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United States v. Harris

United States District Court, E.D. Kentucky, Central Division

November 29, 2018

UNITED STATES OF AMERICA, Plaintiff,
v.
STEPHANIE HARRIS, et al., Defendants.

          MEMORANDUM OPINION AND ORDER

          JOSEPH M. HOOD SENIOR U.S. DISTRICT JUDGE

         This matter having come before the Court upon the Plaintiff's Amended Motion for Judgment and Order of Sale [DE 33] against the interests of the Defendants, Stephanie Harris (a/k/a Stephanie Andre, a/k/a Stephanie Harris Andre), Paul Davis Systems of Lexington, Inc. (d/b/a Paul Davis Restoration of Lexington), Central Kentucky Management Services, Inc., Chase Manhattan Mortgage Corporation, Unknown Spouse, if any, of Stephanie Harris, and LVNV Funding, LLC, in and to the real property which is subject to this action. Ultimately, the mortgage granted to the United States against the subject real estate has priority over other liens and Harris's account is severely delinquent. Thus, Plaintiff's Motion [DE 33] is GRANTED; Defendant's Motion to Dismiss Judgment and Sale of House [DE 31] is DENIED; and Plaintiff's first Motion for Judgment and Order of Sale [DE 28] is DENIED AS MOOT.

         I. Factual and Procedural History

         On March 12, 2004, Defendant Stephanie Harris executed and delivered a promissory note to the United States of America, on behalf of the Department of Agriculture (“USDA”), Rural Housing Service (“RHS”) or Rural Development (“RD”). [DE 1-2]. Contemporaneously, Harris executed and delivered a real estate mortgage, recorded on March 24, 2004, against the real property that is the subject of this action, which is located in Jessamine County, Kentucky. [DE 1-3]. The note contained a default provision, stating in part that:

If I do not pay the full amount of each monthly payment on the date it is due, I will be in default. If I am in default, the Government may send me a written notice telling me that if I do not pay the overdue amount by a certain date, the government may require me to immediately pay the full amount of unpaid principal, all the interest that I owe, and any late charges. . . . Even if, at a time when I am in default, the Government does not require me to pay immediately as describe[d] in the preceding sentence, the Government will still have the right to do so if I am in default at a later date.

[DE 1-2 at 2, Page ID # 13]. Additionally, paragraph 22 of the mortgage document states that RHS may accelerate the debt and foreclose on the property to satisfy the remaining debt obligation. [DE 1-3 at 5, Page ID # 19].

         The Complaint was filed in this action on January 1, 2018, alleging that Harris had failed to make required loan payments and was in default. [DE 1]. On May 24, 2018, Defendant Paul Davis Systems answered. [DE 15]. Then, on May 30, 2018, Defendant Stephanie Harris, proceeding pro se, answered and made general counterclaims against the United States, alleging breach of contract, fraud, harassment, and “stress relief.” [DE 18]. Finally, on June 14, 2018, Defendant Central Kentucky Management Services answered and asserted a counterclaim and cross claim, requesting that the Court “determine the priority of the liens and interests in the subject property, order a judicial sale of the property as a whole, and distribute the sale proceeds to the parties herein in order of the priority of their respective interests.” [DE 20].

         A court-appointed warning order attorney was appointed in an attempt to notify Defendant Unknown Spouse, if any, of Stephanie Harris about the pending foreclosure action. [DE 14]. The warning order attorney's reports indicate that she was unable to locate or notify the Unknown Spouse, if any, of Stephanie Harris of this litigation and the Court accepted the report. [DE 23; DE 24; DE 26].

         Subsequently, the United States moved for the entry of default against Defendants Chase Manhattan Mortgage Corporation, Unknown Spouse, if any, of Stephanie Harris, and LVNV Funding, LLC. [DE 25]. The Clerk entered default on May 8, 2018, as the three previously listed defendants were served and failed to answer or appear. [DE 27].

         Then, the United States moved for judgment and order of sale on May 24, 2018. [DE 28]. On August 29, 2018, Defendant Stephanie Harris moved for an extension of time to retain counsel [DE 29], which was granted. [DE 30]. On October 5, 2018, Harris filed a pro se motion styled as a “Motion to Dismiss Judgment and Sale of House.” [DE 31]. On November 5, 2018, the United States filed an amended motion for judgment and order of sale. [DE 33]. Harris has not responded to the amended motion. No. other Defendants have responded to the initial motion for judgment and order of sale or the amended motion for judgment and order of sale. As a result, this matter is ripe for review.

         II. Analysis

         Kentucky is a “race-notice” jurisdiction and in order for a mortgage to have first priority, one must not only be the first to file the mortgage, deed or deed of trust, but the filer must also lack actual or constructive knowledge of any other mortgages, deeds or deeds of trust related to the property.” Wells Fargo Bank, Minnesota, N.A. v. Commonwealth, Fin. & Admin., Dep't of Revenue, 345 S.W.3d 800, 804 (Ky. 2011); see also Mortg. Elec. Registration Sys., Inc. v. Roberts, 366 S.W.3d 405, 407-08 (Ky. 2012).

         Under Kentucky common law, the first creditor to file a lien enjoys the first right to the property. Wells Fargo, 345 S.W.3d at 804. This rule is also known as “first in time, first in right.” Id. (citing Truck Corp. of Ky. v. Hurry Up Broadway Co., 1 S.W.2d 990 (Ky. 1928)).

         In this action, the United States seeks to foreclose on and sell the subject real property to satisfy, or at least partially satisfy, the amount of its loan to Harris. An affidavit provided by the United States indicates that as of January 9, 2018, Harris's loan account had been delinquent since September 12, 2014, and that the account was delinquent in the amount of $51, 071.58. [DE 1-5].

         Three defendants have answered and appeared in this action. Defendants' arguments and the priority of Defendants' interests in the subject property is discussed below.

         A. Interest of Defendant Stephanie Harris

         As an initial matter, the Court primarily construes Harris's October 5, 2018, “Motion to Dismiss Judgment and Sale of House” [DE 31] as a response in opposition to Plaintiff's Motion for Judgment and Order of Sale [DE 28]. The United States is correct that since a judgment has not been entered in this case that there is no judgment to set aside, as requested by Harris's motion. [See DE 33 at 3, Page ID # 197]. Still, the Court construes filings “by their substantive content and not be their labels.” See Coleman v. Ohio State Univ. Med. Ctr., No. 2:11-cv-0049, 2011 WL 3273531, at *3 (S.D. Ohio Aug. 1, 2011). Additionally, the law is clear that sometimes courts may “ignore the legal label that a pro se litigant attaches to a motion and recharacterize the motion in order to place it within a different legal category” to avoid unnecessary dismissal. See, e.g., Castro v. United States, 540 U.S. 375, 381 (2003) (discussing a pro se litigant's motion attacking his sentence and citing cases); Estelle v. Gamble, 429 U.S. 97, 106 (1976). As such, the Court primarily construes Harris's Motion [DE 31] as a response in opposition to the motion for judgment and order of sale.

         Here, Harris maintains that she is not in default or, that if she is in default, the default was caused by the actions of the USDA. [DE 18 at 1, Page ID # 120]. Harris appears to assert that the USDA failed to provide relief to assist her in meeting the loan obligations, causing her loan to be in default. [See id.]. Harris has attached a subsidy repayment agreement, partial copies of reamortization ...


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