## Facts

- Citizens Bank & Trust (Bank) held a first and a second mortgage on certain real property; both mortgages were recorded.
- Brothers Construction & Manufacturing, Inc. (Brothers) entered into a lease for the property and took actual, open possession and occupancy.
- Brothers did not record its lease in the county land records.
- A mechanic’s lien claimant filed an action involving the property. In that action, the Bank asserted claims to foreclose its mortgages.
- At the time the Bank pursued foreclosure, the Bank had actual knowledge that Brothers was in possession of the premises under a lease.
- The Bank proceeded with foreclosure without joining Brothers as a party to the mortgage foreclosure claims.
- A foreclosure judgment was entered, a sheriff’s sale was ordered, and the Bank purchased the property at the sale and received a sheriff’s deed.
- After receiving the deed, the Bank demanded that Brothers vacate. Brothers refused.
- The Bank then filed a forcible detainer action seeking possession on the theory that the foreclosure extinguished Brothers’ unrecorded leasehold interest.
- The trial court granted summary judgment for Brothers, concluding the leasehold was not terminated because Brothers had not been made a party to the foreclosure. The Bank appealed.

## Issues

1. Whether a tenant in actual, open possession under an unrecorded lease is bound by a mortgage foreclosure judgment and sheriff’s sale when the tenant was not joined as a party to the foreclosure claims.
2. Whether the tenant’s failure to record its lease permits the foreclosing mortgagee (with actual knowledge of the tenancy) to cut off the tenant’s leasehold without joinder.
3. Whether the foreclosure purchaser may use forcible detainer to evict the tenant when the tenant’s leasehold was not adjudicated or terminated in the foreclosure proceeding.

## Decision

- The Kansas Court of Appeals affirmed the summary judgment for Brothers.
- Because Brothers was not made a party to the Bank’s mortgage foreclosure, the foreclosure judgment and sheriff’s sale did not terminate Brothers’ leasehold interest.
- Brothers’ open possession, known to the Bank, meant the Bank could not treat the lease as extinguished merely because it was unrecorded.
- The Bank, as purchaser at its own foreclosure sale, took title subject to Brothers’ continuing right of possession under the lease and could not obtain possession through forcible detainer on the theory the lease had been wiped out by the foreclosure.

## Legal Principles

- A foreclosure judgment and sale cut off only those interests held by parties who are properly joined and given an opportunity to be heard; interests of nonparties are not bound or extinguished.
- A tenant’s actual, open possession of real property is notice of the tenant’s claimed interest and puts a foreclosing mortgagee on notice to address that interest in the foreclosure case.
- Recording statutes address priority and protect later purchasers or encumbrancers without notice; they do not substitute for the requirement that an interest holder be joined before its rights can be terminated by a foreclosure decree.
- A foreclosure purchaser receives no greater title than the foreclosure proceeding validly conveyed; unextinguished interests survive and remain attached to the property.
- Summary possession procedures such as forcible detainer cannot be used to achieve indirectly what was not accomplished in the foreclosure case—termination of a leasehold interest that survived because the tenant was not joined.

## Conclusion

The Bank knew Brothers was in open possession under a lease but failed to join Brothers in the mortgage foreclosure; as a result, the foreclosure judgment, sheriff’s sale, and sheriff’s deed did not extinguish Brothers’ unrecorded leasehold, and the Bank could not evict Brothers through forcible detainer on the premise that the lease had been terminated.


Citizens Bank & Trust v. Brothers Construction & Manufacturing, Inc., 859 P.2d 394 (1993)