In re Confer
| Decision Date | 08 June 2021 |
| Docket Number | Case No. 21-20167-A-13 BHS-1 |
| Court | United States Bankruptcy Courts. Ninth Circuit. U.S. Bankruptcy Court — Eastern District of California |
| Parties | In re: HARLAN PAGE CONFER III and CHARLOTTE CLUFF CONFER, Debtors. |
NOT FOR PUBLICATION
Argued and submitted on May 18, 2021 at Sacramento, California
Appearances: Michael O'Dowd Hays for Harlan Page Confer III and Charlotte Cluff Confer; Barry H. Spitzer for Jacob Watson and James Watson; Kristen Koo for David P. Cusick, Chapter 13 trustee Executory contracts may be rejected in Chapter 13. One day before a foreclosure sale, octogenarian sellers contracted to sell their home for one-half its value. Buyers have not yet paid the purchase price; sellers have not conveyed title and remain in possession. Sellers filed Chapter 13 and confirmed a plan rejecting all executory contracts. Buyers move for stay relief to prosecute a specific performance action for the sale contract. Should the court grant the motion?
Harlan Confer is an 86-year old retired Baptist minister and army chaplain; Charlotte Confer (collectively "the Confers") is an 85-year old retired nurse.
In 1986, the Confers purchased a home at 295 San Joaquin Drive, Red Bluff, California. It is a four bedroom, two bathroom, 1,773 square foot home built in 1959. Prior to the events that form the basis of this dispute, the Confers' home had a value of $255,000-280,000 and was encumbered by a first deed of trust in favor of New Rez, LLC.
In 2010, the Confers received a home equity loan from Umpqua Bank to build a small outbuilding behind their residence. The amount of that loan was $43,000; the loan was secured by a second deed of trust against their home.
Thereafter, Harlan Confer used the couple's social security and pension income to make unsecured loans to persons who were supposed to use the monies to fund their college education and then repay the Confers. When the Confers' borrowers did not do so, the Confers fellbehind in payments on the loans secured by the first and second deeds of trust. New Rez, LLC commenced foreclosure proceedings.1 The foreclosure sale was noticed for Monday, January 27, 2020, at 2:00 p.m.
During the evening before the foreclosure, Sunday, January 26, 2020, and mindful of the pending foreclosure sale, Edward Lenzer ("Lenzer") of "eXp Realty," contacted the Confers at their home and suggested a sale of the property to Jacob Watson and James Watson. He promised the Confers $25,000 cash, approximately, in exchange for a deed to their home to the Watsons and the Watsons' agreement to pay two trust deeds encumbering the property and costs of sale. Initially, Harlan Confer was unwilling to sell, and asked Lenzer to arrange a loan to cure the arrearages or to assist in consolidating the two deeds of trust. Lenzer informed the Confers that the sale was the only mechanism by which the equity in their home could be saved. Harlan Confer remembers that he agreed to the sale, if and only if he had a right to repurchase the property once he received the funds to do so; the Watsons, speaking through Lenzer, dispute that Harlan Confer conditioned the sale on such a repurchase provision.
The next morning, Lenzer returned to the Confers' home and presented them with a Residential Purchase Agreement signed by the Watsons. Under its terms, Jacob Watson and James Watson offered to purchase 295 San Joaquin Drive, Red Bluff, California, from the Confers for $136,000. The Watsons promised to pay the Confers $22,000as a down payment and the balance, $114,000, at or before the close of escrow. Edward Lenzer, eXp Realty, represented both the Confers and the Watsons in the transaction. Possession of the property was to be turned over to the Watsons at the close of escrow.
Later that morning, the Confers signed the Residential Purchase Agreement. Charlotte Confer delivered the signed sale agreement to Lenzer at the situs of the foreclosure sale moments before the trustee auctioned 295 San Joaquin Drive, Red Bluff, California. Lenzer provided the auctioneer with proof that the arrearage had been paid (apparently by the Watsons), and the auctioneer cancelled the foreclosure sale.
Apparently, in their hurry to sign the agreement, the Confers failed to sign and/or initial all necessary portions of the Residential Purchase Agreement. During the late afternoon or early evening hours of January 27, 2020, Lenzer returned to the Confers' home to collect still further signatures. Lenzer rushed the Confers to do so, stating that "he wanted to get home and not spend another night in a motel." Harlan Confer decl. p. 5, lines 1-2, May 4, 2021, ECF No. 40.
The Watsons did, in fact, make the $22,000 payment called for by the agreement. Of that amount, the Watsons paid the Confers $19,968 directly, outside escrow; the remainder, approximately $2,032, was paid into escrow. But the Watsons did not deposit the balance of the purchase price into escrow.
Later, the Confers declined to proceed with the sale. Specifically, they refused to sign escrow instructions and they also refused to execute a deed to the property. At all times pertinent hereto, the Confers have remained in possession of 295 San JoaquinDrive, Red Bluff, California.
The Confers, who did not wish to sell their home, attempted to negotiate a settlement. But funding the settlement was a problem. The Watsons wanted the Confers to honor their agreement to sell. Settlement discussions broke down.
In June 2020, the Watsons filed an action in state court, seeking specific performance and damages. Steven M. Dean of the Dean Law Firm, Inc. was counsel for the Watsons.2 The complaint plead causes of action for specific performance, breach of contract and fraud. It plead that (1) the Confers owned 295 San Joaquin Drive, Red Bluff, California; (2) the Confers entered into a Residential Purchase Agreement to sell that property to the Watsons for $136,000; (3) the Watsons made an earnest money down payment of $24,032 ($22,000 of which was paid directly to Confers); and (4) the Confers refused to perform the purchase agreement notwithstanding receipt of $22,000 from the Watsons. The Residential Purchase Agreement was appended to the complaint.
The Confers were served with the lawsuit but failed to make a timely appearance.
After the Confers' default was entered, in October 2020, the state court conducted a default prove up hearing. The court found that: (1) there was a "valid written contract"3 between the Confers andthe Watsons for the sale of 295 San Joaquin Drive, Red Bluff, California, for $136,000; (2) the Watsons paid $22,000 ($19,967.88 directly to Confers) in earnest money; (3) the Confers refused to proceed with the sale; (4) the Confers remained in possession of the property; and (5) the Watsons had no adequate remedy at law. The court ordered the Confers to sign escrow instructions and to execute and deliver a grant deed for 295 San Joaquin Drive, Red Bluff to the escrow holder. It also ordered escrow to close "[two] business daysafter [the Confers] have deposited the [d]eed and escrow instructions with [the escrow holder] and [the Watsons] have deposited the cash balance of the purchase price." Order for Specific Performance 3:18-4:15, Watson v. Confer, No. 20CI000087 (Tehama County Superior Court October 7, 2020). The court reserved the issue of damages for later determination. Id. at 5:20-21.
The Confers did not sign the escrow instructions or convey title.
The monetary component of the state court action was not proved up and no judgment was entered.
In January 2021, the Confers filed a Chapter 13 bankruptcy. As pertinent here, they claimed ownership in 295 San Joaquin Drive, Red Bluff, California, which they valued at $255,000. Their schedules indicate that their residence at 295 San Joaquin Drive, Red Bluff, California was encumbered by a first deed of trust in favor of New Rez, LLC and a second deed of trust in favor of Umpqua Bank. Both were in default. The Confers claimed a homestead exemption in their San Joaquin Drive residence in the amount of $300,000.4 Schedule C, ECF No. 13. Their Schedule E/F, which lists "Creditors Who Have Unsecured Claims," included the following scheduled debt: "Dean Law Firm, Inc., 1610 West Street, Ste 2, P.O. Box 994134, Redding, CA 96099-4134"5 in the amount of $32,174.42." Id. at Schedule E/F. In describing the debt, the Confers categorized the debt as "Other" and added the following verbiage "Attorneys for Jacob and James Watson in Case No.20CI000087 in Tehama County Superior Court, Red Bluff..." Id. Schedule G, which should list "Executory Contracts and Unexpired Leases," was left blank. Id. at Schedule G. The creditors' matrix filed in support of the petition included the "Dean Law Firm, Inc.," at that firm's correct address, but it did not include Jacob Watson or James Watson specifically.
The Confers also filed a Chapter 13 plan. Chapter 13 Plan, January 25, 2021, ECF No. 12. The plan provided for 60 monthly payments: $1,518 per month from February 2021 to September 25, 2023, and then $1,709 per month for the remainder of the plan. Id. at §§ 2.01, 2.03, 7.0. From those funds, the Chapter 13 trustee was to pay creditors by class. The plan provided for payment of administrative expenses, i.e., trustee and debtor's counsel's fees, as well as payment of ongoing and delinquent amounts due to the first and second trust deed holders, i.e., New Rez, LLC and Umpqua Bank. Id. at § 3.07. Unsecured creditors were provided for by the plan, but the Confers estimated that the dividend paid to that class would be "0%." Id. at § 3.14. That plan rejected all executory contracts. Id. at §§ 4.01, 4.02. It also revested all property of the estate in the debtors upon...
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