In re Canaday

• Decision Date: 12 September 2007
• Docket Number: No. 06-61184 JPK.,06-61184 JPK.
• Citation: 376 B.R. 260
• Parties: In re Steve Rodger CANADAY, Debtor.
• Court: U.S. Bankruptcy Court — Northern District of Indiana

376 B.R. 260

In re Steve Rodger CANADAY, Debtor.

No. 06-61184 JPK.

United States Bankruptcy Court, N.D. Indiana, Hammond Division.

September 12, 2007.

COPYRIGHT MATERIAL OMITTED

Lori D. Fisher, Esq., Merrillville, IN, for the Debtor, Steve Rodger Canaday.

James S. Dal Santo, Esq., Highland, IN, for the Creditor, Don Wilson.

MEMORANDUM OF DECISION

J. PHILIP KLINGEBERGER, Bankruptcy Judge.

This contested matter/adversary proceeding arises from the objection of the debtor Steve Rodger Canaday ("Canaday") to claim # 15, filed by creditor Don Wilson ("Wilson") on August 23, 2006. This claim was filed as a secured claim, and in his objection Canaday asserted that the secured status of the claim was subject to challenge pursuant to 11 U.S.C. § 544(a). Because the debtor's objection included a counterclaim demanding relief of the kind specified in Fed.R.Bankr.P. 7001, by order entered on December 20, 2006, the contested matter arising from the claim objection became an adversary proceeding by operation of Fed.R.Bankr.P. 3007. As stated in that order, Attorney James Dal Santo, on behalf of Wilson, acknowledged that Canaday may proceed with matters pursuant to 11 U.S.C. § 544(a) without joining the Chapter 13 Trustee as a party with respect to those matters, a procedure consented to by Attorney Julia Hoham on behalf of Chapter 13 Trustee Paul Chael at a pre-hearing conference held on December 11, 2006.¹

The Court has subject matter jurisdiction of this matter pursuant to 28 U.S.C. § 1334(a) and (b), pursuant to 28 U.S.C. § 157(a) and (b), and pursuant to N.D.Ind. L.R. 200.1(a). The matters raised by the parties constitute core proceedings under 28 U.S.C. § 157(b)(2)(B), (C) and (K).

I. THE FACTUAL RECORD.

Pursuant to the Court's order entered on March 28, 2007, this, case is submitted to the Court by means of a stipulated record. That record was provided by the parties' Joint Statement of Facts filed on April 13, 2007.

As a preamble to the stipulated record, claim # 15 was filed in the claims record of Canaday's Chapter 13 case. on August 23, 2006. This claim designates the creditor as "Don Wilson"; states that the indebtedness asserted in the claim was incurred on January 12, 2005; and asserts that the indebtedness owed by the debtor to the claimant is a secured claim in the amount of $22,500.00. Attached to the claim is a copy of the real estate mortgage placed of record by the parties' Joint Statement of Facts, and a copy of a three-page document entitled "NOTE" dated January 13, 2005, also placed into the record by the parties' Joint Statement of Facts.

The Joint Statement of Facts states in its entirety the following:

1. On June 20, 2006, a Voluntary Petition under Chapter 13 of the Bankruptcy Code was filed by the Debtor, under Case Number 06-61184.

2. At the time of the filing of the petition, and at all times relevant herein, the Debtor owned real estate located at 15310 Morse St., Lowell, Indiana (the "Real Estate") in fee simple.

3. Prior to the filing of the petition, the Debtor, on January 13, 2005, executed a Note in favor of "The Donald G. Wilson Revocable Living Trust U/A/ Dated June 26, 2002". (See exhibit "A" — Note). Said Note provides that the last payment was due by January 13, 2006 which was prior to the filing of the Debtor's petition.

4. On January 13, 2005, the Debtor executed a Mortgage in favor of "Donald Wilson" which was recorded on February 3, 2005 in the Lake County Recorders Office. (See exhibit "B" — Mortgage). The mortgage is given on the Real Estate and is also secured, by rents, profits and any income derived from the Real Estate.

5. The creditor filed a proof of claim # 15 with the Bankruptcy Court alleging a secured claim in real estate in the amount of $22,500.00.

6. The Debtor has filed an Objection to the Claim asserting that the creditor does not have a valid secured claim and/or the mortgage may be void.

7. The Creditor filed an Objection to the Debtor's Chapter 13 Plan in that it failed to provide for payment of the secured claim.

8. The parties agree that the assessed value of the real estate is $197,200.00.

9. At the time of the filing of the petition, the following were encumbrances of record on the real estate:

A. Mortgage to Countrywide Home Loans, Inc. Dated 12/9/2003 in the amount of $213,686.27

B. Lake County Treasurer is owed the sum of $10,868.08;

C. Mortgage to Don Wilson dated January 13, 2005 in the amount of $22,500.00;

D. Judgment line of HSBC dated October 11, 2005 in the amount of $2,167.03.

10. To the extent that this Court finds that Don Wilson has a valid secured claim ("allowed secured claim"), the Creditor agrees that the mortgage of Countrywide Home Loans, Inc. and Lake County Treasurer would take priority over his allowed secured claim.

The Note referenced in paragraph 3 of the stipulated facts is dated January 13, 2005. The provisions of the Note pertinent to this decision are the following:

FOR VALUE RECEIVED, the undersigned STEVE CANADAY hereby promises to pay to THE DONALD G. WILSON REVOCABLE LIVING TRUST U/A/DATED JUNE 26, 2002, his heirs and executors, at his office in Munster, Indiana, or at such other place as they may designate, the principal sum of TWENTY TWO THOUSAND FIVE HUNDRED DOLLARS ($22,500.00) together with interest on the unpaid balance from time to time at the rate of eighteen per cent (18%) per annum thereafter. Interest is calculated on a three hundred sixty day (360) year; based upon the number of days actually expired. Interest shall accrue on a daily basis.

Said principal and interest shall be paid in payments of interest only every three (3) months the first day of the month beginning three (3) months after signing, with final `payment of principal and interest due twelve (12) months after the date of signing of this note. There will be a minimum charge of $2,000.00 in interest due upon any payoff of this Note prior to July 13 2005.

This Note is secured by a Mortgage on the above described property herewith to THE DONALD G. WILSON REVOCABLE LIVING TRUST U/A/D JUNE 26, 2002 executed simultaneously on the real estate located in the County of Lake and State of Indiana. All of the terms and conditions of said Mortgage are hereby incorporated in and made a part of this Note. (emphasis supplied)

The Note concludes with the statement: "IN WITNESS WHEREOF, the parties have hereunto set their hands and seals this 13th day of January 2005." A signature line, with accompanying signatures, for both Donald Wilson and Steve Canaday follows this statement and concludes the Note.

Attached to the Joint Statement of Facts, apparently as part of Exhibit "A" thereto, is a draft drawn on the account of "DONALD G. WILSON Revocable Living Trust DTD 6/26/02" at Citizens Financial Services, FSB. This draft is dated "1-13-05", and is, payable to the order of Steve Canaday in the amount of $22,000.00.

On February 3, 2005, a document entitled "SECOND REAL ESTATE MORTGAGE" was recorded in the Office of the Lake County, Indiana Recorder. This document provides that "STEVEN CANADAY of Lowell, Indiana as MORTGAGOR, Mortgages and warrants to Donald G. Wilson of Munster, Indiana, as MORTGAGEE" real estate commonly described as 15310 Morse Street, Lowell, Indiana. Sub-section A of this document states:

A To secure the payment, when the same shall become due, of the following indebtedness of even date herewith: Promissory Note dated January 12 2005

The document is signed by Steve Canaday, and although no date is designated above his signature, the acknowledgment in the document establishes that it was executed on January 13, 2005.

II. STATEMENT OF ISSUE

As stated by the parties in the Joint Statement of Facts, the basic issue is "(w)hether the mortgage given to Donald Wilson is a valid mortgage and/or whether it can be voided under the bankruptcy code and Indiana law". More specifically, the issue is whether or not the mortgage asserted by Don Wilson to give rise to a secured claim on his behalf is effective against a hypothetical bona fide purchaser under 11 U.S.C. § 544(a)(3) under applicable Indiana law.

III. LEGAL ANALYSIS

The issues in this case are a bit more complicated than the parties' memoranda address. This in part arises from the incredible lack of case law relating to the primary deficiency in the mortgage upon which Wilson's secured claim is based — the misdescription of the mortgagee to whom the debt secured by the mortgage is owed — not only in the State of Indiana but in every jurisdiction in addition to that one. The Court has expended a significant amount of time seeking to find cases in any jurisdiction which address, in particular, issues relating to enforceability of a mortgage — both in relation to the parties thereto and in relation to third parties — in a circumstance in which the mortgagee designated in the mortgage document is not in fact owed the debt to which the mortgage appears to relate. Amazingly, this particular issue, at least from the Court's research, has not been the subject of extensive discussion in reported decisions.

Based upon the record now before it, the Court first notes the following. The promissory note attached as Exhibit "A" to the Joint Statement of Facts evidences an indebtedness asserted to be owed by Steve Canaday to The Donald G. Wilson Revocable Living Trust U/A/ Dated June 26, 2002. The fact that the funds provided to Canaday which gave rise to this debt originated with The Donald G. Wilson Revocable Living. Trust DTD 6/26/02 is evidenced by the draft attached to the promissory note. Thus,.based upon the record, the indebtedness owed by Canaday which is the subject of this action is owed to The Donald G. Wilson Revocable Living Trust, and is not owed individually to Donald Wilson. There is no assertion by Wilson in the record of this case that Donald G. Wilson individually, and The Donald G. Wilson Revocable Living Trust, are the same person/entity, and thus the...