In re Earl
| Decision Date | 05 October 1992 |
| Docket Number | Bankruptcy No. 90-01089. |
| Citation | 147 BR 60 |
| Parties | In re Donald Wayne EARL, Debtor. |
| Court | U.S. Bankruptcy Court — Northern District of New York |
Edward W. Goehler, Cortland, N.Y., for debtor.
William F. Larkin, Asst. U.S. Atty., Syracuse, N.Y., for Farmers Home Admin.
Connor, Curran & Schram, Hudson, N.Y. (Theodore Guterman, II, of counsel), for the Estate of Harry Moskowitz.
MEMORANDUM-DECISION, FINDINGS OF FACT, CONCLUSIONS OF LAW AND ORDER
This contested matter is before the Court by way of an objection filed by Farmers Home Administration ("FmHA") to the confirmation of Donald W. Earl's ("Debtor") amended Chapter 13 Plan. FmHA's objection concerns the priority of mortgage liens held by FmHA and the estate of Harry Moskowitz ("Moskowitz") against certain real property owned by Debtor and his wife, which is located in Moravia, Cayuga County, New York ("the Property").
A hearing on the matter, originally scheduled for February 27, 1992, in Utica, New York, was adjourned until March 26, 1992 and was completed on the same day. On the date of the hearing, the parties filed a joint stipulation of facts concerning the transactions underlying the controversy. Upon conclusion of the hearing, the parties were given until April 24, 1992 to submit memoranda of law. Moskowitz consented to an extension of this date until May 4, 1992, at which time the matter was submitted for decision.
This is a non-core matter which seeks to resolve a lien priority dispute which was expressly reserved in the Court's May 6, 1992, Order confirming Debtor's Chapter 13 Plan, and is thus a matter related to the administration of the estate. 28 U.S.C. § 157(b)(3). See Matter of Wood, 825 F.2d 90, 93 (5th Cir.1987) (citing Pacor, Inc. v. Higgins, 743 F.2d 984, 994 (3d Cir.1984). The parties have, however, impliedly consented to this Court's jurisdiction to enter a final order in resolution of this related matter both in voting to confirm the Plan subject to resolution of the lien priority dispute at a later time, and further, in not objecting to this Court's assumption of jurisdiction to determine the matter when that later time finally arose. See 28 U.S.C. §§ 1334(b), 157(a) and 157(c)(2); In re Men's Sportswear, Inc., 834 F.2d 1134, 1138-39 (2d Cir.1987); accord In re Fiero Productions, Inc., 102 B.R. 581 (Bankr.W.D.Tex.1989).
On May 3, 1990, Debtor filed a voluntary petition under Chapter 13 of the Bankruptcy Code (11 U.S.C. §§ 101-1330) ("Code"). On September 20, 1990, FmHA filed a proof of claim in the amount of $161,613.97. On January 29, 1992 Moskowitz filed a proof of claim in the amount of $25,000.00. Although dispute exists as to the priority of liens held against the Property by both FmHA and Moskowitz, it is undisputed that Fleet Bank of New York ("Fleet"), as successor-in-interest to Norstar Bank of Central New York ("Norstar"), holds a first mortgage against the Property upon which a proof of claim in the amount of $76,438.64 was filed on October 16, 1990.1 Debtor's schedules also reflect an indebtedness for outstanding "county/town/school" taxes for the years 1988 through 1990 in the approximate amount $24,295.94.
On or about January 29, 1992, Debtor's amended Plan of reorganization was confirmed. The Order confirming the Plan was entered on May 6, 1992, subject to resolution of the dispute concerning the priority of the FmHA and Moskowitz liens.
The parties have stipulated that on September 30, 1977, Debtor and his wife executed two promissory notes that were made payable to FmHA. The first note was in the principal amount of $100,000.00, carried an eight percent annual rate of interest and had a term of forty years. The second note, in the principal amount of $15,000.00, carried a three percent annual rate of interest for a term of seven years. Both notes were secured by a single mortgage which was executed by Debtor, his wife, and FmHA on September 30, 1977, and was recorded in the Cayuga County, New York, Clerk's Office on the same day.
On July 27, 1978, Debtor and his wife executed three additional promissory notes that were payable to FmHA. The first of these was in the principal amount of $21,670.00, and carried an annual rate of interest of three percent for a twenty year term. The second note was in the principal amount of $8,330.00, and carried an eight percent annual rate of interest for a forty year term. The third note executed on this date was in the principal amount of $5,000.00, carried an eight percent annual rate of interest and a seven year term. All three of these notes were secured by a single mortgage which was executed by the parties on July 27, 1978, and recorded in the Cayuga County Clerk's Office on the same day.
On or about October 8, 1982, a note and mortgage between Debtor, his wife, and Harry Moskowitz, in the amount of $22,400.00, was recorded in the Cayuga County Clerk's Office.
On or about June 17, 1983 Debtor and his wife paid off both the $15,000.00 promissory note of September 30, 1977, and the $5,000.00 promissory note of July 27, 1978.
On December 15, 1986, Debtor and his wife executed three promissory notes that were made payable to FmHA. The first of these notes was in the principal amount of $119,664.06 and carried an eight percent annual rate of interest for a term of thirty one years. Attached to this note is the $100,000.00 promissory note of September 30, 1977, upon which is stamped "reamortized, not paid".
The second note executed to FmHA on this date was in the principal amount of $19,005.70 and carried a three percent annual rate of interest for a term of twelve years. Attached to this note is the $21,670.00 promissory note of July 27, 1978, which also bears the stamp "reamortized, not paid".
The third note executed to FmHA on this date was in the principal amount of $7,735.03 and carried an eight percent annual rate of interest for a term of thirty two years. Attached to this note is the $8,330.00 promissory note of July 27, 1978, upon which is stamped "reamortized, not paid".
The three promissory notes of December 15, 1986, were secured by a single mortgage which was executed by the parties on December 20, 1986 and recorded in the Cayuga County Clerk's Office on December 22, 1986.
Additionally, on or about May 3, 1988, Debtor and his wife executed a promissory note to FmHA in the principal amount of $10,000.00, which carried an annual interest rate of eight and a half percent for a term of seven years. On the same date, the parties executed a mortgage to secure this note. The mortgage was recorded in the Cayuga County Clerk's Office on May 9, 1988. This mortgage was subsequently discharged by FmHA and a discharge of mortgage was filed in the Cayuga County Clerk's Office on September 4, 1991.
Both the mortgage of September 30, 1977 and the mortgage of July 27, 1978 have not been discharged and remain on file at the Cayuga County Clerk's office. Additionally, the Moskowitz mortgage of October 8, 1982 has not been discharged and also remains on file at the Cayuga County Clerk's Office.
FmHA contends that its 1986 mortgage lien has priority over the Moskowitz lien because the 1986 notes and mortgage simply reamortized prior notes and mortgages held by FmHA, which were duly filed and perfected in 1977 and 1978, and thus, existed prior to the creation of the Moskowitz lien. Additionally, FmHA contends that because the underlying notes were never satisfied, nor the mortgages discharged, the liens created by these instruments continue under the 1986 mortgage despite reamortization of the debt and the addition thereto of accrued interest.
Moskowitz, on the other hand, also claiming priority, takes the position that FmHA's 1977 and 1978 notes and mortgages were extinguished upon execution of FmHA's 1986 notes and mortgage. Moskowitz contends therefor, that because its mortgage was filed and perfected in 1982, and thus prior to the 1986 FmHA mortgage, its lien is senior to that of FmHA.
Alternatively, Moskowitz contends that if the 1986 FmHA notes and mortgage are determined to be modifications of Debtor's prior obligations to FmHA, then such modification is prejudicial to its rights as a junior lien holder because the 1986 notes are for larger principal amounts and require larger annual payments than before. At the hearing, Moskowitz also argued that the effective rate of interest under the 1986 notes was higher than that under the original notes, thereby further prejudicing its interests as a junior lien holder. Moskowitz contends, that because it did not consent to the impairment of its lien, FmHA's 1986 mortgage lien must be subordinated to that of the Moskowitz mortgage.
Moskowitz also contends that the 1988 FmHA loan constitutes new money that was advanced to the Debtor subsequent to the Moskowitz loan. Moskowitz argues that FmHA misapplied Debtor's 1988 payment, arbitrarily applying it in satisfaction of the 1988 promissory note in order to purposely defeat the rights of the Moskowitz mortgage. Moskowitz contends that in determining the priority of liens, the Court should apply this payment to the earliest outstanding FmHA debt in order to reduce FmHA's claim against the Property.
Questions concerning the relative priority of private liens and consensual federal liens arising under FmHA administered loan programs are to be determined according to state lien priority law. See Federal Land Bank of Wichita v. Ferguson, 896 F.2d 1244, 1247 (10th Cir.1990); United States v. Kimbell Foods, Inc., 440 U.S. 715, 99 S.Ct. 1448, 1465, 59 L.Ed.2d 711 (1979); see United States v. Smith, 832 F.2d 774, 775-76 (2d Cir.1987) (). Accordingly, this Court turns to the laws of the state of New York to resolve the...
To continue reading
Request your trial