Mortgage foreclosure likely to drag out
A Bank of Hays petition for mortgage foreclosure against Hillsboro Community Hospital is likely to be a drawn-out process because of the number of defendants who have interests in the matter.
Bank of Hays seeks a court order that the sheriff sell the hospital building and its contents, then distribute the proceeds first to Marion County to cover $322,322 in unpaid property taxes, and next to Bank of Hays toward more than $9.8 million owed on the mortgage, interest, and costs of the lawsuit.
Wichita lawyer Frank Ojile, who has specialized in real estate and mortgage law for over 30 years, said his best guess is the lawsuit will take extra time because the list of co-defendants includes major players.
Co-defendants on the original petition include:
- CAH Acquisition Company #5, which originally borrowed money to build the hospital.
- HMC/CAH Consolidated, which signed a promissory note agreeing to be held liable for the balance of the mortgage.
- City of Hillsboro, which has a lease agreement with HCH to pay for a bond issue covering a portion of the property.
- Public Building Commission of Hillsboro, which is owner of the property where the hospital sits.
- Security Bank of Kansas City, trustee for a taxable revenue bond covering the property.
- County commissioners, because of unpaid property taxes.
- App Group International, which filed a financing statement in October claiming an interest in hospital receivables.
Additional co-defendants in an amended petition filed Monday include:
- Athenahealth, Inc., and U.S. Bank, which possibly are in possession of bank accounts or accounts receivable. Athenahealth is an electronic health records system.
- Kansas Department of Revenue because it has filed tax warrants seeking unpaid withholding taxes.
- Mobile Cardiac Care, LLC, which last month was granted a default judgment in a lawsuit filed against the hospital.
“This thing will probably be extensively litigated,” Ojile said.
After getting a summons in the lawsuit, defendants have 21 days to file answers. After everyone answers, the court will set a hearing to establish dates and timelines for the lawsuit.
“I’m sure it’s going to be a roller coaster,” Ojile said. “I’m sure it’s going to be a lot of litigation.”
Although Kansas Department of Revenue has filed three tax warrants in district court for unpaid withholding taxes, Ojile said the bank’s claim would come before KDOR’s claim for unpaid withholding tax.
Ojile said real estate taxes are first priority, then the mortgage. Any other outstanding debts owed by the hospital, including tax warrants, rent, and utility payments owed to the city, are not the bank’s responsibility.
“They fall behind the mortgage, so the banks are not responsible for them,” Ojile said.
The reason property tax falls first in line is so the bank can get a clear title to the property, he said.
Ojile said any of the defendants could ask the court to appoint a receiver in the lawsuit.
The bank would get the opening bid in a sheriff’s sale, and could either bid the full amount owed or bid a lower amount to inspire other bids.
Last modified Jan. 17, 2019