In re Degnan, Bankruptcy No. 98-12011.
| Decision Date | 11 January 2007 |
| Docket Number | Bankruptcy No. 98-12011.,Adversary No. 03-1072. |
| Citation | 361 B.R. 650 |
| Parties | In re Thomas G. DEGNAN, Debtor. Nancy Walker, Plaintiff, v. Thomas Degnan and St. Anne's Credit Union of Fall River, MA, Defendants. |
| Court | U.S. Bankruptcy Court — District of Rhode Island |
Matthew J. McGowan, Esq., Salter McGowan Sylvia & Leonard, Inc., Providence, RI, Attorney for Debtor/Defendant, Thomas G. Degnan.
Barry J. Kusinitz, Esq., Providence, RI, Attorney for Plaintiff.
Colleen Brady, Esq., Thomas T. Brady, Inc., Tiverton, RI, Attorney for Defendant, St. Anne's Credit Union of Fall River, MA.
DECISION APPORTIONING OWNERSHIP INTERESTS, AND ORDER FOR PARTITION AND SALE OF PROPERTY
Heard on the Plaintiff Nancy Walker's Complaint against Thomas Degnan ("Degnan") and mortgagee St. Anne's Credit Union of Fall River, MA ("St. Anne' s"),1 alleging inter alia that Degnan holds real estate in Little Compton, Rhode Island (the "property"), as trustee, for her benefit.
An understanding of the now defunct relationship of Walker and Degnan is helpful (and necessary) to resolve this dispute. In 1998, when the parties were involved both personally and in business, and because she was in financial trouble, Walker asked and Degnan agreed to purchase her house which was scheduled to be sold at foreclosure. Degnan also allegedly agreed to hold the legal title to the property, for one year, or until Walker regained financial stability, and that he would reconvey the property at Walker's request. Walker complains that although she has asked Degnan to convey the property to her, he refuses to do so.
Degnan initially denied the existence of an agreement and filed a counterclaim against Walker seeking both legal and equitable title to the property, or alternatively, a lien against the property for the value of his services and cash contributions, which he says had a lot to do with the increase in the market value of the property during the parties' odyssey of increasingly hard financial times and deteriorating personal and business relationships.
Although Walker and Degnan each allege having made significant cash contributions toward the debt service and maintenance of the property for the past nine years, neither has offered competent evidence to support her or his respective position. Basically this trial consisted of mostly talk, and little substance or proof. Because the parties have left the Court with a record that makes a resolution according to normal evidentiary standards impossible, but instead limits and requires the outcome to be based on the application of general equitable principles, I find for the reasons discussed below, that Walker and Degnan each own a 50% interest in the property, and order its partition and sale, with the net proceeds to be distributed equally between the parties.
In 1985, Walker purchased land in Little Compton, Rhode Island, and built the residence which is the subject of this dispute. In 1993, Walker filed a Chapter 11 case that was later converted to Chapter 7, and she received a discharge in June 1995. Walker managed to hold onto her home during the bankruptcy, but not long thereafter the property was again facing foreclosure. In an effort to save the property, Walker concocted what she herself later described as a "hare-brained scheme", and proposed to Degnan, her business2 and social partner (who, at the time was able to qualify for financing), that he should purchase the property for her at the foreclosure. Degnan agreed, and in April 1996, was the successful bidder at the sale. According to Walker she provided Degnan with the required $30,0003 deposit, and Degnan financed the balance of the purchase price with a $120,000 mortgage loan from St. Anne's Credit Union.
Walker asserts that their oral agreement also provided that after one year, and upon re-establishing her credit, she would obtain refinancing and relieve Degnan of his personal liability under the note and mortgage, whereupon he would reconvey the legal title to her. In the meantime it was Walker's obligation to pay all expenses, including mortgage, insurance, taxes and maintenance. Initially, Degnan denied having agreed to reconvey the property to Walker, but at trial conceded that essentially he was acting as a straw, and that Walker would occupy the property and pay all of the expenses associated with owning it. His present position is that Walker has failed, all along, to meet her financial obligations regarding the property.
By May. 1998, Degnan was himself in financial trouble, the mortgage was in default, and the future of the property was again in jeopardy. So on May 11, 1998, in order to stop a scheduled foreclosure, Degnan filed his own Chapter 13 case. At no time during the pendency of his case did Degnan disclose that Walker asserted a claim of ownership in the property. He did testify, however, in a deposition that prior to his bankruptcy he considered that the property belonged to Walker, but that after he had to file for bankruptcy he felt that whatever agreement they had was ended. On the date of Degnan's bankruptcy filing the St. Anne's mortgage was delinquent in the amount of $13,500. Neither the plan nor the confirmation order addressed an ownership dispute, and Walker raised no title issues until November 2003, when she filed the instant Complaint alleging that she is the owner of the property. Degnan completed his Chapter 13 plan and received a discharge on March 15, 2006. Walker has occupied the property continuously, and presumably rent free.
Walker testified that prior to and during Degnan's bankruptcy, she repeatedly asked him to convey the property to her, but to no avail. She also suggests that Degnan's refusal to convey the property is an afterthought, prompted by the substantial increase in value of the property since it has been in his name.4 Walker further contends that she kept her part of their agreement by reimbursing Degnan for the mortgage payments he made, and only seeks to have the property returned to her per the oral agreement.5
Conversely, Degnan vehemently denies that Walker performed as required, pointing to her repeated and continuous payment defaults, and the fact that he was forced to file for bankruptcy himself to rescue the property from foreclosure. Additionally, Degnan asks that he be declared the sole owner of the property because for nine years he has borne, and still has, the legal and financial responsibility for the property, including the ongoing mortgage payments, taxes, etc. Given the equity in the property (approximately 8400k as of November 2005), this argument can hardly be expected to evoke empathy for Degnan.
Resulting Trust:
Walker's first argument is based on her claimed status as the beneficiary of a resulting trust. Resulting trusts may arise in one of two ways: (1) When purchase money is contributed by one party and the title is taken in the name of another; or (2) When an express trust fails in whole or in part.6 Restatement (Third) of Trusts §§ 7, 9 (2003); Fleet Nat'l Bank v. Valente (In re Valente), 360 F.3d 256 (1st Cir.2004) (); Carrozza v. Voccola, 2006 WL 2405891 at *3 (R.I.Super.2006), citing Desnoyers v. Metropolitan Life Ins. Co., 108 R.I. 100, 272 A.2d 683, 689 (1971); Cetenich v. Fuvich, 41 R.I. 107, 102 A. 817, 820-21 (1918) ().
Whether a resulting trust has arisen is a matter of state law, see Marquette Credit Union v. Taft (In re Dexter Buick-GMC Truck Co.), 2 B.R. 627, 629 (Bankr.D.R.I.1980), and the burden of proof is on the claimant to prove its existence by clear and convincing evidence. Cutroneo v. Cutroneo, 81 R.I. 55, 98 A.2d 921, 923 (1953); Roseman v. Sutter, 735 F.Supp. 461, 464 (D.R.I.1990).
Under Rhode Island law one element of the creation of a resulting trust is the source of the funds used to purchase the property, as well as the parties' intent to retain the beneficial ownership of the property. Carrozza, 2006 WL 2405891 at *3, citing Cetenich, 102 A. at 821. Gooding v. Broadway Baptist Church, 46 R.I. 106, 125 A. 211, 213 (1924); U.S. v. One Parcel of Real Property with Bldgs., 942 F.2d 74, 82 (1st Cir.1991) (); Roseman, 735 F.Supp. at 464; Campanella v. Campanella 76 R.I. 47, 68 A.2d 85, 88 (1949). A general contribution towards the entire purchase price, without the intent to create a specific ownership interest in the property will not create a resulting trust. Gooding, 125 A. at 213; Cutroneo, 98 A.2d at 923.
With that as background, Walker has the burden of proving by clear and convincing evidence that: (1) At the time of the April 1996 foreclosure sale, it was the intention and understanding of the parties that although Degnan took the legal title, Walker retained the beneficial interest in the property; (2) that Walker contributed substantially all of the $30,000 deposit; and (3) said payment was more than a general contribution towards the total purchase price. It is now undisputed that it was Walker's idea to have Degnan purchase the property at the foreclosure sale, and Degnan now concedes that he understood that Walker was to retain the beneficial ownership interest in the property. But Degnan's present position is that Walker's chronic failure to relieve him of responsibility for the note and mortgage, and for failing to pay the upkeep and expenses over a nine year period, negate her claim to any interest in the property.
Based upon the evidence, as discussed below, there was an agreement that Degnan would buy and hold the property for...
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