In re Alford

• Decision Date: 05 March 2009
• Docket Number: Adversary No. 8:06-ap-00111-ALP.,Bankruptcy No. 8:05-bk-25425-ALP.
• Parties: In re Dale Frederick ALFORD, Jr. and Terri Ann Alford, Debtors. Susan K. Woodard, Chapter 7 Trustee, Plaintiff, v. Synovus Bank of Tampa Bay and Dale F. Alford, Sr., Defendants.
• Court: U.S. Bankruptcy Court — Middle District of Florida

403 B.R. 123

In re Dale Frederick ALFORD, Jr. and Terri Ann Alford, Debtors Susan K. Woodard, Chapter 7 Trustee, Plaintiff, v. Synovus Bank of Tampa Bay and Dale F. Alford, Sr., Defendants.

Bankruptcy No. 8:05-bk-25425-ALP.

Adversary No. 8:06-ap-00111-ALP.

United States Bankruptcy Court, M.D. Florida, Tampa Division.

March 5, 2009.

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Steven M. Berman, Shumaker, Loop & Kendrick, LLP, Tampa, FL, for Plaintiff.

Andrew T. Jenkins, Karen Cox, Bush Ross, PA, Tampa, FL, Defendants.

FINDINGS OF FACT AND CONCLUSIONS OF LAW

ALEXANDER L. PASKAY, Bankruptcy Judge.

THIS PROCEEDING came on for a two-day trial on the Complaint to Avoid and Recover Preferential and Fraudulent Transfers (Doc. No. 1) ("Complaint") by the Chapter 7 Trustee, Susan K. Woodard ("Trustee") against Synovus Bank of Tampa Bay ("Synovus") and Dale F. Alford, Sr. ("Alford, Sr."). Default judgment having been entered against Alford, Sr. (Doc. No. 63), the Trustee proceeded at trial only against Synovus, and only on Count I of the Complaint, which was based on a theory of preferential transfer under 11 U.S.C. §*547 (2007).¹ Synovus also filed an Amended Counterclaim against the Trustee seeking the imposition of an equitable lien on the same property (Doc. No. 37).

At issue in this case is first whether Synovus was entitled, under its mortgage, executed by the joint debtor, Dale F. Alford, .Jr., ("Debtor") to the full amount of what it received from the proceeds of the sale of an undeveloped parcel of land, 40 acres located in Hudson, Florida ("Hudson Property").² The Trustee asserts that the mortgage held by Synovus was limited to $100,000.00, based on explicit language on the face of the mortgage documents. Synovus was in total owed a larger amount by the Debtor, but if the mortgage were so limited, the additional $70,863.10 paid out of the sale proceeds to Synovus could be recovered as a preferential transfer. 11 U.S.C. § 547(b). The sale of the Hudson Property occurred on August 30, 2005. The Debtor's bankruptcy petition was filed on October 13, 2005.

The second issue in this case is whether, under an equitable lien theory, Synovus is still entitled to the full amount it received from the proceeds of the sale of the Hudson Property.

Findings of Fact

According to the testimony of Alford, Sr., the Debtor's father, he originally purchased the Hudson Property for $80,000.00, paying $30,000.00 cash and executing a mortgage for the remaining $50,000.00. On February 12, 1993, Alford, Sr. transferred title to the Hudson Property, through a quitclaim deed, to himself and the Debtor as tenants in common (Pl.'s Ex. 1), Alford, Sr. testified that in exchange for the transfer of ownership, the Debtor agreed to pay off the remainder of the mortgage, which amounted to $50,000.00. (Trial Tr. vol. 3, 265:8-12.) He also testified that "[t]he property value at that time far exceeded $100,000.00, so this was a benefit to both he and I(sic)." (Trial Tr. vol. 3, 265:13-14.) He further testified that, at the time, he understood that he was giving his son a 50% interest in the property. (Trial Tr. vol. 3, 280:4-7.) The quitclaim deed is silent as to the division of ownership (Pl.'s Ex. 1). Alford, Sr further testified that the Debtor only paid off $8,000.00 of the principal before becoming delinquent, and that Alford, Sr.'s spouse, Nadine Alford, ("N. Alford") paid off the remaining $42,000.00. In 2002, prior to the execution of the mortgage in favor of Synovus, the Hudson Property was owned free and clear. In 2004, in a string of email communications between the Debtor and N. Alford, the Debtor agreed to execute a new deed for the Hudson Property that would reflect an ownership interest by N. Alford. (Def.'s Ex. 29.) However, no new deed was executed.

In 2002, the Debtor was the president of Mercury Technology Services, Inc., a Florida corporation ("MTS"). In early 2002, MTS applied to United Bank and Trust Company, the predecessor in interest to Synovus (also, "Synovus"), regarding the possibility of obtaining a business loan. As part of the loan application process, the Debtor delivered a personal financial statement to Synovus on February 2, 2002, which listed the Hudson Property and assigned it a value of $200,000.00 (Def.'s Ex. 1). A commitment letter was issued and signed by Synovus on February 6, 2002, and was subsequently signed and accepted by the Debtor both as guarantor and on behalf of MTS (Def.'s Ex. 3) ("Commitment Letter"). The Commitment Letter listed, among the items to be assigned as collateral for the loan, the following: "[assignment of interest in real estate and all improvements located in Hudsen, Fl.; assignment of rents and leases." (Def.'s Ex. 3, 1.) However, the commitment was "subject to the following terms and conditions: 1. Execution of promissory note, security agreement, mortgage, assignments and guarantees in form acceptable to the Bank...." (Id. at 2.) The Commitment Letter also included the following paragraph: "The terms and conditions as stated in this commitment letter shall survive the closing of the loan, and together with documents signed at closing, constitute our ongoing borrowing arrangement." (Id. at 3.)

The loan was approved by the United States Small Business Administration, and Synovus and MTS executed the loan documents in August 2002. The loan documents included, in part, the following: (1) a United States Small Business Administration Note executed by MTS and dated August 20, 2002 (Pl.'s Ex. 8) ("SBA Note"), (2) an Unconditional Guarantee collateralized by the Hudson Property and a life insurance policy, executed by the Debtor (Def.'s Ex. 9) ("Guarantee"), (3) a Mortgage on the Hudson Property, executed by the Debtor and Alford, Sr., limited on its face to $100,000.00 (Pl.'s Ex. 7) ("Mortgage"), and (4) a Hypothecation Agreement relating to the Hudson Property, executed by the Debtor and Alford, Sr. (Pl.'s Ex. 6) ("Hypothecation Agreement"). These documents, along with various other unrelated agreements, constituted the loan transaction between MTS, the Debtor, Alford, Sr., other unrelated parties, and Synovus. ("Loan Documents").

The Mortgage is a type-written form document. Blanks throughout the form are filled in by either hand-written or type-written words, in at least two distinct fonts that the Court can identify. For example, the dates throughout the document were entered by hand, but the month and year were type-written into the form. On the first page of the mortgage in all-capital letters is the following text:

THIS MORTGAGE SECURES A PROMISSORY NOTE IN THE AMOUNT OF $270,000.00; HOWEVER, THIS MORTGAGE IS LIMITED TO $100,000.00 AND INTANGIBLE TAXES IN THE AMOUNT OF $200.00 ONLY ARE AFFIXED HERETO.

(Pl.'s Ex. 7, 1). This text was clearly not part of the form mortgage document, and the document itself is unhelpful for determining when and by whom this language was added. As both parties note in their papers, because the value of the Hudson Property in 2002 was estimated at $200,000.00, a mortgage of $100,000.00 would be a mortgage of the debtor's one-half interest in the Hudson Property based on its value at the time of the transaction.

The Hypothecation Agreement was executed contemporaneously with the mortgage, and states, in relevant part,

In order to induce Bank to make or extend loans, advances or other financial accommodations to [MTS] (the "Borrower"), and in consideration thereof, we hereby consent and agree that the property described in Exhibit "A" hereto (the "Property"), of which we are the owner, may be and is hereby mortgaged and pledged to Bank as collateral, and Bank is hereby granted a mortgage and security interest in the Property for and to secure any and all obligations and liabilities of the Borrower to Bank, whether now existing or hereafter arising, direct or contingent, due or to become due, and any extension or renewal thereof, upon any terms and conditions whatsoever (collectively, the "Liabilities") and with the same force and effect as if the Property were owned by Borrower and mortgaged and pledged to Bank. A separate mortgage is being executed to Bank in furtherance hereof (the "Mortgage").

(Pl.'s Ex. 6, 1 (emphasis added).) Exhibit "A" attached to the Hypothecation Agreement includes merely the legal description of the Property, with no limitation of any sort given. The Guarantee executed by the Debtor also, below the signature block, lists the collateral securing the guarantee as follows:

The "Undersigned" ... has mortgaged, granted a security interest in, pledged, assigned, transferred and/or delivered to Lender an interest in, among other things: (1) certain real estate ... by virtue of a first mortgage given by the Undersigned to Lender on or about even date herewith;....

(Def.'s Ex. 9 (emphasis added).) Like the Hypothecation Agreement, the Guarantee does not give any sort of limitation to the mortgage on the Hudson Property. The only other collateral listed in the Guarantee is a life insurance policy on the Debtor.

At trial, the Court received the testimony of two Synovus employees regarding the MTS loan, but neither witness had been in any way involved with the preparation and execution of the Loan Documents. At trial, Denise Unley, a senior vice president of Synovus, testified that she was involved in the loan application process, in January and February 2002, and in the collection efforts after the loan went into default, but also testified that she had no involvement whatsoever with the drafting or execution of the Loan Documents. (Trial Tr. vol. 2, 202:8-203:12). She gave extensive testimony regarding the Bank's position during the collection efforts in 2004 and 2005, but did not speak as to the Bank's intent at the time of the execution of the Loan Documents.

The head of Synovus' United States Small Business Administration Loan Department, Lynn Johler, also testified regarding her involvement in...