Anderson v. SunTrust Mortg., Inc. (In re Judd)

• Citation: 471 B.R. 830
• Decision Date: 29 March 2012
• Docket Number: Civil Action No. 6:11–00291–TMC.
• Court: U.S. District Court — District of South Carolina
• Parties: In re Lee Holt JUDD, Debtor(s). Robert F. Anderson, Trustee, Appellant, v. SunTrust Mortgage, Inc., and 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 Securities Series 2007–SD3, Appellees.

471 B.R. 830

In re Lee Holt JUDD, Debtor(s).

Robert F. Anderson, Trustee, Appellant,

v.SunTrust Mortgage, Inc., and 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 Securities Series 2007–SD3, Appellees.

Civil Action No. 6:11–00291–TMC.

United States District Court,

D. South Carolina,

Greenville Division.

March 29, 2012.

Henry Flynn Griffin, III, Columbia, SC, for Appellant.

Christopher S. McDonald, Columbia, SC, Michael McNulty Beal, Columbia, SC, Robert L. Widener, Columbia, SC, for Appellees.

OPINION and ORDER

TIMOTHY M. CAIN, District Judge.

I. INTRODUCTION

Robert F. Anderson (Trustee) filed this appeal of an Order of the Bankruptcy Court granting judgment in favor of SunTrust Mortgage, Inc. (SunTrust), and EMC Mortgage Corporation (EMC), hereinafter collectively referred to as “Lenders.” For the reasons set forth herein, the court affirms the judgment of the Bankruptcy Court.

II. FACTUAL AND PROCEDURAL HISTORY

The underlying facts of this case are not in dispute. Therefore, the court adopts the undisputed factual findings of the Order of the Bankruptcy Court, which are summarized herein.

This lawsuit began with the Trustee's efforts to recover real estate and the proceeds thereof. The real estate in question was acquired by Lee Holt Judd (“Debtor”) by Warranty Deed dated February 1, 2005. The realty is described as Unit 603 of Mariner's Club, Lot 3, Block 6, Key Largo North, 97501 Overseas Highway, Key Largo, FL 33037 (“Unit 603”). The deed was recorded on or about March 3, 2005 in the Official Records of Monroe County, Florida, in Book 2090 at Page 957.¹

Lenders claim an interest in Unit 603 and/or its proceeds. At the time the Adversary Proceeding was filed in Bankruptcy Court, John T. Holt (“Debtor's father”) also claimed an interest in that property.

On or about February 10, 2005, to finance the acquisition of Unit 603, the Debtor and Sarepta P. Wilson borrowed $744,800.00 from American Home Mortgage Acceptance, Inc., evidenced by a note and mortgage granting a lien on Unit 603. The mortgage was recorded on March 3, 2005, at Book 2090 at Page 959.

On or about February 10, 2005, to further finance the acquisition of Unit 603, the Debtor and Wilson borrowed an additional $93,100.00 from American Home Mortgage, evidenced by a note and mortgage granting a lien on Unit 603. That obligation was expressly subordinate to the mortgage above, and it was recorded on March 3, 2005, in Book 2090 at Page 983.

On or about March 24, 2005, the Debtor executed a Mortgage on Unit 603 to secure a note in the amount of $200,000.00 in favor of Lillian S. Maresch and a separate mortgage on Unit 603 to secure a note of $198,000.00 in favor of Van and Sarepta P. Wilson. Both the Maresch and Wilson mortgages describe the collateral as “Unit 603 of MARINER'S CLUB as shown on the site plan attached as Exhibit ‘B’ to the Declaration of Covenants, Conditions and Restrictions for Mariner's Club recorded in Official Record Book 1659, Page 1982, more particularly described as Lot 4, Block 7, Key Largo North.” Both were recorded on November 2, 2005, in Book 2162 at Page 636 and Book 2162 at Page 640 respectively.²

On or about March 22, 2006, a Judgment in the amount of $475,962.18 was entered in favor of Marin Reed and Mary Reed against the Debtor. The Judgment was recorded on March 30, 2006, in Book 2197 at Page 539 and on April 20, 2006, in Book 2202 at Page 1083.

On April 27, 2006, the Debtor executed a Warranty Deed conveying Unit 603 to Debtor's father. Debtor's father financed the acquisition by, among other things, borrowing $910,000.00 from SunTrust, evidenced by a note and mortgage dated April 27, 2006, subsequently assigned to EMC (the “EMC Mortgage”). Debtor's father also borrowed an additional $260,000.00 from Defendant SunTrust, evidenced by a note and mortgage dated April 27, 2006 (the “SunTrust Mortgage”).

Before the Debtor filed bankruptcy, Comprehensive Title Company collected the proceeds of the loans to Debtor's father from SunTrust Mortgage and EMC Mortgage that he used to finance the purchase of Unit 603 from the Debtor.

On May 4, 2006, at 3:55 P.M., Debtor filed for relief under Chapter 11 of the United States Bankruptcy Code in the United States Bankruptcy Court for the District of South Carolina.

The Deed from the Debtor to Debtor's father, and his EMC Mortgage and SunTrust Mortgage had not been recorded at the time the bankruptcy case was filed. Although the loans from the EMC and SunTrust Mortgages had been funded, the proceeds of the sale of Unit 603 had not yet been fully disbursed to satisfy perfected encumbrances on the title and no releases or satisfactions had been filed.

On May 4, 2006, at 3:55 P.M., the date and time of the initiation of bankruptcy proceedings by Debtor in South Carolina, a review of the public property records in Florida would reveal that the Debtor owned Unit 603, and that the following appeared in the chain of title: the $744,800.00 Mortgage, the $93,100.00 Mortgage, and the $475,962.18 Judgment. The public records would also reflect the mortgages to Wilson and Maresch.

Also on May 4, 2006,³ Comprehensive Title forwarded to Regent Bank's Wire Department a request to transfer funds from the loan to the Debtor's father (secured by the EMC Mortgage and the SunTrust Mortgage granted on Unit 603) to an account at BB & T, Greenville, South Carolina, on account of the Maresch Mortgage and the Wilson Mortgage and the funds were wired on that day as requested.

On May 5, 2006, Comprehensive Title forwarded to Regent's Banks Wire Department a request to transfer funds in the amount of $788,607.52 to an account at JP Morgan Chase to satisfy the $744,800.00 Mortgage given by the Debtor, and the funds were wired on that day as a result.

On May 5, 2006, Comprehensive Title Company forwarded to Regent Bank's Wire Department a request to transfer funds in the amount of $97,088.65 to an account at Chase Bank of Texas, N.A. to satisfy the $93,100.00 Mortgage given by the Debtor and the funds were wired on that day as a result.

On June 8, 2006, documents were recorded on the public record in Monroe County, Florida, in the following order at 1:06 P.M.: (a) 2006 Deed from Debtor to Debtor's father in Book 2215 at Page 203; (b) EMC Mortgage in Book 2215 at Page 205; (c) SunTrust Mortgage in Book 2215 at Page 229.

Also on June 8, 2006, the following documents were recorded, all also indicating that the time of recordation was 1:06 P.M.: (a) a Partial Release of Mortgage dated April 27, 2006 in Book 2215 at Page 253, releasing Unit 603 from the Maresch mortgage; (b) a Partial Release of Mortgage dated May 3, 2006 in Book 2215 at Page 254, releasing Unit 603 from the Wilson mortgage; (c) a Partial Release of Lien dated May 2, 2006 in Book 2215 at Page 202, releasing Unit 603 from the judgment.

On June 12, 2006, in Book 2215 at Page 2212, the Mortgage Release, Satisfaction and Discharge dated June 5, 2006, satisfying the $744,800.00 Mortgage was recorded.

On June 21, 2006, in Book 2218 at Page 394, the Satisfaction of Mortgage dated June 8, 2006, satisfying the $93,100.00 Mortgage was recorded. It is stipulated that neither EMC nor SunTrust had actual knowledge of the Debtor's bankruptcy petition filed in South Carolina before the foregoing transactions occurred.

Proof of the Debtor's filing of a bankruptcy petition in South Carolina was not filed in Florida until March 6, 2007, in Book 2277 at Page 388.

The bankruptcy case was converted to Chapter 7 on or about May 3, 2007. On January 29, 2008, the Trustee filed an adversary proceeding seeking recovery of money and/or property under two separate theories of recovery from three different Defendants. The Complaint alleges that the deed to Debtor's father was a transfer made less than one year prior to the filing of the petition with the intent to hinder, delay and defraud creditors, and is thus a voidable and fraudulent transfer pursuant to 11 U.S.C. § 548 (labeled in the Complaint as Trustee's “First Cause of Action (John T. Holt)”). The Complaint further seeks recovery against all Defendants separately under § 544(a)(3) labeled in the Complaint as Trustee's “Second Cause of Action (John T. Hold and SunTrust Mortgage, Inc.”), alleging that the deed to Debtor's father, and the EMC Mortgage and the SunTrust Mortgage given by Debtor's father, were unrecorded at the time the bankruptcy case was filed. The Complaint asks for judgment against Debtor's father and separately against Defendants EMC and SunTrust by finding that their interests in Unit 603 are voidable by the Trustee pursuant to 11 U.S.C. § 544(a)(3) because at the time of the commencement of the bankruptcy case, the unrecorded deed to the Debtor's father and his mortgages to EMC and SunTrust were subordinate to the rights of a hypothetical bona fide purchaser of Unit 603.

On March 13, 2008, the Bankruptcy Court entered a default judgment in the adversary proceeding in favor of the Trustee against Debtor's father on the first and second causes of action. That judgment provided that “the Deed to John T. Holt as described in the Complaint is hereby declared void.” This left only the remaining cause of action against Lenders brought pursuant to 11 U.S.C. § 544(a)(3).

The EMC Mortgage and the SunTrust Mortgage granted by Debtor's father relating to Unit 603 have not been satisfied and remain of record as filed.

On or about August 29, 2008, the Trustee, as owner of the Property, after entry of that default judgment, sold the Property for $417,500.00. This Bankruptcy Court's order approving the sale of Unit 603 free and clear of liens provided that:

The liens of SunTrust and EMC shall attach to the net proceeds of the sale in the same manner as they were attached to the real property sold. The net proceeds of the sale shall be placed in a separate interest-bearing certificate of...