AUDREY L. JOHNSON, SR. v. HOMEQ SERVICING CORPORATION
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RENDERED:
NOVEMBER 4, 2005; 2:00 P.M.
NOT TO BE PUBLISHED
Commonwealth Of Kentucky
Court of Appeals
NO. 2004-CA-001226-MR
APPELLANT
AUDREY L. JOHNSON, SR.
v.
APPEAL FROM JEFFERSON CIRCUIT COURT
HONORABLE STEPHEN P. RYAN, JUDGE
ACTION NO. 02-CI-009426
HOMEQ SERVICING CORPORATION
APPELLEE
OPINION
REVERSING
** ** ** ** **
BEFORE: GUIDUGLI AND MINTON, JUDGES; EMBERTON, SENIOR JUDGE. 1
EMBERTON, SENIOR JUDGE:
This is an appeal from a summary
judgment finding appellant to be in default of his obligations
under a mortgage agreement with appellee HomEq for failure to
maintain hazard insurance on the mortgaged property for the
period from January 1, 2001 to May 15, 2001, and for failure to
1
Senior Judge Thomas D. Emberton sitting as Special Judge by assignment of
the Chief Justice pursuant to Section 110(5)(b) of the Kentucky Constitution
and KRS 21.580.
provide proof of insurance despite multiple requests for him to
do so.
Because we are convinced that the uncontradicted facts
of this case do not support the decision of the trial judge, we
reverse the grant of summary judgment.
In 1999, appellant Aubrey Johnson and Denise E.
Johnson executed a $32,000 note to appellee HomEq Servicing
Corporation, secured by a mortgage on their realty located at
3731 Chase Court in Louisville.
One of the terms of that
mortgage was a requirement that the property be properly insured
against hazards.
On June 26, 2002, HomEq sent appellant a
letter containing the following statements pertinent to this
appeal:
A review of our servicing records indicates
that at the time you obtained your loan with
HomEq in December 1999, you provide[d] proof
of hazard insurance coverage with
First Mutual Insurance Company. The
Declaration page of your policy states the
coverage was for the period of October 23,
1999 to October 23, 2000. On October 31,
2000 you were notified by The Money Store
(now known as HomEq) that we had not
received notification that you had renewed
your policy with First Mutual Insurance
Company. We advised you at that time that
you must provide proof of hazard insurance
to us in order to avoid lender placed
insurance. On November 27, 2000 we sent you
a second notice about your hazard insurance
policy. Since we did not receive any proof
of hazard insurance from you, on January 16,
2001 we sent you a third letter advising you
that we purchased hazard insurance on your
behalf. On January 15, 2001 a check was
disbursed from your escrow account for
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$671.38, as payment for the period from
October 23, 2000 to October 23, 2001.
On August 1, 2001, you provided proof of
hazard insurance to HomEq for the period May
14, 2001 to May 14, 2002. As such, the
policy purchased by HomEq was canceled
effective May 14, 2001, however, due to the
lapse in coverage from October 31, 2001
through May 14, 2002, there was an earned
premium in the amount of $373.10. As a
consequence, the refund to your escrow
account was $298.28.
Subsequently, on December 12, 2002, appellee brought this
foreclosure action against appellant and Denise Johnson for
breaching the terms of the note and mortgage.
Although the master commissioner to which the matter
was referred recommended denial of appellee’s summary judgment
motion, the trial judge sustained appellee’s exceptions to the
report and granted its motion on the basis of a finding that
appellant “was in default of the contract documents because of
the failure to have the mortgaged property insured from January
1, 2001 to May 15, 2001, and for his failure to provide proof of
insurance to HomEq after multiple requests to do so.”
The trial
judge’s order granting appellee’s subsequent motion for final
judgment and order of sale precipitated this appeal.
The provisions of the mortgage agreement between the
parties provide in parts pertinent to this appeal the following:
5.
Insurance. Borrower shall keep the
improvements now existing or hereafter
erected on the Property insured against
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loss by fire, hazards included within
the term “extended coverage,” flood and
any other hazards as Lender may
require, from time to time, and in such
amount and for such periods as Lender
may require.
The insurance carrier providing the
insurance shall be chosen by Borrower
subject to approval by Lender; provided
that such approval shall not be
unreasonably withheld. If the Borrower
fails to maintain the coverage described
above, Lender may, at its option, obtain
coverage to protect its rights on the
Property in accordance with Paragraph 8.
8.
12.
2
Protection of Lender’s Rights in the
Property. If Borrower fails to perform
the covenants and agreements contained
in this Security Instrument, ..., then
Lender may do and pay for whatever is
necessary to protect the value of the
Property and Lender’s rights in the
Property....
Any amounts disbursed by Lender under
this Paragraph 8 shall become additional
debt of Borrower secured by this
Security Instrument. Unless Borrower
and Lender agree to other terms of
payment, these amounts shall bear
interest from the date of disbursement
at the Note rate and shall be payable,
with interest, upon demand of Lender.
Borrower Not Released; Forbearance by
Lender Not a Waiver; Acceptance of
Partial Payment. . . . Any forbearance
by Lender on one or more occasions in
exercising any right or remedy
hereunder, or otherwise afforded by
applicable law, shall not be a waiver
of or preclude that later exercise of
that or any other right or remedy. 2
Emphasis added.
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Clearly, under these provisions, appellee was entitled to
“force-place” an insurance policy on the mortgaged property and
to charge the costs of obtaining that policy to appellant’s
escrow account.
It is undisputed that such a policy was put in
place for the period from October 23, 2000, to October 23, 2001,
but that the policy was cancelled effective May 14, 2001, and
the unused, unearned premium for the remainder of the term was
credited to appellant’s escrow account.
Thus, by appellee’s own
admission, the property was not uninsured for the four-month
period found by the trial court, but was covered by insurance
purchased by appellee and charged to appellant as provided for
in the security instrument.
Appellee cites Price v. First Federal Savings Bank 3 as
support for its contention that exercise of this option under
the security agreement in no way precluded its exercise of its
option to declare appellant to be in default of his obligations
under the security instrument.
We disagree.
The holding in
Price, construing a nonwaiver clause almost identical to the one
in this case, is that a mortgagee’s acceptance of late payments
does not constitute a waiver of any subsequent defaults.
Thus
the force-purchase of hazard insurance does not operate as a
waiver of any subsequent failure to comply with the insurance
3
822 S.W.2d 422 (Ky.App. 1992).
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(or any other) provision of the security instrument.
However,
the non-waiver provision cannot be construed allowing appellee
to purchase insurance with appellant’s funds and at the same
time declare the property to be uninsured.
This rationale
applies with equal force to appellant’s failure to provide proof
of insurance.
Appellee has not waived the right to declare
appellant in default with respect to any failure to comply with
the proof of insurance provision subsequent to the termination
of the force-placed policy.
Accordingly, the judgment of the Jefferson Circuit
Court is reversed.
ALL CONCUR.
BRIEF FOR APPELLANT:
BRIEF FOR APPELLEE:
Aubrey L. Johnson, Sr., Pro Se
Louisville, Kentucky
Jeffrey W. Kibbey
Trent Apple
Louisville, Kentucky
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