In re Nash, Bankruptcy No. B-83-2590-PHX-GBN
| Decision Date | 14 May 1985 |
| Docket Number | B-83-2591-PHX-GBN.,Bankruptcy No. B-83-2590-PHX-GBN |
| Parties | In re Albert W. NASH and Joyce H. Nash; and Albert W. Nash, a Trustee for the A.W. Nash Family Trust, Debtors. PALO VERDE MANAGEMENT AND FINANCIAL SERVICES CO., an Arizona corporation, Movant, v. Albert W. NASH, aka A.W. Nash; Joyce H. Nash; Albert W. Nash, as Trustee for the A.W. Nash Family Trust; Robert Busch, Trustee in Bankruptcy, Respondents, and Mary L. Ward, secured creditor, Intervenor. In re WARE PROPERTIES, INC., Debtor. PALO VERDE MANAGEMENT AND FINANCIAL SERVICES CO., an Arizona corporation, Movant, v. WARE PROPERTIES, INC. and Robert Busch, Trustee in Bankruptcy, Respondents, and Mary L. Ward, secured creditor, Intervenor. |
| Court | United States Bankruptcy Courts. Ninth Circuit. U.S. Bankruptcy Court — District of Arizona |
Norman D. James, Ryley, Carlock & Applewhite, Phoenix, Ariz., for intervenor.
Robert S. Porter, Ellis, Baker, Lynch, Clarke & Porter, P.C., Phoenix, Ariz., for movant.
Albert W. and Joyce H. Nash, Phoenix, Ariz., Jon N. Vogel, Scottsdale, Ariz., for trustee.
This litigation concerns a challenge by a junior creditor to a request by a senior lien claimant to foreclose its security. Since the affirmative defenses contest the validity of the senior lien, the junior creditor has been allowed to intervene to press its case in this Court. In re Davenport, 34 B.R. 463, 466 (Bankr.M.D.Fla.1983). However, because intervenor has failed to carry her burden of proof, a finding for the senior creditor has previously been issued. The purpose of this memorandum is to express the findings and conclusions supporting the prior ruling. Rule 7052, F.Bk.R.
The controversy arises from a request by Palo Verde Management and Financial Services Co. ("movant") for relief from the automatic stay in regard to a Phoenix, Arizona residence. 11 U.S.C. § 362(d); Rule 4001, F.Bk.R.
The home was previously owned by Chapter 7 debtor Ware Properties, Inc. ("Ware"). Corporate debtor's sole officers, directors and shareholders are Albert W. and Joyce H. Nash ("Nash"), who are debtors in a separate Chapter 7 administration. Mr. and Mrs. Nash briefly held an interest in the home themselves. Accordingly, the stay lift request was directed at both the corporate and individual debtors' rights in the property. Neither debtors nor their trustees opposed the motion. However, creditor Mary L. Ward, former owner and holder of a third position trust deed, appeared and objected. Creditor Ward was allowed to intervene, solely to raise any defenses available to debtors or the trustee. In re Fidelity America Mortgage Co., 15 B.R. 70, 72 (Bankr.E.D.Pa.1981); Rule 7024, F.Bk.R.
Specifically, she attacks the validity of the second trust deed securing Palo Verde's claim, originally placed on the realty by Ware.
Ms. Ward became the original owner of the home in 1971. It was placed on the market on July 12, 1982 through the assistance of real estate broker Susan Wood, now deceased. Ms. Ward and Albert Nash1 signed a real estate purchase contract on July 16, 1982. Nash agreed to assume an existing first mortgage of $14,000, pay a series of deposits totalling $8,000 and provide a note of $14,170 for the balance of the $36,270 purchase price. Exhibit 4, at 1. The note and a trust deed securing it were signed by Nash on behalf of Ware Properties, Inc. in August of 1982. Exhibit 8. Ms. Ward's warranty deed of the premises to the corporation was acknowledged by a notary public on July 21, 1982 and recorded by escrow agent U.S. Life Title Company of Arizona on August 20. Supra.
The purchase contract provided buyer might wish to obtain a new loan on the premises "in an amount sufficient at least to return buyer's investment and costs. . . ." Exhibit 4, at Addendum A, ¶ 5. Ms. Ward expressly agreed such new loan could be recorded prior to her $14,170 trust deed. Supra. Appearing at the escrow company in July, 1982, she learned from escrow officer Judith L. Dersham that Nash had taken out an $18,500 loan on the property. Although concerned about this amount, creditor Ward signed an escrow amendment which relegated her lien to third position rather than terminate the sale. Exhibit 7, at 5. She was then given a check for $4,658.67. Prior to signing the amendment, Ms. Ward had discussed the matter with her own broker, Ms. Wood. She understood this provision allowed Nash to place a lien with higher priority on the premises. She further understood that foreclosure of such lien would emperil her own interests. Payments under the Ware-Nash note commenced in March, 1983. Debtors defaulted after the August 1, 1983 payment. Creditor Ward now objects to the amount of the trust deed, of which movant is the assignee. Exhibit 11.
By close of escrow, Ms. Ward received $4,658.67 cash, was credited with three late payments of $153.00 each to first lienholder Utah Mortgage, along with a $20.48 late fee, previously received $1,000.00 directly from Nash as an advance,2 had her Utah Mortgage obligation of $14,027.11 assumed and her broker's commission paid. Exhibit 7.
Debtor Albert Ware Nash, Jr., a retiree, established Ware Properties, Inc. to invest in real estate. Since 1981, Mr. and Mrs. Nash would commingle funds between their personal account and that of the corporation. From 1980 to 1982, debtors estimate assigning 25-30 collateralized notes to Palo Verde Management or other affiliated companies owned or controlled by Paul Schulman. Most notes involved dealings between Mr. and Mrs. Nash and their corporation. Debtors transacted with other investors besides Mr. Schulman, however. Palo Verde's procedure was to loan debtors 75% of the parcel's appraised value, less prior liens, in short terms with a balloon payment at the end. Interest was at the market rate. When Palo Verde would actually purchase a note, the price would be set by the discount rate in the secondary mortgage market for second trust deeds, less escrow costs and title fees.
Acting on the prior advice of a title and trust company, Mr. and Mrs. Nash would not seek a direct Palo Verde sale, but instead utilize Ware as an intervening third party to avoid Arizona's usury limits. This maneuvering, which ultimately led in part to Ms. Ward's challenge, was unnecessary. Well prior to this transaction, the state legislature removed the interest lid on consenual loan transactions. Cf. A.R.S. § 44-1201 A (1980), with § 44-1201 B (1956). Nash instituted this practice prior to his dealings with Schulman and Palo Verde.
Nash invested $3,000 into the Ward home, including a $1,400 fence and incurred escrow costs and a down payment of over $11,600, as well. Addendum A, containing the parties' subordination agreement, was prepared by escrow agent Dersham, not debtors. To establish the desired "third party" Nash, as part of his routine practice, prepared a trust deed and note from Ware Properties to Mr. and Mrs. Nash for $18,500, secured by the Ward home. Exhibit 11. Although Nash previously testified at a deposition that the consideration for the Ware-Nash transaction was a ledger entry, there is no record in that amount. By August 13, 1982, debtors' practice of commingling personal and corporate accounts was well advanced. The Ware Properties bookkeeper was Louise F. Authement, a Nash daughter, who tried "her darnest" to keep the accounts separate. She was unsuccessful.
A separate escrow was established by U.S. Life Title to effectuate transfer of the Nash interest in the Ward home to Palo Verde. Exhibit 10. At the time of the July, 1982 Ward real estate purchase contract, debtors had not contacted Palo Verde for financing. During this period, debtors were thus free to transact with other investors, and would have done so had Schulman refused the transaction. At this time, debtors owned some 45 houses. By an amendment to the Nash-Palo Verde escrow instructions, Nash directed U.S. Life Title to apply any funds necessary to close the Ward-Ware Properties escrow. Exhibit 10, at 3. This resulted in a transfer of $7,396 to that escrow. Escrow settlement sheet of August 20, 1982, Exhibit 10. The $8,593.50, disbursed to Mr. and Mrs. Nash from the Palo Verde escrow, was placed in the Ware corporate account.
Debtors used the "straw man" transactions between themselves and their corporation to create notes for sale to other investors besides Schulman. There is a Ware Properties corporate resolution which purports to allow such dealings.
Debtors' ledger, "Houses for resale," reflects a credit of $8,593.50 on the Ward home, indicating this sum went to the corporation's savings account. Exhibit 2. Another entry reflects the $7,396 transferred to the Ward escrow. These figures do not fully account for the $18,500 "loan" between Mr. and Mrs. Nash and the corporation. Consequently, the ledger will not balance.
Escrow agent Dersham prepared the August 16, 1982 amendment to escrow instructions, which identifies the $18,500 prior lien placed on the home by Ware. Exhibit 7. This amendment, signed by Ms. Ward, was prepared on Ms. Dersham's own initiative. Although she knew Nash owned Ware Properties, she saw no reason to so identify them in the $18,500 prior lien referenced in the amendment. In regard to the Ware-Nash transaction, she had no recollection if the note, trust deed and assignment to Palo Verde were attached together, although she did notarize both the trust deed and the assignment on August 13, 1982. Exhibit 11. Such assignments were always on a separate document.
In handling the Ward escrow, Ms. Dersham has no recollection when Ms. Ward appeared to close the transaction, but does know she would not have arranged for the instruments' August 20, 1982 recordation until the amendment was signed. It would be office procedure for Ms. Ward to sign the amendment prior to recordation of the Palo Verde transaction. She has no control over the exact time the County Recorder processes instruments, however.
Mr. Schulman, as President...
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