D'Angelo v. Blue Chip Fed. Credit Union (In re D'Angelo)

• Decision Date: 13 May 2013
• Docket Number: Bankruptcy No. 1:11–bk–07248–RNO.,Adversary No. 1:12–ap–00144–RNO.
• Citation: 494 B.R. 639
• Parties: In re Timothy Frank D'ANGELO, and Ronda Suzanne D'Angelo, Debtors. Timothy Frank D'Angelo, and Ronda Suzanne D'Angelo, Plaintiff v. Blue Chip Federal Credit Union, Metro Bank, and Small Business Association, Defendants.
• Court: U.S. Bankruptcy Court — Middle District of Pennsylvania

494 B.R. 639

In re Timothy Frank D'ANGELO, and Ronda Suzanne D'Angelo, Debtors.Timothy Frank D'Angelo, and Ronda Suzanne D'Angelo, Plaintiff

v.Blue Chip Federal Credit Union, Metro Bank, and Small Business Association, Defendants.

Bankruptcy No. 1:11–bk–07248–RNO.

Adversary No. 1:12–ap–00144–RNO.

United States Bankruptcy Court, M.D. Pennsylvania.

May 13, 2013.

Gary J. Imblum, Imblum Law Offices, P.C., Harrisburg, PA, for Plaintiffs.

Anthony Todd McBeth, Harrisburg, PA, Peter E. Meltzer, Weber Gallagher Simpson Stapleton Fires, Philadelphia, PA, for Defendants.

OPINION¹

ROBERT N. OPEL, II, Bankruptcy Judge.

Pending before the Court is Creditor/Defendant Blue Chip Federal Credit Union's (“Blue Chip”) Motion for Summary Judgment. The motion seeks not to dismiss the adversary entirely, but instead only to determine the priority of Blue Chip's and the other Creditor/Defendant, Metro Bank's (“Metro”), security interests in the Debtors' primary residence. For the reasons set forth below, the Motion for Summary Judgment is denied.

I. Jurisdiction

The Court has jurisdiction over this matter pursuant to 28 U.S.C. §§ 157 and 1334. This is a core proceeding under 28 U.S.C. § 157(b)(2)(K).

II. Facts and Procedural History

The Debtors filed their petition for Chapter 13 relief on October 25, 2011. On May 24, 2012, this adversary proceeding commenced by way of the Debtors' Complaint to Determine Extent of Secured Status (“Complaint”) pursuant to 11 U.S.C. § 506(a).² The Complaint contains two counts. Count I prays this Court to find Blue Chip's mortgage on Debtors' principal residence ³ to be fully avoidable, whereas Count II asks me to find that Metro is fully secured as to the value listed in Debtors' Schedule A, namely $190,000.00. Compl. ¶¶ 6–10. Within the Complaint, the Debtors aver the principal amount of the following liens encumber the Tarrytown Property, in order of highest to lowest priority:

1. $118,000.00 first mortgage held by Metro and guaranteed by the Small Business Association (“SBA”). It was recorded on August 1, 2008 and it allegedly holds first priority based on a Subordination Agreement recorded on February 4, 2009. The Debtors signed the accompanying note in their individual capacity and it secures their principal residence directly.⁴ Metro's Proof of Claim 9–1 was filed on behalf of this debt.

2. $42,000.00 second mortgage held by Metro and guaranteed by the SBA. This was recorded on July 25, 2008, but was allegedly subordinated by agreement on February 4, 2009. The accompanying note is signed by the Debtors in their individual capacity and secures the Tarrytown Property.⁵ There exists a duplicative mortgage for an identical principal amount securing the Debtors' business property, but it does not secure any additional value for Metro in terms of the Tarrytown Property. Metro's Proof of Claim 10–1 was filed on behalf of this debt.

3. $256,000.00 mortgage held by Metro that, at one time, secured Debtors' business property associated with Tangelo Enterprises, Inc. The accompanying note is also guaranteed by the SBA and was recorded on July 25, 2008. The Debtors allege that this mortgage holds priority on the Tarrytown Property pursuant to a Cross–Collateralization Agreement made in accordance with Metro Mortgage 1, despite the fact that it directly secures the Debtors' business properties. Both sides agree that this lien does not appear on a title search for the Tarrytown Property.⁶ Metro's Proof of Claim 11–1 was filed on behalf of this debt.

4. $52,500.00 mortgage held by Blue Chip securing the Tarrytown Property. This mortgage was recorded on March 18, 2010.⁷ Blue Chip presently has not filed a proof of claim on behalf of this debt.

Compl. ¶ 3. Assuming all four of these instruments secure the Debtors' residence, the total face value of liens on this property is $468,500.00. However, according to the Complaint, “[t]he market value of Debtors' residence is $190,000.00 according to a market analysis of October 31, 2001.” Compl. ¶ 5. In essence, the Debtors allege that the combination of the three Metro mortgages swallow all existing equity of the Tarrytown Property, leaving the Blue Chip Mortgage fully unsecured. Compl. ¶ 6.

Metro filed their Answer on June 18, 2012. While the pleading contained mostly general admissions and denials, Metro specifically denies the Debtors' estimated value of the property. Metro Answer ¶ 5. To that end, Metro provides no specific estimation; instead it states that “the property is worth more than $190,000.00.” Id.

Blue Chip filed its Answer on August 10, 2012. It too contains general admissions and denials. The pleading specifically avers that there is equity in the Tarrytown Property to secure the Blue Chip Mortgage. Blue Chip Answer ¶ 7.

For the sake of clarity, it is worth quoting the specific language of Metro Mortgage 2, although the instrument was not provided to this Court until February 11, 2013. Printed on the bottom of page 1 of the mortgage is the following clause:

CROSS–COLLATERALIZATION. In addition to the Note, this Mortgage secures all obligations, debts and liabilities, plus interest thereon, of either Grantor or Borrower to Lender, or any one or more of them, as well as all claims by Lender against Borrower and Grantor or any one or more of them, whether now existing or hereafter arising, whether related or unrelated to the purpose of the Note....

Metro's Answer to Mot. for Summ. J. Ex. F. After that clause, in bold print and capitalized, is the following language:

This Mortgage ... is given to secure (a) payment of the indebtedness and (b) performance of any and all obligations under the Note in the original principal amount of $42,000.00, the related documents, and this Mortgage.

Id. Finally, the following definition is provided on page 10:

Indebtedness. The word “Indebtedness” means all principal, interest, and other amounts, costs and expenses payable under the Note or Related Documents.... Specifically, without limitation, Indebtedness includes all amounts that may be indirectly secured by the Cross–Collateralization provision of this Mortgage.

Id.

On January 15, 2013, nearly five months after filing their Answer, Blue Chip filed its Motion for Summary Judgment (“Motion”). The Motion directly challenges the contention that Metro Mortgage 3 holds priority vis-à-vis the Blue Chip Mortgage. See Mot. for Summ. J. ¶¶ 41–49. Blue Chip concedes that there is a cross-collateralization provision in Metro Mortgage 2, id. at ¶ 37, but argues that the absence of Metro Mortgage 3, by name, from this provision precludes Metro from cross collateralizing Metro Mortgage 3 against the Debtors' personal residence. Id. at ¶¶ 44–46. In simpler terms, Blue Chip claims that only Metro Mortgages 1 and 2 hold priority over its own because the cross-collateralization provision is legally invalid. Id. at ¶¶ 43–46.

In support of its position, Blue Chip attaches numerous documents to the Motion, and three directly to the docket. These include a copy of Metro Mortgage 1, a mortgage with identical terms as Metro Mortgage 1 but naming Tangelo LLC as mortgagor, and a Dauphin County title search under Timothy D'Angelo dated January 15, 2013. The latter presumably represents that the Blue Chip Mortgage, Metro Mortgage 1, and Metro Mortgage 2 can be found on a title search while Metro Mortgage 3 cannot.

Metro filed its Answer to the Motion on February 11, 2013. Factually, the Answer agrees with the contentions of both the Debtor and Metro; to wit: all three of Metro's mortgages at issue were executed prior to Blue Chip's, Metro Mortgage 2 contains a cross-collateralization provision that does not name Metro Mortgage 3 by name; and the business property directly secured by Metro Mortgage 3 was sold by sheriff sale. Metro's Answer to Mot. for Summ. J. ¶¶ 31, 44, 49. However, Metro contends that the cross-collateralization provision in Metro Mortgage 2 evinces the intent of the Debtors to secure the obligations of Metro Mortgage 3 against the Tarrytown Property. Id. at ¶ 44. In support of its Answer, Metro provided the Court with the mortgage and loan documents previously discussed, as well as a Cross–Default and Cross–Collateralization Agreement (“C.C. Agreement”) allegedly signed by the parties on July 25, 2008. Id. at ¶ 49. It is uncontested that the C.C. Agreement was never recorded.

Subsequent to Metro's Answer, the parties filed their respective briefs on the issue. Blue Chip filed papers evidencing the existence of the Blue Chip Mortgage and the associated mortgage on March 7, 2013. The Debtors did not file any documents in response to the Motion.

On April 17, 2013, Metro filed its Answer to Blue Chip's Statement of Material Facts. Metro does not break new ground with its statements in this document opting to state that Blue Chip's $190,000.00 value of the Tarrytown Property is “[n]ot in dispute, although Metro has not taken a position on whether it agrees with this value or not.” Answer of Metro to Statement of Mat. Facts ¶ 4. The document reprints language from the cross-collateralization provision in Metro Mortgage 2 as support for its argument without providing any new facts to the Court. Id. at ¶¶ 14, 43. This matter is now ripe for decision.

III. DiscussionA. Standard to Decide a Motion for Summary Judgment Under F.R.B.P. 7056

Federal Rule of Bankruptcy Procedure 7056 incorporates, and makes applicable to bankruptcy adversary proceedings, Rule 56 of the Federal Rules of Civil Procedure (“F.R.C.P.”). Pursuant to F.R.C.P. 56(a), it is the movant's burden to prove that no genuine dispute exists as to any material fact and that the movant is entitled to judgment as a matter of law. Celotex Corp. v. Catrett, 477 U.S. 317, 323, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986). “As to materiality, ... [o]nly disputes over facts that might affect the outcome of the suit under the governing law will properly preclude the entry of summary judgment.” Anderson v. Liberty Lobby Inc....