In re Dickson

• Decision Date: 12 April 2010
• Docket Number: No. 09-8034.,09-8034.
• Citation: 427 B.R. 399
• Parties: In re Nancy E. DICKSON, Debtor. Countrywide Home Loans d/b/a America's Wholesale Lender, Defendant-Appellant, v. Nancy E. Dickson, Plaintiff-Appellee.
• Court: U.S. Bankruptcy Appellate Panel, Sixth Circuit

427 B.R. 399

In re Nancy E. DICKSON, Debtor Countrywide Home Loans d/b/a America's Wholesale Lender, Defendant-Appellant, v. Nancy E. Dickson, Plaintiff-Appellee.

No. 09-8034.

United States Bankruptcy Appellate Panel of the Sixth Circuit.

Argued: February 3, 2010.

Decided: April 12, 2010.

ARGUED: John P. Brice, Wyatt, Tarrant & Combs, LLP, Lexington, KY, for Appellant. Jon J. Lieberman, Cincinnati, OH, for Appellee. ON BRIEF: John P. Brice, Wyatt, Tarrant & Combs, LLP, Lexington, KY, for Appellant.

John M. Simms, Lexington, KY, for Appellee.

Before FULTON, McIVOR, SHEA-STONUM, Bankruptcy Appellate Panel Judges.

OPINION

THOMAS H. FULTON, Chief Bankruptcy Appellate Panel Judge.

Countrywide Home Loans, Inc. d/b/a America's Wholesale Lender ("Countrywide") appeals a judgment in favor of Nancy Dickson (the "Debtor") finding that the Debtor had standing to seek to avoid Countrywide's lien on the Debtor's manufactured home, and avoiding Countrywide's lien. Countrywide also appeals the bankruptcy court's subsequent order that largely overruled Countrywide's Motion to Amend Findings of Fact and Conclusions of Law and to Alter, Amend, or Vacate the Judgment, and sustained the Debtor's motion nunc pro tunc for derivative standing.

For the reasons stated below, the Panel affirms the bankruptcy court's judgment in favor of the Appellee.

I. ISSUES ON APPEAL

Countrywide raises two issues in this appeal: (1) whether the Debtor had standing to bring an adversary proceeding to avoid Countrywide's lien on her manufactured home; and (2) whether Countrywide's lien was properly avoided.

II. JURISDICTION AND STANDARD OF REVIEW

The Bankruptcy Appellate Panel has jurisdiction to decide this appeal, as authorized by the United States District Court for the Eastern District of Kentucky. 28 U.S.C. §§ 158(b)(6), (c)(1). A final order of the bankruptcy court may be appealed as of right. 28 U.S.C. § 158(a)(1). For the purpose of an appeal, a final order is one that "ends the litigation on the merits and leaves nothing for the court to do but execute the judgment." Midland Asphalt Corp. v. U.S., 489 U.S. 794, 798, 109 S.Ct. 1494, 1497, 103 L.Ed.2d 879 (1989) (internal quotation & citation omitted).

Countrywide challenges certain of the bankruptcy court's conclusions of law. A bankruptcy court's conclusions of law are reviewed de novo. Moran v. LTV Steel Co. (In re LTV Steel Co., Inc.), 560 F.3d 449 (6th Cir.2009). "Under a de novo standard of review, the reviewing court decides an issue independently of, and without deference to, the trial court's determination." Buckeye Check Cashing, Inc. v. Meadows (In re Meadows), 396 B.R. 485, 488 (6th Cir. BAP 2008) (internal quotation & citation omitted).

III. FACTS

On September 19, 1998, Debtor executed a promissory note and mortgage on her real property, which she had purchased in 1997, in consideration for a $79,000 loan from Countrywide. At the time the promissory note and mortgage were executed there were no improvements on the mortgaged real property. The mortgage in favor of Countrywide stated that Countrywide was granted a lien against the real property and "all improvements now or hereafter erected on the property, and all easements, appurtenances, and fixtures now or hereafter a part of that property." The mortgage was duly and properly recorded with the Harrison County Clerk on September 22, 1998. The Debtor then used the proceeds of the loan to purchase a manufactured home which she placed on the mortgaged real property.

On March 22, 1999, the Debtor filed a petition for relief under Chapter 7 of the Bankruptcy Code. On May 13, 1999, the Chapter 7 trustee filed a notice of intent to abandon both the manufactured home and the real property. The Debtor was granted a Chapter 7 discharge on September 8, 1999, and the bankruptcy court entered its Final Decree on September 13, 1999. The Debtor did not reaffirm the debt with Countrywide.

Subsequently, the Debtor defaulted on the loan with Countrywide. As a result, Countrywide initiated foreclosure proceedings on June 15, 2006, in the Commonwealth of Kentucky Harrison Circuit Court ("State Court"). Countrywide's complaint in the State Court asserted that the Debtor granted Countrywide a security interest in both the real property and the manufactured home. Countrywide asserted in its complaint that while the parties intended the mortgage to secure a valid, first lien on the manufactured home, the Debtor failed to surrender the title to the manufactured home preventing Countrywide from noting its lien on the title. Countrywide sought a judgment from the State Court that it had a valid lien on the home, as well as an order that the home be deemed a fixture on the property and sold in satisfaction of its lien. On July 13, 2006, Countrywide filed a notice of lis pendens in the office of the Harrison County Clerk which specifically referenced the manufactured home.

On May 25, 2007, Countrywide filed a motion for In Rem Judgment in the State Court foreclosure proceeding. In its motion, Countrywide acknowledged that it had not noted its lien on the certificate of title nor obtained an affidavit of conversion of the manufactured home to real property in accordance with Kentucky Revised Statute § 186A.297.¹ The motion further sought a judgment from the State Court ordering that the property be deemed converted to real property and sold as part of the real property to satisfy Countrywide's lien. The Debtor did not oppose Countrywide's motion. On June 6, 2007, the State Court granted the In Rem motion and issued an order finding that Countrywide held a first priority and superior lien against the real property, that the real property be sold to satisfy Countrywide's lien, and that the manufactured home be "deemed converted to real estate and considered to comply with K.R.S 186A.297." The State Court judgment also ordered that the "County Clerk shall accept for recording an affidavit of conversion from the purchaser of the property, and this Court's order converting the home to real estate, herein. Alternatively, the Clerk shall issue a new certificate of title to the purchaser of the property." The Debtor did not appeal the State Court judgment.

On July 16, 2007, the Debtor filed a petition for relief under Chapter 13 of the Bankruptcy Code. Countrywide filed a motion for relief from stay seeking to sell the Debtor's property. The Debtor and the Chapter 13 trustee ("Trustee") opposed Countrywide's motion on the grounds that Countrywide failed properly to perfect its lien on the manufactured home. On October 9, 2007, the bankruptcy court issued an order granting the Trustee thirty days in which to file an adversary proceeding to determine the interest of Countrywide. The bankruptcy court further ordered that if the Trustee did not file such an adversary proceeding, the Debtor would then have an additional fifteen days to do so. If no adversary was filed, the stay would be lifted.

The Trustee did not file an adversary proceeding. The Debtor, therefore, filed an adversary complaint pursuant to 11 U.S.C. §§ 544, 547, 550, and 551 on November 14, 2007, in which she asserted that Countrywide did not properly perfect its lien on her manufactured home. On March 20, 2008, Countrywide filed a motion for summary judgment in which it asserted that the Debtor lacked standing to bring the adversary proceeding because the mortgage lien was consensual and she may not exercise the Trustee's avoidance powers under 11 U.S.C. § 544, that the Debtor's claim is barred by res judicata as a result of the actions of the trustee in the Debtor's Chapter 7 case in relation to her property, that the lis pendens filing provided the Debtor with constructive notice of Countrywide's lien preventing avoidance, and finally, that the prior State Court judgment prevented avoidance of Countrywide's lien. The Debtor responded with a cross motion for summary judgment in which she asserted that she had standing as a result of the bankruptcy court's October 9, 2007 order and Countrywide's failure to object to same, that her prior bankruptcy case did not have res judicata effect, that Countrywide's lien on the manufactured home was unperfected because it failed to note its lien on the certificate of title, and that the State Court's judgment did not preclude avoidance of the lien.

Following a hearing on April 29, 2008, the bankruptcy court denied both motions for summary judgment and stated:

Countrywide argues that Debtor does not have standing because the mortgage lien is consensual. However, the lien was created by the non-consensual judgment lien; thus, the Debtor does have standing.

. . .

This Court finds that whether the Defendant holds a valid lien is determined by the intent of the parties at the time of contract formation and whether the Debtor granted Countrywide a lien on the mobile home. There is nothing in the record of this case that demonstrates the intent of the parties or the intent of the Debtor in not responding to the Motion for In Rem Judgment in State Court, nor is there any evidence that the Debtor granted a lien to Countrywide on the mobile home.

Following the bankruptcy court's ruling on the motions for summary judgment, Countrywide took the Debtor's deposition and questioned her regarding her intention at the time of contract formation. While the Debtor's testimony at that deposition was equivocal regarding her intention to grant a lien to Countrywide on the manufactured home, she ultimately agreed that she was granting a lien on the manufactured home in favor of Countrywide. The deposition of Countrywide's designated representative, Kelly Darraugh, was also taken. Kelly Darraugh testified that neither she, nor anyone else at Countrywide, had direct knowledge of Countrywide's intention regarding the manufactured home at the time of contract formation, nor had she ever seen the certificate of title or an affidavit documenting affixing of the...