Appeal from Johnson District Court; David W. Hauber, Judge.James F. McMahon, of McConnell & McMahon, of Overland Park, for appellants.Thomas E. Nanney, of Bryan Cave LLP, of Kansas City, Missouri, for appellee.
Appeal from Johnson District Court; David W. Hauber, Judge.
James F. McMahon, of McConnell & McMahon, of Overland Park, for appellants. Thomas E. Nanney, of Bryan Cave LLP, of Kansas City, Missouri, for appellee.
Before ATCHESON, P.J., POWELL, J., and JOHNSON, SJ.
Dennis and Becky Tenney filed a motion to set aside an agreed judgment of mortgage foreclosure, claiming that the judgment was void. They argued that U.S. Bank had not shown that it properly held the note secured by the mortgage, it was not the real party in interest, and it therefore lacked standing to sue. The district court denied the motion, finding that it was untimely. We disagree, because in Kansas lack of standing is jurisdictional and can be raised at any time. We reverse and remand for a hearing on the question of whether the agreed judgment was void for U.S. Bank's lack of standing.
Factual and Procedural Background
On August 31, 2006, Dennis executed a promissory note for $490,000 to Argent Mortgage Company, LLC. To secure the repayment of the note, both Dennis and Becky executed a mortgage in favor of Argent, granting it a security interest in their residential property located on Silver Wraith Dr., Olathe, Kansas 66061.
On May 11, 2011, U.S. Bank filed a foreclosure petition against the Tenneys. In it, U.S. Bank asserted that it had the “authority to enforce the terms of the Note and Mortgage” the Tenneys had given to Argent. It claimed that the Tenneys had defaulted by failing to make the required installment payments under the note from and after September 1, 2009, and, therefore, it was entitled to a money judgment for the balance due under the note and foreclosure of the mortgage.
The Tenneys timely answered and asserted that U.S. Bank had failed to provide sufficient proof that it was a “[r]eal party in interest ... entitled to enforce the terms set forth in the Note .” The Tenneys disputed whether U.S. Bank properly possessed the “original wet-ink Promissory Note” that Dennis had signed.
On October 12, 2011, U.S. Bank moved for summary judgment. As part of its memorandum in support of the motion, U.S. Bank supplied an affidavit to which was attached a recorded assignment to U.S. Bank of the Tenneys' mortgage. Neither the attachments to the petition nor the motion for summary judgment included a copy of the note that bore any endorsements evidencing a transfer to U.S. Bank. The Tenneys responded to the motion and again claimed that U.S. Bank was not a real party in interest. They maintained that it had not demonstrated that Dennis' note “belongs to, or is a part of the Trust for which U.S. Bank was acting.
The parties, through counsel, reached a settlement. On November 29, 2011, the district court approved an amended journal entry of foreclosure signed by each party's attorney. In exchange for the Tenneys' agreement to a foreclosure judgment, U.S. Bank agreed to accept an in rem judgment, waiving any deficiency, and to an extended stay of execution. The journal entry included only generic stipulations that the court had jurisdiction over the parties and the subject matter of the litigation, that U.S. Bank was a first and prior lien holder on the property, that the mortgage should be foreclosed, and that U.S. Bank was entitled to an in rem judgment against the Tenneys in the unpaid principal balance of $479,532.47 plus additional specific amounts. The journal entry did not specifically address standing, nor did it state that U.S. Bank properly possessed the note Dennis gave to Argent.
The next 11 months passed without a sale of the mortgaged property. Apparently the parties continued to negotiate on refinancing. Eventually, though, a sheriff's sale was scheduled for October 18, 2012. Two days before the sale Dennis filed a pro se Chapter 7 bankruptcy. This filing automatically stayed the foreclosure proceedings. The sale was cancelled. U.S. Bank eventually obtained relief from the automatic stay and, shortly thereafter, the bankruptcy court dismissed Dennis' bankruptcy case for his failure to file the required schedules or attend meetings of creditors.
Another sheriffs sale was scheduled for February 14, 2013. One day before the sale Dennis filed a pro se Chapter 13 bankruptcy. This filing again automatically stayed the foreclosure proceedings, and the sale was cancelled. This bankruptcy was dismissed for the same reasons as the first one. The trustee referred to Dennis' bad faith and stated in the dismissal that “the debtor is filing these cases in an attempt to hinder and delay creditor(s) efforts in foreclosing on his home.”
Another foreclosure sale was scheduled for June 20, 2013. On June 19, 2013, the Tenneys filed a motion under K.S.A. 60–260(b) to set aside the agreed judgment of foreclosure. The motion was filed by the Tenneys' new counsel. In their motion the Tenneys argued, among other things, that the judgment should be set aside because U.S. Bank had not established that it was a real party in interest. The Tenneys maintained that, if the Bank was not a real party in interest, the trial court lacked jurisdiction to enter the judgment and it was void.
The district court heard that motion the same day it was filed. It declined to take evidence, but it did hear arguments of counsel. The greatest part of the hearing consisted of a colloquy between the district court and the Tenneys' new attorney. Counsel advised the district court that the Tenneys were claiming the judgment was void under K.S.A. 60–260(b)(4), stating: “I think the judgment is void if they're [U.S. Bank] not the proper party in interest.” The Tenneys' attorney maintained that the issue of whether a judgment was void for lack of standing could be raised at any time. The district court disagreed. The following is representative of the discussions between the district court and the Tenneys' attorney, James F. McMahon:
“Mr. McMAHON: What I'm trying to deal with is what there is. And what there is you can raise the fact that there's not a real party in interest at any point in time
“THE COURT: That's a defense that needs to be timely raised, real party in interest, and it goes to standing, and those are issues that should be raised right upfront. And at this point there isn't any basis for me to believe they weren't the real party in interest. You want me to believe they weren't the real party in interest. You want to argue that now but that would have required them to come up with assignments and all sorts of stuff that show a chain of title, and that's the kind of merits issue that should have been decided long ago. And I assume Mr. Schwartz, because he's pretty thorough when I've seen him in every other case I've ever had him in, he demands wet-ink stuff, he talks to the opposing counsel, he makes sure he understands their basis for proceeding; and if that was a real issue in this case, it should have been raised instead of a consent judgment.
“Mr. McMAHON: Well, he didn't raise it.
“THE COURT: Then he caved in because, apparently, she demonstrated the basis for it.
“Mr. McMAHON: Well, I asked her if there's anything else, and she-when I talked with her, she said there's—just what's in the file. There is nothing in the file to show the note had been transferred. I looked at every document in the file. There's nothing
“THE COURT: Do they possess the note?
“Mr. McMAHON: Pardon me?
“THE COURT: Do they possess the note?
“Mr. McMAHON: It doesn't say in the file.
“THE COURT: Okay.
“Mr. McMAHON: There's no allegation that they did in any of the pleadings.
“THE COURT: Well, maybe Mr. Schwartz figured that out, that they possess the note and as a holder they have a right to proceed. You know. I'm not going to get into the merits of the case. As far as I'm concerned, you either demonstrate fraud or you're out, because you've got one year to bring suit on a 60–260 motion to show mistake or something that happened, I don't see any of these issues at this point in time.
“Mr. McMAHON: Well
“THE COURT: So finish your argument and then I'm going to hear from Ms. Cello.
“Mr. McMAHON: Okay. Standing, I believe, can be raised at any point in time. There's a recent case from the Court of Appeals affirming that. And it was-I think that's still a valid argument that can be raised at this point in time.” (Emphasis added.)
In spite of the above discussion, U.S. Bank did not attempt to offer evidence that it was a duly assigned and proper holder of the note.
After hearing the arguments of counsel, the district court denied the motion. It indicated that whether U.S. Bank was a real party in interest was a factual “merits issue” that should have been resolved before the agreed judgment was entered. It noted that the Tenneys' motion “smacks of bad faith delay.” The district court held that the Tenneys' motion was “untimely.”
The Johnson County Sheriff held a sale of the property on June 20, 2013, at which U.S. Bank was the successful bidder. The trial court confirmed the sale over the Tenneys' objections. The Tenneys timely appealed from the denial of their motion to set aside the judgment.
On appeal, the Tenneys maintain that the trial court erred when it found their motion to be untimely. The legal basis for the Tenneys' motion was that, without a proper assignment of the note, U .S. Bank had no standing to foreclose on the mortgage. They argue that they can raise lack of standing at any time and that, if U.S. Bank had no standing to sue, the trial court lacked subject matter jurisdiction to enter even an agreed judgment. Thus, the Tenneys contend that the foreclosure judgment is void.
We note that the Tenneys also made below other arguments (e.g., fraud, excusable neglect, mistake) for setting aside the judgment under K.S.A. 60–260(b). The district court also rejected those arguments. The Tenneys did not brief any arguments against the propriety of the district court's rejection of those other claims. They have abandoned, then, all issues other than their claim that U.S. Bank lacked standing to sue them. See Superior Boiler Works, Inc., v. Kimball, 292 Kan. 885, 889, 259 P.3d 676 (2011).
U.S. Bank contends that the district court was correct in denying the motion, although it suggests that the motion was untimely as barred by laches, an argument it did identify in the district court. It also asserts that the Tenneys stipulated to facts in the agreed judgment which establish that U.S. Bank is a real party in interest.
The existence of jurisdiction and standing are both questions of law over which this court's scope of review is unlimited. Schmidtlien Electric, Inc. v. Greathouse, 278 Kan. 810, 830, 104 P.3d 378 (2005) (jurisdiction); 312 Education Ass'n v. U.S.D. No. 312, 273 Kan. 875, 882, 47 P.3d 383 (2002) (standing). As the Tenneys' correctly note, our Supreme Court has determined that standing is an aspect of subject matter jurisdiction, and lack of such jurisdiction can be raised by the parties or the court at any time. Vorhees v. Baltazar, 283 Kan. 389, 397, 153 P.3d 1227 (2007).
“We first note that standing is a jurisdictional issue in Kansas. Families Against Corporate Takeover v. Mitchell, 268 Kan. 803, 807, 1 P.3d 884 (2000) (citing Moorhouse v. City of Wichita, 259 Kan. 570, 574, 913 P.2d 172  ). Additionally, an objection based on lack of subject matter jurisdiction may be raised at any time, whether it be for the first time on appeal or even upon the appellate court's own motion. Rivera v. Cimarron Dairy, 267 Kan. 865, 868, 988 P.2d 235 (1999). The existence of jurisdiction and standing are both questions of law over which this court's scope of review is unlimited. Schmidtlien Electric, Inc. v.. Greathouse, 278 Kan. 810,, 104 P.3d 378 (2005) (jurisdiction); 312 Education Ass'n v. U.S.D. No. 312, 273 Kan. 875, 882, 47 P.3d 383 (2002) (standing).
“As a result, standing is not waivable. See Tex. Ass'n of Business v. Air Control Bd., 852 S.W.2d 440, 446 (Tex.1993) (Standing is a component of subject matter jurisdiction and may be raised for the first time on appeal; it may not be waived by the parties.). Consequently, we agree with the court in Pace Const. v. Mo. Hwy. & Transp. Com'n, 759 S.W.2d 272, 274 (Mo.App.1988), which held:
‘The question of standing “does not relate to the legal capacity to sue, a defense [see K.S.A.2004 Supp. 60–209(a) ] waived unless timely asserted ... but to the interest of an adversary in the subject of the suit as an antecedent to the right to relief.” [Citation omitted.] Furthermore, standing is said to be, “in a sense, jurisdictional in limine and so within the notice of a court, even on appeal, for dismissal.” [Citation omitted.] There can be no question that this court does indeed have the power to entertain the issue of standing. The lack of standing cannot be waived. [Citation omitted.] “Regardless of the merits of appellants' claims, without standing, the court cannot entertain the action.” [Citation omitted.]’
“Similarly, the Minnesota Supreme Court held in State by McClure v. Sports & Health Club, 370 N.W.2d 844, 850 (Minn.1985): ‘It is well settled that an issue not litigated below may not be asserted for the first time on appeal. [Citation omitted.] However, an objection to want of “standing” goes to the existence of a cause of action, is jurisdictional, and may be raised at any time.’ (Emphasis added.) See 59 Am.Jur.2d, Parties § 363.”
“The main purpose of a mortgage is to insure the payment of the debt for which [it] stands as security; and foreclosure is allowed when necessary to carry out that objective.' United States v. Loosley, 551 P.2d 506, 508 (Utah 1976). Accordingly, in order to properly grant summary judgment in a mortgage foreclosure action, the district court must find undisputed evidence in the record that the defendant signed a promissory note secured by a mortgage, that the plaintiff is the valid holder of the note and the mortgage, and that the defendant has defaulted on the note. See Cornerstone Homes v. Skinner, 44 Kan.App.2d 88, 97–98, 235 P.3d 494 (2010).”
Another panel of this court has applied the same standing requirement, i.e., that the plaintiff be a valid holder of the note, in the context of a default judgment. See U.S. Bank, N.A. v.. Tomlinson, No. 111,081, 2014 WL 4627608 (Kan.App.2014) (unpublished opinion). There a panel of our court addressed a standing issue similar to the one raised by the Tenneys. In Tomlinson, over a year after a default judgment of foreclosure was entered, Tomlinson moved to set aside the default. She contended that U.S. Bank never possessed her note and, therefore, lacked standing to bring the foreclosure action. The hearing on the motion was continued three times to allow U.S. Bank time to prove its newly challenged standing. It eventually obtained an affidavit attesting to the authenticity of the note attached to the foreclosure petition. Once the affidavit was received, Tomlinson's counsel admitted the authenticity of the assigned note. The trial court ultimately denied Tomlinson's motion to set aside the judgment.
On appeal, the panel was able to conduct its review of the standing issue because of the well developed record in the district court. The Tomlinson panel determined that, although U.S. Bank was not the original holder of the note, it later became an assignee of the original lender. Thus, the record confirmed that U.S. Bank had standing to foreclose. 2014 WL 4627608, at *5. The panel affirmed the denial of Tomlinson's motion.
We know, then, that standing is jurisdictional and the parties cannot waive standing. Mid–Continent Specialists, Inc. v. Capital Homes, 279 Kan. at 185. Therefore, the fact that the judgment here was entered by agreement cannot create jurisdiction that otherwise did not exist if, after all, U.S. Bank lacked standing. Further, since lack of standing is jurisdictional, our Supreme Court has held that lack of standing can be raised at any time, even on appeal. Here it was raised in the district court, albeit after judgment, but before appeal. Finally, we know that the foreclosing plaintiff must be a “valid holder” of the note that the mortgage secures. MetLife Home Loans v. Hansen, 48 Kan.App.2d at 218.
We appreciate that, if the appearances of fairness were a consideration, at first glance they would seem to favor U.S. Bank. The Tenneys raised and then abandoned their standing complaints when their attorney signed the agreed foreclosure journal entry. Then Dennis caused delay by filing bankruptcies that the trustee of that court determined were in bad faith. On the other hand, though, if U .S. Bank was not after all a valid holder of the rights under the note, the appearance of fairness would, or at least should, rotate 180 degrees to favor the Tenneys. After all, if U.S. Bank was not a valid holder of the note, it should not have sued the Tenneys in the first place.
We find that the Tenneys' motion was timely because its attack on U.S. Bank's standing could be asserted at any time. Since standing cannot be waived, the apparent abandonment of their standing defense in the agreed judgment does not deprive the Tenneys of the opportunity to challenge standing now. The district court correctly stated that the question of “real party in interest ... goes to standing” but it erred when it ruled that “those are issues that should be raised right upfront.” Its ultimate holding that the Tenneys' motion was “untimely” was in error.
Because the district court did not take evidence at the motion hearing, U.S. Bank was never allowed to or required to present evidence to show that it was a proper holder of the note. We have conducted our unlimited review of the record, but it is impossible for us to determine from that sparse record whether U.S. Bank had standing to sue the Tenneys. We therefore reverse the denial of the Tennys' motion to set aside the judgment and remand for an evidentiary hearing on the issue of U.S. Bank's standing to sue.
Reversed and remanded for an evidentiary hearing on the issue of U.S. Bank's standing to sue the Tenneys.