Chase Plaza Condo. Ass'n, Inc. v. Jpmorgan Chase Bank, N.A.

• Decision Date: 28 August 2014
• Docket Number: Nos. 13–CV–623,13–CV–674.,s. 13–CV–623
• Citation: Chase Plaza Condo. Ass'n, Inc. v. JP Morgan Chase Bank, N.A., 98 A.3d 166 (D.C. 2014)
• Court: D.C. Court of Appeals
• Parties: CHASE PLAZA CONDOMINIUM ASSOCIATION, INC. and Darcy, LLC, Appellants, v. JPMORGAN CHASE BANK, N.A., Appellee.

98 A.3d 166

CHASE PLAZA CONDOMINIUM ASSOCIATION, INC. and Darcy, LLC, Appellants,

v.JPMORGAN CHASE BANK, N.A., Appellee.

Nos. 13–CV–623, 13–CV–674.

District of Columbia Court of Appeals.

Argued April 17, 2014.

Decided Aug. 28, 2014.

Robert C. Gill, with whom Carolyn Due, Washington, D.C., was on the brief, for appellant Chase Plaza Condominium Association, Inc.Rachel Abramson for appellant Darcy, LLC.

Thomas J. McKee, Jr., with whom Michael R. Sklaire, McLean, VA, was on the brief, for appellee JPMorgan Chase Bank, N.A.

Thomas Moriarty, Jason E. Fisher, Laura M. Gagliuso, Bethesda, MD, Henry Goodman, and Loura Sanchez filed a brief on behalf of the Community Associations Institute as amicus curiae in support of appellant Chase Plaza Condominium Association, Inc.

Before THOMPSON and McLEESE, Associate Judges, and KING, Senior Judge.

McLEESE, Associate Judge:

Brian York purchased a condominium unit, financing the purchase through a mortgage loan that was secured by a deed of trust on the unit. After Mr. York defaulted on his monthly condominium assessments, appellant Chase Plaza Condominium Association, Inc. foreclosed on the unit. Appellant Darcy, LLC purchased the property at a foreclosure sale. Several months later, appellee JPMorgan Chase Bank, N.A. filed a complaint alleging that the foreclosure sale was void, because the price at the sale was unconscionably low and because the sale impermissibly purported to extinguish the lien created by the deed of trust. The trial court agreed on the latter point and granted summary judgment to JPMorgan. We reverse and remand.

I.

Except as noted, the following facts are undisputed. In July 2005, Mr. York purchased a condominium unit in Washington, D.C. Mr. York financed the purchase by executing a promissory note for $280,000 that was secured by a deed of trust on the unit. The deed of trust named Mr. York as “Borrower,” First Financial Services, Inc. as “Lender,” Federal Title & Escrow Co. as “Trustee,” and Mortgage Electronic Registration Systems, Inc. (“MERS”) as beneficiary and as a nominee for First Financial Services, Inc. The deed of trust was recorded in August 2005.

By late 2008, Mr. York was delinquent both on his mortgage payments and on the monthly condominium-association payments he was required to make to Chase Plaza. In April 2009, Chase Plaza recorded a condominium-assessment lien on the unit. Chase Plaza also conducted a title search on the unit, which revealed three outstanding liens: (1) the first deed of trust; (2) a second mortgage for $60,000; and (3) the condominium-assessment lien for $9,415.

Chase Plaza subsequently initiated foreclosure proceedings against Mr. York, seeking to recover six months' worth of unpaid assessments. In January 2010, Chase Plaza filed a notice of foreclosure sale, published the notice, and mailed the notice to the parties named in the deed of trust. The notice specified that the foreclosure sale would not be subject to the first deed of trust. In other words, the notice reflected the position that Chase Plaza's lien had a higher priority than the lien created by the first deed of trust and that if the foreclosure sale generated insufficient proceeds to satisfy Chase Plaza's lien, the foreclosure sale would extinguish the lien created by the first deed of trust. See generally, e.g., Pappas v. Eastern Sav. Bank, FSB, 911 A.2d 1230, 1234 (D.C.2006) (general rule is that valid foreclosure sale extinguishes subordinate liens that cannot be satisfied from proceeds of sale).

In February 2010, Darcy purchased the unit for $10,000 at a foreclosure sale.¹ Darcy was the only bidder at the sale. A deed of trust reflecting Darcy's purchase was executed in March 2010.

In April 2010, JPMorgan commenced foreclosure proceedings against Mr. York for failure to make mortgage payments. After discovering that Chase Plaza had already foreclosed on the unit, JPMorgan filed a complaint against Chase Plaza and Darcy requesting that the trial court set aside the foreclosure sale and declare that JPMorgan held title to the unit. In explaining its interest in the unit, JPMorgan stated that in March 2009 MERS, which was designated as the beneficiary and nominee in the first deed of trust, had assigned its interest in the deed of trust to an entity JPMorgan referred to as Washington Mutual. JPMorgan further stated that it had acquired Washington Mutual in 2008, and that it also was the current holder of the original promissory note.

The trial court granted partial summary judgment to JPMorgan. Specifically, the trial court (1) determined that JPMorgan had standing to bring the action; (2) determined that Chase Plaza could not lawfully extinguish the first deed of trust; (3) voided the foreclosure sale because the unit had not been sold subject to the first deed of trust; and (4) declared that JPMorgan held title to the unit. Pursuant to the stipulation of the parties, the trial court subsequently dismissed JPMorgan's remaining claims.

II.

We begin by addressing three threshold issues: whether JPMorgan has standing to raise its claims; whether the trial court's order granting summary judgment is void because it violated the automatic stay under federal bankruptcy law; and whether Mr. York and Washington Mutual are indispensable parties to this case under Rule 19 of the Superior Court Rules of Civil Procedure.

A.

Chase Plaza and Darcy argue that JPMorgan lacks an interest in the unit sufficient to confer standing on JPMorgan. We disagree. JPMorgan alleges, and Chase Plaza and Darcy do not dispute, that JPMorgan has physical possession of the original promissory note, which is a negotiable instrument indorsed in blank. “An indorsement in blank is essentially a stamp that indorses an instrument without specially indorsing it to a specific party. Usually it makes that instrument payable to the bearer and transfers with it legal title to security attached to the instrument.” Leake v. Prensky, 798 F.Supp.2d 254, 256 n. 3 (D.D.C.2011). Under District of Columbia law, the holder of a negotiable instrument indorsed in blank is normally entitled to enforce the instrument, including through foreclosure proceedings. SeeD.C.Code § 28:3–301 (2012 Repl.) (holder of negotiable instrument may enforce instrument), –205(b) (2012 Repl.) (instrument indorsed in blank is payable to bearer and may be negotiated by transfer of possession); Leake, 789 F.Supp.2d at 256–57 (bank in possession of note indorsed in blank was entitled to commence non-judicial foreclosure proceedings); Grant II v. BAC Home Loans Servicing, No. 10–cv–01543, 2011 WL 4566135, at *4 (D.D.C. Sept. 30, 2011)(“[A]s the Note is indorsed in blank, [the loan-servicing company's] possession of the Note establishes its status as holder of the Note.... As holder of the note, [the loan-servicing company] could properly enforce its provisions” through foreclosure proceedings.). We therefore conclude that JPMorgan has standing to seek to set aside the foreclosure sale. ²

B.

During the course of the events at issue in this case, two of the dramatis personae declared bankruptcy: Mr. York, who had purchased the unit in 2005 but whose default in 2008 led to the 2010 foreclosure, declared personal bankruptcy in June 2011; and Washington Mutual, Inc., which arguably was assigned an interest in the promissory note in 2009, declared bankruptcy under Chapter 11 of the federal bankruptcy laws in 2008. Under federal bankruptcy law, the filing of certain kinds of bankruptcy petitions triggers an automatic stay. 11 U.S.C. § 362(a) (2012) (filing petition for bankruptcy relief “operates as a stay”). That stay extends, among other things, to certain lawsuits “against the debtor ... or to recover a claim against the debtor”; “to obtain possession of property of the [bankruptcy] estate or of property from the estate or to exercise control over property of the estate”; to enforce a lien against property of the estate; or to enforce against property of the debtor a lien securing a claim that arose before commencement of the bankruptcy proceeding. Id. at § 362(a)(1), (3)-(5). Judgments rendered in violation of the automatic stay are void. Jones v. Cain, 804 A.2d 322, 329 (D.C.2002). This court has the authority to decide in the first instance whether a trial-court ruling violated the bankruptcy stay. See id. at 325–29 (deciding in first instance that judgment against defendant violated automatic stay and was therefore void, because judgment was rendered after defendant filed petition for bankruptcy).

We perceive no violation of the automatic stay. With respect to Mr. York's bankruptcy proceedings, which began in 2011, JPMorgan obtained an order lifting the stay to permit JPMorgan to foreclose against the unit “free and clear of any interest” of Mr. York or the bankruptcy estate. Moreover, Mr. York's interest in the unit had been foreclosed upon in 2010, without any objection from Mr. York; Mr. York did not list the unit on his schedule of assets in the bankruptcy proceedings; and Mr. York denied owning the unit as of the time he filed for bankruptcy. Under the circumstances, we agree with the parties that the unit was not property of Mr. York's bankruptcy estate and that the present lawsuit did not otherwise run afoul of the automatic stay. Cf., e.g., Foskey v. Plus Props., LLC, 437 B.R. 1, 11–12 (D.D.C.2010) (property in which debtor has no legal or equitable interest “is deemed to be outside the property of the estate” and not subject to automatic stay; automatic stay did not bar post-petition acts concerning property previously owned by debtor but sold in pre-petition tax sale).

With respect to Washington Mutual, any interest it might have in the first deed of trust did not arise until 2009, after Washington Mutual, Inc. filed for bankruptcy. Where the bankruptcy debtor is a corporation that continues to operate during the pendency of the bankruptcy proceeding, as apparently was the case with Washington Mutual,...