In re Munoz
| Decision Date | 04 December 2019 |
| Docket Number | Case no. 16-10343-ta13 |
| Citation | 610 B.R. 907 |
| Parties | IN RE: Leobardo MUNOZ and Maria Elena Munoz, Debtors. |
| Court | U.S. Bankruptcy Court — District of New Mexico |
Ronald E. Holmes, Davis Miles McGuire Gardner, PLLC, Albuquerque, NM, for Debtors.
Before the Court is Debtors' motion to assume their buyers' interest in a real estate contract on an unimproved lot in Rio Rancho, New Mexico. The lot owner objects, arguing, among other things, that he did not get notice of the motion timely. The history of this matter is convoluted, involving three bankruptcy cases, three different debtors' counsel, and two owners of the lot. After conducting a final hearing on the motion and reading the documents filed in the three bankruptcy cases, the Court concludes that Debtors' motion to assume must be denied, without prejudice to their right to seek to re-establish ownership of the contract rights and file a new motion.
The Court finds:
In July 1998 Debtors signed a real estate contract (the "REC") with the Wright Family Trust (the "Trust")2 to buy an undeveloped lot in Rio Rancho, New Mexico (the "Lot"). Debtors agreed to pay $15,000 for the Lot in monthly installments $144.76. Interest accrued on the unpaid balance at 10% per year. Had Debtors made all payments timely they would have paid off the REC in 20 years at a total cost of $34,742.40. The parties appointed American Escrow to administer the contract.
Debtors filed a chapter 7 bankruptcy case in this district in September 2008, no. 08-13101-m7. They received a discharge on January 5, 2009. They did not list the REC in their bankruptcy schedules, nor did they list the Trust as a creditor. Their Schedule J did not include the monthly REC payment as an expense.
Kenneth Wright died in 2010; Gladys in 2012. Thereafter, Gerard Greiner became the trustee of the Trust while Charles Wright and Brian Hoile became the sole beneficiaries.
Debtors filed a chapter 13 case in this district in March 2013, no. 13-10930-t13. Unlike their 2008 case, in 2013 Debtors scheduled their interest in the REC and valued the Lot at $5,000. Debtors listed "Ken and Gladys Wright Trustees" as secured creditors.
Debtors filed a chapter 13 plan in April 2013. The plan treated the REC as a secured claim to be paid without modification "outside" the plan. The REC was not among the executory contracts to be assumed. In December 2013, however, Debtors filed a motion to assume the REC.3
Debtors' plan was confirmed December 31, 2013, and a default order granting the motion to assume the REC was entered January 7, 2014. On June 8, 2015, however, Debtors dismissed their chapter 13 case, stating that they "no longer wish to be debtors in Chapter 13."
Debtors filed this chapter 13 case about eight months later. Debtors listed the Lot on Schedule A, listed the REC on Schedule G, and listed the Trust as a secured creditor on Schedule D. Debtors' creditor mailing list included:
The Wrights once lived at the Georgetown, Texas address, but had moved, and then died, before the case was filed. The second address is an amalgam of Mr. Griener's post office box in Reno, Nevada and the city and state where Mary Wilson, the Trust's New Mexico counsel, lives. It is clearly erroneous. American Escrow's address is accurate.
In their chapter 13 plan Debtors proposed bifurcate the Trust's claim into a $5,000 secured and a $2,800 unsecured claim. The plan also proposed to assume the REC by separate motion.
The notice of the bankruptcy case, plan, and notice of the deadline to object to the plan were mailed by the Bankruptcy Noticing Center to all listed creditors on February 21, 2016.
On March 4, 2016, Debtors filed a motion to value the Lot for $5,000. The motion and a notice of objection deadline were mailed to Kenneth and Gladys Wright at the Georgetown, Texas address. On the same day Debtors also filed a motion to assume the REC. The motion and a notice of deadline to object were mailed to American Escrow at its listed address.
The chapter 13 trustee timely objected to the motion to assume, arguing that the REC is "a burden on the debtor and reduces available disposable income as the real property which is the subject of the contract is not the debtors' residence and this is merely an investment property." Debtors never set the matter for a hearing so the Court never ruled on the motion to assume.
No objections were filed to the motion to value the Lot. A default order granting the motion was entered April 1, 2016.
On June 27, 2016, the Court confirmed the chapter 13 plan.
By a quitclaim deed signed December 21, 2017, Mr. Greiner conveyed the Lot from the Trust to Charles Wright and Brian Hoile as tenants in common.4 Around this time, Wright learned that Debtors had not made a payment on the REC since 2013. Wright sought to terminate the REC based on the Debtors' default but learned from American Escrow that Debtors had filed this case.
On August 29, 2019, the Court held a status conference and a preliminary hearing on Debtors' motion to assume, and Wright's concerns about lack of notice. At the hearing, the Court ordered Wright to submit a motion stating with particularity the relief that he sought and the grounds therefor. Wright timely filed a motion seeking to determine the value of the Lot, objecting to the motion to assume, and seeking an order "releasing" the Lot to him. On October 9, 2019, the Court held a final hearing on Wright's motion and on the Debtors' motion to assume.
Renee Maestas is a manager at American Escrow, where she has worked for 33 years. She testified that American Escrow's policy is to mail to the seller any bankruptcy-related documents it receives from the buyer's bankruptcy. In preparing to testify, Ms. Maestas reviewed American Escrow's file. The file included a notation that in 2013 American Escrow sent notice of Debtor's 2013 bankruptcy case to Mr. Greiner at his Reno, Nevada, address.5 Ms. Maestas did not know whether Mr. Greiner was American Escrow's point of contact in 2016, nor did she know whether notices related to Debtors' 2016 bankruptcy case were sent to Mr. Greiner or someone else. Ms. Maestas testified, however, that American Escrow's policy was to send any documents from a buyer's bankruptcy to the person listed as the seller's point of contact in the file.
Wright testified that Mr. Greiner's practice was to send Ms. Wilson all Trust-related documents he received. In turn, Ms. Wilson's practice was to forward everything she received to Wright. Wright testified that he never received notice of Debtors' 2016 bankruptcy case from Ms. Wilson or anyone else. From this, Wright concluded that Mr. Greiner did not receive any documents related to Debtors' 2016 bankruptcy case.
Based on the evidence before it, the Court cannot find that the Trust received actual notice of Debtors' 2016 bankruptcy case, the chapter 13 plan, notice of the deadline to object to the plan, the motions, or the deadlines to object to the motions. While Ms. Maestas credibly testified that American Escrow forwarded notice of Debtors' 2013 bankruptcy case to Mr. Greiner, her testimony regarding American Escrow's handling of the documents from Debtors' 2016 bankruptcy case was much less specific. Ms. Maestas' certainty about the 2013 notice stemmed from a notation in the file that the notice had been sent to Mr. Greiner. Apparently, there was no similar notation about Debtors' 2016 bankruptcy. On balance, Ms. Maestas' testimony regarding the 2016 notice is too tenuous to support a finding that the Trust received actual notice of the 2016 case, the chapter 13 plan, or the motions.
The rule in this district is that real estate contracts are "executory contracts" subject to § 365.6 Shaw v. Dawson , 48 B.R. 857, 860 (D.N.M. 1985) ; see also In re Texas Reds, Inc. , 2010 WL 398918, at *1, n.1 (Bankr. D.N.M.) (citing Shaw ); In re Bellamah Community Development , 107 B.R. 337, 341 (Bankr. D.N.M. 1989) (citing and following Shaw ).7
On filing a bankruptcy case, all the debtor's legal and equitable interests in property become property of the estate. § 541(a)(1). This includes the debtor's interests in executory contracts. In re Yelverton , 2015 WL 4761193, at *1 n.2 (Bankr. D.D.C.). The debtor has an affirmative obligation to schedule all executory contracts. BR8 1007(b)(1)(C); see generally In re JZ, LLC , 357 B.R. 816, 822 (Bankr. D. Id. 2006) ().
Assumption and rejection of executory contracts is governed by § 365. Rejection of an executory contract constitutes a breach of the contract as of the petition date. § 365(g)(1).
The terms of an executory contract cannot be modified by the debtor or the court; the contract must be assumed cum onere . In re Beverage Canners Intern. Corp. , 255 B.R. 89, 95 (Bankr. S.D. Fla. 2000) (); In re Bellamah Cmty. Dev. , 107 B.R. at 339 (); In re McDaniel , 89 B.R. 861, 863 (Bankr. E.D. Wash. 1988) (same); In re Booth , 19 B.R. 53, 58 (Bankr. D. Utah. 1982) (same).
While the exchange consideration value in an executory contract may be relevant to the advisability of assumption, see, e.g. , In re Riodizio, Inc. , 204 B.R. 417, 424-25 (Bankr. S.D.N.Y. 1997), debtors may not "write down" a real estate contract to the value of the subject property. In re Bellamah Cmty. Dev. , 107 B.R. at 339.
Section 365 applies in chapter 13 cases. There is a lack of clarity in the Code whether the ...
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