This
proceeding involves the priority of the liens of two banks.
In 1998, debtor Michael Mixson and his then-wife Rebecca
borrowed money from Union Planters Bank, N.A. ("Union
Planters") through a note secured by a Deed of Trust
(the "1998 Deed of Trust") on property that they
owned. A 2003 modification to the 1998 Deed of Trust set a
loan maturity date of March 7, 2008. After some assignments
and mergers over the years, the 1998 note and Deed of Trust
are held now by defendant FMM Bushnell, LLC
("Bushnell"). In 2013, the Mixsons borrowed money
from plaintiff First Volunteer Bank ("First
Volunteer") through a note secured by a Deed of Trust
(the "2013 Deed of Trust") on the same property.
This
case-In re Mixson, No. 20-bk-12728-SDR (the
"Main Case")-is Mr. Mixson's second bankruptcy
case in the last seven years, and the priority of the two
Deeds of Trust was not resolved in the prior case. In short
Bushnell contends that its 1998 Deed of Trust has priority
because it was filed first and because its lien is still
enforceable. As will be explained in more detail below,
Bushnell had 10 years to enforce its Deed of Trust, but it
believes that the automatic stays from Mr. Mixson's two
bankruptcies left it with unused time in that 10-year time
period.
First
Volunteer, in contrast, contends that its 2013 Deed of Trust
has priority because the bankruptcy stays did not prevent
Bushnell's enforcement time from running. According to
First Volunteer, if the time to enforce the 1998 Deed of
Trust has expired then Bushnell has become a general
unsecured creditor, and First Volunteer moves up in priority.
To
resolve the dispute, First Volunteer filed this adversary
proceeding. Now pending before the Court are cross-motions
for summary judgment under Rule 56 of the Federal Rules of
Civil Procedure, made applicable by Rule 7056 of the Federal
Rules of Bankruptcy Procedure. (Doc. Nos. 15, 17.) The
parties also have filed related procedural motions concerning
First Volunteer's late answer to Bushnell's
counterclaim. (Doc. Nos. 23, 25.) The parties do not dispute
that this adversary proceeding is a core proceeding and that
the Court has jurisdiction under 28 U.S.C. 157(a) and 28
U.S.C. § 1334.
The
Court heard oral argument on May 5, 2021. For the reasons
below, the Court grants First Volunteer's motion for
summary judgment and denies Bushnell's motion. The Court
grants First Volunteer a declaratory judgment that the lien
evidenced by the 1998 Deed of Trust is discharged. The Court
also denies Bushnell's procedural motion and grants First
Volunteer's procedural motion.
This
adversary proceeding concerns the priority of liens on real
property at 6228 Airpark Drive in Chattanooga, Tennessee (the
"Airpark Property"). The following chronology
summarizes the key events that contributed to the current
situation between the parties:
1) January 6, 1990: Debtor Michael Mixson and Rebecca Mixson
(who is not a joint debtor) marry. (Doc. No. 16-7 at
4.)[1]
2) February 3, 1995: The Mixsons buy the Airpark Property as
tenants by the entirety. (Doc. No. 16 at 1.)
3) February 26, 1998: The Mixsons record the 1998 Deed of
Trust with Union Planters to secure a loan in the amount of
$583, 425.76. (Doc. No. 1-1 at 1-18.) The 1998 Deed of Trust
pledges the Airpark Property. The loan had a final payment
date of February 20, 2018.
4) March 7, 2003: The Mixsons and Union Planters sign a
modification of the 1998 Deed of Trust that increases the
amount of loan principal secured to $684, 000.00 and shortens
the maturity date to March 7, 2008. (Id. at 19.)
5) Sometime after March 7, 2003: AmSouth Bank succeeds Union
Planters as holder of the 1998 Deed of Trust and its
underlying note. Regions Bank succeeds AmSouth Bank.
6) April 27, 2011: The Mixsons sign a Deed of Trust with
Gateway Bank and Trust ("Gateway") to secure a loan
in the amount of $463, 207.67. (Doc. No. 1-3 at 8.) They
record the Deed of Trust on May 31, 2011 and pledge the
Airpark Property as security for the Gateway loan. The loan
had a maturity date of November 10, 2014.
7) September 2012: Gateway merges into First Volunteer. (Doc.
No. 1 at 5.) First Volunteer acquires all of Gateway's
assets including the Mixsons' loans and Deeds of Trust.
8) July 29, 2013: The Mixsons sign the 2013 Deed of Trust
with First Volunteer to secure a loan in the amount of $633,
363.41. (Doc. No. 1-4.) This loan appears to be a
consolidation or replacement of the Gateway loan, because the
2011 Gateway Deed of Trust and the 2013 Deed of Trust are
security instruments for the same debt. (Doc. No. 15 at 9.)
The Mixsons pledge the Airpark Property as collateral. The
new loan had a maturity date of February 2, 2015.
(Id. at 8.) The 2013 Deed of Trust was recorded on
August 1, 2013.
9) December 20, 2013: Regions Bank assigns the 1998 Deed of
Trust and underlying note to Commercial Funding Solutions,
LLC ("Commercial Funding"). (Doc. No. 1-5.)
10) May 19, 2014: Mr. Mixson files his first Chapter 11
voluntary petition, presided over by Judge Cook and later
Judge Whittenburg in this District. (Case No.
1:14-bk-12133-NWW, the "First Mixson Case").
11) August 12, 2014: First Volunteer files Claim 11 in the
First Mixson Case, asserting a cumulative indebtedness by Mr.
Mixson of $657, 347.29 secured by the Airpark Property by way
of the 2013 Deed of Trust.
12) September 18, 2014: Commercial Funding files Claim 14 in
the First Mixson Case, asserting a cumulative indebtedness by
Mr. Mixson of $560, 679.18 secured by the Airpark Property by
way of the 1998 Deed of Trust.
13) June 1, 2017: Judge Whittenburg grants Mr. Mixson's
motion to convert the First Mixson Case from Chapter 11 to
Chapter 7. (First Mixson Case, Doc. No. 261.)
14) July 30, 2017: Commercial Funding assigns the 1998 Deed
of Trust to Bushnell. (Doc. No. 1-6.)
15) September 15, 2017: Mr. Mixson signs a reaffirmation
agreement with Bushnell in the First Mixson Case for the 1998
debt originally incurred with Union Planters and modified in
2003. (First Mixson Case, Doc. No. 279.) The principal
balance is $508, 316.84, with a total of $579, 300.98 to be
paid over the term of the reaffirmation agreement. The
parties to the reaffirmation agreement assert that the debt
is secured by the Airpark Property and assign the property a
market value of $650, 000.00. First Volunteer admits that the
1998 Deed of Trust was valid when the debt was reaffirmed.
(Doc. No. 21 at 2.)
16) October 4, 2017: Mr. Mixson receives an order of
discharge in the First Mixson Case. (First Mixson Case, Doc.
No. 281.)
17) November 12, 2019: Judge Whittenburg approves the
Trustee's abandonment of the Airpark Property in the
First Mixson Case. (First Mixson Case, Doc. No. 294.)
18) August 4, 2020: The Mixsons obtain a final decree of
divorce. (Doc. No. 16-7 at 1-2.) Under the terms of the
divorce, Mr. Mixson received all rights, title, and debt
responsibilities for the Airpark Property. (Id. at
7.) The parties had mutual obligations to fulfil to make Mr.
Mixson the full owner of the Airpark Property. Mr. Mixson was
required to refinance the Airpark Property as needed to
release Ms. Mixson from any debts associated with it.
(Id.) Ms. Mixson, in turn, was required to execute a
quitclaim deed of her interest in the Airpark Property.
(Id.) The record is silent as to whether the Mixsons
carried out their respective obligations, and the parties
appear to dispute whether the obligations have been
fulfilled.
19) October 2, 2020: Relying on the terms of the 1998 Deed of
Trust, Bushnell took its first action toward foreclosure by
publishing a foreclosure notice relating to the Airpark
Property in the Hamilton County Herald. The sale was
scheduled for October 23, 2020.
20) October 16, 2020: Mr. Mixson files his second Chapter 11
voluntary petition, which is the Main Case before the Court.
21) January 6, 2021: Bushnell files Claim 13 in the Main Case
here, asserting a cumulative indebtedness by Mr. Mixson of
$746, 133.00 secured by the Airpark Property by way of the
1998 Deed of Trust.
22) February 16, 2021: First Volunteer files Claim 15 in the
Main Case here, asserting a cumulative indebtedness by Mr.
Mixson of $767, 125.15 secured by the Airpark Property.
Attached to Claim 15 is a copy of the note signed on April
27, 2011 along with the Deed of Trust signed on April 27,
2011 and recorded on May 31, 2011.
B.
The Parties' Contentions
First
Volunteer commenced this adversary proceeding by filing its
complaint on October 21, 2020. (Doc. No. 1.) First Volunteer
recited most of the history that the Court summarized above
emphasizing that no one in the chain of ownership of the 1998
Deed of Trust-Union Planters, Regions Bank, Commercial
Funding, or Bushnell-modified, enforced, or otherwise
commenced any suit to enforce the lien granted by the Deed of
Trust after March 7, 2003. The lack of action is significant
to First Volunteer because, in its view, the 1998 Deed of
Trust expired with respect to Ms. Mixson no later than March
7, 2018-the date when the right to enforce the lien under
Tenn. Code Ann. § 28-2-111(a) expired. (See
Doc. No. 1 at 6.) By a similar logic, the 1998 Deed of Trust
allegedly expired with respect to Mr. Mixson no later than 30
days after the abandonment of the Airpark Property on
November 12, 2019, by way of 11 U.S.C. § 108(c)(2)
and/or 90 days by way of Tenn. Code Ann. § 66-21-110.
(See id.) "Because the [1998 Deed of Trust] no
longer is valid and...
