In re Balser, Case No. 10-17292-JNF

• Decision Date: 23 July 2013
• Docket Number: Case No. 10-17292-JNF
• Parties: In re GAIL A. BALSER, Debtor
• Court: United States Bankruptcy Courts. First Circuit. U.S. Bankruptcy Court — District of Massachusetts

In re GAIL A. BALSER, Debtor

Case No. 10-17292-JNF

UNITED STATES BANKRUPTCY COURT FOR THE DISTRICT OF MASSACHUSETTS

Dated: July 23, 2013

Chapter 7

MEMORANDUM

I. INTRODUCTION

The matter before the Court is the Motion of OneWest Bank, FSB ("OneWest") for Relief from Order Denying Motion to Approve Disbursement of Surplus Funds (the "Rule 60(b) Motion"). In support of its Rule 60(b) Motion, OneWest filed the Declaration of Nicole M. Labonte, Esq., an attorney with the law firm of Bendett & McHugh, P.C.¹ The Chapter 7 Trustee, Anne J. White, Esq., filed an Opposition to the Rule 60(b) Motion. The Court heard the Rule 60(b) Motion and the Opposition on June 19, 2013 and directed the parties to file briefs on the legal issues presented. In addition, the Court ordered counsel to OneWest to file an affidavit with exhibits containing all documents relating to a mortgage loan secured by property located at 12 Steeple Chase Circle, Attleboro, Massachusetts (the "Property").

The Court shall apply Part VII of the Federal Rules of Bankruptcy Procedure applicable in adversary proceedings to this contested matter. The facts necessary todetermine the Rule 60(b) Motion and the Opposition are not in dispute. Accordingly, the Court shall treat the Rule 60(b) Motion as in the nature of a motion for summary judgment. The Court now makes the following findings of fact and rulings of law in accordance with Fed. R. Bankr. P. 7052.

The issues presented include whether the Rooker-Feldman doctrine applies to bar this Court from reconsidering an order entered by the Bristol Superior Court, Department of the Trial Court, on October 26, 2011, directing the clerk of that court to remit to the then Chapter 11 Trustee surplus proceeds from an auction sale conducted at the behest of the Board of Trustees of Churchill Court Condominium Association (the "Condo Association"), that were deposited with the clerk of the Bristol Superior Court in an interpleader action in which OneWest was a named defendant; and whether OneWest has satisfied its burden under Fed. R. Civ. P. 60(b), made applicable to this proceeding by Fed. R. Bankr. P. 9024.

II. FACTS²

Gail A. Balser (the "Debtor") filed a voluntary Chapter 11 petition on July 1, 2010. The Court appointed Anne J. White, Esq. as Chapter 11 Trustee on September 8, 2011. On April 30, 2013, the Chapter 11 Trustee moved to convert the Debtor's Chapter 11 case to a case under Chapter 7. In the absence of objections, the Court granted the Chapter 11Trustee's Motion on June 4, 2013. That same day, the U.S. trustee appointed Attorney White the Chapter 7 Trustee.

As noted above, the dispute between OneWest and the Chapter 7 Trustee relates to the proceeds of a prepetition foreclosure sale of the Property. The Debtor filed her Schedule of Assets and Liabilities and Statement of Financial Affairs on July 26, 2010. She listed the Property on Schedule A-Real Property with a value of $200,000, subject to a mortgage claim of $269,782.00. She described the Property as follows: "was held in the name of Ann Balser for the benefit of Debtor." She claimed the Property as exempt pursuant to 11 U.S.C. § 522(d)(5) on Schedule C-Property Claimed as Exempt. On Schedule D-Creditors Holding Secured Claims, the Debtor listed OneWest as the holder of a first mortgage on the Property. In addition to noting that the Property was held in the name of Ann Balser for her benefit, the Debtor added: "Opened 4/01/05 Last Active 8/1/09." In her Statement of Financial Affairs, the Debtor listed OneWest as a plaintiff in a lawsuit pending in the Massachusetts Land Court, describing the suit as one pertaining to the reformation of a mortgage. She did not specifically link the Property to the lawsuit. The Debtor listed no transfers or foreclosure actions with respect to the Property in her Statement of Financial Affairs.

On or around July 6, 2010, the Bankruptcy Court Noticing Center mailed to OneWest "Notice of Chapter 11 Case, Meeting of Creditors, & Deadlines" at the following address: 6900 Beatrice Drive, Kalamazoo, Michigan. On August 3, 2010, Deidre M. Keady, Esq., an attorney with Harmon Law Offices, P.C., filed a "Notice of Appearance andRequest for Service of Papers"on behalf of OneWest.

Pursuant to the Debtor's motion, on August 16, 2010, this Court established a bar date of September 16, 2010 for filing proofs of claim in the Debtor's Chapter 11 case. On September 13, 2010, Elizabeth A. Lonardo Esq., an attorney associated with Harmon Law Offices, P.C., filed a secured proof of claim on behalf of OneWest in the Debtor's Chapter 11 case in the sum of $282,839.69 with respect to the Property.³ OneWest attached to its proof of claim a mortgage granted by the Debtor to MERS as nominee for NetBank dated May 9, 2005, together with a 1-4 Family Rider (Assignment of Rent), listing the property address as 12 Steeplechase [sic] Circle, Unit 12, Attleboro, Massachusetts. The mortgage identified the Debtor as the "Borrower" and provided that "[t]he Note states that Borrower owes Lender Two Hundred Sixty Nine Thousand Nine Hundred and 00/100ths Dollars(U.S. $269,900.00) plus interest. . . ." OneWest also attached to the note an unrecorded assignment of the mortgage from MERS to OneWest, dated February 3, 2000. It amended the claim twice, once on September 16, 2010, and again on December 21, 2012. In its first amended proof of claim, it set forth an arrearage of $26,474.52. In the second, it set forth the amount of the claim as $278,404.94.

On December 9, 2010, approximately five months after the commencement of her Chapter 11 case, the Debtor moved for authority to use cash collateral. She identified the following properties as sources of cash collateral:

10 Steeple Chase Circle, Attleboro, MA - a condominium

11 Steeple Chase Circle, Attleboro, MA --a condominium

10 Steeple Chase Circle, Attleboro, MA --a condominium

387 Old Colony Road, Norton, MA - a single family house

468 Old Post Road, North Attleboro, MA -- a two family house

244 County Street, Attleboro, MA -- a single family house/office building

The Condo Association, through its attorney, Steffani Pelton, Esq., filed a Response to Debtor's Motion to Use Cash Collateral. It stated:

The Debtor's cash flow projections are incorrect and misleading on several grounds, namely, that: (i) the cash flow projections rely on purported rental income from the condominium located at 12 Steeple Chase Circle, Attleboro, Massachusetts ("Unit 12"), in which property the Debtor holds no right, title or interest; and (ii) the projections incorrectly state that the Debtor has been paying various condominium fees since September 2010, when, in fact, no such fees have been or are being paid.

The Condo Association added:

On May 14, 2010, pursuant to an Order and Judgment of the Attleboro District Court, a copy of which is attached hereto as Exhibit "A" (the "State Court Matter") and pursuant to the provisions [of] Massachusetts General Laws ch. 183A § 6 (the Massachusetts condominium lien statute) and Massachusetts General Laws ch. 254 §§ 5 and 5A, the Board of Trustees ofChurchill Court Condominium Association sold Unit 12 to Eric Birt (the "Buyer"), the highest bidder at auction (the "Sale") for the sum of $177,500.00 as a means of satisfying the Association's priority lien for unpaid monthly condominium fees assessed to Unit 12. . . .

The Debtor had appeared at [sic] the State Court Matter and had vigorously defended that action on her own behalf and as attorney of record for Ann B. Balser, the Debtor's mother and the owner of Unit 12. Subsequent to the State Court Matter, both Ann B. Balser and the Debtor were duly served with notice of the Sale pursuant to the provision of Massachusetts General Laws ch. 254 §§ 5 and 5A. The Debtor has no basis for denying her knowledge that Unit 12 was sold to a third party prior to the filing of her Chapter 11 case.

As noted above, at the time of the Sale, Unit 12 was owned by Ann B. Balser. A copy of the deed transferring Unit 12 to Ann B. Balser is attached hereto as Exhibit "C".

***

As a result of the Sale to Eric Birt on May 14, 2010, Ann B. Balser had no interest in Unit 12 to convey to the Debtor on July 28, 2010. Thus, the attempt to transfer Unit 12 to the Debtor at that time was void and without effect. As such, the Debtor has no right title or interest in and to 12 Steeple Chase Circle, Attleboro, Massachusetts and therefore has no legal right or ability to collect any rents from the occupants of that property. Accordingly, . . . the Debtor's inclusion of rents from Unit 12 in her Cash Flow Projections attached to the Cash Collateral Motion is both incorrect and misleading.⁴

In addition, on December 30, 2010, OneWest, through Attorney Deidre M. Keady, filed an Objection to the Debtor's use of cash collateral, asserting that it was the present holder of a mortgage on the Property with a total debt of $282,839.60. It also stated:

Regarding the property identified as 12 Steeple Chase Circle, Attleboro, MA, the debtor does not hold record title to said property. Legal title has beenvested in Ann Balser since 2006 wherein Gail A. Balser transferred title as an individual to Ann B. Balser, by deed recorded at Book 15804, Page 106. Your movant believes that this property is not part of the estate of this debtor and should not be listed as an estate asset or as part of the cash collateral motion.

On January 18, 2011, the Court held a hearing on the cash collateral motion at which Attorney Kathryn Fyans appeared on behalf of OneWest. The Court granted the Debtor authority to use cash collateral, subject to conditions set forth on the record.

On March 7, 2011, the Debtor amended Schedule B-Personal Property. She disclosed a 100% interest in BSI Trust, as well as other trusts and transfers not previously disclosed on Schedule B. Referencing the Property indirectly, she stated: "Unit 12 deed out 3/3/2005[;] condo homeowner foreclosed." On March 19, 2011, the Debtor further amended her...