In re Allen
| Decision Date | 05 September 2003 |
| Docket Number | No. 03-0571.,03-0571. |
| Citation | 300 B.R. 105 |
| Parties | In re Thelma E. ALLEN, Debtor. |
| Court | United States Bankruptcy Courts – District of Columbia Circuit |
Charles R. Allen, Washington, DC, for Thelma E. Allen and Charles R. Allen.
L. Darren Goldberg, James E. Clarke, Draper & Goldberg, PLLC, Leesburg, VA, for Wells Fargo Bank Minnesota, N.A. as Trustee.
DECISION REGARDING MOTION FOR RECONSIDERATION
This decision addresses a motion for reconsideration filed by the debtor, Thelma E. Allen ("Mrs. Allen"), and her son, Charles R. Allen ("Mr. Allen"), regarding an order that annulled the automatic stay and the co-debtor stay that had arisen in this case under, respectively, § 362(a) and § 1301 of the Bankruptcy Code (11 U.S.C.). Specifically, the order annulled the stays with respect to a foreclosure sale of Mr. Allen's District of Columbia residence ("the Property") conducted by Wells Fargo Bank Minnesota, N.A. as Trustee ("Wells Fargo"). The court will deny the motion for reconsideration.
The court annulled the stays because Mrs. Allen's filing constituted an abuse of the bankruptcy system, because Mrs. Allen would not have been allowed to address the debt at issue in her case had the foreclosure sale not been held, and because Wells Fargo proceeded with the foreclosure sale in ignorance of Mrs. Allen's case. The pertinent facts follow.
Beginning in 1986, Mr. Allen was the sole record owner of the Property located at 1854 5th Street, N.W., Washington, D.C., and he has maintained it as his residence. Mrs. Allen claims she had an ownership interest in the Property predating the mortgage of Wells Fargo. By affidavit, she recites that the Property is "being maintained as part of the family estate," and that she held a legal and equitable interest in the Property (a conclusory legal assertion, not a factual allegation sufficient to prove she indeed had such an interest). She also recites that she had an interest in an adjoining real property located at 1852 5th Street, N.W., Washington, D.C. that was also titled in her son's name. As a basis for asserting ownership, Mrs. Allen recites that:
Between 1986 and 1999 I have provided substantial financial assistance (unsecured) to my co-owner Charles Allen, which was invested in the substantial renovation of the two aforementioned properties. I invested in the properties solely based on Charles Allen's verbal representations that the properties are located in a Historical [sic] section of Washington, D.C. and had great appreciation potential from which I will profit as well.
In addition, I expected to get a far greater return on my investment over the years via a substantial increase in equity from both properties which will be available to secure me during my retirement years. [The Property] was purchased in Charles Allen's name in 1986 for $64,500. The current market value as is, is approximately $500,000.
In August 1999, Mr. Allen executed an interest-bearing promissory note (the "Note") held by Wells Fargo2 that calls for equal monthly payments of $1,941.64 over a 30-year term and that is secured by the Property via a deed of trust (the "Deed of Trust"), a form of mortgage.3
The Wells Fargo debt, as noted, was incurred by Mr. Allen in August 1999, well after the majority of time that Mrs. Allen says she gave assistance towards renovations of the two properties. By remaining Mr. Allen's silent partner with respect to her and Mr. Allen's "family estate plan," and not insisting on receiving a deed reflecting her alleged interest, Mrs. Allen put her son in the position to make the covenants and warranties contained in the Deed of Trust, and to subject the Property to the consequences of any breaches of the Deed of Trust.
Two parts of that Deed of Trust are of particular importance here: the provision for a covenant of seisin and a warranty of title, and the provision constituting a due-on-transfer clause.
Mr. Allen represented that he was the sole owner of the Property, for the Deed of Trust recited as Mr. Allen's opening covenant that:
BORROWER COVENANTS that Borrower is lawfully seised of the estate hereby conveyed and has the right to grant and convey the Property and that the Property is unencumbered, except for encumbrances of record. Borrower warrants ... the title to the Property against all claims and demands, subject to any encumbrances of record.
If, as the Allens now contend, Mrs. Allen indeed did have an ownership interest in the Property prior to Wells Fargo making the loan, that ownership interest would result in breaches of the covenant of seisin and of the warranty of title. Such breaches would have given rise to a right to accelerate:
21. Acceleration; Remedies. If ... Borrower should be in default under any provision of this Security Instrument ... all sums secured by this Security Instrument ... shall at once become due and payable at the option of Lender without prior notice, except as otherwise required by applicable law ....
Deed of Trust ¶ 21 (). Upon Wells Fargo deciding to treat the debt as accelerated on the basis of such defaults, that would have provided a basis for invoking the remedy of foreclosure. Id.
As a condition to reinstatement after acceleration, the Allens would have had to cure the defaults. Deed of Trust ¶ 18. However, to cure the defaults would have required that Mr. Allen acquire sole title to the Property, that is, that Mrs. Allen be divested of any title. Divesting Mrs. Allen of an ownership interest would preclude her using a bankruptcy case as a vehicle for addressing the Wells Fargo debt as she is not personally liable for the debt.5
In signing the covenant of seisin and the warranty of title, Mr. Allen represented that he alone owned the Property. If, as the Allens now contend, Mrs. Allen indeed had an ownership interest in the Property when Wells Fargo made the loan to Mr. Allen, those representations were material misrepresentations. This would make relevant another provision of the Deed of Trust:
24. Misrepresentation and Nondisclosure. Borrower has made certain written representations and disclosures in order to induce Lender to make the loan evidenced by the Note ... which this Security Instrument secures, and in the event that Borrower has made any material misrepresentation or failed to disclose any material fact, Lender, at its option and without prior notice or demand, shall have the right to declare the indebtedness secured by this Security Instrument ... immediately due and payable....
Deed of Trust at ¶ 24 ().6 In turn, Deed of Trust ¶ 18 required as a condition to reinstatement after acceleration that the borrower pay amounts that were due (except via acceleration) under the Note or the Deed of Trust and "cure[ ] any default of any other covenants or agreements". Although a breach of the Deed of Trust's obligations, for example, to keep insurance in place and timely to pay real estate taxes might be susceptible of cure, a material misrepresentation arguably cannot be cured: once made, it remains a material misrepresentation.
Assume, however, without conceding the point, that a misrepresentation ceases to exist if the fact misrepresented ceases to exist. Even if such an assumption were valid, any ownership of Mrs. Allen would have to cease to exist in order for the misrepresentation to cease existing. Again, a lack of ownership would preclude her using a bankruptcy case as a vehicle for addressing the Wells Fargo debt.
The Deed of Trust also contained a due-on-transfer clause. Mr. Allen agreed that:
17. Transfer of the Property .... If all or any part of the Property or any interest in it is sold or transferred ... without Lender's prior written consent, Lender may, at its option, require immediate payment in full of all sums secured by this Security Instrument. However, this option shall not be exercised by Lender if exercise is prohibited by federal law as of the date of this Security Instrument.
If Lender exercises this option, Lender shall give Borrower notice of acceleration. The notice shall provide a period of not less than 30 days from the date the notice is delivered or mailed within which Borrower must pay all sums secured by this Security Instrument. If Borrower fails to pay these sums prior to the expiration of this period, Lender may invoke any remedies permitted by this Security Instrument without further notice or demand on Borrower.
The due-on-transfer clause was singled out for special mention in the Note. After mentioning the existence of the Deed of Trust, and reciting that it described how and under what conditions Mr. Allen might be required to make immediate payment of the Note obligation, the Note recited that "[s]ome of those conditions are described as follows":
Transfer of the Property or a Beneficial Interest in Borrower. If all or any of the Property or any interest in it is sold or transferred ... without Lender's prior written consent, Lender may, at its option, require immediate payment in full of all sums secured by this Security Instrument. However, this option shall not be exercised by Lender if exercise is prohibited by federal law as of the date of this Security Instrument. Lender also shall not exercise this option if: (a) Borrower causes to be submitted to Lender information required by Lender to evaluate the intended transferee as if a new loan were being made to the transferee; and (b...
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