In re Judd, 112310 SCBC, 06-01888-HB

Docket NºC/A 06-01888-HB
Opinion JudgeHELEN E. BURRIS, Bankruptcy Judge.
Party NameIn re, Lee Holt Judd, Debtor(s). v. John T. Holt SunTrust Mortgage, Inc. EMC Mortgage Corporation, as Servicer for Citibank, N.A., as Trustee for Certificateholders of Bear Stearns Asset Backed Securities Trust 2007-SD-3, Asset Backed Certificates Series 2007-SD3, Defendant(s). Robert F. Anderson, Trustee, Chapter 7, Plaintiff(s), Adv. Pro. No. 08-
Case DateNovember 23, 2010
CourtUnited States Bankruptcy Courts, Fourth Circuit

In re, Lee Holt Judd, Debtor(s).

Robert F. Anderson, Trustee, Chapter 7, Plaintiff(s),

v.

John T. Holt SunTrust Mortgage, Inc. EMC Mortgage Corporation, as Servicer for Citibank, N.A., as Trustee for Certificateholders of Bear Stearns Asset Backed Securities Trust 2007-SD-3, Asset Backed Certificates Series 2007-SD3, Defendant(s).

C/A No. 06-01888-HB

Adv. Pro. No. 08-80012-HB.

United States Bankruptcy Court, D. South Carolina.

November 23, 2010.

SUMMARY JUDGMENT

The relief set forth on the following pages, for a total of 20 pages including this page, is hereby ORDERED.

HELEN E. BURRIS, Bankruptcy Judge.

SUMMARY JUDGMENT ORDER

This matter is before the court after an appeal of this Court's decisions to the United States District Court. The District Court entered a Memorandum Opinion and Order on August 5, 2010, in Civil Action No. 6:09-cv-02540-HFF (Docket #57), reversing this Court's decision of August 7, 2009 (Docket # 48), and remanding the matter to this Court for further proceedings. This Court's prior Order decided cross motions for summary judgment made by the parties herein pursuant to Fed. R. Civ. P. 56, made applicable to this adversary proceeding by Fed. R. Bankr. P. 7056. In that Order this Court granted summary judgment in favor of SunTrust Mortgage, Inc. and EMC Mortgage Corporation ("Defendants"). Plaintiff Trustee appealed.

In the District Court's Order, Judge Henry Floyd held that this Court's decision granting summary judgment should be "REVERSED and this case... REMANDED to the Bankruptcy Court to consider the parties' other contentions in the first instance." (Docket # 57 at p. 9). Interpreting the language of that order, this Court believes that the District Court reversed this Court's decision granting Summary Judgment to Defendants on the issue of whether Plaintiff is entitled to bona fide purchaser status. In addition, the District Court found that as a matter of law Plaintiff is a bona fide purchaser for value. However, this conclusion does not resolve all the issues presented in the parties' cross-motions for summary judgment. As recognized by the District Court, it is now this Court's duty to consider the remaining claims and defenses of both parties.

The District Court's ruling on the appeal did not disturb the statement of the relevant facts found in the prior Order, only the legal conclusions. The relevant portions of that Order are incorporated herein by reference. However, a short summary of the facts is warranted here.

Lee Holt Judd ("Debtor") owned property in Florida referred to as "Unit 603." The property was encumbered by several mortgages of significant amounts. Debtor executed a deed dated April 27, 2006, transferring that property to her father, Defendant John T. Holt ("Holt"). Holt borrowed funds to purchase the property from Debtor and to pay off the existing mortgages. Holt gave a note and mortgage to his lenders on April 27, 2006. On May 4, 2006, Debtor filed a voluntary bankruptcy petition. At that time the real estate records reflected that Debtor was still the owner of the property and that Unit 603 was encumbered by the mortgages thereon granted by Debtor. Before the Debtor filed the bankruptcy case, the funds loaned to Holt to purchase the property and pay Debtor's mortgages so that the property could be transferred had been collected by the closing agent. Holt's loans were then used to satisfy or secure a release of all liens and mortgages granted by Debtor and encumbering Unit 603.

The deed to Holt and his mortgages were recorded on June 8, 2006, after the bankruptcy was filed and before the prior mortgages encumbering the property were released on the public record.

The Plaintiff Trustee filed this suit to recover Unit 603 from Holt and was successful in returning it to the estate when judgment was entered against Holt by default in this adversary proceeding. At the time the property was recovered by the Trustee, it was deeded in Holt's name and encumbered by mortgages granted by Holt and now held by Defendants. In this lawsuit the Plaintiff Trustee seeks to avoid the mortgages granted by Holt and use Unit 603 and/or its proceeds for the benefit of the estate free and clear of any mortgages granted by Judd or Holt. Trustee claims hypothetical bona fide purchaser status as his weapon for accomplishing this goal.

Despite the District Court's finding on appeal that Plaintiff is a bona fide purchaser, Defendants ask the Court to grant summary judgment in their favor. Defendants argue that pursuant to Florida state law, they should be subrogated to the rights of the holders of the pre-petition liens on Debtor's property that were paid off by the mortgages Holt granted to Defendants to pay those liens and accomplish the transfer of the property. Defendants claim they are entitled to subrogation either under the principle of conventional subrogation or equitable subrogation. In addition, Defendants allege that summary judgment should be granted in their favor to the extent that the Trustee's avoidance of the pre-petition transfer of Unit 603 from Debtor to Holt has unjustly enriched the estate at Defendants' expense. (Docket # 43). Trustee argues that Defendants are not entitled to summary judgment because they do not satisfy the requirements of 11 U.S.C. § 509, which Trustee asserts is required in addition to meeting the state law subrogation requirements. Trustee further contends that Defendants do not meet the equitable subrogation requirements under Florida state law. (Docket # 46).

In the alternative, Defendants argue that they are entitled to summary judgment pursuant to their defenses asserted under § 550(b) and (e). Under § 550(b), Defendants claim they are subsequent transferees that took for value in good faith without knowledge of the voidability of the transfer avoided. Under § 550(e), Defendants argue that their mortgage, which satisfied and released the pre-petition mortgages on Unit 603, constitutes an improvement to the property under § 550(e). Therefore, they should be entitled to a lien in the amount of their improvement.

Lastly, Defendants assert that if the Court finds that the Trustee's avoidance of the transfer in question can be made under § 548 as a fraudulent transfer, then § 548(c) applies. Under § 548(c), Defendants claim they are good faith transferees for value and should be awarded summary judgment entitling them to a lien to the extent that they gave value to the estate. Trustee contests each defense asserted by Defendants.

STANDARD OF REVIEW:

Pursuant to Fed. R. Civ. P. 56(c), made applicable to this adversary proceeding by Fed. R. Bankr. P. 7056, summary judgment "should be rendered if the pleadings, the discovery and disclosure of materials on file, and any affidavits show that there is no genuine issue as to any material fact and that the movant is entitled to judgment as a matter of law." Fed. R. Civ. P. 56(c). "The judge is not to weigh the evidence, but rather to determine if there is a genuine issue of fact for trial." McCoy v. Lewis, C/A No. 4:09-2269-PMD, 2010 WL 3169431, slip op. at *3 (D.S.C. Aug. 9, 2010) (citing Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 249, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986)).

"The party moving for summary judgment has the burden of showing the absence of a genuine issue of material fact, and the court must view the evidence before it and the inferences to be drawn therefrom in the light most favorable to the non-moving party." Sain v. HSBC Mortg. Services, Inc., C/A No. 4:08-2856-TLW-SVH, 2010 WL 2902741, slip op. at *2 (D.S.C. June 10, 2010) (citing United States v. Diebold, Inc., 369 U.S. 654 (1962)). "[W]here the record taken as a whole could not lead a rational trier of fact to find for the nonmoving party, disposition by summary judgment is appropriate." Teamsters Joint Council No. 83 v. Centra Inc., 947 F.2d 115, 119 (4th Cir. 1991).

When both parties file motions for summary judgment, as here, the court applies the same standards of review. Taft Broad. Co. v. U.S., 929 F.2d 240, 248 (6th Cir. 1991); ITCO Corp. v. Michelin Tire Corp., 722 F.2d 42, 45 n.3 (4th Cir.1983) ("The court is not permitted to resolve genuine issues of material fact on a motion for summary judgment-even where... both parties have filed cross motions for summary judgment.") (emphasis omitted), cert. denied, 469 U.S. 1215 , 105 S.Ct. 1191, 84 L.Ed.2d 337 (1985). The role of the court is to "rule on each party's motion on an individual and separate basis, determining, in each case, whether a judgment may be...

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