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Independent Financial, Inc. v. Wanna

Citations: 39 Kan. App. 2d 733; 186 P.3d 196; 2008 Kan. App. LEXIS 82Docket: No. 98,761

Court: Court of Appeals of Kansas; May 23, 2008; Kansas; State Appellate Court

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Independent Financial, Inc. (IFI) appealed the district court's summary judgment favoring Argent Mortgage Company, LLC (Argent), which determined that IFI, as an unlicensed assignee of a supervised loan, lacked authority to collect on the loan or enforce its terms under the Kansas Uniform Consumer Credit Code (KUCCC), specifically K.S.A. 16a-2-301(2). The case arose from a mortgage foreclosure action involving Ronald Wanna and Susan Harjo, who defaulted on a second mortgage from Ditech Funding Corporation (Ditech) and later had their loan assigned to IFI. Ditech was a licensed lender at the time of the loan but IFI was not licensed when it received the assignment. 

Subsequently, Wanna and Harjo entered into negotiations involving their debts, resulting in an agreement that included subordination of liens held by IFI and the IRS. After failing to make payments, IFI initiated foreclosure proceedings against Wanna and Harjo, who filed for bankruptcy, transforming the case into an in rem action. Argent claimed that IFI's mortgage was subordinate to its lien and moved for summary judgment, asserting that IFI's lack of licensing rendered the Ditech loan void and barred IFI from debt collection.

The district court, led by Judge Paula Martin, ruled that while the Ditech loan was not void, IFI's unlicensed status violated K.S.A. 16a-2-301(2), preventing IFI from collecting on the loan or foreclosing on the mortgage. The court emphasized that licensing protects debtors and ensures compliance with regulatory limits. IFI's request to amend the order for an interlocutory appeal was denied, and a final decree of foreclosure was entered, affirming IFI's prohibition from collection efforts.

IFI is appealing a summary judgment order that found its violation of K.S.A. 16a-2-301(2) prevents it from collecting on the Ditech loan and foreclosing on the associated mortgage. The appellees had previously moved for an involuntary dismissal of the appeal, claiming it was moot due to the foreclosure sale of the property, but this motion was denied. The standard for summary judgment requires that there be no genuine issue of material fact and that the moving party is entitled to judgment as a matter of law. The trial court must favor the party opposing the motion when resolving facts and inferences.

On appeal, the court reviews the summary judgment under the same rules, denying it if reasonable minds could differ regarding conclusions drawn from the evidence. The appeal requires statutory interpretation of the Kansas Uniform Consumer Credit Code (KUCCC), specifically K.S.A. 16a-l-101 et seq. The court emphasizes that legislative intent is paramount, relying on the language of the statute, and that ordinary words should be given their usual meanings. 

The KUCCC aims to protect consumers from unfair credit practices while considering the rights of legitimate creditors. The Ditech loan is categorized as a “supervised loan” due to its high annual percentage rate, falling under the jurisdiction of the KUCCC. K.S.A. 16a-2-301 prohibits unlicensed individuals from making supervised loans or collecting payments on them. The district court determined that IFI was neither a supervised financial organization nor a licensed supervised lender at the time it attempted to collect on the Ditech loan, thereby validating its violation of K.S.A. 16a-2-301(2). IFI does not dispute this violation but contests the court's ruling that this violation bars it from collecting on the loan and foreclosing on the mortgage.

IFI argues that the only consequence of its failure to obtain a license should be an interest penalty under K.S.A. 16a-5-201(3), which allows consumers to receive a refund of twice the excess interest charged. Appellees counter that Article 5's provisions, including remedies and penalties, apply only to creditors, and since IFI is an assignee, it does not qualify as a 'creditor' under the Kansas Uniform Consumer Credit Code (KUCCC). IFI contends that K.S.A. 16a-5-201(3) is distinct because it does not exclusively reference 'creditors,' but the context indicates that Article 5 only addresses consumer remedies for violations by creditors. K.S.A. 16a-5-201, Comment 4, supports this interpretation, stating that subsection (3) relates to excess charges by creditors. Therefore, IFI, as an assignee, cannot invoke this penalty provision.

Furthermore, the district court properly determined that IFI cannot collect on the loan due to its failure to obtain a license as mandated by K.S.A. 16a-2-301(2), which unambiguously requires licensed assignees of supervised loans to collect on such loans. Although a 3-month grace period exists for unlicensed assignees to collect if they promptly apply for a license, IFI did not secure a license within that timeframe. Allowing IFI to collect on the Ditech loan despite its unlicensed status would undermine the purpose of the grace period and legislative intent, as statutes are construed to avoid unreasonable outcomes.

Additionally, IFI's reliance on K.S.A. 16a-5-201(5) to enforce the Ditech loan, regardless of its unlicensed status, is flawed. This statute states that rights on a debt are not impaired unless otherwise provided, but since K.S.A. 16a-2-301 specifically requires a license for such assignments, IFI's rights are impaired due to its lack of licensing. This interpretation reinforces the legislative intent to regulate supervised lenders and their assignees, thus maintaining the integrity of the KUCCC.

Under subsection (5), creditors can enforce valid obligations unless explicitly voided by the Kansas Uniform Consumer Credit Code (KUCCC), as seen in cases of unlicensed loans under K.S.A. 16a-2-301. IFI argues that the district court's ruling against enforcing the loan effectively voids it, although IFI believes a loan can only be voided if the creditor violated the statute. The district court clarified that the Ditech loan was not void under K.S.A. 16a-5-201(2) because Ditech was properly licensed at the time of the loan. Ditech's later loss of its license was deemed irrelevant under K.S.A. 16a-2-303(3), and the court concluded that the original loan's validity remained intact. However, IFI's inability to enforce the loan stemmed from its own failure to obtain the necessary license. Consequently, the district court correctly interpreted K.S.A. 16a-2-301(2), determining that IFI, as an assignee of a supervised loan, lacked authority to collect or enforce the Ditech loan without being licensed. The court consequently granted summary judgment in favor of Argent.