Beyha v. Conestoga Title Ins. Co. (In re Beyha)
| Citation | 637 B.R. 430 |
| Decision Date | 10 March 2022 |
| Docket Number | Bky. No. 11-18010 ELF,Adv. No. 20-252 |
| Parties | IN RE: Fawwaz F. BEYHA, Debtor. Fawwaz F. Beyha, Plaintiff v. Conestoga Title Insurance Company, et al., Defendants |
| Court | United States Bankruptcy Courts. Third Circuit. U.S. Bankruptcy Court — Eastern District of Pennsylvania |
Ronald G. McNeil, McNeil Legal services, Philadelphia, PA, for Plaintiff.
Mark C. Clemm, Katie M. Clemm, Clemm And Associates, LLC, Blue Bell, PA, for Defendant.
"The consequences for missing deadlines can often be harsh." Ben-Yisrayl v. Wilson, 2015 WL 5542525, at *5 (S.D. Ind. Sept. 18, 2015). This is such a case.
The parties’ dispute emanates from a loan transaction secured by a mortgage on real property that took place in 1997, fourteen (14) years before the Fawwaz F. Beyha ("the Debtor") commenced this chapter 11 bankruptcy case in 2011. Conestoga Title Insurance Company ("Conestoga") is the current record mortgage holder. The Debtor obtained confirmation of a chapter 11 plan. The bankruptcy court entered a final decree in the chapter 11 case in 2016.
When Conestoga resumed efforts to enforce the mortgage against the Debtor's property after the conclusion of the Debtor's chapter 11 case, the Debtor returned to this court seeking relief from what he claims is a violation of his confirmed plan and his bankruptcy discharge. The Debtor contends that his confirmed chapter 11 plan extinguished the 1997 mortgage now held by Conestoga and that Conestoga, which did not object to confirmation of the plan, is bound by its terms.
Presently before the court are the parties’ cross motions for summary judgment. (Adv. No. 20-252, Doc. #’s 11, 19).
For the reasons stated below, I conclude, based on the Debtor's confirmed plan, 11 U.S.C. § 1141(c), and the Debtor's completion of the plan, that the subject property revested in the reorganized Debtor free and clear of the mortgage interest now claimed by Conestoga. Based on the current record created by the parties at this summary judgment stage, it is not possible to determine the remedy to which the Debtor is entitled.1 Therefore, I will grant the Debtor's motion, deny Conestoga's motion, and schedule a further hearing in this adversary proceeding.
To understand the parties’ dispute, it is necessary to review both the pre-bankruptcy history as well as the (tortuous) procedural history of the bankruptcy proceedings. There are no material facts in dispute.
Since 1997, the Debtor has owned the property located at 1900 South 19th Street, Philadelphia, PA ("the Property").
As of August 12, 1997, the Property was subject to a mortgage held by Springleaf Financial Services, Inc., f/k/a American General Finance ("Springleaf"), in the approximate amount of $33,000.00 - 35,0000.00 ("the Springleaf Mortgage" or "the Springleaf Loan").
On October 31, 2006, the Debtor entered into a loan transaction with Delta Funding Corporation ("Delta") in the amount of $135,450.00 ("the 2006 Loan"). The 2006 Loan was secured by a Mortgage on the Property ("the 2006 Mortgage"). Subsequently, Delta assigned the 2006 Loan and the 2006 Mortgage to HSBC Bank USA ("HSBC"). (Bky. No. 11-18010, Proof of Claim # 4-1). Ocwen Loan Servicing, LLC ("Ocwen") is the servicer for HSBC and filed its proof of claim. (Id. ).
The Debtor contends that the 2006 Loan with Delta refinanced the Springleaf Loan, with Delta later assigning the mortgage to HSBC (and HSBC later assigning the mortgage, or at least the servicing rights, to Ocwen).2
Following a 2012 claim by Ocwen against Conestoga under the title insurance policy, the Debtor alleges that Conestoga "satisfied" Springleaf's mortgage by check dated September 28, 2012. According to the Debtor, this should have caused Conestoga to record a satisfaction of the Springleaf Mortgage. (Complaint ¶¶ 18-20, 27-31).
Conestoga disputes the Debtor's characterization regarding the title insurance. Conestoga contends that the 2006 Loan was intended to be a first position mortgage on the Property, that the title insurance was intended for Delta's protection and that, due to an error by the title company, the loan proceeds were not used to pay off the Springleaf Loan, leaving the Springleaf Mortgage in place in first position on the Property and putting Delta/HSBC/Ocwen in second position.3 (Answer to Complaint ¶¶ 59-60, 67).4
Conestoga's theory of the case explains why Conestoga, not Springleaf, contests the Debtor's position that the Springleaf Mortgage has been extinguished. Conestoga insured the title of Ocwen's predecessor's (Delta) in the 2006 Loan Transaction. To put its insured (Delta or HSBC/Ocwen) in first lien position, Conestoga took an assignment of Springleaf's rights and subordinated its position to HSBC/Ocwen.5
On October 16, 2011, the Debtor commenced a chapter 13 bankruptcy case in this court.
In his bankruptcy schedules, filed on November 12, 2021, the Debtor listed ownership of the Property, along with nine (9) other properties located in Philadelphia, PA. In Schedule D, the Debtor listed Springleaf as the holder of the first mortgage on the Property with a balance of $35,000.00 and Ocwen as the holder of the second mortgage on the Property with a balance of $85,200.00. (Bky. No. 11-18010, Doc. # 17). The Debtor did not list either debt as disputed.
In his chapter 13 plan, also filed on November 12, 2011, the Debtor proposed to pay off Springleaf's claim at $35,000.00 and Ocwen's claim to the extent it was an allowed secured claim under 11 U.S.C. § 506(a). (Debtor's Chapter 13 Plan ¶ 2) (Bky. No. 11-18010, Doc. # 19). This reference to Ocwen and § 506(a) implies that the Debtor perceived the Springleaf Mortgage to be in first lien position and, based on the value of the Property, that Ocwen's secured claim was undersecured. See n.6, infra.
On October 21, 2011, five (5) days after commencement of the bankruptcy case, Benjamin E. Witmer ("Witmer"), of the law firm Fox & Fox, filed an entry of appearance and request for notices on the docket on behalf of Springleaf. (Bky. No. 11-10810, Doc. # 9).
On January 17, 2012, Springleaf filed a proof of claim, asserting a claim in the amount of $36,733.34, secured by the Property. (Bky. No. 11-10810, Claim No. 16). The proof of claim was signed by Megan White, bankruptcy specialist. The proof of claim requested that notices in the case be sent to Springleaf at 519 Baltimore Pike, Springfield, PA 19064-3811.
On January 18, 2012, the Debtor commenced an adversary proceeding against Ocwen, seeking to bifurcate its secured claim into secured and unsecured components pursuant to 11 U.S.C. § 506(a), but later agreed to dismiss the proceeding.6
On February 6, 2012, Springleaf, acting through Witmer, filed an objection to confirmation of the Debtor's chapter 13 plan. (Bky. No. 11-10810, Doc. # 69).
On February 25, 2012, Springleaf (again, through Witmer) filed a motion for relief from the automatic stay on Springleaf's behalf. (Id., Doc. # 94). The motion was granted by order dated March 12, 2012. The order "lifted" the stay "as to Springleaf, its nominee or assignee." (Id., Doc. # 112).7
On May 23, 2012, approximately two (2) months after the entry of the order granting Springleaf relief from the automatic stay, the court converted the chapter 13 case to chapter 11 on Debtor's motion. (Bky. No. 11-10810, Doc. # 158).
On May 26, 2012, the Debtor filed an Amended Schedule D, still listing Springleaf and Ocwen as the holders of the first and second mortgages on the Property.
Again, the filing gave no indication that the claims were disputed.
On July 5, 2012, the Debtor filed a proposed chapter 11 plan of reorganization. (Id., Doc. # 205). Thereafter, the Debtor filed a series of proposed amended plans, culminating in the Eighth Modified Plan of Reorganization ("the Confirmed Plan"), filed on August 6, 2014 and confirmed by the court on December 3, 2014. (Id., Doc. #’s 347, 410).8
On September 12, 2012, shortly after the Debtor filed his first proposed chapter 11 plan and long before he filed the Confirmed Plan, Conestoga paid Springleaf, took an assignment of Springleaf's rights and subordinated its lien position in favor of Ocwen. See n.5, supra. At the time, Conestoga was aware of the existence of the bankruptcy case. In fact, Conestoga knew of the existence of the bankruptcy case as of March 14, 2012. (Conestoga Response to Request for Admission No. 5) (Adv. No. 20-252, Doc. # 11-3).
The following provisions of the Confirmed Plan are relevant in this adversary proceeding.
In the definitional section of the Confirmed Plan, the Debtor defined Ocwen as, inter alia, the original holder of the second mortgage on the Property but who "brought [sic] out the interest of Springleaf; thus, it holds a first mortgage interest." (Confirmed Plan § 1.34). The Debtor defined Springleaf as the original "first mortgagee, for 1900 South 19th Street, which has sold its claim to Ocwen and thus holds no claim against Debtor." (Id. § 1.43).
In § 4.01 of the Confirmed Plan, the Debtor classified Class 3 claims as "secured claims" that are impaired. Section 4.01 further provides that class 3 claimants "will retain their liens, except the claims of Lava Funding and Springleaf ." (Id. § 4.01) (emphasis added). Later, in another hanging paragraph within § 4.01, the Confirmed Plan states: "The claim of Springleaf has been satisfied by Ocwen and no amount is owed to Springleaf."9
The disclosure statement that accompanied the Confirmed Plan does not mention Springleaf.10 With regard to Ocwen, it states:
... Debtor shall satisfy the Class 3 claim of Ocwen, in the agreed upon amount of $115,232.18 plus a modified fixed interest rate of 5.0%, and adjusted by agreed upon escrow payments, shall be paid by monthly installments that come due the Petition Date through the Maturity Date of the underlying October 31, 2006 mortgage...
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