Fed. Nat'l Mortg. Ass'n v. CG Bellkor, LLC

• Decision Date: 29 October 2013
• Docket Number: Civil No. 3:13–cv–39 (DJN).
• Citation: 980 F.Supp.2d 703
• Court: U.S. District Court — Eastern District of Virginia
• Parties: FEDERAL NATIONAL MORTGAGE ASSOCIATION, Plaintiff, v. CG BELLKOR, LLC, et al., Defendants.

980 F.Supp.2d 703

FEDERAL NATIONAL MORTGAGE ASSOCIATION, Plaintiff,

v.CG BELLKOR, LLC, et al., Defendants.

Civil No. 3:13–cv–39 (DJN).

United States District Court,

E.D. Virginia,

Richmond Division.

Oct. 29, 2013.

John David Folds, John Goode McJunkin, McKenna Long & Aldridge LLP, Washington, DC, for Plaintiff.

Carl Dewayne Lonas, Madelaine Amanda Kramer, Moran Reeves & Conn PC, Richmond, VA, for Defendants.

MEMORANDUM OPINION

DAVID J. NOVAK, United States Magistrate Judge.

The parties come before the Court by consent pursuant to 28 U.S.C. § 636(c)(1) on Plaintiff's Motion for Summary Judgment (ECF No. 90) and Defendants' Motion for Partial Summary Judgment (ECF No. 92). Both parties have briefed the issues extensively, making the matter ripe for review.

Defendant CG Bellkor, LLC (“Bellkor”) signed a promissory note to purchase a piece of property. Defendant Jonathan Bell (“Bell”) signed a guaranty to that promissory note, agreeing to be personally liable for Bellkor's liability under the note. Bellkor subsequently defaulted on the note. Plaintiff Federal National Mortgage Association (“Fannie Mae”) then brought this action. As of this time, the Court must determine whether Defendants face personal liability on the promissory note—the only issue remaining.

Generally, as a non-recourse promissory note, Bellkor would not have any personal liability for a default. Because Bell's guaranty only applies to Bellkor's personal liability on the promissory note, Bell enjoys the same non-recourse protections that Bellkor does. The promissory note, however, contains carve-outs which give rise to personally liability under the promissory note. The promissory note defines one such carve-out as a “transfer” of the property under the terms of an accompanying security instrument. If a “transfer” did occur, Bellkor, under the promissory note, and Bell, under his guaranty, become personally liable. To resolve the final issue of personal liability, therefore, the Court must determine whether a “transfer” occurred when the City of Richmond (“City”) placed liens on the property.

Little dispute exists between the parties as to the underlying facts. Instead, the parties quarrel over the implications of liens levied on the property by the City after Bellkor failed to pay utility bills. Fannie Mae asserts that the lodging of the liens by the City placed Defendants in default under the terms of the promissory note. Because the Court agrees with Fannie Mae, the Court GRANTS Plaintiff's Motion for Summary Judgment (ECF No. 90) in part and DENIES Defendants' Motion for Partial Summary Judgment (ECF No. 92).

I. Background

A. Summary of Facts

1. The Purchase of the Property and Execution of the Note.

Bellkor, owned and managed by Bell, owned a 216–unit apartment complex in Richmond known as Chamberlayne Gardens (the “Property”) from December 2007 until 2013. (Mem. of Law in Supp. of Pl.'s Mot. for Summ. J. “Pl.'s Mem.” (ECF No. 91) at 2–3.) ¹ Bell and his wife constitute the only shareholders of OHI Properties, LLC, the only member of Chamberlayne Partners, LLC, which serves as the managing member of Bellkor. (Pl.'s Mem. at 2–3.)

On December 12, 2007, Bellkor obtained an $8,300,000 commercial loan from Amerisphere Multifamily Finance, LLC. (Multifamily Non–Recourse Fixed Rate Note “Note” (ECF No. 79–1) at 1.) The loan was evidenced by a Multifamily Note (the “Note”). Bellkor generally faces no personal liability on the non-recourse Note, but certain carve-outs in Paragraph 9 give rise to Bellkor's personal liability. (Note ¶ 9.) Further, a Multifamily Deed of Trust, Assignment of Rents and Security Agreement (“Security Instrument”) secures the Note in part. (Security Instrument (ECF No. 91–2) at 1.) Bell signed both the Note and the Security Instrument on behalf of Bellkor. (Note at 10; Security Instrument at 35.) Bell also executed an Acknowledgment and Agreement of Key Principal to Personal Liability (“Guaranty”), stating that he “absolutely, unconditionally, and irrevocably agree[d] to pay to [Fannie Mae], on demand, all amounts for which [Bellkor] is personally liable under Paragraph 9 of the Multifamily Note.” (Guaranty at 1.) On December 12, 2007, Amerisphere assigned the Note, Security Instrument and all other loan documents to Fannie Mae. (Pl.'s Mem. at 3.)

In executing the Security Instrument, Bellkor assigned its interests in rents from the Property to Fannie Mae. (Security Instrument § 3(a).) Before an event in default, Bellkor held a revocable license to collect and receive rents to hold in trust and “to pay the current costs and expenses of managing, operating and maintaining the Mortgaged Property, including utilities, Taxes and insurance premiums.” ( Id.§ 3(b).) After an event in default, Bellkor “shall, upon [Bellkor]'s receipt of any Rents from any sources ... pay the total amount of such receipts to the Lender.” ( Id.)

Paragraph 9 of the Note provides that, upon the occurrence of certain specified events of default, Bellkor faces personal liability for all of the indebtedness under the Note. (Note ¶ 9(c).) Paragraph 9 specifies that a “transfer” under Section 21 of the Security Instrument constitutes one such event of default. ( Id.) The Security Instrument defines a “transfer” as not only the “sale, assignment, transfer or other disposition,” but also “the granting, creating, or attachment of a lien, encumbrance or security interest (whether voluntary, involuntary or by operation of law).” (Security Instrument §§ 1(z), 21(a)(1).) The Note defines indebtedness as “the principal of, interest on, or any other amounts due at any time under, this Note, the Security Instrument or any other Loan Document, including prepayment premiums, late charges, default interest, and advances.” (Note ¶ 1.) In the event that Fannie Mae accelerated the Note and sold the Property to repay a portion of the loan, the Note specified that a prepayment premium would apply. (Note ¶¶ 10(a)(2), 10(a)(3).)

The Note also required Bellkor to make monthly payments of principal and interest on the first day of each month. ( Id. ¶ 1.) Bellkor's failure to make payments when due constituted an event of default under the Note and the Security Instrument. (Security Instrument § 22.) After ten days of nonpayment, late fees began to accrue, and after thirty days of nonpayment, Fannie Mae could charge interest at the default rate under the Note. (Note ¶¶ 7–8.)

2. The Filing of the Liens.

Bellkor contracted with the City for utility services. (Mem. in Supp. of Def.'s Mot. for Partial Summ. J. “Defs.' Mem.” (ECF No. 93) at 5.) By September 2011, Bellkor had become delinquent on its payments to the City for water and sewer services. (Pl.'s Mem. at 5.) On November 8, 2011, Bellkor received an email from Carolyn Cunningham, a customer representative in the billing department of the City's Department of Public Utilities, notifying Bellkor of the delinquency on amounts owed for the four-month period ending October 27, 2011, and stating that “a lien against the property is being filed but I will work with you to avoid disconnection of service.” (Defs.' Mem. at 5; Defs.' Supplement to Motion for Summ. J. (ECF No. 132) at 1.) The City subsequently recorded three utility liens against the property, dated December 8, 2011, March 1, 2012, and April 27, 2012. (Pl.'s Mem. at 5.) On September 18, 2012, John Worden, an employee of the loan servicer Amerisphere, emailed Bellkor, informing Bellkor that at least one of the utility liens remained on the Property. (Pl.'s Mem. at 5.) ² On December 7, 2012, the City released the liens dated December 8, 2011, and March 1, 2012, and on June 28, 2013, the City released the lien dated April 27, 2012. (Pl.'s Mem. at 6.)

3. Bellkor Defaults on the Note.

Beginning in June 2012, Bellkor stopped making timely payments on the Note. (Pl.'s Mem. at 6.) On July 2, 2012, Amerisphere, on behalf of Fannie Mae, provided notice to Bellkor of its default under the loan documents and demanded that Bellkor immediately bring the Note current by paying the $104,559.98 due at that time. (Pl.'s Mem. at 7.) Bellkor failed to do so. (Pl.'s Mem. at 7.) Further, Fannie Mae informed Bellkor that its license to collect rents had been terminated. (Pl.'s Mem. at 9.) After October 2012, Bellkor did not tender any funds on the loan to Amerisphere or to Fannie Mae. (Pl.'s Mem. at 7.) On November 8, 2012, Fannie Mae accelerated the loan and declared the entire balance of the loan immediately due and payable as provided by Paragraph 10 of the Note. (Pl.'s Mem. at 7.) Additionally, Fannie Mae instructed Bellkor that it could only apply collected rents to bona fide operating expenses. (Pl.'s Mem. at 9.)

Fannie Mae alleges that following this default, Bellkor continued to use funds from the rents to make payments to OHI Management, to pay health insurance premiumsfor himself, his wife and his stepfather, to have the Property appraised and to defend the current lawsuit. (Pl.'s Mem. at 9–13.) To the extent that Defendants dispute the facts alleged by Fannie Mae regarding payments, Defendants dispute whether the payments constituted authorized payments or legitimate operating expenses—not whether Defendants actually made the payments. For example, Fannie Mae asserts that Bellkor made certain payments, because OHI Management, LLC (“OHI Management”)—manager of the Property—believed that it would never get paid and that those payments were not authorized. (Pl.'s Mem. at 10.) Defendants dispute this fact, saying only that Bellkor did not need approval and that “[a]ll payments disputed in Fannie Mae's Motion for Summary Judgment were legitimate operating expenses.” (Defs.' Opp'n at 4.) The parties, therefore, do not dispute whether Bellkor made those payments. Rather, the parties dispute the consequences of such payments.

While Bellkor owned the Property, OHI Management managed the Property. (Pl.'s Mem. at 9.) Bellkor paid the health insurance premiums for Bell, his wife...