JONES (JEFF), ET AL. VS. PBK BANK
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RENDERED: JULY 11, 2008; 10:00 A.M.
NOT TO BE PUBLISHED
Commonwealth of Kentucky
Court of Appeals
NO. 2006-CA-002449-MR
JEFF JONES AND ANN JONES
v.
APPELLANTS
APPEAL FROM LINCOLN CIRCUIT COURT
HONORABLE JEFFERY T. BURDETTE, JUDGE
ACTION NO. 01-CI-00437
PBK BANK
APPELLEE
OPINION
AFFIRMING
** ** ** ** **
BEFORE: ACREE, DIXON AND TAYLOR, JUDGES.
DIXON, JUDGE: Appellants, Jeff Jones and Ann Jones, appeal from an order of
the Lincoln Circuit Court granting summary judgment in favor of Appellee, PBK
Bank, and dismissing Appellants’ counterclaim seeking statutory damages under
KRS 382.365 for PBK’s failure to release two separate real estate mortgages.
Finding no error, we affirm.
On December 27, 1999, the Joneses signed a promissory note in favor
of PBK in the amount of $32,352.55, and executed a second mortgage1 securing
the note with real estate (Jones II). The 1999 note was a refinancing of a note and
second real estate mortgage dated September 12, 1998 (Jones I). Both the 1998
and 1999 loans were negotiated by PBK loan officer, Jeff Singleton. In addition to
the real estate mortgage, the Joneses had executed a loan with PBK on September
21, 1998, in the principal amount of $37,020.50, which was secured by liens on a
1996 Dodge truck and a 1981 Case tractor.
In September 2000, the Joneses decided to refinance the first and
second mortgages on the real estate. On September 25, 2000, the Joneses executed
a note and real estate mortgage for $194,000 with Bank One. It was the Joneses’
intent that the Bank One loan would pay off the first real estate mortgage held by
Farmers National Bank and the second real estate mortgage held by PBK.
Collateral One Mortgage, Inc, a title company in Lexington, Kentucky, supervised
the details of the refinance.
Prior to the closing, Collateral One faxed a request to PBK requesting
a payoff amount for loan #67204186370, which was actually the 1998 note and
mortgage (Jones I). In response to Collateral One’s request, PBK faxed a notice
stating that loan had been “paid out.” 2 It is unclear from the record whether PBK
also informed Collateral One that the debt had actually been refinanced in 1999
1
Farmers National Bank in Danville, Kentucky, held the first mortgage on the real estate.
2
Apparently, although the 1998 note had been refinanced in 1999 (Jones II), the mortgage
evidencing the 1998 loan had never been released.
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(Jones II) rather than paid off. Collateral One thereafter faxed a request for a
payoff amount on loan #67204186820, which was not the 1999 note (Jones II), but
was rather the chattel loan secured by the truck and tractor.
At the Bank One loan closing, $97,388.40 was disbursed to Farmers
National Bank and applied to its first mortgage on the real estate, which was then
released. An amount of $26,496.50 was disbursed to PBK Bank, which it applied
to the truck/tractor loan rather than the second mortgage on the real estate. Thus,
PBK did not release the 1999 second mortgage (Jones II). Interestingly, the check
issued to PBK Bank designated its purpose as “mortgage payoff,” and the stub of
the check contained the notations “REAL ESTATE CLOSING,” and “For:
mortgage payoff.”
Subsequent to the closing, Jeff made three payments to PBK: (1) a
check dated December 16, 2000, in the amount of $2,032.56; (2) a check dated
May 1, 2001, in the amount of $1,038.08, which included the notation “2nd
mortgage on farm;” and (3) a check dated May 11, 2001, in the amount of $2,700,
which also included the notation “2nd mortgage.” Evidently, the May 11, 2001,
check was the last payment received by PBK and applied to the 1999 loan and
mortgage (Jones II).
On November 29, 2001, PBK wrote the Joneses a letter questioning
their failure to pay the second real estate mortgage. Jeff responded, stating that the
second mortgage had been paid off with the monies from Bank One. Thereafter,
on December 27, 2001, PBK filed a complaint in the Lincoln Circuit Court to
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collect on the debt and to foreclose on the real estate. PBK alleged that it had a
first and prior lien on the real estate and that the Joneses had defaulted on the 1999
note (Jones II).
On January 22, 2002, the Joneses filed an answer claiming that PBK’s
loan had been voluntarily paid off with proceeds from the Bank One loan at the
time of their refinancing in 2000, but that PBK had chosen to apply the proceeds to
another loan it had with the Joneses that was not secured by a mortgage on the real
estate. The Joneses also counterclaimed that PBK had refused to release its 1999
mortgage in violation of KRS 382.365, and that PBK had misappropriated,
concealed, misapplied and converted the proceeds paid to it by Bank One causing
damages in the amount of the payoff made to PBK bank with interest. The Joneses
further demanded punitive damages.
On March 12, 2003, the trial court granted summary judgment in
favor of PBK, ruling that PBK had a first and superior mortgage lien on the real
estate. The trial court found that : (1) there was no misconduct by PBK and no
misapplication of the payoff proceeds from Bank One; (2) PBK had followed the
request for payoff made by the Joneses as a direct result of their meeting with
Collateral One, and therefore did not violate any duty to the Joneses; (3) it was the
Joneses’ duty to ensure that Collateral One had the proper loan account
information to pay off the mortgage and that it was the obligation of Collateral One
and Bank One to verify the account number of the loan that was being paid off;
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and (4) the existing loan to PBK was not paid off as evidenced by the Joneses’ own
checks to PBK after the date of the Bank One mortgage.
The Joneses thereafter appealed to this Court. On November 24,
2004, a panel of this Court rendered an unpublished opinion vacating summary
judgment and remanding the matter to the trial court. Jones, et al. v. PBK Bank,
2003-CA-001512-MR (November 24, 2004). The opinion questioned the trial
court’s imposition of a duty upon the Joneses to ensure that Collateral One had the
correct loan account numbers, noting that there was no legal authority for such.
Further, the Court determined that Jeff’s testimony regarding his relationship with
PBK and loan officer Singleton presented a factual question as to PBK’s
involvement and knowledge of the Joneses’ refinancing attempts, and whether
PBK had correctly applied the loan proceeds. Accordingly, the Court held:
[G]enuine issues of material fact should have precluded
the trial court from determining that it was impossible for
the Joneses to prevail at trial. Further, even if the
evidence in the record shifted the burden of proof to the
Joneses, Jones’s testimony regarding his discussions with
Singleton, which PBK Bank could not explain and did
not deny, met the threshold to defeat summary judgment.
By the time the matter was returned to the trial court, the Joneses had
divorced and Ann had retained separate counsel. Ann thereafter filed an amended
counterclaim that incorporated the original counterclaim and raised two additional
claims against PBK. Of relevance to this case, Ann claimed that PBK had violated
KRS 382.365 by failing to release the 1998 mortgage (Jones I). After depositions
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were taken, PBK filed a motion for summary judgment on the two claims
involving the alleged violations of KRS 382.365.
On June 30, 2006, the trial court granted summary in favor of PBK,
finding that the statutory requirements of KRS 382.365 had not been satisfied.
Following the denial of a CR 59.05 motion to alter, amend or vacate the order of
summary judgment, Jeff and Ann appealed to this Court.
On appeal, the Joneses argue that the trial court failed to properly
apply the standard for summary judgment. Essentially, it is their position that our
first opinion in this case established that summary judgment is not proper, and
thus, PBK should not be entitled to “two bites at the apple.” The Joneses contend
that the arguments presented by PBK did not flow from any new evidence
developed after this case was remanded to the trial court. Accordingly, since this
Court ruled that genuine issues of material fact prohibited summary judgment, the
Joneses assert that the trial court erred in granting summary judgment again on
remand. We disagree.
As noted in the June 30, 2006, order granting summary judgment, the
applicability of KRS 382.365 was not addressed by the trial court in the first
summary judgment, nor was it reviewed by this Court in our November 2004
opinion. The trial court, in granting summary judgment on this limited issue, did
not dismiss the Joneses’ other claims. In fact, the trial court granted the Joneses’
request, over the objection of PBK, to continue the trial pending the outcome of
this appeal, and those issues still remain to be determined.
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The Joneses next argue that the trial court erred in ruling that PBK
was not liable for damages under KRS 382.365 for its failure to timely release the
1998 and the 1999 mortgages. Again, we must disagree.
KRS 382.365 was amended in 2006. However, the version that is
applicable to this case provides, in pertinent part:
(1) A holder of a lien on real property, including a lien
provided for in KRS 376.010, shall release the lien in the
county clerk's office where the lien is recorded within
thirty (30) days from the date of satisfaction.
(2) A proceeding may be filed by any owner of real
property or any party acquiring an interest in the real
property in District Court or Circuit Court against a
lienholder that violates subsection (1) of this section. A
proceeding filed under this section shall be given
precedence over other matters pending before the court.
(3) Upon proof to the court of the lien being satisfied, the
court shall enter a judgment releasing the lien. The
judgment shall be with costs including a reasonable
attorney's fee. If the court finds that the lienholder
received written notice of its failure to release and lacked
good cause for not releasing the lien, the lienholder shall
be liable to the owner of the real property in the amount
of one hundred dollars ($100) per day for each day,
beginning on the fifteenth day after receipt of the written
notice, of the violation for which good cause did not
exist.
(4) A lienholder that continues to fail to release a
satisfied real estate lien, without good cause, within
forty-five (45) days from the date of written notice shall
be liable to the owner of the real property for an
additional four hundred dollars ($400) per day for each
day for which good cause did not exist after the fortyfifth day from the date of written notice, for a total of five
hundred dollars ($500) per day for each day for which
good cause did not exist after the forty-fifth day from the
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date of written notice. The lienholder shall also be liable
for any actual expense including a reasonable attorney's
fee incurred by the owner in securing the release of real
property by such violation.
...
(6) For the purposes of this section, "date of satisfaction"
means that date of receipt by a holder of a lien on real
property of a sum of money in the form of a certified
check, cashier's check, wired transferred funds, or other
form of payment satisfactory to the lienholder that is
sufficient to pay the principal, interest, and other costs
owing on the obligation that is secured by the lien on the
property.
The statute basically requires three things: (1) that the debt be satisfied; (2) that the
lienholder be provided with written notice of its failure to release the mortgage;
and (3) that the lienholder lack good cause for failing to release the mortgage once
notice is given. KRS 382.365. Thus, even when a mortgage lien is not released
within 30 days from satisfaction of the debt, KRS 382.365 does not authorize the
imposition of penalties until and unless written demand for release has been made
to the lienholder and the lienholder thereafter fails to release the mortgage within
15 days. See Union Planters Bank, N.A. v. Hutson, 210 S.W.3d 163, 166 (Ky.
App. 2006) (“KRS 382.365 expressly requires that the notice must be received
before a penalty may be imposed. It is an element of the cause of action and is the
date from which the penalties are imposed . . . .”)
Regarding the 1998 mortgage (Jones I), the Joneses are correct that
the debt was satisfied when it was refinanced by the 1999 note and mortgage
(Jones II). Further, they argue that Collateral One’s September 18, 2000, payoff
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request faxed to PBK on the account that was represented by the 1998 note put
PBK on notice of its failure to release that mortgage or, at a minimum, create a
duty on PBK’s part to investigate the situation.
However, it is undisputed that Collateral One’s payoff request did not
contain any language specifically notifying PBK that it had failed to release a
satisfied lien. In her deposition, Ann conceded that she was unaware of any
documentation showing written notice to PBK of its failure to release the 1998
mortgage. Further, she acknowledges that the mortgage was, in fact, released prior
to her bringing her amended counterclaim.
Indeed, we agree with the reasoning espoused by the trial court:
This Court disagrees with Defendant Ann Jones
regarding the “sufficiency” of notice provided by any
documentation or circumstances surrounding this
litigation. Ann Jones may not rely on a payoff request
from one bank to another as notice, and then wait five (5)
years until its release, then file a claim to collect
thousands of dollars under this statute. At the very least,
a follow-up letter with clear language referencing a
request to release the specific mortgage lien would be
required to start the clock ticking. In any regard, the lien
was ultimately released prior to her claim being filed, and
no action lies.
Clearly, the Joneses failed to demonstrate that the statutory
requirements of KRS 382.365 were satisfied with regard to the 1998 mortgage.
Thus, we are of the opinion that the trial court correctly ruled that there was no
genuine issue as to any material fact and summary judgment was proper as a
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matter of law. Steelvest, Inc. v. Scansteel Service Center, Inc., 807 S.W.2d 476
(Ky. 1991).
With respect to the 1999 mortgage, the Joneses argue that Jeff’s
December 14, 2001, letter responding to PBK’s nonpayment inquiry was sufficient
notice under the statute. We simply cannot agree. Certainly, Jeff’s letter signaled
his confusion as to the status of the 1999 loan. However, given the fact that the
second mortgage clearly had not been satisfied, and further that Jeff had made
additional payments towards that loan, his letter cannot be interpreted as the notice
contemplated by KRS 382.365.
We again agree with the trial court’s conclusions with respect to the
1999 mortgage:
KRS 382.365 requires the debt at issue to be satisfied. In
point of fact, it is undisputed that another debt was
satisfied. There is no claim that PBK simply held the
monies, or applied the monies to a third party’s debt.
The monies paid off a debt owed by the Joneses. Still,
the debt at issue has never been satisfied, so as it follows,
the “satisfaction” requirement has not been met. There is
no genuine issue as to material fact and summary
judgment is proper.
Further, even if the debt had been satisfied, and it has not
been, the written notice requirement would require more
than a letter referencing in general, confusion relevant to
payments. The statute requires the lien holder to receive
“written notice” of its failure to release, and the
generalized letter emphasizing confusion in response to
PBK’s letter, after payments were made by the Joneses
subsequent to the alleged satisfaction of the debt makes
that letter insufficient. And, PBK has shown, for the
purposes of this particular statute, that good cause existed
for not releasing . . . .
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Accordingly, we conclude that the trial court properly found that no
genuine issue of material fact existed and the Joneses could not prevail on their
claims under KRS 382.365. As such summary judgment in favor of PBK on these
limited claims was proper as a matter of law. As previously noted, the summary
judgment at issue herein is in no manner dispositive of whether PBK has priority
status in its 1999 mortgage, or whether PBK misapplied monies and was negligent
in their application thereof. Clearly, genuine issues of material fact exist as to
these remaining claims, as pointed out by this Court in our prior opinion. Jones, et
al. v. PBK Bank, 2003-CA-001512-MR (November 24, 2004).
The order of the Lincoln Circuit Court granting summary judgment in
favor of PBK on Jeff and Ann Jones claims under KRS 382.365 is affirmed.
ALL CONCUR.
BRIEF FOR APPELLANT:
BRIEF FOR APPELLEE:
Richard Clay
Danville, Kentucky
Robert R. Baker
Stanford, Kentucky
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