Cusato v. Springleaf Fin., Inc. (In re Cusato)

• Decision Date: 06 February 2013
• Docket Number: Adversary No. 12–0429.,Bankruptcy No. 00–34338 ELF.
• Parties: In re Rosemary CUSATO, Debtor. Rosemary Cusato, Plaintiff, v. Springleaf Financial, Inc., Defendant.
• Court: United States Bankruptcy Courts. Third Circuit. U.S. Bankruptcy Court — Eastern District of Pennsylvania

485 B.R. 824

In re Rosemary CUSATO, Debtor.Rosemary Cusato, Plaintiff,

v.Springleaf Financial, Inc., Defendant.

Bankruptcy No. 00–34338 ELF.

Adversary No. 12–0429.

United States Bankruptcy Court, E.D. Pennsylvania.

Feb. 6, 2013.

David A. Scholl, Law Office of David A. Scholl, Philadelphia, PA, for Plaintiff.

Henry F. Reichner, Reed Smith LLP, Philadelphia, PA, for Defendant.

MEMORANDUM

ERIC L. FRANK, Bankruptcy Judge.

I. INTRODUCTION

In January 2012, Plaintiff Rosemary Cusato (“the Debtor”) settled on a reverse mortgage loan on her residence. Prior to the closing, Defendant Springleaf Financial, Inc. (“Springleaf”) ¹ demanded payment from the Debtor as a condition of marking satisfied its lien of record against the property. In order to close the transaction, the Debtor paid Springleaf $13,104.45 from the loan proceeds.

In this adversary proceeding, the Debtor asserts that Springleaf's lien was avoided in her bankruptcy case and that the demand for payment prior to the closing of the reverse mortgage transaction constituted an act to collect an unsecured debt in violation of the chapter 7 bankruptcy discharge that she received in 2005 and the statutory injunction arising therefrom. See11 U.S.C. § 524(a)(2).

Before the court is Springleaf's motion for summary judgment (“the Motion”).

I conclude that Springleaf's demand for payment was not an attempt to collect a debt “as a personal liability of the debtor,” enjoined by § 524(a)(2), but was merely an attempt to enforce a lien against the Debtor's property that passed through her bankruptcy case unaffected. I reach this result because I conclude that the Springleaf lien was not avoided during the Debtor's bankruptcy case. Consequently, Springleaf did not violate the discharge injunction. The Motion will be granted and summary judgment will be entered in Springleaf's favor.

II. FACTUAL AND PROCEDURAL HISTORY

A.

The facts in this matter are undisputed.

In February 1999, American General Finance, Inc. (“American General”) extended a loan to the Debtor that was secured by a second mortgage on her residence, 2334 South Colorado Street, Philadelphia, Pa (“the Property”). American General is the predecessor of Springleaf.²

On November 16, 2000, the Debtor filed a chapter 13 bankruptcy case. On November 29, 2000, the Debtor filed an adversary complaint in which she requested that the court avoid American General's second mortgage lien. ( See Adv. No. 00–899) (“the Prior Adversary Proceeding”).

In her adversary complaint in the Prior Adversary Proceeding, the Debtor alleged that American General's loan in the amount of $11,536.54 was “totally undersecured” and “subject to avoidance pursuant to 11 U.S.C. section 506(a), as interpreted by In re McDonald, 205 F.3d 606 (3d Cir.2000).” (Springleaf Ex. 4, at ¶¶ 3, 6).

American General filed a proof of claim on December 4, 2000 in the amount of $11,773.08, an amount very close to the amount alleged in the Debtor's complaint in the Prior Adversary Proceeding. However, American General did not answer the adversary complaint. Upon the Debtor's motion for default judgment, and by order dated March 16, 2001, the court entered an order (hereafter “the March 2001 Order”) stating:

AND NOW, this 16 day of March, 2001, upon consideration of the within Complaint and the failure of the Defendant to plead any viable defenses thereto, it is hereby ORDERED that the claim of the Defendant, AMERICAN GENERAL FINANCE, INC., is classified as a totally unsecured claim in this bankruptcy case.

(Springleaf Ex. 6) (emphasis added). Following the entry of the March 2001 Order, American General's claim was reclassified on the claims register as an unsecured claim.

The docket in the “main” bankruptcy case reflects that after the entry of the March 2001 Order, the hearing on confirmation of the Debtor's chapter 13 plan was continued twenty-seven (27) times over a period of approximately three and one-half years (3 1/2) years.³ Nothing in the present record explains the basis for this extraordinary delay in case administration. The Debtor's chapter 13 plan was never confirmed. Finally, on September 27, 2004, the Debtor filed an “election,” converting the case from chapter 13 to chapter 7. SeeFed. R. Bankr.P. 1017(f) (chapter 13 case may be converted to chapter 7 without court order under 11 U.S.C. § 1307(a) by the filing of a notice of conversion).

On January 11, 2005, the court entered a chapter 7 discharge order. The case was closed on April 11, 2005.

More than six (6) years later, in September 2011, the holder of the first mortgage on the Property, American Home Mortgage Servicing, Inc. (“AHMSI”), filed a complaint in foreclosure against the Debtor in the Court of Common Pleas, Philadelphia County, presumably based upon a mortgage payment delinquency. ( See Springleaf Ex. 11). To avert the threatened foreclosure, the Debtor applied for a reverse mortgage loan with Urban Financial Group (“Urban”). (Debtor's Affid. ¶ 15). The loan application was approved.

In response to a request for a payoff statement made by the title agent handling the reverse mortgage loan closing, Springleaf sent the title agent a letter stating that the payoff amount on the outstanding second mortgage loan was $13,104.45, good through January 22, 2012. (Springleaf Ex. 7, Decl. of Melody Smith ¶ 4). The payoff letter appears to be Springleaf's first collection effort of any kind after the entry of the Debtor's chapter 7 discharge. ( See Debtor's Affid. ¶ 14).

After Urban informed her of the outstanding Springleaf obligation, the Debtor advised Urban that she “vigorously disputed” the claim and “attempted to call” Springleaf's office. ( Id. at ¶¶ 18–19). In the end, however, she permitted the Springleaf loan to be paid off at the reverse-mortgage closing because Urban advised her that the loan could not close without the payment and, without the loan, she considered her home to be in jeopardy of foreclosure by AHMSI. ( Id. ¶¶ 20–21).

B.

On April 21, 2012, the Debtor filed a motion to reopen her chapter 7 bankruptcy case for the purpose of filing the present adversary matter to recover the sums paid to the Defendant. On May 30, 2012, there being no opposition,⁴ the court granted the motion and entered an order reopening the bankruptcy case. That same day, the Debtor initiated this adversary matter by filing a complaint. Springleaf filed its Answer on June 29, 2012. Springleaf filed the Motion on November 19, 2012. ( Adv. No. 12–0429, Doc. # 's 17, 18). The Debtor timely filed her response to the Motion on December 2, 2012. ( Adv. No. 12–0429, Doc. # 's 21, 22). The matter is ready for disposition.

III. LEGAL STANDARD—SUMMARY JUDGMENT

A moving party is entitled to summary judgment by demonstrating that “there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law.” Fed.R.Civ.P. 56(a); see, e.g., Liberty Lincoln–Mercury, Inc. v. Ford Motor Co., 676 F.3d 318, 323 (3d Cir.2012).

Under Rule 56, the moving party is entitled to judgment as a matter of law if the court finds that the motion alleges facts which, if proven at trial, would require a directed verdict in favor of the movant. Fitzpatrick v. City of Atlanta, 2 F.3d 1112, 1115 (11th Cir.1993). “[I]t is inappropriate to grant summary judgment in favor of a moving party who bears the burden of proof at trial unless a reasonable juror would be compelled to find its way on the facts needed to rule in its favor on the law.” United States v. Donovan, 661 F.3d 174, 185 (3d Cir.2011) (quoting El v. Se. Pa. Transp. Auth., 479 F.3d 232, 238 (3d Cir.2007)). If the moving party meets its initial burden, the responding party may not rest on the pleadings, but must designate specific factual averments through the use of affidavits or other permissible evidentiary material which demonstrate a genuine issue of material fact to be resolved at trial. Celotex Corp. v. Catrett, 477 U.S. 317, 324, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986); Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 247–50, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986).

The court's role is not to weigh the evidence, but to determine whether there is a disputed, material fact for resolution at trial. Anderson, 477 U.S. at 249, 106 S.Ct. 2505. A genuine issue of material fact is one in which the evidence is such that a reasonable fact finder could return a verdict for the non-moving party. Id. at 248, 106 S.Ct. 2505. The court must view the underlying facts and make all reasonableinferences therefrom in the light most favorable to the party opposing the motion. Wright v. Corning, 679 F.3d 101, 105 (3d Cir.2012); Pennsylvania Coal Ass'n v. Babbitt, 63 F.3d 231, 236 (3d Cir.1995). Thus, if it appears that the evidence “is so one-sided that one party must prevail as a matter of law,” the court shall enter judgment accordingly in that party's favor. Anderson, 477 U.S. at 252, 106 S.Ct. 2505.

IV. DISCUSSION

A.

The Debtor contends that Springleaf's conduct violated the discharge injunction set forth in 11 U.S.C. § 524(a)(2). Section 524(a)(2) states:

(a) A discharge in a case under this title—

...

(2) operates as an injunction against the commencement or continuation of an action, the employment of process, or an act, to collect, recover or offset any such debt as a personal liability of the debtor, whether or not discharge of such debt is waived

....

The purpose of the statutory injunction “is to give complete effect to the discharge and to eliminate any doubt concerning the effect of the discharge as a total prohibition on debt collection efforts.” In re Armstead, 1997 WL 860677, at *3 (Bankr.E.D. Pa. Nov. 7, 1997) (quoting H.R.Rep. No. 595, 95th Cong., 1st Sess. 365–66 (1977)); accord In re Cordero, 2012 WL 5457218, at *5 (Bankr.D.P.R. Oct. 23, 2012).

For present purposes, the key phrase in § 524(a)(2) is “as a personal liability of the debtor.”

A secured creditor's demand for payment as a condition of satisfying a valid lien on property...