In re Martin

• Court: U.S. Bankruptcy Court — Northern District of Mississippi
• Writing for the Court: David W. Houston, Iii
• Citation: In re Martin, 276 B.R. 552 (Bankr. N.D. Miss. 2001)
• Decision Date: 09 January 2001
• Docket Number: Adversary No. 99-4157.,Bankruptcy No. 99-40150.
• Parties: In re Minnie E. MARTIN. Minnie E. Martin, Plaintiff, v. USDA Rural Housing Service, Defendant.

Page 552

276 B.R. 552

In re Minnie E. MARTIN Minnie E. Martin, Plaintiff, v. USDA Rural Housing Service, Defendant.

Bankruptcy No. 99-40150.

Adversary No. 99-4157.

United States Bankruptcy Court, N.D. Mississippi.

January 9, 2001.

Ralph M. Dean, William Dye, Oxford, MS, John Tucker, Jackson, MS, for creditors.

John M. Sherman, Clarksdale, MS, for debtor.

OPINION

DAVID W. HOUSTON, III, Bankruptcy Judge.

On consideration before the court is a complaint filed by Minnie E. Martin ("debtor"), wherein she seeks to set aside the prepetition foreclosure sale of her principal residence; a timely answer having been filed by the foreclosing creditor, USDA Rural Housing Service ("Rural Housing Service"); the parties having agreed to submit this matter to the court on stipulated facts followed by memorandum briefs; and the court, having considered same, as well as, an amicus brief filed by the Chapter 13 trustee, finds as follows, to-wit:

I.

The court has jurisdiction of the parties to and the subject matter of this proceeding pursuant to 28 U.S.C. § 1334 and 28 U.S.C. § 157. This is a core proceeding as defined in 28 U.S.C. § 157(b)(2)(A), (E), and (O).

II.

The parties stipulated to the following pertinent facts:

1. The Plaintiff is a Chapter 13 debtor in case number 99-40150, filed on January 11, 1999, in the United States Bankruptcy Court for the Northern District of Mississippi at 2:56 p.m.

2. On March 15, 1994, Minnie Martin borrowed a sum of money from United States of America, acting through the Farmers Home Administration, now known as USDA Rural Housing Service, and granted Farmers Home Administration a deed of trust on Lot 1, Block 4, Rylee Addition to the Town of Tutwiler, Tallahatchie County, Mississippi, Second Judicial District.

3. The deed of trust is recorded in Book 283, Page 578 in the office of the Chancery Clerk of Tallahatchie County, Mississippi, Second Judicial District.

4. USDA Rural Housing Service posted a Notice of Sale on 12/17/98 at the Tallahatchie County Courthouse, Sumner, Mississippi, and published a Notice of Sale in the Sun-Sentinel newspaper on 12/17/98, 12/24/98, 12/31/98, and 1/7/99, pursuant to MCA 89-1-55.

5. The United States of America, acting through USDA Rural Housing Service, foreclosed its deed of trust at 11:30 a.m. on January 11, 1999.

6. USDA Rural Housing Service recorded its Trustee's Deed in Book 308, Page 242, on the 6th day of April, 1999, at 11:56 a.m. in the office of the Chancery Clerk of Tallahatchie County, Mississippi, Second Judicial District.

7. The Substituted Trustee's Deed to USDA Rural Housing Service was not recorded by the date of the filing of the bankruptcy petition on January 11, 1999, at 2:56 p.m. and was subsequently recorded on April 6, 1999, at 11: 56 p.m.

Based on the stipulated facts, the court finds that this bankruptcy case was filed after the foreclosure sale was conducted on the debtor's principal residence, but before the recordation of the trustee's deed. The court has reviewed the pleadings and finds no allegations regarding any technical defects in the foreclosure sale. Accordingly, the threshold issue before the court is whether the debtor retained any legal or equitable interest in the homestead real property at the time she filed her bankruptcy case.

III.

The filing of a bankruptcy case creates an estate composed of all legal and equitable interests of the debtor in property held as of the commencement of the case. 11 U.S.C. § 541(a)(1)¹. Although bankruptcy law creates the estate, non-bankruptcy law determines which assets of the debtor become part of the estate. Mutual Benefit Life Insurance Company v. Pinetree, Ltd. (In re Pinetree, Ltd.), 876 F.2d 34, 36 (5th Cir., 1989). "Bankruptcy law does not create property ..." Id. The non-bankruptcy law applicable in this case is that of the State of Mississippi, specifically, two statutes, Miss.Code Ann. § 89-1-59 and § 89-1-43.

Miss.Code Ann. § 89-1-59 is entitled "Accelerated debt may be reinstated by payment of all default before sale." This statute provides that where a series of notes or installment payments are secured by a deed of trust, mortgage, or other lien, and the debt has become accelerated by default or is otherwise due and payable, the debtor, or any interested party, may at any time "before a sale be made under the terms and provisions" of the deed of trust, mortgage, or lien, stop the threatened sale by paying the amount of the note or installments then due or past due with accrued costs, attorney's fees, and trustee's fees. In effect, a debtor may stop a foreclosure sale, before it becomes final, by bringing the debt current. Significantly, the debtor loses the right to "decelerate" the debt once the foreclosure sale has occurred. Mississippi does not recognize the concept often referred to as "equity of redemption," i.e., the right of a party to redeem property from a foreclosure sale after the sale has taken place.

The second Mississippi statute pertinent to the matter presently before the court is Miss.Code Ann., § 89-1-43, which, for reference purposes, provides as follows:

§ 89-1-43. Mortgages and trust estates; Trust estates subject to execution.

Estates of any kind holden or possessed in trust for another, shall be subject to the like debts and charges of the person to whose use or for whose benefit they are holden or possessed as they would have been subject to them if the person had owned the like interest in the thing holden or possessed as he may own in the uses or trusts thereof, whether the trusts be fully executed or not. Said estates may be sold under execution at law, so as to pass whatever interest the cestui que trust may have; and, before a sale under a mortgage or deed of trust, the mortgagor or grantor shall be deemed the owner of the legal title of the property conveyed in such mortgage or deed of trust, except as against the mortgagee and his assigns, or the trustee after breach of the condition of such mortgage or deed of trust.

Miss.Code Ann., § 89-1-43 (1972).

There are three theories used to define the respective legal interests of parties to a mortgage or deed of trust. They are denominated as "title," "lien," and "intermediate." Under the "title" theory, the mortgagee or the trustee is considered to hold actual title to the real property until the underlying debt is paid. Under the "lien" theory, the mortgagor or borrower retains title to the property subject to the lien of the mortgage or deed of trust, which must be executed upon or foreclosed after default. The "intermediate" theory is a hybrid of the two. It provides that a lien is created against the real property by the mortgage or deed of trust, and that title to the real property transfers to the mortgagee or trustee upon default. In effect, a state adhering to the "intermediate" theory is a "lien" theory state up until the time of default and is a "title" theory state once default occurs. Miss.Code Ann., § 89-1-43, is the fundamental authority indicating that Mississippi is an "intermediate" theory state.

Mississippi's "intermediate" theory status was addressed by the Court of Appeals of Mississippi in Anderson v. Kimbrough, 741 So.2d 1041 (Miss.Ct.App.1999). Judge Southwick, writing for the court, found as follows:

Our conclusion that Mississippi follows the intermediate theory is based on the supreme court's interpretation given to a long-existing statute. For over 100 years a statute has provided that "the mortgagor or grantor shall be deemed the owner of the legal title ... except as against the mortgagee ... after breach of condition of such mortgage," Miss.Code Ann § 89-1-43 (Rev.1994) (emphasis added). The supreme court had held that until a breach, the mortgagor has title even against his mortgagee. Buck v. Payne & Raines, 52 Miss. 271, 279, 1876 WL 5185 (1876) (on application for reargument); Wright v. Wright, 160 Miss. 235, 239, 134 So. 197, 198-99 (1931). After a breach but prior to foreclosure the mortgagee obtains title, but that title can be asserted "only for the protection of his debt, and to make the security available for its payment." Buck, 52 Miss. at 279. Even when the mortgagee pursues an "appropriate action" such as ejectment to possess the property, "he still holds it as mortgagee, subject to the equity of redemption, until that has been cut off by a sale." Id. Until the foreclosure sale, the mortgagor can regain title by paying the amount due.

....

This intermediate concept has been said to "come closer than the other [title or lien] theories to reflecting what courts do in practice." OSBORNE, REAL ESTATE FINANCE LAW § 4.4 at 123. From this analysis it is evident that the statute leaves title in the mortgagor until "condition broken," but after maturity of the debt and failure to pay, the title shifts to the mortgagee who may foreclose to make those rights secure. Since the mortgagee's rights arise with default, it has been held that even if a mortgagee is holding under an improper foreclosure, it is still entitled because of this statute to possession and the income until the debt is paid. James v. Jackson Production Credit Ass'n, 389 So.2d 494, 496-97 (Miss.1980).

Anderson v. Kimbrough, 741 So.2d at 1047-1048.

Under Mississippi law, a grantor under a deed of trust loses title to the encumbered property immediately upon default of the terms of the deed of trust or the underlying promissory note. The subsequent foreclosure is the mechanism by which the trustee procedurally perfects the interest which is automatically transferred upon default. Indeed, the transfer of title to the trustee upon default is not affected even if a subsequent foreclosure sale is set aside due to procedural irregularities.

In James v. Jackson Production Credit Association, 389 So.2d 494 (Miss.1980), Jackson Production Credit Association, ("JPCA"), the beneficiary under a deed of trust executed by Thomas L. James, was the successful bidder at a...