In re Lett
| Decision Date | 24 August 1999 |
| Docket Number | Bankruptcy No. 98-43720-JWV. Adversary No. 98-3029-SW,98-3030-SW. |
| Parties | In re Christopher Kevin LETT and Patricia Lynn Lett, Debtors. First American Title Insurance Company, Plaintiff, v. Christopher Kevin Lett and Patricia Lynn Lett, Defendants. Green Tree Financial Servicing, Plaintiff, v. Christopher Kevin Lett and Patricia Lynn Lett, Defendants. |
| Court | U.S. Bankruptcy Court — Western District of Missouri |
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Thomas J. O'Neal, Springfield, MO, Michael Gould, Kansas City, MO, for plaintiff.
Thomas Williams, Joplin, MO, for defendant.
Christopher Kevin Lett and Patricia Lynn Lett ("the Letts" or "Debtors") filed for protection under Chapter 7 of the Bankruptcy Code on September 3, 1998. On their Schedules, the Debtors listed First American Title Insurance Company ("First American") as an unsecured creditor holding a disputed claim for $76,041.41, and Green Tree Financial Servicing Corporation ("Green Tree") as an unsecured creditor holding an undisputed claim of $27,296.25. The debt owed to First American arises from a claim on a title insurance policy made by Johnny and Tammy Boshears who purchased real estate from the Debtors. Green Tree's claim arises from the Debtors' sale of a mobile home in which Green Tree purportedly held a security interest.
On December 2, 1998, First American filed a four-count Complaint against the Debtors seeking: (1) a determination that the $76,041.41 debt owed to it is nondischargeable under 11 U.S.C. § 523(a)(2)(A) and that First American is entitled to $25,000.00 for attorneys' fees and cost of collection pursuant to the terms of the Note and Deed of Trust signed by the Debtors and assigned to First American; (2) a denial of discharge pursuant to 11 U.S.C. § 727(a)(2)(A); (3) the imposition of a constructive trust on real estate located in Kansas and allegedly purchased with funds fraudulently obtained through the sale of the Debtors' Missouri real estate; and (4) a determination that the lien obtained pursuant to a judgment entered by the Kansas District Court on September 24, 1998, is valid. Additionally, on July 14, 1999, First American filed a Motion for Leave to File First Amended Complaint and submitted the First Amended Complaint in which First American included 11 U.S.C. § 523(a)(6) as an additional ground for its claim of nondischargeability in Count I of its Complaint. The Court will rule on that Motion as a part of this Memorandum Opinion and Order.
Also on December 2, 1998, Green Tree filed a two-count Complaint against the Debtors seeking a determination of nondischargeability. Both counts cite 11 U.S.C. § 523(a)(2)(A) as the basis for the determination of nondischargeability but allege different factual grounds. Count I alleges that the Debtors fraudulently obtained an extension of credit from Green Tree to purchase a mobile home, and Count II alleges that the Debtors committed fraud when they failed to disclose Green Tree's security interest upon the sale of the mobile home to a third party (the Boshears). Green Tree also raised 11 U.S.C. § 523(a)(6) in its post-trial brief as an additional ground for excepting from discharge the debt owed to it.
The Debtor has raised various counterclaims that include, inter alia, claims for attorney's fees pursuant to 11 U.S.C. § 523(d).1
On February 2, 1999, the Court issued an Order consolidating the two abovementioned adversary proceedings, and on June 23, 1999, the Court a held joint hearing at the Federal Courthouse in Joplin, Missouri, after which the Court took the matter under advisement and granted the parties additional time to submit post-trial briefs. The Court has read the briefs, conducted its own independent research and is now ready to rule.
This is a core proceeding pursuant to 28 U.S.C. §§ 157(b)(2)(I) and (J), and this Court has jurisdiction pursuant to 28 U.S.C. §§ 1334(b) and 157(a).2
In August 1995, the Debtors purchased an approximately 20-acre tract of land in Jasper County, Missouri, and gave Southwest Missouri Bank of Joplin a Future Advance Deed of Trust dated August 21, 1995, on the entire property to secure a loan in the original amount of $77,000.00. At approximately the same time they were purchasing the real estate, the Debtors began discussions with Serenity Homes, Inc., of Tulsa, Oklahoma ("Serenity Homes"), for the purchase of a double-wide mobile home or manufactured home to be placed on the Missouri real estate. Apparently on August 15, 1995, the Debtors provided Serenity Homes with the necessary information to complete a credit application for the purpose of financing the purchase of the mobile home. This information was transmitted by Serenity Homes to Green Tree and a typewritten credit application was prepared; however, the Debtors did not sign the credit application until September 20, 1995. The credit application did not disclose the newly incurred debt to Southwest Missouri Bank nor any of the numerous other debts which eventually were listed on the Debtors' bankruptcy schedules.
On October 4, 1995, the Debtors signed an installment contract and security agreement agreeing to purchase a 1994 Fuqua mobile home, financing $28,186.50 of the total purchase price of $30,900.00 and granting a security interest in the mobile home to Green Tree. Green Tree properly secured its interest in the mobile home by having its lien noted on the Certificate of Title.
The retail installment contract provided, among other things, that the Debtors agreed to not attach the mobile home to any real estate. It further provided that the mobile home would always be treated as personal property unless Serenity Homes and Green Tree consented in writing and state law permitted a contrary treatment. The contract contained a boldface typewritten notice immediately above the Debtors' signature lines advising the Debtors, as buyers, not to sign the contract before reading it. Despite that notice, the Debtors did not read the contract before signing it.
The evidence was contradictory as to whether the Debtors told the salesman for Serenity Homes that the Debtors intended to place the mobile home on a permanent foundation and add extra rooms to the home. The Debtors contended that they advised the salesman that the mobile home was not large enough for their needs and would have to be added to, and asserted that the salesman told them that, once the mobile home was delivered to the Debtors, they could do what they pleased with it. The salesman, on the other hand, testified that he didn't recall any conversations with the Debtors about the Debtors adding to the home or putting it on a permanent foundation. In any event, Lett testified that his changes in and additions to the mobile home were planned before he purchased the mobile home. Lett admitted that he intended to change the character of the mobile home and make it look more like a house instead of a mobile home. Photographs admitted in evidence showed that he had succeeded in that endeavor.
The mobile home was delivered to the Debtors' real estate in Jasper County soon after the contract was signed. The men who delivered the mobile home for Serenity Homes placed the mobile home on small concrete block pillars and it was secured to the ground by means of steel cables fastened to metal rods driven into the ground. Over the course of the next several months, the Debtors, as they had planned to do before purchasing the mobile home, added bedrooms, a bathroom, a garage, and a patio and deck to the mobile home. They also changed the roof line and placed the home on a permanent concrete foundation faced with brick. With the addition of siding, a white picket fence, and a small amount of landscaping, the Debtors, by all appearances, converted the mobile home into a full-sized permanent home on the property.
In early 1997, Lett began discussions with Ronnie Perry about a sale to Perry of a portion of the Debtors' real estate. Lett approached Southwest Missouri Bank to discuss a possible release of the bank's security interest in a portion of the property. The bank told Lett that the property would have to be surveyed, an appraisal would have to be made of the property that would remain subject to the bank's Deed of Trust, and it would have to have a copy of the contract with Perry. Lett arranged for the survey and appraisal to be made. The survey divided the Letts' property into two tracts—Tract No. 1 would be sold to Perry and Tract No. 2 would be retained by the Letts. The appraisal showed that the property that the Letts would continue to own (Tract No. 2) would have an approximate value of $120,000.00, well in excess of the bank's mortgage. Inasmuch as no contract had been entered into with Perry at that time, the Letts did not provide the bank with a copy of any contract. (In fact, it appears that a contract was never supplied to the bank.)
Despite the lack of any contract with Perry, the bank, for some unexplained reason, recorded a Corporation Deed of Release (Partial) for the apparent purpose of releasing from its Deed of Trust the portion of the property being sold to Perry. The Deed of Release recited that the release was being given for consideration of no payment and that the deed was in partial satisfaction of the bank's August 1995 Deed of Trust. In the legal description of the Deed of Release, the deed described the entire property owned by the Letts, exactly as shown on the Deed of Trust, except that it included the following phrase at the end of the legal description: "and except tract 2." This Deed of Release (Partial) was recorded in April 1997, but the Letts did not learn of its recording until early in 1998.
Toward the end of 1997, Mr. Lett resumed his...
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