*1 (850 P.2d 939) 67,159 No. Corporation,

Resolution Appellee, Trust Bopp, v. Edward O. Appellants. Opin- April ion filed 1993. Martin, Park, Michael appellants. S. of for Overland Henderson, Hamann, Holman, Timothy Robert L. Hamann M. South, Hansen, P.C., Village, appellee. & Prairie McCollum P.J., J., Gernon, Elliott, Before and Richard W. Dis- Wahl, Retired, Judge assigned. trict

Gernon, The trustees of the M. Trust Perry Sharp appeal J.: a decision of the trial court which found that the Resolution Trust Coiporation (RTC) in purchase money security has interest property that has their priority judicial over lien. originated

This case as a brought foreclosure action Anchor by Savings (Anchor) against Association Edward O. Bopp Bopp. and H. Earlene RTC was later substituted for Anchor. 6, 1988, On July Bopps secured a loan from Anchor in the $146,850. amount of The money was to be used to property property pursuant and construct a residence on that agreement an between the and Robert L. Bopps J. Janet return, In Bopps gave Manson. Anchor a in the $39,000. price to secure the land loan. of the The district court found that most remainder of the loan was used in the construction of the residence on the land. On October Perry Sharp the trustees of the M. Trust obtained a judgment against Bopps District County Johnson granted Court. They were became effective which to K.SA.

pursuant 13, 1988. from June *2 leaving the house payments, their loan Bopps defaulted on on the loan. sought to foreclose finished. Anchor to 95 percent

85 counterclaimed, judg- seeking a foreclosure of their The trustees priority had that their interest a determination ment lien and Anchor’s interest. over was a mortgage that the to Anchor court found

The district and, therefore, mortgage under K.S.A. judgment trustees’ over the priority Anchor was entitled to dividing that district court stated full of the loan. The to the extent part subjecting and the purchase money the loaned discourage activity lien would economic of the loan to the trustees’ its while the lender denying trustees a windfall give the appeal. security. The trustees anticipated only pertains to that that K.S.A. 58-2305 The trustees claim of the part the land and that the buy of the loan used to part the land should not be build the residence on loan used to that, pur- RTC counters since the purchase money. considered construction of the residence were chase of the and the transaction, was for purchase of the same the whole loan part all money. this court on facts. There presented stipulated

This case was novo, fore, we review both may our standard of review is de Inc., 161, Kan. Henry’s, facts and law. H. Freeman & Son v. 239 162, (1986). 717 P.2d 1049 given mortgage by purchaser

K.S.A. 58-2305 states that a purchase money priority prior judgment secure has over a hand, purchaser. the On the other lien attaches to giving the cred- after-acquired property automatically, Wichita Fed. Sav. & priority subsequent itor over interests. Loan 678, Partnership, Ass’n v. North Rock Rd. Ltd. 13 Kan. 2d 442, (1989). 779 P.2d rev. denied 245 Kan. 788 mortgage must Here we decide whether the land, the money actually to the used to priority pertains mortgage it or whether extends to funds from the used to con- the We can find one case improvements property. struct mortgage has divided Supreme which Kansas Court mortgage the land. In Pratt v. only part where of the secured Bank, *570, (1874), portion of the 12 Kan. *571-72 Topeka personal not used for the land was used to secure mortgage mortgage improvements rather than on the land. The notes, of several one of in Pratt a result consolidation crops growing which was for on the land at time of Also, reaper and a and the were conveyance reaper. crops issue, Pratt Although touching not valued on the separately. here. case bears little resemblance the fact situation in Westinghouse Missouri addressed the issue Elec. Co. v. Vann Co., (Mo. 1978). 568 S.W.2d 777 The Missouri court found Realty part mortgage purchase price where of the secured the apartment buildings the land and of the secured part land, that were to be constructed on the purchase money, that the land was but the rest was purchased in Syracuse not. New York reached the same basic conclusion Hass, Savings & Loan Association v. 134 Misc. 234 N.Y.S. (1929). *3 courts, however, opposite Other have reached the conclusion. Georgia, example, in Hand Trading Company v. Daniels 342, (1972), factually 126 Ga. 190 S.E.2d 560 a case case, mortgage similar that to this ruled a executed to finance purchase the of land and the construction of a house on that land mortgage was a and a prior defeated though lien. The court stated even no house was constructed mortgage, on the land at the time of the the loan was made for a purpose purchasing constructing the of a lot and house on that lot.

Here, argues primary securing RTC that the method of a con- through mortgage struction loan is on the RTC con- property. deny tends that to purchase money protection construction loans lenders, great place discourage would too a burden on them from loans, making creating construction or them in position force duplicate paperwork piecemeal mortgages, depending upon and stage the building. construction of residence or To use the example, split deny instant case as an the would the would, its expected security lender interest and under modem ,on lending practices, chilling type have a effect this of business activity.

Here, took the on made the loan and when Anchor judicial lien of subject was not to a the July against the was rendered Only It was after any kind. 1988, subject that the was the on October Bopps lien, prior to a date to the Anchor which related back judicial to a Therefore, the loan and took at the time Anchor made mortgage. was thing Anchor could have discovered mortgage, the the Bopps. the petition that a had been filed be all the loan was intended to used viewpoint, From Anchor’s the real The fact that improve property. and purchase prevented its use in this Bopps complete the house did that manner. is no evidence the record There purchasing for a than fraudulently purpose obtained expectation Thé lender’s was that improving the real estate. by entire amount of the loan was to be secured Therefore,' that money mortgage. we conclude to the construction of the loan to money protection extends proved actually that such funds are to have been extent expended expended or to have been on the residence. contracted To hold would a burden lenders that would place upon otherwise discourage making loans of kind. any them from construction We that the purchase money mortgage protection conclude should extend to to construct the house or con- money actually used it. expended tracted to be

Here, is void as to the precise expended record amounts this, on the land and construction of the house. Given we con- proceedings, clude this matter should be remanded for further and the trial court should determine the exact amounts expended construction, what, for the land and the if any, relating contracts to the house have been entered into. The total *4 purchase money of these amounts shall be afforded protection this, consistent with opinion.

Remanded. J., dissenting: respectfully dissent from the majority Wahl, I It opinion. appears to me that the majority opinion places an overly broad construction on K.S.A. 58-2305 and condones com- mercially practices by unsound lenders.

275 covering brief very statutory The statement is found at mortgages K.S.A. 58-2305 and reads: “A given by purchaser payment secure the preference against shall have over a prior judgment pur- such is nothing chaser.” There within this statute to a priority cover any improvements for future construction costs or which purchaser may wish place upon the land. It covers that which is in being when the loan for purchase was obtained. legislature could easily have included construction costs in statute, but, so, having not done addition cannot be grafted judicially upon the statute. essentially argues

RTC that Anchor not should be held to know what the record reflects because it is too much effort pa- perwork to find out and that deny portion protection the loan the of K.S.A. “chilling 58-2305 would have a lending effect” on the argument business. This impressive, is not and it may well be an attitude which contributed heavily to the savings and loan facing debacle now this nation. have,

Banks and other commercial years, lenders for with dealt the doctrine of lis pendens, K.S.A. and the constructive notice of recorded documents. They simply searched the record to determine the status of their proposed loan. Such search is chilling lending to the business. It is not burdensome to the lender or the good borrower. It is business simply practice records, which results in sounder loans. Had Anchor searched the it would not have found a ques- the lot in tion, it but would have found an action pending against its bor- ripen

rower which could into such a lien and which would affect the loan. Kansas,

Curiously, this issue has not before arisen in and not many sister state appellate courts have considered it. Missouri it Co., considered in Westinghouse Elec. Co. v. Vann Realty (Mo. S.W.2d 1978), and held that money protection applied only to the purchase price of the land and not to that securing costs buildings to be constructed upon the land. New general York reached the same result in Syracuse Hass, & Savings Loan Association v. 134 Misc. (1929). 234 N.Y.S. 514 *5 Trading in Hand v. Dan-

Georgia Company has held otherwise (1972), concluding 126 Ga. 190 S.E.2d 560 iels the time of though existed on the at even no house lot mortgage, purpose purchasing the loan made for the it. building a house lot and Georgia a boon to who do wish to ruling is lenders record, totally ignores rights prior judg-

search the but it It opens ment creditors who made the record. also door for of the loan borrower-mortgagor apply proceeds happened as purposes, apparently this case. I would reverse of the trial court and judgment remand $39,000, with for RTC for the case directions to enter land, interest, purchase money mortgage, the cost of the as a plus trustee of Perry Sharp enter for the Trust $25,558, costs, with second lien on interest and as a proceeds. sale