Opinion
No. 107,027.
2012-10-12
ELLAMAE INVESTMENTS, LLC and Abraham D. Fitzsimmons, Appellees, v. TERRA FIRMA DEVELOPMENT, LLC and John E. Roush, Appellees, and Thomas Holm, Intervenor/Appellant.
Appeal from Pottawatomie District Court; Jeffery R. Elder, Judge. Justice B. King and Samuel A, Green, of Fisher, Patterson, Sayler & Smith, L.L.P., of Topeka, for intervenor/appellant. Cody G. Robertson, of Goodell Stratton Edmonds & Palmer LLP, for appellees EllaMae Investments, LLC and Abraham D. Fitzsimmons.
Appeal from Pottawatomie District Court; Jeffery R. Elder, Judge.
Justice B. King and Samuel A, Green, of Fisher, Patterson, Sayler & Smith, L.L.P., of Topeka, for intervenor/appellant. Cody G. Robertson, of Goodell Stratton Edmonds & Palmer LLP, for appellees EllaMae Investments, LLC and Abraham D. Fitzsimmons.
Before MARQUARDT, P.J., McANANY and BUSER, JJ.
MEMORANDUM OPINION
PER CURIAM.
Thomas Holm appeals the district court's entry of judgment in favor of EllaMae Investments, LLC and Abraham Fitzsimmons. The district court found that Holm did not have a mortgage on the real property and that Holm's interest in the real property was subordinate to that of EllaMae and Fitzsimmons. We reverse and remand with directions.
Facts
The facts underlying this appeal are undisputed. In 2004, Abraham Fitzsimmons and John E. Roush founded EllaMae Investments, LLC under the laws of the State of Florida. EllaMae invested in real property. In August 2006, Roush, acting on behalf of EllaMae, began negotiations to purchase several parcels of real property in the Riverview Hills addition (Riverview Hills property) of the city of St. George in Pottawatomie County, Kansas, EllaMae raised $200,000 from various investors to use as earnest money for the purchase of the Riverview Hills property. Roush told Fitzsimmons and the other EllaMae investors that he had used the money for a downpayment on the Riverview Hills property. Roush also told Fitzsimmons and the other EllaMae investors that a group of California investors had agreed to provide the additional required funds for the Riverview Hills property purchase.
In February 2007, Roush told Fitzsimmons and the other EllaMae investors that the agreement with the California investors had fallen through and that the $200,000 earnest money would not be refunded. Unbeknownst to Fitzsimmons and the other EllaMae investors, Roush began working with Terra Firma Development, LLC (Terra Firma) to purchase the Riverview Hills property for Terra Firma. This was while Roush was still working for EllaMae.
Terra Firma is a limited liability company established under the laws of the State of Wyoming; however, the company's principal address is in Pleasanton, California. Roush and Eric Mueller are the comanagers of Terra Firma. Roush owns a 37.5 percent interest in Terra Firma.
Thomas Holm agreed to loan Terra Firma $265,000 to use for the purchase of the Riverview Hills property. On September 11, 2007, Eric Mueller, as manager of Terra Firma, executed a promissory note promising to repay Holm the $265,000 loan. At the same time, Mueller also executed a security deed agreement to secure
“the payment and performance of Securing Party's Promissory Note dated September 11th, 2007 in the total amount of Two Hundred Sixty Five Thousand Dollars (US$265,000) and the payment and performance of all other liabilities and obligations of Securing Party to Secured Party of every kind and description.”
On October 2, 2007, Holm loaned Terra Firma an additional $160,000. Concurrent with this loan, Terra Firma executed another promissory note and another security deed agreement. On October 4, the parties executed an addendum to the October 2 promissory note, which accelerated the repayment period by 2 months and listed the principal and interest as $185,600.
Each promissory note specifies that the loans made by Holm to Terra Firma are secured by a security agreement. The promissory notes stated:
“Said Security Agreement grants rights in the property identified as follows:
“Property Owners: Terra Firma Development, LLC.
“Property Address: See legal description
“Legal Description: County Property Located In: Potawatamie [ sic ].”
Immediately after this information is the extensive legal description of the Riverview Hills real property.
The security deed agreements stated that the “Securing Party [Terra Firma] grants to Secured Party [Holm] an interest in a land development project located in St. George Kansas.” This statement is also followed by the same lengthy real property legal description that was set forth in the promissory notes.
The two security deed agreements contain a covenants clause describing Terra Fiona's obligations under the agreements. Those clauses provide, in pertinent part:
“2. COVENANTS. Securing Party hereby warrants and covenants: (a) The collateral will be kept and that the collateral will not be assigned, refinanced, or sold until this Security Agreement is released, (b) The parties intend that the collateral is and will at all times remain personal property despite the fact and irrespective of the manner in which it is attached to realty, (c) The Securing Party shall keep the collateral free from unpaid charges (including rent), taxes, and liens, (d) The Securing Party shall execute alone or with Secured Party any Financing Statement or other document or procure any document, and pay the cost of filing the same in all public offices wherever filing is deemed by Secured Party to be necessary, (e) Securing Party shall maintain insurance at all times with respect to all collateral against risks of fire, theft, and other such risks and in such amounts as Secured Party may require.” (Emphasis added.)
Finally, each security deed agreement provides that in the event of default by Terra Firma, Holm “shall have the remedies of a Secured Party under the Uniform Commercial Code.”
After procuring the loans from Holm, as well as money from other investors, Terra Firma finalized the purchase of the Riverview Hills property in November 2007. In July 2008, Fitzsimmons contacted the previous owner of the Riverview Hills property, and during that conversation Fitzsimmons learned that Roush had never given the $200,000 earnest money to the previous owner for the purchase of the property. Fitzsimmons subsequently confronted Roush with this allegation, and Roush promised Fitzsimmons that Terra Firma would reimburse the EllaMae investors with proceeds from the sale of the individual lots in the Riverview Hills addition.
Neither EllaMae nor any of its investors received any payments from Terra Firma or Roush, and on June 23, 2010, EllaMae and Fitzsimmons (collectively “EllaMae”) filed an action in the Pottawatomie County District Court alleging claims against Terra Firma and Roush. Terra Firma and Roush filed separate answers to EllaMae's petition, but upon EllaMae's motion, the district court struck Roush's answer as untimely and struck Terra Firma's answer because the company was not represented by authorized counsel. Thereafter, EllaMae moved for default judgments against Terra Firma and Roush. On December 8, 2010, the district court granted EllaMae's motion, entered a default judgment against Terra Firma, and awarded EllaMae damages in the amount of $1,101,289.10. On February 9, 2011, the district court granted EllaMae's motion for default judgment against Roush and awarded EllaMae damages in the amount of $1,294,313.10.
On April 22, 2011, the district court issued a writ of attachment and order of sale, authorizing the Pottawatomie County Sheriff to sell the Riverview Hills property at auction and to use the proceeds of the sale to satisfy any outstanding taxes, costs, and debts. Specifically, the district court ordered that proceeds derived from the sale of the property should be applied as follows:
“First, in payment of the taxable court costs of this action and the costs of said sale;
“Second, to the payment of any unpaid real estate taxes on said real estate;
“Third, in payment of the judgment entered herein in favor of the Plaintiffs, with interest thereon;
“Fourth, the balance, if any, be paid to the Clerk of the Court to await the further order of this Court.”
Public notice of the sheriffs sale was published in the Wamego Times.
Holm learned about the sheriff's sale through the public notice in the Wamego Times, and he contacted EllaMae's counsel to discuss the effect the sale of the property would have on any interest that Holm might have in the property. After this discussion, Holm moved the district court to allow him to intervene in this action. EllaMae did not object to Holm's motion, and the motion was granted. The sheriff's auction was cancelled pending resolution of Holm's claim to the property.
After the district court granted his motion to intervene, Holm filed his objection to the order of sale. He also filed a motion to stay execution and a motion to determine priority of liens. Holm contended that his interest in the Riverview Hills property was superior to EllaMae's judgment lien because he had mortgages that attached to the real property on September 11, 2007, and October 2, 2007. Holm asserted that the two promissory notes and the two security deed agreements, when read together, were evidence of a clear intent that the Riverview Hills property was used as collateral for the two loans. EllaMae responded to Holm's motion and filed its own motion to determine priority of liens in which it argued that Holm did not have mortgages because the documents showed that the parties intended to use personal property as collateral for the two loans.
At a hearing on the respective motions filed by Holm and EllaMae, Holm argued that the promissory notes and security deed agreements were not ambiguous and that the parties' intent could be discerned from the language in those documents. Similarly, EllaMae contended that the parties' intent could be discerned from the language of the documents, but it also recognized that the language in the two promissory notes created some ambiguity. Despite this ambiguity, EllaMae insisted that its judgment lien had priority over Holm's interest. After counsel for both parties argued their respective positions, the district court asked counsel whether the district court would be required to hold an evidentiary hearing if it found that the promissory notes and the security deed agreements were ambiguous. Holm's counsel provided no response to the court's inquiry, but counsel for EllaMae agreed that the court's proposal that a hearing would be necessary if it found that the documents were ambiguous was an accurate statement of the law.
The district court ultimately found EllaMae's judgment lien was superior to Holm's interest in the Riverview Hills property. The court noted that both parties conceded that the promissory notes and the security deed agreements were plain and unambiguous and concluded that its task was to determine the parties' intent based upon the language in those documents.
The district court found that the language in the promissory notes describing the Riverview Hills property did not evidence an intent to create a mortgage as security for the loans, but rather merely identified who owned the property and where the property was located. The court further found that two declarations in the security deed agreements—that the collateral is and will at all times remain personal property and that Holm would have all of the remedies under the Uniform Commercial Code (UCC) in the event of a default—showed that Holm and Terra Firma intended to grant Holm a security interest in personal property only. Holm timely filed his notice of appeal
Interpretation of the Promissory Notes and Security Deed Agreements
“The standard of appellate review is de novo for cases decided by the district court based upon documents and stipulated facts.” Double M Constr. v. Kansas Corporation Comm'n, 288 Kan. 268, 271, 202 P.3d 7 (2009). Moreover, the interpretation and legal effect of written instruments is a question of law, which an appellate court reviews de novo. City of Arkansas City v. Bruton, 284 Kan. 815, 828, 166 P.3d 992 (2007).
Holm argues that if the promissory notes and the security deed agreements do not reflect a clear intent to create a mortgage on the Riverview Hills property, then those documents are ambiguous and the district court should have held an evidentiary hearing to consider parol evidence and determine the intent of the parties. Holm's assertion that the district court erred in failing to hold an evidentiary hearing is, in reality, a disagreement with the district court's finding that the promissory notes and the security deed agreements were not ambiguous. The question of whether a written instrument is ambiguous is a question of law, which an appellate court reviews de novo. National Bank of Andover v. Kansas Bankers Surety Co., 290 Kan. 247, 264, 225 P.3d 707 (2010).
Holm argues that an evidentiary hearing was required only if the district court found that the promissory notes and the security deed agreements were ambiguous. Despite Holm's contention, and even if there is some ambiguity, interpretation of documents is a question of law and no evidentiary hearing is required.
A review of the promissory notes and the security deed agreements, when read together, lead to four possible interpretations regarding the type of property that Terra Firma intended as security for Holm's loans:
1. A mortgage.
2. An interest in personal property only.
3. A mortgage and an interest in personal property.
4. An equitable mortgage and an interest in personal property.
Personal Property
Under the second possible interpretation, EllaMae argues that Holm's interest in the land development project was an interest in a business venture and “Kansas courts have long recognized that an interest in such a venture is not equivalent to an interest in the underlying realty.”
The security deed agreements state that “the collateral is and will at all times remain personal property” and that Holm “shall have the remedies of a Secured Party under the Uniform Commercial Code.” Although the UCC generally applies to transactions involving personal property, the UCC requires a description of the collateral in order for a secured party's security interest to attach to the property. See K.S.A.2011 Supp. 84–9–203(b)(3)(A). In Farmers State Bank v. Haflich, 10 Kan.App.2d 333, 338, 699 P.2d 553 (1985), a panel of this court found that a “security interest which does not list items as secured collateral does not give a creditor a secured status with respect to them.” None of the documents in this case identify the secured personal property.
In this case, the promissory notes and the security deed agreements do not describe any personal property that is collateral for the loans. The security deed agreements merely use the vague and undefined phrase “personal property” to refer to the property that served as collateral for Holm's loans to Terra Firma. Accordingly, if the promissory notes and the security deed agreements grant Holm the rights of a secured party in only personal property, then he effectively has no secured rights unless the personal property is the Terra Firma Development, LLC.
EllaMae cites Tenney v. Simpson, 37 Kan. 353, 15 P. 187 (1887), to support its argument that Holm was only entitled to proceeds derived from the land development project and not an interest in the real estate itself. However, Tenney does not support EllaMae's argument.
In Tenney, several individuals purchased real estate in Wyandotte County, forming a partnership to divide the real estate into individual lots, sell the lots, and distribute the profits according to the parties' agreement. After the sale of the lots was discontinued and the partnership was dissolved, a lawsuit was filed to determine each partner's interest in the underlying property. Our Supreme Court observed the basic rule that when “land is purchased by several for the purpose of sale and the acquisition of profits only, and not for permanent use, it will be regarded in equity as personal property among the partners in the speculation.” Tenney, 37 Kan. at 363, 15 P. 187. However, the court also considered and rejected the “very technical” argument that the complaining partner did not “have any interest in the land, but only an interest in the proceeds of the sale of lots.” Tenney, 37 Kan. at 368, 15 P. 187. The court concluded that upon dissolution of the partnership, all of the partners became tenants in common of property owned by the partnership, and each of the partners bringing the action held an interest in the real estate equal to their pre-dissolution agreement regarding sharing of profits. Tenney, 37 Kan. at 369, 15 P. 187.
In this case, we find that even if Holm's interest is in Terra Firma Development LLC, under the holding in Tenney, that interest translates into an interest in the Riverview Hills property.
Mortgage and Personal Property
Even though both Holm and EllaMae argue that the promissory notes and security deed agreements are clear and unambiguous, they arrive at diametrically opposed conclusions as to the intent of the parties expressed in those documents. We note that EllaMae was not a party to those documents; nonetheless, it claims to know the intent of the parties.
Holm argues that those documents show an intent by the parties to encumber real property. EllaMae argues that those same documents reveal an intention to encumber only personal property. The problem with both of these positions is that Holm and EllaMae ignore that the promissory notes and security deed agreements, when read together, are ambiguous. A written instrument is ambiguous when application of the general rules of interpretation leave it genuinely unclear which of two or more interpretations is the correct interpretation. Central Natural Resources v. Davis Operating Co., 288 Kan. 234, 245, 201 P.3d 680 (2009). A document is ambiguous when the document contains provisions or language of doubtful or conflicting meaning. Simon v. Nat'l Farmers Organization, Inc., 250 Kan. 676, 680, 829 P.2d 884 (1992).
In its brief, EllaMae acknowledges that the conflicting language in the promissory notes and in the security deed agreements creates some level of ambiguity. However, at the same time, EllaMae asserts that “where a contract unambiguously states the parties' intent, other terms that conflict with that statement do not serve to create ambiguity.” EllaMae contends that the language in the security deed agreements—“The parties intend that the collateral is and will at all times remain personal property despite the fact and irrespective of the manner in which it is attached to realty”—clearly expresses the parties' intent that only personal property was collateral for the loans. EllaMae cites Brown v. Lang, 234 Kan. 610, 675 P.2d 842 (1984), as support for this argument.
However, Brown does not support EllaMae's argument because the discrepancies in the Brown document arose because of a computational error in the amount to be repaid on a loan. The court held that “[a] mere mathematical or typographical error in a contract which does not create such an inconsistency that the overall intent of the parties cannot be determined from the four corners of the instrument,” does not render a contract ambiguous. Brown, 234 Kan. at 615–16, 675 P.2d 842. In this case, the promissory notes and the security deed agreements do not contain a mathematical error; therefore, Brown does not support EllaMae's position.
Finally, EllaMae argues that the language in the security deed agreements grants Holm “the remedies of Secured Party under the Uniform Commercial Code.” We agree that this language is in the agreement; however, neither document states that this is the only remedy available to Holm.
In determining whether a document or documents create a mortgage, it is well established that the parties are not required to follow any special formalities. Garnett State Savings Bank v. Tush, 232 Kan. 447, 453, 657 P.2d 508 (1983). In Assembly of God v. Sangster, 178 Kan. 678, 680, 290 P.2d 1057 (1955), our Supreme Court offered the following guidance:
“[I]t has been held that in order to create a mortgage contract no particular ‘form’ of instrument is necessary and no particular words are required. The ‘form’ of an agreement by which security is given is unimportant if the purpose plainly appears. All that is necessary is that there be a debt and that the instrument creates a lien on real property as security for the payment of the debt.”
Furthermore, a “mortgage and a note secured by it are to be deemed parts of one transaction and construed together as such; the provisions of both should be given effect.” Metropolitan Life Ins. Co. v. Strnad, 255 Kan. 657, 661, 876 P.2d 1362(1994).
In the Assembly of God case, the church issued bonds to raise funds for a church construction project, and the church secured the bonds with a document that imposed obligations and restrictions on the church. Among those restrictions were promises that the church was free and clear of all encumbrances, that the property would not be encumbered in any manner, that no liens or claims would be permitted to attach to the property, and that the church would insure the church property against loss by fire while the bonds were outstanding. The final section of the document expressly declared that the document was not intended to be a mortgage on the real property of the church. However, when the church attempted to file the document with the Rice County Register of Deeds, the church was not allowed to file the document because it refused to pay the mortgage registration fee. Thereafter, the church moved for a writ of mandamus, requesting that the court order the register of deeds to allow the church to file the document without paying the mortgage registration fee.
Even though the document expressly stated that it was not intended to create a mortgage on the church's real property, our Supreme Court held that the document was a mortgage. The court discerned that the purpose of the document was to impose a lien on the church's real property. Specifically, the court noted that the church promised not to encumber the property, not to allow any liens to attach to the property while the bonds were outstanding, and to insure the property against loss by fire to the full amount of any outstanding bonds. The court concluded that a “a careful reading of the entire document” revealed that the document affected the church's real property by granting the bondholders “a lien on the property.” Assembly of God, 178 Kan. at 682, 290 P.2d 1057.
Holm cites Assembly of God as support for his argument that the documents created a legal mortgage on the Riverview Hills property. The documents in our case affected the Riverview Hills property by not allowing Terra Firma to “refinance this collateral without prior approval of the Note Holder until this Note is paid in full.” The “this collateral” referred to in that sentence is the Riverview Hills property because the language immediately preceding this sentence is the legal description of that very property. There is no other collateral mentioned in the documents. Thus, this language lends support to the notion that the promissory notes and security deed agreements are mortgages because the language indicates that Holm and Terra Firma intended to impose restrictions on Terra Firma's ability to use the property as collateral for future economic endeavors.
In addition, the security deed agreements required Terra Firma to “maintain insurance at all times with respect to all collateral against risks of fire, theft, and other such risks in such amounts as Secured Party may require.” In Assembly of God, the church was also required to maintain insurance. Notwithstanding the fact that the document in Assembly of God expressly stated that it was not a mortgage, our Supreme Court found that the document was a mortgage. The Court determined it was a mortgage because the restrictions, including the church's promise to insure the property against loss by fire, affected the church's real property.
We recognize that there are some factual differences between this case and Assembly of God; however, when construing a written instrument, it is a fundamental rule of construction that a court should construe all of the provisions of the written instrument together and in harmony rather than in isolation. Osterhaus v. Toth, 291 Kan. 759, 778, 249 P.3d 888 (2011). An interpretation of the promissory notes and the security deed agreements that grant Holm both a mortgage interest in the Riverview Hills property and a security interest in personal property gives effect to all of the language in those documents and harmonizes the various provisions together to the best extent possible.
We find that the promissory notes and the security deed agreements grant Holm a mortgage and an interest in personal property.
Equitable Mortgage
Alternatively, Holm argues that if the promissory notes and security deed agreements do not create a legal mortgage, he has an equitable mortgage on the Riverview Hills property because the parties intended to use the realty as security for the loans.
In discussing the concept of an equitable mortgage, our Supreme Court stated:
“The form of an agreement by which security is given for a debt is unimportant. If the purpose and intention behind a transaction is to secure a debt, equity will consider the substance of the transaction and give effect to that purpose and intention. A court sitting in equity is not governed by the strict rules of law in determining whether a mortgage has been created. The lien follows if the evidence discloses an intent to charge real property as a security for an obligation.” Fuqua v. Hanson, 222 Kan. 653, Syl. ¶ 1, 567 P.2d 862 (1977).
As discussed previously, the promissory notes and the security deed agreements reflect that Terra Firma intended to charge the Riverview Hills property as security for Holm's loans. The promissory notes specifically state that Holm's loans are secured by the security deed agreements and the security deed agreements grant Holm rights in the Riverview Hills property. The promissory notes also use the term “collateral” to describe the status of the Riverview Hills property as security for the loans.
The promissory notes and the security deed agreements grant Holm rights in the Riverview Hills property and an interest in a land development project in Riverview Hills. However, the language in these documents is not as clear and definitive as the language required by K.S.A. 58–2303.
Although strict compliance with the statute is not required to create a legal mortgage on real property, a written instrument must nonetheless sufficiently indicate that it creates a lien on real property as security for the payment of a debt in order to create a legal mortgage. Assembly of God, 178 Kan. at 680, 290 P.2d 1057. Although the language in the promissory notes and the security deed agreements does not state the parties intended to create a mortgage, it indicates that the parties intended to charge the Riverview Hills property as security for Holm's loans to Terra Firma.
Although there does not appear to be any Kansas caselaw analyzing language similar to the language in the written instruments at issue in this case, the analysis in the case of Hill v. Hill, 185 Kan. 389, 345 P.2d 1015 (1959), is somewhat instructive. In Hill, a son loaned his father $2,500 to purchase property, and a note reflecting that loan stated that the son was granted a $2,500 interest in the property described in the note. The district court found that the son was not granted a mortgage on the property, but our Supreme Court reversed this finding and held that the promissory note gave rise to an equitable lien on the property. Hill, 185 Kan. at 394, 398, 345 P.2d 1015. The court concluded that the instrument created an “equitable lien” because the instrument “evidences a debt and contains a promise to pay it out of the property.” Hill, 185 Kan. at 398, 345 P.2d 1015.
In this case, the promissory notes and the security deed agreements reflect that in return for his loans to Terra Firma, Holm was granted rights in the Riverview Hills property and was granted an interest in the land development project on the Riverview Hills real estate. This language created an equitable mortgage in favor of Holm because there is an acknowledgement of a debt and language indicating that the Riverview Hills property was intended to act as collateral to secure Holm's loans to Terra Firma. See also In re Estate of Moukalled, 269 Mich.App. 708, 714 N.W.2d 400 (2006) (holding that a creditor was entitled to an equitable lien on certain real property owned by the decedent when language in a security agreement providing that various assets of the decedent, including two vacant real estate lots, would be sold to satisfy a $381,000 debt in the event of a default by the decedent).
The promissory notes and the security deed agreements reflect that Holm loaned Terra Firma money and in return for those loans, Holm was granted rights in the property that Terra Firma purchased with those funds. Therefore, we conclude that Holm possesses a mortgage on the Riverview Hills property.
Priority of Interests
Holm claims that the district court erred in finding that EllaMae's judgment lien has priority over his interests in the property. “The standard of appellate review is de novo for cases decided by the district court based upon documents and stipulated facts.” Double M Constr., 288 Kan. at 271, 202 P.3d 7. A determination regarding the priority of liens is a question of law, which an appellate court reviews de novo. Davis–Wellcome Mortgage Co. v. Long–Bell Lumber Co., 184 Kan. 209, 210, 336 P.2d 469 (1959).
Holm's promissory notes and security deed agreements were executed in September and October 2007. Terra Firma purchased the River Hills property in November 2007.
EllaMae does not argue that its judgment lien is superior to any mortgage interest that Holm might have in the Riverview Hills property. Instead, EllaMae insists that Holm's interest in the property is not a mortgage but a competing judgment lien and that EllaMae's judgment lien is superior to Holm's judgment lien.
“[A]n equitable lien or mortgage takes effect at the time of the original transaction between the parties and not at the time of attempted enforcement.” Garnett State Savings Bank, 232 Kan. at 453–54, 657 P.2d 508. Holm loaned $265,000 to Terra Firma on September 11, 2007, and loaned an additional $160,000 to Terra Firma on October 2, 2007. Thus, Holm's equitable mortgage attached to the Riverview Hills property on those dates. Moreover, because the funds loaned by Holm to Terra Firma were used to purchase the Riverview Hills property, Holm possesses a purchase money equitable mortgage that takes priority. See K.S.A. 58–2305; Hill, 185 Kan. at 398–99, 345 P.2d 1015.
EllaMae filed its petition in the Pottawatomie County District Court on June 23, 2010, and the district court entered a default judgment against Terra Firma on December 8, 2010. Pursuant to K.S.A. 60–2202(a), EllaMae's judgment lien took effect on August 8, 2010. In its brief, EllaMae essentially concedes that Holm's interest would be superior to its judgment if Holm possessed a mortgage on the property before EllaMae obtained its judgment lien. Accordingly, Holm's mortgage is superior to EllaMae's judgment lien.
In conclusion, the district court erred in finding that Holm did not have a mortgage on the Riverview Hills property. The promissory notes and the security deed agreements show that Holm loaned money to Terra Firma, and in return, Holm received rights in the Riverview Hills property, which was pledged as collateral for the loan. This was sufficient evidence in the documents to create an equitable mortgage on the Riverview Hills property in favor of Holm, and this mortgage attached to the property in September and October 2007. Accordingly, Holm's mortgage on the real property is superior to EllaMae's judgment lien because it took effect nearly 3 years before EllaMae's judgment lien. Finally, an evidentiary hearing to consider parol evidence is unnecessary because these issues are resolved by interpretation of written documents.
We reverse the district court's judgment and remand this case with instructions for the district court to find that Holm has an equitable mortgage in the Riverview Hills property, that Holm has a priority lien on personal property, and that Holm's interests are superior to EllaMae's judgment lien.
Reversed and remanded with instructions.