence v. Chipman, 38 S.W.3d 387, 390 (Ky. 2001). In order to overcome a motion for summary judgment, the non-moving party must present "at least some affirmative evidence showing the existence of a genuine issue of material fact." Id. See also Kentucky Rule[s] of Civil Procedure (CR) 56.03. On appeal, the standard of review that we employ is "whether the trial court correctly found that there were no genuine issues as to any material fact and that the moving party was entitled to judgment as a matter of law." Scifres v. Kraft, 916 S.W.2d 779, 781 (Ky. App. 1996). Because summary judgments do not involve fact-finding, we undertake our review de novo. Pinkston v. Audubon Area Community Services, Inc., 210 S.W.2d 188, 189 (Ky. App. 2006).
The Pearsons' argument is that a question of fact remained at the time of summary judgment; i.e., whether the Trust had sufficient notice to inquire about the Pearsons' interest in the property.
Kentucky Revised Statute[s] (KRS) 382.270 provides as follows:
No deed or deed of trust or mortgage conveying a legal or equitable title to real property shall be valid against a purchaser for a valuable consideration, without notice thereof, or against creditors, until such deed or mortgage is acknowledged or proved according to law and lodged for record.This language constitutes a race-notice statute, granting priority to the first party to win "the race" to the courthouse. When there are competing interests, "the first to record without notice . . . achieves superiority." Minix v. Maggard, 652 S.W.2d 93, 96 (Ky. App. 1983). Without notice means "without actual knowledge of the existence of a mortgage, either unrecorded or improperly recorded, or knowledge of such facts as would lead a reasonably prudent person under like circumstances to inquire into the matter and discover the existence of that mortgage." State Street Bank & Trust Co. of Boston v. Heck's Inc., 963 S.W.2d 626, 630 (Ky. 1998).
The Pearsons contend that because they had taken possession of the premises, the Trust should have inquired about their interest in the property. It is true that "possession of land by a third person is sufficient to put a subsequent purchaser on inquiry, and charge him with notice of everything that ordinary diligence in pursuing the inquiry would disclose." Davis v. Allen, 134 S.W.2d 617, 619 (Ky. 1939). However, the possession must be actual and open in order to put another party on notice. Whittaker v . Farmers' Nat. Bank of Somerset, 36 S.W.2d 18, 19 (Ky. 1931).
In this case, the Pearsons took possession of the property on January 2, 2010, while the Trust recorded its mortgage soon after on January 19, 2010. Their possession was not open to the Trust at that time. Hogg-Hartman, trustee of the Trust, testified that she remained unaware of the Pearsons' possession for several months. She knew that Meese and Collins were working and living in Indiana. However, Meese and Collins continued to make payments to the Trust, and they represented that they had renters in the disputed property. It was not until the Pearsons had been in possession of the property for one year that Ms. Hogg-Hartman learned about the fraudulent sale to the Pearsons.
Because the standard is what a reasonably prudent person would do under the circumstances, we cannot hold that the Trust had a duty to inquire about the Pearsons' interest in the property in January 2010. See State Street, supra. First, the Trust was unaware of the Pearsons' presence for several months. Meese and Collins had perpetrated a fraud. We cannot impose a duty to anticipate and investigate crime or chicanery. It was not unreasonable for Hogg-Hartman to believe Meese and Collins when they represented to her that they had secured renters for the property. Although they were living in Indiana, they continued payments to the Trust. The Trust had paid for the property in full and had no reason to suspect that it would have become encumbered by another interest within a matter of weeks.
This is a sad and unjust outcome, but it is nonetheless mandated by the law. Both the Trust and the Pearsons have been victims of a fraud perpetrated by Meese and Collins, who have absconded. Perhaps it is time for the General Assembly to address the race-notice statute in the event of such a fraud. In the meantime, only the parties themselves can rectify this inequity resulting in rendering the Pearsons homeless through no fault of their own.
The Pearsons suggest that we remand the case for findings of unjust enrichment. However, they have not provided any legal authority for their argument, and we are unable to find any. Again, the law simply provides no remedy to right this wrong.
We are compelled to affirm the Rockcastle Circuit Court.
ALL CONCUR. BRIEF FOR APPELLANT: Rebecca Marie Babarsky
Somerset, Kentucky
BRIEF FOR APPELLEE: Steven Connelly
Berea, Kentucky