Opinion
NO. 2015-CA-001657-MR
01-13-2017
VICTORY COMMUNITY BANK APPELLANT v. SCOT KENKEL, GARY MARTIN, BERNICE MARTIN, DENNIS DONNELLAN, BETTY DONNELLAN, JANET ALBERS, ROBERT ALBERS, DANIEL WACHS, KIM WACHS, THE CITY OF PARK HILLS, KENTUCKY, THE COUNTY OF KENTON, KENTUCKY, AND THE COMMONWEALTH OF KENTUCKY APPELLEE
BRIEF FOR APPELLANT: Justin Whittaker Ft. Mitchell, Kentucky BRIEF FOR APPELLEE: Glenn E. Algie Covington, Kentucky
NOT TO BE PUBLISHED APPEAL FROM KENTON CIRCUIT COURT
HONORABLE GREGORY M. BARTLETT, JUDGE
ACTION NO. 10-CI-01563 OPINION
VACATING AND REMANDING
** ** ** ** **
BEFORE: COMBS, STUMBO AND THOMPSON, JUDGES. COMBS, JUDGE: Victory Community Bank (Victory) appeals from a decision of the Kenton Circuit Court allowing Scot Kenkel to reopen foreclosure proceedings in order to add the bank - which was a judgment lienholder - as a defendant. We vacate the circuit court order granting relief from its judgment and remand for entry of a new order.
Between 2003 and 2008, Victory Community Bank made four loans to Gary and Bernice Martin. The Martins executed several notes in favor of the bank and mortgaged real property that they owned in Boone and Kenton Counties. Ultimately, the Martins defaulted on each of the notes, and the bank instituted foreclosure proceedings. When the Martins' property sold at foreclosure for less than the amount owed to the bank, the bank obtained deficiency judgments against them totaling more than $135,000.00.
To protect its interests, Victory filed its judgment liens in the office of the Kenton County Clerk in August and September 2010. These liens applied to all the real estate in Kenton County in which the Martins had an interest.
Meanwhile, on May 13, 2010, Advantage Bank had filed a foreclosure action with respect to property that the Martins owned at Far Hills Drive in Kenton County, property that was subject to Victory Bank's judgment liens.
Judgment and an order of sale were entered, and on April 1, 2011, Advantage Bank assigned its mortgage to Scot Kenkel. Kenkel was duly substituted as the plaintiff in the foreclosure action on May 24, 2011. Kenkel submitted the successful bid for the property at the public sale, and the report of the master commissioner was filed on December 21, 2011. Subsequently, Kenkel assigned his winning bid to Cardinal Estates, LLC. The order of the Kenton Circuit Court confirming the sale of the property to Cardinal Estates was entered on January 13, 2012. All of the foregoing transactions occurred without taking into account Victory Bank's properly recorded judgment liens on the property.
Approximately three months later, Kenkel discovered Victory's judgment liens. He filed a motion for relief from the judgment pursuant to the provisions of CR 60.02. He requested the court to vacate the judgment and order of sale and the order confirming the report of sale "due to prior counsel's mistake of failing to file a notice of lis pendens." On April 27, 2012, the Kenton Circuit Court granted Kenkel the relief he sought and vacated the master commissioner's sale of the property. After this grant of relief, a lis pendens notice was at last filed.
Kentucky Rules of Civil Procedure.
A lis pendens is a "notice, recorded in the chain of title to real property, . . . to warn all persons that certain property is the subject matter of litigation, and that any interests acquired during the pendency of the suit are subject to its outcome." U.S. Bank, NA v. Hasty, 232 S.W.3d 536 (Ky.App.2007), citing Greene v. McFarland, 43 S.W.3d 258, 260 (Ky.2001) (quoting Black's Law Dictionary 943 (7th ed. 1999)).
With the prior proceedings having been set aside, Kenkel proceeded to relitigate the foreclosure of the property - with Victory Community Bank now included as a party. Victory filed a motion to vacate the order granting Kenkel relief from the judgment, which the circuit court denied. On July 25, 2013, this Court denied Victory's petition for a writ of prohibition. The property was resold, and the order of the Kenton Circuit Court confirming the second sale of the property to Kenkel was entered in November 2015. This appeal followed.
Victory Bank has submitted a comprehensive brief that presents many possible grounds for reversal of the circuit court's various orders. However, in order to resolve the appeal, we need only determine whether Kenkel was entitled to relief which the court granted him in its judgment of April 27, 2012.
The decision to grant relief from a judgment or order pursuant to CR 60.02 is generally left to the sound discretion of the trial court. Schott v. Citizens Fidelity Bank and Trust Co., 692 S.W.2d 810 (Ky.App.1985). However, a decision that is arbitrary, unreasonable, or unsupported by sound legal principles cannot be upheld. Goodyear Tire and Rubber Co. v. Thompson, 11 S.W.3d 575 (Ky.2000).
Our decision in U.S. Bank, NA v. Hasty, 232 S.W.3d 536 (Ky.App.2007), is particularly pertinent. In that case, U.S. Bank filed a civil action against the Hastys to foreclose on their real property. Heights Finance then filed a judgment lien against the property. U.S. Bank subsequently filed a lis pendens notice of the foreclosure proceedings. Ultimately, the trial court entered a default judgment against the Hastys, and the property was sold at a master commissioner's sale - without consideration of the judgment lien of Heights Finance. When it learned of the Heights Finance lien, U.S. Bank - like Kenkel in the matter before us - sought to reopen the foreclosure proceedings pursuant to the provisions of CR 60.02 based upon its omission of Heights Finance as a party in the original action. U.S. Bank was concerned that the Heights Finance lien had survived the foreclosure action, thus clouding title to the property. It sought to pass title to the property free and clear of the Heights Finance lien upon a second commissioner's sale.
On appeal, we observed that CR 60.02 is designed to provide relief where the reasons for the relief are of an extraordinary nature and noted that a substantial showing is required to merit consideration. Hasty, 232 S.W.2d at 541. We stated that one of the chief factors guiding the decision to grant extraordinary relief is the moving party's ability to present his claim prior to the entry of the order sought to be set aside. Hasty, 232 S.W.3d at 542, citing Fortney v. Mahan, 302 S.W.2d 842, 843.
In Hasty, we determined that the circumstances described by U.S. Bank were not of an extraordinary nature justifying relief under the provisions of CR 60.02 since the bank had had the ability to present its claim prior to the entry of judgment. We affirmed the trial court's denial of the motion for relief because "[w]ith minimal effort the bank could have discovered the judgment lien prior to the entry of a final judgment in the foreclosure action and litigated Heights Finance's judgment lien therein." Hasty, 232 S.W.3d at 542.
Our foreclosure statute, KRS 426.690, requires that only those who were lien holders as of the time of the filing of the foreclosure petition be named as parties. To recapitulate, Victory filed its liens in August and September of 2010 while Advantage had initiated foreclosure in May of 2010. However, the filing of a foreclosure petition alone is insufficient to bind pendente lite lien-filers to the judgment, and it is immaterial that Victory Community Bank filed its judgment lien after the foreclosure proceedings had commenced. See Hasty, supra. What is critical to this case is that Victory's judgment liens were of record in Kenton County before the filing of a lis pendens notice in the county clerk's office and were readily discoverable before judgment was entered. Consequently, the circuit court erred by granting Kenkel's motion for extraordinary relief.
Kentucky Revised Statutes. --------
We vacate the order granting relief and remand for entry of an appropriate order.
ALL CONCUR. BRIEF FOR APPELLANT: Justin Whittaker
Ft. Mitchell, Kentucky BRIEF FOR APPELLEE: Glenn E. Algie
Covington, Kentucky