Bank of New York v. Sheeley (In re Sheeley), Case No. 08-32316
| Decision Date | 02 April 2012 |
| Docket Number | Adv. No. 11-3028,Case No. 08-32316 |
| Parties | In re: DANNY G. SHEELEY JACKIE L. SHEELEY, Debtors BANK OF NEW YORK, Plaintiff v. DANNY G. SHEELEY JACKIE L. SHEELEY, Defendant |
| Court | United States Bankruptcy Courts. Sixth Circuit. U.S. Bankruptcy Court — Southern District of Ohio |
This document has been electronically entered in the records of the United States Bankruptcy Court for the Southern District of Ohio.
IT IS SO ORDERED.
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Guy R. Humphrey
United States Bankruptcy Judge
I. Introduction
Through this adversary proceeding a lender seeks a declaratory judgment that, as the holder of a mortgage granted by the debtors, it has a valid first mortgage lien on the parcel of real property used by the debtors as their residence despite the fact that the mortgage lists the street address for the residence parcel but uses the metes and bounds legal description for an adjacent vacant parcel of property owned by the debtors. The lender also requests that the mortgage be reformed to correct the legal description from that of the vacant parcel to that of the residence parcel and to add the debtor wife's name to the granting clause. The court denies the lender's motion for summary judgment because it fails to establish as a matter of law either that the mortgage encumbers the residence parcel or that the lender is entitled to reformation of the mortgage.
II. Stipulated Facts On February 28, 2003 Danny G. Sheeley, Jr. and Jackie L. Sheeley (the "Sheeleys") obtained title to real property commonly known as 2292 Ogden Road, Wilmington, Ohio 45117 (the "Residence Parcel") through a trustee deed. The deed was recorded in 2003 in the Clinton County Recorder's Office (the "Recorder's Office"). Agreed Stipulations .1 In July 2006 the Sheeleys executed a mortgage on the Residence Parcel in favor of Accredited Home Lenders, Inc. in the amount of $202,500 (the "Accredited Mortgage"), which was recorded in the Recorder's Office (Exh. B). Then on July 26, 2006 the Sheeleys obtained title to a vacant parcel of real property adjacent to the Residence Parcel (the"Vacant Parcel") through a general warranty deed, which was recorded in the Recorder's Office in August 2006 (Exh. C).
Later in 2006 the Sheeleys refinanced the Accredited Mortgage with Countrywide Bank, N.A. ("Countrywide"). On November 1, 2006 Danny Sheeley executed the following documents:
Jackie Sheeley signed the Notice of Right to Cancel, Owners Affidavit, Truth in Lending Disclosure Statement, Itemization of Amount Financed, and Notices Affidavit (Exhs. I, J, N and O).
In order to secure the Note, on November 1, 2006 the Sheeleys also executed a mortgage in favor of MERS, solely as nominee for Countrywide in the amount of $208,000 (the "Mortgage"), recorded in the Recorder's Office on November 9, 2006 (Exh. P). The granting clause of the Mortgage states as follows:
This street address is the address by which the Residence Parcel is commonly known. However, the Exhibit A attached to the Mortgage contains the metes and bounds legal description of the Vacant Parcel and not that of the Residence Parcel. The Sheeleys admit that they intended that the Mortgage serve as a lien against the Residence Parcel and $206,449.71 of the loan proceeds from this transaction were used to pay off the Accredited Mortgage. On October 29, 2008 MERS, as nominee for Countrywide, executed an assignment of the Mortgage to the Bank of New York, as Trustee for the Benefit of Alternative Loan Trust 2007-OA2 Mortgage Pass-Through Certificates, Series 2007-OA2 by and through BAC Home Loans Servicing, L.P., its server (the "Bank"), which was recorded on November 3, 2008 (the "Assignment") (Exh. Q).
III. Procedural Background
On May 12, 2008 the Sheeleys filed a joint petition for relief under Chapter 13 of Title 11 of the United States Code (the "Code");2 their schedules and Statement of Financial Affairs (est. doc. 1); and a Chapter 13 plan (the "Plan") (est. doc. 7). The Residence Parcel was scheduled as having a value of $150,000 with no encumbrances (Schedule A). The Vacant Parcel, which is adjacent to the Residence Parcel, was scheduled as having a value of $17,500 (Schedule A) and encumbered by the Mortgage with a balance of $218,000 (Schedule D). See est. doc. 1.
Paragraph 18 of the Plan listed the Residence Parcel as Parcel No. 1, but listed no lienholders. The Vacant Parcel was listed as Parcel No. 2 with Countrywide as the lien holder.The Plan provides for the surrender of the Vacant Parcel to the Bank, allowing the Bank to sell that property in accordance with its contractual rights and applicable law. Neither Countrywide nor the Bank objected to the Plan and the court entered an order confirming the Plan on July 21, 2008 (est. doc. 20) (the "Confirmation Order").
The Bank filed two motions for relief from stay with respect to the Residence Parcel (est. docs. 25 & 44), the first of which was withdrawn after the Sheeleys responded in opposition. The court subsequently entered an order denying the second motion for relief from stay as to the Residence Parcel, but granted relief from the stay as to the Vacant Parcel (est. doc. 52).
The Bank subsequently commenced this adversary proceeding through a complaint seeking declaratory judgment that the Mortgage is a valid first mortgage lien on the Residence Parcel as to both Danny and Jackie Sheeleys' fee simple interests in the property and requesting that the Mortgage be reformed to correct the legal description from that of the Vacant Parcel to that of the Residence Parcel and to add Jackie Sheeley's name to the granting clause. The Sheeleys filed an Answer asking that the Bank's requests be denied. The matter is before the court on the Bank's Motion for Summary Judgment (doc. 23).
IV. Positions of the Parties
The primary disputes are: whether the Mortgage encumbers the Sheeleys' interests in the Residence Parcel; and whether the Bank is entitled to reformation of the Mortgage to correct the metes and bounds legal description for the Residence Parcel and to add Jackie Sheeley as a named "Borrower." However, the parties have also sparred in their briefing over procedural issues, including whether the Chapter 13 trustee is a necessary party to thisadversary proceeding and the availability and applicability of certain defenses. The court will briefly outline the respective contentions and opposing views of the parties on the issues briefed by the parties.
The Bank contends that it possesses a valid first mortgage lien upon the Residence Parcel that is enforceable against the Sheeleys notwithstanding the fact that the Mortgage contains the legal description for the Vacant Parcel and that Jackie Sheeley is not named in the granting clause, particularly since the Sheeleys intended to encumber the Residence Parcel with the Mortgage. The Sheeleys respond that the Mortgage does not encumber the Residence Parcel because, given inclusion of the legal description for the Vacant Parcel in that mortgage, a hypothetical bona fide purchaser would not have had constructive notice that the Residence Parcel was so encumbered and the Chapter 13 trustee's rights as a bona fide purchaser have intervened as a result of the filing of the bankruptcy petition.
The Sheeleys contend that because the Chapter 13 trustee enjoys the status of a bona fide purchaser and because the trustee's rights have intervened as a result of their bankruptcy filing, the Chapter 13 trustee is an indispensable party who must be joined as a party defendant to this adversary proceeding. The Bank asserts that the Sheeleys are not cloaked with the avoidance powers of a bankruptcy trustee under § 544 and that, as parties to the Mortgage, the Sheeleys do not qualify as bona fide purchasers who can avoid a consensual lien. The Bank asserts the Chapter 13 trustee is not indispensable to a resolution of this litigation.
The Bank contends that the Sheeleys do not have standing to avoid the Mortgage pursuant to § 544 because the Mortgage was a voluntary transfer of their interests in the Residence Parcel, and a Chapter 13 debtor is authorized to avoid only those transfers that are involuntary and then only to the extent necessary to protect an exemption. See Kildow v. EMC Mortgage Corp. (In re Kildow), 232 B.R. 686, 692 (Bankr. S.D. Ohio 1999), citing 11 U.S.C. § 522(g)(1) and (h). The Sheeleys respond that while the Bank has commenced this adversary proceeding, the Sheeleys have yet to assert an avoidance claim for which their standing might be brought into question. Instead, they are relying on the fact that unless and until the Bank's request for reformation is granted, the Mortgage will continue to cover only the Vacant Parcel and leave the Residence Parcel unencumbered. They argue that their standing in this adversary proceeding, as presently postured, is not an issue....
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