In re Failla

• Decision Date: 19 December 2014
• Docket Number: No. 11–34324–BKC–PGH.,11–34324–BKC–PGH.
• Parties: In re David A. FAILLA and Donna N. Failla, Debtor(s).
• Court: United States Bankruptcy Courts. Eleventh Circuit. U.S. Bankruptcy Court — Southern District of Florida

529 B.R. 786

In re David A. FAILLA and Donna N. Failla, Debtor(s).

No. 11–34324–BKC–PGH.

United States Bankruptcy Court, S.D. Florida, West Palm Beach Division.

Signed Dec. 19, 2014.

Michael E. Zapin, Boca Raton, FL, for Debtors.

Jonathan M. Sykes, Burr & Forman, LLP, Orlando, FL, for Creditor.

ORDER GRANTING CITIBANK'S AMENDED MOTION TO COMPEL DEBTORS TO SURRENDER REAL PROPERTY PURSUANT TO STATEMENT OF INTENTION

PAUL G. HYMAN, JR., Chief Judge.

THIS MATTER came before the Court for upon the Amended Motion to Compel Debtors to Surrender Real Property Pursuant to Statement of Intention and Incorporated Memorandum of Law (the “Motion to Compel Surrender”) (ECF No. 40) filed by CitiBank, N.A. as Trustee for the Certificate Holders of Structured Asset Mortgage Investments II Inc., Bear Stearns Alt–A Trust, Mortgage Pass–Through Certificate Series 2006–7 (“CitiBank”) against David A. Failla and Donna N. Failla (the “Debtors”). The Court took the matter under advisement at a hearing on October 7, 2014. Thereafter, the parties submitted a Stipulation of Facts and Statement of Legal Issues for Ruling on Motion to Compel Debtors to Surrender Real Property (the “J. Stip.” or the “Joint Stipulation”) (ECF No. 78).¹ For the reasons discussed below, the Court grants CitiBank's Motion to Compel Surrender.

FACTS

The following facts are undisputed. The Debtors own real property located at 1498 SW 19th Street, Boca Raton, Florida 33486 (the “Property”). J. Stip. at ¶ 3. On August 25, 2006, David A. Failla obtained a loan (the “Loan”) from HomeBanc Mortgage Corporation, and in connection therewith executed a promissory note (the “Note”) payable to HomeBanc Mortgage Corporation in the principal amount of $500,000.00. Id. at ¶ 4. As security for the Loan, the Debtors executed a mortgage (the “Mortgage”) on August 25, 2006, pledging the Property as collateral. Id. at ¶ 5. The Mortgage was recorded on September 12, 2006, in Official Records Book 20836, Page 0544 et al. of the Official Records of Palm Beach County, Florida. Id. at ¶ 6.²

Subsequently, the Debtors defaulted under the Note and Mortgage. Id. at ¶ 7. On July 7, 2009, CitiBank filed a complaint to foreclose the Mortgage and re-establish the Note in the Circuit Court of the Fifteenth Judicial Circuit in and for Palm Beach County, Florida (the “State Court”). Id.

Thereafter, on August 31, 2011, the Debtors filed their Chapter 7 Voluntary Petition (ECF No. 1). On the same day, the Debtors filed their Schedules A through J (the “Schedules”), in which the Debtors made declarations concerning the Property and the Mortgage under penalty of perjury. The Debtors stated that they own the Property, the Property is encumbered by the Mortgage, and the Mortgage is a valid first mortgage lien on the Property and represents a non-contingent, liquidated, and undisputed secured claim against the Debtors and the Property. The Debtors declared that the amount they owe pursuant to the Loan exceeds the value of the Property. On September 2, 2011, the Debtors filed their Statement of Intention (ECF No. 8), in which they declared under penalty of perjury their intention to surrender the Property pursuant to 11 U.S.C. § 521(a)(2)(A). Nevertheless, on October 14, 2011, the Debtors attempted to amend their Statement of Intention to instead declare an intention to reaffirm the Mortgage and Loan. See Amended Document (ECF No. 14). The amendment, however, was untimely and invalid under applicable law, and therefore, did not result in the amendment of the original Statement of Intention. J. Stip. at ¶ 15.

On December 16, 2011, the Court issued the Order Discharging Debtor(s) (ECF No. 23) and on December 19, 2011, the Clerk of the Court closed the Debtors' case. See Final Decree and Discharge of Trustee (ECF No. 25). Subsequently, the State Court set a non-jury trial for August 21, 2013, regarding the Property. J. Stip. at ¶ 17. As of December 1, 2014, and since September 2, 2011, the Debtors have retained possession and title to the Property, and oppose CitiBank's action to foreclose on the Mortgage in the State Court. Id. at ¶ 18.

CONCLUSIONS OF LAW

I. Jurisdiction

The Court has jurisdiction over this matter pursuant to 28 U.S.C. § 1334. This is a core proceeding under 28 U.S.C. §§ 157(a)(2)(A) and (O).

II. The Debtors Must Surrender the Property

The parties agree that there are no factual disputes for the Court to determine in ruling on the Motion to Compel Surrender, and that the only issues left to decide are the following purely legal issues: (1) What actions or inactions, if any, are required of the Debtors to effectively and sufficiently perform their Statement of Intention to surrender the Property?; (2) What remedies or rights are available to CitiBank for the Debtors' failure to comply with their obligation to perform their Statement of Intention to surrender the Property?; and (3) Does the “exception” language of 11 USC § 521(a)(2)(B) —which states that “except that nothing in subparagraphs (A) and (B) of this paragraph shall alter the debtor's or the trustee's rights with regard to such property under this title, except as provided in section 362(h)”—implicitly permit a debtor to lawfully defend a foreclosure action as a matter of “right” of such property ownership?

When a debtor files for bankruptcy, the debtor must state her intention to surrender, reaffirm, or redeem property in which a creditor has a secured interest. The Bankruptcy Code provides:

(a) The debtor shall—

...

(2) if an individual debtor's schedule of assets and liabilities includes debts which are secured by property of the estate—

(A) within thirty days after the date of the filing of a petition under chapter 7 of this title or on or before the date of the meeting of creditors, whichever is earlier, or within such additional time as the court, for cause, within such period fixes, file with the clerk a statement of his intention with respect to the retention or surrender of such property and, if applicable, specifying that such property is claimed as exempt, that the debtor intends to redeem such property, or that the debtor intends to reaffirm debts secured by such property; and

(B) within 30 days after the first date set for the meeting of creditors under section 341(a), or within such additional time as the court, for cause, within such 30–day period fixes, perform his intention with respect to such property, as specified by subparagraph (A) of this paragraph; except that nothing in subparagraphs (A) and (B) of this paragraph shall alter the debtor's or the trustee's rights with regard to such property under this title, except as provided in section 362(h).

11 U.S.C. § 521.

“In many jurisdictions, including the Eleventh Circuit, if the debtor chooses to retain nonexempt collateral under § 521(a)(2), he only has two options: reaffirmation or redemption.” In re Plummer, 513 B.R. 135, 141 (Bankr.M.D.Fla.2014) (citing Taylor v. AGE Fed. Credit Union (In re Taylor), 3 F.3d 1512 (11th Cir.1993) ). Judge Jennemann of the Bankruptcy Court for the Middle District of Florida elaborated:

He may “reaffirm” his agreement with the secured creditor to pay the prepetition debt, or “redeem” the collateral by paying the allowed secured claim amount in full. But, “[w]here the debtor decides not to reaffirm, or the parties cannot negotiate a reaffirmation, or redemption is not economically feasible, the debtor has but one option: ‘surrender’ the collateral.”

Id. (quoting In re Pratt, 462 F.3d 14, 19 (1st Cir.2006) ); see also In re Steinberg, 447 B.R. 355, 357 (Bankr.S.D.Fla.2011) (“In this circuit, a chapter 7 debtor has only three options with respect to property subject to a lien or mortgage: (1) surrender the property; (2) redeem the property; or (3) reaffirm the debt.”). The Debtors agreed in the Stipulation of Facts that their proposed amendment to the Statement of Intention was ineffective and that they are obligated to surrender the Property. Accordingly, the issue before the Court is what the Debtors need to do in order to effectively surrender the Property pursuant to the Bankruptcy Code.

“Surrender,” however, is not defined in 11 U.S.C. § 521(a)(2) or elsewhere in the Bankruptcy Code. In re Plummer, 513 B.R. at 142 (citing In re Pratt, 462 F.3d at 18 (1st Cir.2006) ; In re Cornejo, 342 B.R. 834, 836 (Bankr.M.D.Fla.2005) ). “ ‘Where the words in the statute are not defined terms, the court should look to their ordinary, dictionary-defined meaning.’ ” Id. (quoting In re Ralston, 400 B.R. 854, 860 (Bankr.M.D.Fla.2009) (citing Consolidated Bank, N.A. v. U.S. Dep't of the Treasury, 118 F.3d 1461, 1464 (11th Cir.1997) (“In the absence of a statutory definition of a term, we look to the common usage of words for their meaning.”))). Black's Law Dictionary defines “surrender” as “[t]he act of yielding to another's power or control” or “[t]he giving up of a right or claim.” Black's Law Dictionary 1581 (9th ed. 2009).

Furthermore, “[f]ew courts have examined ‘surrender’ in the context of § 521(a)(2).” In re Plummer, 513 B.R. at 142. Sections 521(a)(1) and (2) of the Bankruptcy Code do not state to whom a secured property should be surrendered. The Bankruptcy Court for the District of Columbia, in a case cited by the Debtors, noted that “[m]ost courts appear to assume that the surrender option entails a surrender to the lienholder, not to the trustee....” In re Kasper, 309 B.R. 82, 85–86 (Bankr.D.D.C.2004). Likewise, the Eleventh Circuit Court of Appeals stated in dicta that “[s]urrender provides that a debtor surrender the collateral to the lienholder who then disposes of it pursuant to the requirements of state law.” In re Taylor, 3 F.3d at 1514.³ Additionally, the First Circuit Court of Appeals, in In re Pratt, stated that “the most sensible connotation of ‘surrender’ ... is that the debtor agreed to make the collateral available to the secured creditor-viz., to cede his possessory rights in the collateral.” 462 F.3d at 18.

The Debtors, however, contend that...