Released for Publication January 8, 2015.
ON REVIEW FROM COURT OF APPEALS. CASE NO. 2012-CA-000439-MR. NELSON CIRCUIT COURT NO. 11-CI-00694.
FOR APPELLANT: Virginia Hamilton Snell, Clifford Hobson Ashburner, Sara Christine Veeneman, WYATT, TARRANT & COMBS, LLP.
FOR APPELLEE: Mark Edward Edison.
FOR AMICUS CURIAE: Debra Kaye Stamper.
In 1994, C. Barr Schuler and JoAnn Brown Schuler, (collectively referred to as the " Schulers" ) subdivided their property located in Nelson County, Kentucky, thereby creating the Woodlawn Springs Subdivision (the " Subdivision" ). The Schulers planned To develop the Subdivision in a series of phases over several years. Each phase of development is subject to a Declaration of Covenants, Conditions and Restrictions (the " Declarations" ), which impose various limitations on lots and specific obligations on lot owners. The Schulers also incorporated the Woodlawn Springs Homeowners Association, Inc., (the " Association" ), a non-profit Kentucky corporation. A general function of the Association and similar organizations is to maintain and enforce various uses and restrictions imposed on subdivided properties and owners.
To finance the construction of roads, utility lines, and other Subdivision infrastructure, the Schulers borrowed in excess of $1 million dollars from Your Community Bank, Inc., (the " Bank" ). The Schulers executed promissory notes to the Bank that were secured by mortgages on Subdivision properties owned by the Schulers. The value of the real estate conveyed as collateral was approximately $650,000.00.
Mr. Schuler died testate on January 11, 2010. Through survivorship and his will, Mr. Schuler's entire interest in the Subdivision passed to Mrs. Schuler, who died testate two months later. Through her will, Mrs. Schuler appointed First Bankers Trust Company (" First Trust" ) as the executor of her estate and expressly authorized First Trust to convey and sell any and all of her property and assets to compromise, settle or adjust any claim or demand against her estate. At the time of the Schulers' deaths, they were still indebted to the Bank and the Subdivision was incomplete.
In December of 2010, First Trust executed a deed in lieu of foreclosure that conveyed approximately 50 Subdivision lots to the Bank. First Trust also executed a written Assignment and Assumption of Developer Rights (the " Assignment" ) in favor of the Bank. The Assignment granted the Bank " all of the rights, titles, and interests of [Mrs. Schuler's estate] as the 'Developer' under [the Declarations]." One of the Developer's rights under the Declarations is an exemption from paying annual Association fees.
In 2011, the Association demanded that the Bank pay $15,000 in Association fees on the Subdivision lots it acquired from First Trust as executor of Mrs. Schuler's estate. The Bank refused and asserted that it was exempt. After the Bank failed to pay the fees, the Association acquired a lien on the Subdivision properties owned by the Bank. In response, the Bank filed a declaration of rights action in the Nelson County Circuit Court, which later granted summary judgment in favor of the Bank, concluding that the Bank had succeeded to all the Developer's rights under the Declarations. Accordingly, the court held that the Bank was exempt from paying the Association fees. A ...