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Mortgage Electronic Registration Systems, Inc. v. MainSource Bank

Court of Appeals of Kentucky

February 21, 2014

MORTGAGE ELECTRONIC REGISTRATION SYSTEMS, INC.; AND ITS ASSIGNEE, BANK OF AMERICA, N.A., APPELLANTS
v.
MAINSOURCE BANK; KEVIN F. SPALDING; CARMEN G. SPALDING A/K/A CARMEN GRIFFITH; AND BELGARY AUTO SALES, INC., APPELLEES

APPEAL FROM JEFFERSON CIRCUIT COURT. HONORABLE SUSAN SCHULTZ GIBSON, JUDGE. ACTION NO. 11-CI-401368.

BRIEFS FOR APPELLANT: John R. Wirthlin, Thomas H. Stewart, Michael B. Hurley, Cincinnati, Ohio.

BRIEF FOR APPELLEE: Anthony G. Raluy, Louisville, Kentucky.

BEFORE: LAMBERT, MOORE, AND VANMETER, JUDGES.

OPINION

Page 893

VANMETER, JUDGE

Mortgage Electronic Registration Systems (" MERS" ) and its assignee Bank of America, N.A. appeal from the Jefferson Circuit Court's order denying their CR 59.05[1] motion to vacate the order confirming the Master Commissioner's sale and ordering deed. For the following reasons, we reverse and remand.

On March 14, 2006, Carmen Griffith (now Spalding) took out a loan to purchase her home and, in exchange, executed a mortgage in favor of MERS as assignee of American Mortgage Service Company (" AMS" ), its successors and assigns. The mortgage to MERS was recorded on March 21, 2006 (the " 2006 mortgage" ). Bank of America is the current assignee of that note and the 2006 mortgage.

On November 24, 2010, Carmen and her husband, Kevin Spalding, executed another mortgage on the residential property in favor of MainSource. This mortgage was recorded on January 6, 2011, and served as security for a consolidated business loan to the Spaldings' company, C& K Oil Company, LLC (the " 2011 mortgage" ). Less than three months later, MainSource declared its note with the Spaldings to be in default, and filed an action in Jefferson Circuit Court for a money judgment and to foreclose the 2011 mortgage.

In MainSource's First Amended Complaint, MainSource acknowledged the existence of three potential liens on the property, including the 2006 mortgage to MERS. MainSource named MERS as a defendant in the Amended Complaint, and called for MERS to enter its claims to the property or be forever barred. MERS did not file an answer or appearance, leading MainSource to file a motion for default judgment. A copy of this motion was sent to the registered agent of MERS, but still no answer was filed. A few months later, AMS assigned the MERS mortgage to Bank of America. No party notified MainSource of this assignment. On September 28, 2011, MainSource renewed its motion for default judgment following a temporary stay due to Carmen Spalding's petition for bankruptcy. A copy of this motion was tendered to MERS's counsel, and again, MERS failed to answer or notify MainSource of the 2006 mortgage's assignment to Bank of America.

On January 13, 2012, the court entered a default judgment in favor of MainSource. The judgment provided that the subject property was to be sold by the Master Commissioner " free and clear of all liens and encumbrances of the parties," and identified MainSource as first priority mortgage lienholder. The Master Commissioner set a sale date of March 6, 2012, for the property. Bank of America filed its first motion, a motion for the sale to be subject to its mortgage, on February 23, 2012, which the court denied, noting " Default Judgment entered after proper service."

The property sold on March 6, 2012, with MainSource as the highest bidder. Bank of America then filed a second motion

Page 894

following the judicial sale, asking the court to find the sale invalid. This second motion was referred to the Master Commissioner. The Master Commissioner entered an Amended Report of Sale[2] on March 13, 2012, but did not address Bank of America's second motion. Upon MainSource's March 27, 2012 motion to ...


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