In re Bruder
| Decision Date | 10 April 1997 |
| Docket Number | and 96 C 50408.,No. 94 B 52222,95 B 51057,94 B 52222 |
| Citation | 207 BR 151 |
| Court | U.S. District Court — Northern District of Illinois |
| Parties | In re Randolph L. BRUDER, and Jill R. Bruder, Debtors. Joseph D. OLSEN, Trustee, Plaintiff-Counter-Defendant-Appellee, v. BANK ONE, ROCKFORD, NA, a banking corporation, f/k/a First National Bank & Trust Co., Defendant-Cross-Defendant-Appellant, and Banc One Mortgage Corporation, Intervenor-Cross-Defendant-Appellant, and Randolph L. Bruder, Jill R. Bruder, Mott Bros. Co., a corporation, Defendants-Cross-Defendants-Appellees, and United States of America, Defendant-Counter-Plaintiff-Cross-Claimant-Appellee. |
Joseph D. Olsen, David A. Aaby, Rockford, IL, for plaintiff.
Karl F. Winkler, Oliver, Close, Worden, Winkler, Greenwald & Maier, Bernard J. Natale, Atty. at Law, Thomas A. Green, Jason H. Rock, Barrick, Switzer, Long, Balsley & Van Evera, Rockford, IL, for defendants.
Joel R. Nathan, U.S. Atty's. Office, Chicago, IL, for U.S.
Appellants, Bank One, Rockford, NA ("Bank One"), and Banc One Mortgage Corporation ("Banc One Mortgage"), appeal the judgment of the bankruptcy court and its denial of their motion to reconsider entered in the adversary proceeding related to the Chapter 7 bankruptcy petitions filed by the debtors, Randolph L. Bruder and Jill R. Bruder. The court has jurisdiction to hear this appeal pursuant to 28 U.S.C. § 158(a).
The facts relevant to this appeal are not in dispute and are as follows. The Bruders were joint tenant owners of property commonly known as 5815 Chandler Drive, Rockford, Illinois ("the property"). On or about July 12, 1991, the Bruders borrowed $106,500.00 from First National Bank & Trust Co.("First National"), a national bank operating in Rockford, Illinois. In addition to executing a note, the Bruders granted First National a mortgage in the property, which was recorded with the recorder of deeds of Winnebago County, Illinois, on June 12, 1991.
Sometime in February 1993, First National changed its name to Bank One. Although First National's interest in the note and mortgage devolved and inured to Bank One upon the name-change, see 12 U.S.C. § 31, no instrument of record was filed with the recorder of deeds in connection with the mortgage to reflect that Bank One was the successor to First National. On October 29, 1993, Bank One assigned the mortgage and note to Banc One Mortgage. Significantly, the assignment did not mention Bank One's prior name or the fact that it was formerly known as First National. Thus, when the assignment was recorded with the recorder of deeds on November 12, 1993, the grantor-grantee index merely reflected an assignment of the mortgage by an entity known as Bank One to Banc One Mortgage.
On March 11, 1994, a satisfaction and discharge of mortgage was executed. The document, in pertinent part, stated:
The undersigned certifies that it is the present owner of a mortgage executed by RANDOLPH L. BRUDER AND JILL R. BRUDER to FIRST NATIONAL BANK & TRUST CO.. .... The above described mortgage is, with the note accompanying it, fully paid, satisfied, and discharged.
The document gave a full description of the property, cross-referenced the mortgage recorded earlier, and was executed by "FIRST NATIONAL BANK & TRUST CO. NKA BANK ONE, ROCKFORD, NA, by BANC ONE MORTGAGE CORPORATION, their attorney in fact." This document was recorded with the recorder of deeds on April 25, 1994. The problem with the satisfaction and release was not that it was executed by one having no authority, as Bank One had previously granted a power of attorney in favor of Banc One Mortgage to execute documents of this sort. The problem was that the satisfaction and discharge should not have been issued because the note and mortgage were not, in fact, satisfied. The foregoing errors apparently went unnoticed by Bank One and Banc One Mortgage, as no corrective documents were filed.
On August 22, 1994 and September 19, 1994, the IRS assessed Randolph Bruder for unpaid employment taxes for the third and fourth quarters of 1993 and the second quarter of 1994, respectively. On November 21, 1994, the IRS recorded a notice of federal tax lien for those assessments against Randolph Bruder with the recorder of deeds in the sum of approximately $35,000. Thereafter, on December 1, 1994, Randolph Bruder filed a voluntary petition for bankruptcy under Chapter 7 of the Bankruptcy Code.
On January 31, 1995, Mott Bros. Co. ("Mott") filed a memorandum of judgment against Jill Bruder with the recorder of deeds for approximately $28,000. On May 23, 1995, Jill Bruder filed a separate voluntary petition for bankruptcy under Chapter 7.
Joseph D. Olsen was appointed trustee in both bankruptcy cases. During the course of the bankruptcy proceedings, the trustee sought authority to sell the property free and clear of all liens. A title commitment issued prior to the sale of the property listed both the IRS's tax lien and Mott's judgment lien. The mortgage assigned to Banc One Mortgage, however, was not listed as a lien encumbering the property. Because the Bruders had listed Banc One Mortgage as holding a security interest in the property on the schedules attached to their bankruptcy petitions, the trustee and the Bruders notified the title insurance company that there may be another incumbrance on the property. Upon learning of Banc One Mortgage's potential interest in the property, the title insurance company insisted on a court order that required any and all liens to attach to the sale proceeds. On October 20, 1995, the trustee filed an adversary complaint against the Bruders, Bank One, Mott and the IRS for an order permitting a sale of the property free and clear of all liens and to determine the priority of the various liens. Thereafter, Banc One Mortgage moved to intervene as a defendant. The trustee obtained approval from the bankruptcy court to sell the property for $122,000. The IRS, Mott, Bank One and the Bruders all answered the trustee's complaint, as did Banc One Mortgage once it intervened. The IRS then filed a counterclaim against the trustee and cross-claims against all defendants, asserting that its tax lien was senior in priority to all other liens.
After the trustee, the Bruders, Mott, Bank One and Banc One Mortgage answered the IRS's counter/cross-claims, the IRS and Banc One Mortgage each filed a motion for summary judgment in which the IRS and Banc One Mortgage1 each claimed their lien was senior in priority to all others. Mott did not oppose the IRS's motion, as its claim was only against Jill Bruder's interest in the property. Similarly, neither the trustee nor the Bruders disputed the priority of the IRS's and Mott's claims to the separate half interests of Randolph and Jill Bruder in the property. All parties (excluding Bank One and Banc One Mortgage) disputed the validity of Banc One Mortgage's claim that the mortgage was effective against any of them. Thus, in an unusual alignment of the parties, Banc One Mortgage stood alone in contending that its interest was both valid and senior in priority. The bankruptcy court denied Banc One Mortgage's motion and granted the IRS's motion. The bankruptcy court found that the assignment of the note and mortgage from Bank One to Banc One Mortgage filed with the recorder of deeds was not in the chain of title. This finding, in turn, rendered the satisfaction and release effective as to all judgment lien creditors, including the IRS and Mott. This relegated Bank One and Banc One Mortgage to the status of unsecured creditors in both of the Bruders' bankruptcy proceedings.
The bankruptcy court ordered distribution of the net proceeds of the sale of the property in the following manner. The net proceeds were ordered to be divided in half. As to the first half, the trustee was ordered to remit $42,019.52 to the IRS (the amount of its tax lien, at that time), then $7,500.00 to Randolph Bruder for his homestead exemption, and to retain any remaining proceeds, subject to further order of the court. As to the second half, the trustee was ordered to remit $7,500.00 to Jill Bruder for her homestead exemption, then $28,371.63 to Mott, and to retain any remaining proceeds, subject to further order of the court.
Bank One and Banc One Mortgage filed a motion to reconsider and clarify the bankruptcy court's memorandum opinion which denied Banc One Mortgage's motion and granted the IRS's motion. Bank One's sudden reappearance in the litigation was noted by both the bankruptcy court and the other parties, see Transcript of Proceedings of October 23, 1996, pp. 4-5, 13, but the anomaly was not engaged by any of the parties or the court. For reasons stated on the record during the hearing of October 23, 1996, the bankruptcy court denied Bank One's and Banc One Mortgage's motion to reconsider and clarify. This appeal ensued.
A party takes an appeal from the bankruptcy court to the district court pursuant to 28 U.S.C. § 158(a) in the same manner a party in a civil proceeding takes an appeal from the district court to the court of appeals. 28 U.S.C. § 158(c). The district court, therefore, reviews the factual findings of the bankruptcy court for clear error, but reviews legal conclusions de novo. In re Rivinius, Inc., 977 F.2d 1171, 1175 (7th Cir. 1992); In re Newman, 903 F.2d 1150, 1152 (7th Cir.1990). Bank One and Banc One Mortgage seek review of the bankruptcy court's grant and denial of motions for summary judgment. Therefore, this court reviews the judgment of the bankruptcy court de novo. Flaherty v. Gas Research Inst., 31 F.3d 451, 456 (7th Cir.1994).
The court first addresses whether Bank One has standing to take this appeal.2 None of the parties raise or address this issue in their briefs, but because it is jurisdictional, the court is obliged to address it, particularly when it emerges from...
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