Archive for the ‘Property’ Category

Decision: Landmark National Bank v. Kesler

September 3, 2009

August 28th. The Kansas Supreme Court has issued its opinion in Landmark National Bank v. Kesler (No. 98,489), a complex foreclosure proceeding. In a unanimous opinion, written by Justice Eric Rosen, the Court held that under the circumstances of this case the second-mortgage holder could not undo the foreclosure that had been performed and settled by the first-mortgage holder, owing to the complex legal relationship between that second-mortgage holder, the property and an intermediary company.

Boyd Kesler took out two mortgages against some property in Ford County. The first was with Landmark National Bank. The second with Millenia Mortgage Company. Millenia generated its documents using Mortgage Electronic Registration Systems (MERS), which carried out the administration of the loan, but received none of the money and was not legally the owner of the loan. MERS operates a system where it stands in for lenders who provide the money and allows the trading of loan notes between different institutions.

At some point, via this process Millenia’s ownership of the note transferred (or may have transferred) to Sovereign Bank. Meanwhile Kesler went through bankruptcy proceedings and the first lienholder – Landmark – foreclosed on the property. The property was sold at auction, for more than the amount owed to Landmark and Kesler and Landmark filed a motion to settle the monies between them.

Subsequent to this, Sovereign and later MERS sought to block the foreclosure on the grounds that they (as second lienholders) had not received notification of the sale. As it transpires, Ford County never received a registration for the mortgage as belonging to anyone but Millenia.

The District Court denied this motion, and various appeals resulted. The Kansas Supreme Court rejected the appeal by MERS and Sovereign, finding that since MERS did not own the note its status in law as relates to the mortgage is tenuous. Therefore none of the criteria for setting aside the foreclosure could be met. In ruling this way the Court rejected the amicus brief filed by various financial organizations which endorsed the MERS system, saying that it must follow the law as written, notwithstanding the amicus brief’s complaint that the recording scheme stems from “seventeenth-century property law that is entirely unsuited to twentieth-century financial transactions”.

The Court also rejected a Due Process argument from MERS, finding that throughout the various proceedings it had had its arguments listened to in court and therefore had certainly received the process it was due in this case.

Decision: Landmark National Bank v. Kesler

August 28th. The Kansas Supreme Court has issued its opinion in Landmark National Bank

v. Kesler (No. 98,489), a complex foreclosure proceeding. In a unanimous opinion,

written by Justice Eric Rosen, the Court held that under the circumstances of this case

the second-mortgage holder could not undo the foreclosure that had been performed and

settled by the first-mortgage holder, owing to the complex legal relationship between

that second-mortgage holder, the property and an intermediary company.

Boyd Kesler took out two mortgages against some property in Ford County. The first was

with Landmark National Bank. The second with Millenia Mortgage Company. Millenia

generated its documents using Mortgage Electronic Registration Systems (MERS), which

carried out the administration of the loan, but received none of the money and was not

legally the owner of the loan. MERS operates a system where it stands in for lenders

who provide the money and allows the trading of loan notes between different

institutions.

At some point, via this process Millenia’s ownership of the note transferred (or may

have transferred) to Sovereign Bank. Meanwhile Kesler went through bankruptcy

proceedings and the first lienholder – Landmark – foreclosed on the property. The

property was sold at auction, for more than the amount owed to Landmark and Kesler and

Landmark filed a motion to settle the monies between them.

Subsequent to this, Sovereign and later MERS sought to block the foreclosure on the

grounds that they (as second lienholders) had not received notification of the sale. As

it transpires, Ford County never received a registration for the mortgage as belonging

to anyone but Millenia.

The District Court denied this motion, and various appeals resulted. The Kansas Supreme

Court rejected the appeal by MERS and Sovereign, finding that since MERS did not own

the note its status in law as relates to the mortgage is tenuous. Therefore none of the

criteria for setting aside the foreclosure could be met. In ruling this way the Court

rejected the amicus brief filed by various financial organizations which endorsed the

MERS system, saying that it must follow the law as written, notwithstanding the amicus

brief’s complaint that the recording scheme stems from “seventeenth-century property

law that is entirely unsuited to twentieth-century financial transactions”.

The Court also rejected a Due Process argument from MERS, finding that throughout the

various proceedings it had had its arguments listened to in court and therefore had

certainly received the process it was due in this case.

http://www.kscourts.org/Cases-and-Opinions/opinions/supct/2009/20090828/98489.htm

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Decision: Stroda v. Joice Holdings

May 24, 2009

May 15th. The Kansas Supreme Court has issued its opinion in Stroda v. Joice Holdings (No. 100,733) a property dispute. In a unanimous opinion, written by Justice Nuss, the Court held that an implied easement that existed on the property in the case was not limited to agricultural purposes by its prior use and could be used for residential access. The Court also held that an easement for residential access can generally be used for providing utilities to a residence. Note: This case was argued after Chief Justice McFarland’s retirement and before her successor took up office. Her place was taken by District Judge Daniel Love.

In the 1950s Lawrence and Etta Stroda bought a parcel of Douglas County land which was not connected to a road. At this time they used a residence on the land. They accessed it via an easement across a neighbouring tract. Subsequently, they bought that tract and the easement was extinguished. By the 1980s no-one lived on the land though the old residence remained. The land was divided back into two the parcels by Etta Stroda’s will and both parties used the land agriculturally, an implied easement to the landlocked portion again existing. In 2006 the landlocked portion was owned by Ed Stroda and the other portion by Joice Holdings LLC. Stroda sought to sell his plot for use as a single residence. Joice Holdings sued, arguing that the the easement was limited to agricultural uses, and that even if it could allow residential access it could not be expanded to utilities. The District Court issued summary judgement to Stroda holding that the implied easement did confer residential access. After a bench trial the Court held that under the circumstances (that utilities could be supplied underground within the existing size of the easement) the easement could also be used to supply the house with utilities.

The Kansas Supreme Court affirmed the District Court on both arguments. An implied easement is one which does not exist because of any written agreement between parties but which arises because of the circumstances of the property – e.g. a landlocked parcel will have some form of right of access across a neighboring property. The Court noted that unlike an easement which is expressly agreed between two parties and written down an implied easement is more flexible and generally based upon what would have been assumed to be itsĀ  purpose at the time of creation. Joice Holdings argued that this limited it to agricultural use but the Court held that in this case it was clear that residential use was contemplated. The Court noted that the ruins of the old house remained on the landlocked parcel and also looked at precedent from other states which emphasized that implied easements are not as prescriptive of usage.

In the second part of its ruling, the Kansas Supreme Court held that a right of residential access under an implied easement could also apply to utilities. In a ruling which will gladden the hearts of property developers (but which perhaps does not take note of technologies offering more self-sufficient sources heat and light), the Court found that providing utilities passed the necessity test needed to establish an easement.

“In our view, a lack of utilities to a new house in Kansas goes beyond mere inconvenience and begins to approach the unlivable. A house generally is not considered to be a residence without water, electricity, and similar utilities, e.g., the ability to be heated and cooled, lit in the dark, and equipped for communication with the outside world.”

The second part of the test is whether such access would be reasonable. Based on the findings of the District Court that the utilities could be provided with limited impact on Joice Holdings’ property, the Court held that the easement could be used to provide the utilities.

Decision: Estate of Draper v. Bank of America

April 17, 2009

April 17th. The Kansas Supreme Court has issued its opinion in Estate of Draper v. Bank of America (No. 96,060), a probate case. In a unanimous decision, written by Justice Luckert the Court ruled against First Christian Church of Olathe, two private individuals, Olathe Medical Center and the American Cancer Society retaining the proceeds from two trusts created by the late Ethel Draper. The property conveyed in these trusts more properly belonged in Draper’s estate for the benefit of her stepson’s due to a 1967 antenuptial agreement. Notes: While named in the litigation the American Cancer Society and Olathe Medical Center had settled with the Estate out of court. Bank of America’s naming in the lawsuit stems from its position as trustee of one of the trusts at issue. The other trust involved is overseen by UMB Bank.

In 1967 Clark Draper married Ethel Catlin. They signed an antenuptial agreement which stated that while each brought separate assets to the marriage and would retain control over those assets independently, if Clark predeceased Ethel his assets would pass to her, and she would leave at least one quarter of her estate to each of Clark’s sons by a previous marriage. Clark died in 1977. In 1977 and 1982 Ethel created two irrevocable trusts from which she benefited during her lifetime, but which upon her death would transfer the benefits to those listed above. Ethel Draper died in 2002, leaving her entire estate of $10,000 to the three sons of Clark Draper, while the two trusts contained combined assets totalling around $1 million. Clark’s son Gerald, acting as executor of Ethel’s estate sued the two trusts, arguing that their creation was a breach of Ethel’s fiduciary obligation under the 1967 antenuptial agreement.

The Johnson County District Court issued a Summary Judgement in favor of the Estate. This was reversed by the Court of Appeals. In this decision the Kansas Supreme Court reverses the Court of Appeals, reinstating the District Court’s Summary Judgement.

The essence of the decision comes down to the determination that Ethel held the property under a Constructive Trust while she was alive, that was created by the 1967 antenuptial agreement. The transfer of the property into the two irrevocable trusts was therefore a constructive fraud (essentially a legal fiction, unbeknownst to the beneficiaries). To reach this conclusion the Court finds that Ethel had a Confidential Relationship with her husband (something which does not arise automatically just from marriage) because of the agreement – under Kansas law a Confidential Relationship arises when two spouses agree to write their wills in a manner co-ordinated between the two of them. The second part of the constructive fraud finding is that Ethel had a duty under the 1967 agreement, since she owed Clark a duty to carry out her part of the bargain in good faith, which she breached by divesting her estate of most of her assets through the two trusts.

The Court also cleared a path through a number of statutory rules regarding timing. It found for example that the statute which bars out of time claims against an Estate did not apply in this instance because the lawsuit was initiated as part of the process of marshaling the assets of the Estate (in spite of the fact that the Executor doing the marshaling was also a beneficiary), where that particular rule did not apply. A claim that the suit was barred under the statute of limitations regarding fraud (on the argument that the fraud took place in 1982) was rejected on the grounds that the terms of the antenuptial agreement were not actually breached until Ethel’s death in 2002.

Decision: Central Natural Resources v. Davis Operating Co.

February 9, 2009

February 6th. The Kansas Supreme Court has issued its opinion in Central Natural Resources Inc v. Davis Operating Company (No. 96,463) a property law dispute involving mineral rights to coalbed methane gas (CBM). In a unanimous opinion, written by Justice Johnson, the Court affirmed the District Court’s granting of summary judgement rejecting Central Natural Resources contention that its rights to the coal in certain tracts of land in Labette County also gave it ownership of the methane gas contained there. Note: This was an interlocutory appeal. The remainder of the case involving a variety of disputes continues in the District Court which had ruled that an interlocutory appeal would aid the rest of the case. This was because its outcome profoundly affects the remainder of the case and because this was a question of law over which there was a strong difference of opinion.

Davis Operating Company and its co-defendants obtained leases to extract gas from 16 separate pieces of land. After these had been developed and were producing gas, Central Natural Resources filed a suit claiming that the (unused) leases it held covering the coal rights (granted to prior companies Central was successor) gave it ownership of the gas. It therefore sought damages for trespass and conversion for the drilling and production activities. The leases Central holds date back to the 1920s. The District Court rejected Central’s arguments and held that the gas was a separate mineral to the coal and therefore the coal leases did not encompass the gas. Central’s deeds gave it the rights to extract the coal and made no mention of any other mineral.

This ruling is affirmed by the Kansas Supreme Court. In its opinion the Court considers several arguments made by Central and rejects them all. Firstly, Central had suggested that as a matter of law the CBM gas is part and parcel of the coalbed in which it is to be found if the coal rights are the first mineral rights granted and there is no specific reservation of the rights to the gas. The Court dismissed this argument on the grounds that it did not fit with normal mineral rights and other property law. When an estate is subdivided it becomes multiple distinct estates, the boundaries of which are governed by the title deed. The Court refused to create a rule here that held that anything contained in the coalbed was conveyed by a deed to ‘the coal’.

Central also argued that the Court should alter its normal approach to interpreting the meaning of deeds (which involves discerning the intent of the parties entering the deed, in the context of the deed they wrote) to one based on an ‘intelligent person’ standard, where an external analysis of the logical meaning of the deed would be applied. Central’s aim here was to then establish that since CBM is mainly held within the pores of the coal through adsorption to the rock surface, transfer of the coalbed must mean transfer of the CBM. The Court declined to change its approach to deed interpretation, and Central’s argument here therefore failed.

Central next argued that a statute required that the deeds to the coal have transferred all rights to the gas. The Court rejected this argument, too – the statute in question clarifies that in real estate transfers all interest in the land passes to the grantee unless otherwise stated in the deed. Central believed that this meant that absent a reservation the deed to the ‘coal’ axiomatically meant ‘everything within the coalbed’. However, the Court pointed out that the statute did not apply here. In these cases the transfer of the property had been subdivided since the original owners had retained all rights except to the coal.

Having dispensed with Central’s alternative approaches the Court followed its normal approach and examined the intent of those who had made the deeds. In doing so Central’s arguments about the origin and nature of CBM did not help it. At the time the deeds were written, CBM was seen as a hazardous gas responsible for mining accidents and little else. To those writing the deeds it held no economic value, but at the same time was not considered a part of the coal. The deeds gave Central’s predecessors rights to the coal and the coal alone (though all parties understood that if the coal were removed the gas would go too). They did not by extension grant rights to extract the gas while leaving the coal in place, which is what the defendants are doing and obtained separate rights to do.

Central’s case against the defendants for alleged damage to the unworked coalbed by the gas extraction drilling continues.