In re Project Homestead, Inc., Bankruptcy No. 04-10239C-7G.

• Decision Date: 17 August 2007
• Docket Number: Bankruptcy No. 04-10239C-7G.,Adversary No. 05-2112, 05-2113.,Adversary No. 05-2115.,Adversary No. 05-2114.,Adversary No. 05-2116.,Adversary No. 05-2117.
• Citation: 374 B.R. 193
• Court: U.S. Bankruptcy Court — Middle District of North Carolina
• Parties: In re PROJECT HOMESTEAD, INC., Debtor, Commonwealth Land Title Insurance Company and Countrywide Home Loans, Inc., Plaintiffs, v. William P. Miller as trustee for Project Homestead, Inc., and Katie L. Hairston, Defendants. Commonwealth Land Title Insurance Company, Southstar Mortgage Funding, LLC and JP Morgan Chase Bank as successor in Interest to Bankone, NA, as trustee of Ace Securities Corp. Home Equity Loan Trust, Series 2003-HSI (as successor in interest to Flick Mortgage Funding, LLC), Plaintiffs, v. William P. Miller as trustee for Debtor, Raymond Smith and Norma Smith, Defendants. Commonwealth Land Title Insurance Company and JP Morgan Chase Bank, as trustee, (as successor in interest to Flick Mortgage Company, LLC), Plaintiffs, v. William P. Miller as Trustee for Debtor, and Van J. Reeves, Defendants. Commonwealth Land Title Insurance Company, Southstar Mortgage Funding, LLC, and JP Morgan Chase Bank, NA FKA JP Morgan Chase Bank as trustee for Structured Asset Mortgage Investments Inc. Mortgage Pass-Through Certificates Series 2003-Ar2 (as successor in interest to Flick Mortgage Funding, LLC), Plaintiffs, v. William P. Miller as Trustee for Debtor, Bernice Koduah and Ernest K. Boateng, Defendants. Commonwealth Land Title Insurance Company, Southstar Mortgage Funding, LLC and Opteum Financial Services, LLC (as successor in interest to Flick Mortgage Funding, LLC), GB Home Equity, LLC, Plaintiffs, v. William P. Miller as trustee for Debtor, and Janice Daniels, Defendants. Commonwealth Land Title Insurance Company and Regions Bank, Dba Regions Mortgage (as successor in interest to Union Planters Bank, NA), Plaintiffs, v. William P. Miller as trustee for Debtor, Sarah E. Coley and Cleveland L. Bell, Defendants.

374 B.R. 193

In re PROJECT HOMESTEAD, INC., Debtor,

Commonwealth Land Title Insurance Company and Countrywide Home Loans, Inc., Plaintiffs, v. William P. Miller as trustee for Project Homestead, Inc., and Katie L. Hairston, Defendants.

Commonwealth Land Title Insurance Company, Southstar Mortgage Funding, LLC and JP Morgan Chase Bank as successor in Interest to Bankone, NA, as trustee of Ace Securities Corp. Home Equity Loan Trust, Series 2003-HSI (as successor in interest to Flick Mortgage Funding, LLC), Plaintiffs, v. William P. Miller as trustee for Debtor, Raymond Smith and Norma Smith, Defendants.

Commonwealth Land Title Insurance Company and JP Morgan Chase Bank, as trustee, (as successor in interest to Flick Mortgage Company, LLC), Plaintiffs, v. William P. Miller as Trustee for Debtor, and Van J. Reeves, Defendants.

Commonwealth Land Title Insurance Company, Southstar Mortgage Funding, LLC, and JP Morgan Chase Bank, NA FKA JP Morgan Chase Bank as trustee for Structured Asset Mortgage Investments Inc. Mortgage Pass-Through Certificates Series 2003-Ar2 (as successor in interest to Flick Mortgage Funding, LLC), Plaintiffs, v. William P. Miller as Trustee for Debtor, Bernice Koduah and Ernest K. Boateng, Defendants.

Commonwealth Land Title Insurance Company, Southstar Mortgage Funding, LLC and Opteum Financial Services, LLC (as successor in interest to Flick Mortgage Funding, LLC), GB Home Equity, LLC, Plaintiffs, v. William P. Miller as trustee for Debtor, and Janice Daniels, Defendants.

Commonwealth Land Title Insurance Company and Regions Bank, Dba Regions Mortgage (as successor in interest to Union Planters Bank, NA), Plaintiffs, v. William P. Miller as trustee for Debtor, Sarah E. Coley and Cleveland L. Bell, Defendants.

Bankruptcy No. 04-10239C-7G.

Adversary No. 05-2112, 05-2113.

Adversary No. 05-2114.

Adversary No. 05-2115.

Adversary No. 05-2116.

Adversary No. 05-2117.

United States Bankruptcy Court, M.D. North Carolina, Greensboro Division.

August 17, 2007.

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John H. Small, Brooks, Pierce, McLendon, Humphrey et al, Greensboro, NC, Katherine J. Clayton, Raleigh, NC, Mark A. Stafford, Winston-Salem, NC, for Plaintiffs.

Christopher C. Finan, High Point, NC, Kenneth M. Johnson, Greensboro, NC, for Defendants.

Van J. Reeves, pro se.

Ernest K. Boateng, pro se.

Bernice Koduah, pro se.

Raymond Smith, pro se.

Norma Smith, pro se.

Janice Daniels, pro se.

Cleveland L. Bell, pro se.

Sarah E. Coley, pro se.

MEMORANDUM OPINION

WILLIAM L. STOCKS, Bankruptcy Judge.

These adversary proceedings came before the court on April 24, 2007 for hearing on cross motions for summary judgment filed in each adversary proceeding by the plaintiffs and by defendant William P. Miller. John H. Small and Katherine J. Clayton appeared on behalf of the plaintiffs and Christopher C. Finan appeared on behalf of defendant Miller.

BACKGROUND

Prior to ceasing operations during the latter part of 2003, the Debtor, a North Carolina non-profit corporation, was engaged in the business of developing and selling affordable housing to low and moderate income purchasers in North Carolina. Each of these six adversary proceedings involves a residence that the Debtor purportedly sold to a purchaser in 2003 (the "Properties"). The plaintiffs in these proceedings are Commonwealth Land Title Insurance Company ("Commonwealth") and various lenders who hold promissory notes and deeds of trust from the individuals who purchased the residences from the Debtor (the "Lenders"). Commonwealth issued Closing Protection Letters when the residences were purchased. The defendants in these proceedings are William P. Miller, the Chapter 7 trustee for the Debtor (the "Trustee"), and the individuals who purchased the residences (the "Purchasers").

Although each of these proceedings arises out of a separate transaction, the fact patterns involved in the transactions are very similar. In each case, the Purchasers entered into purchase contracts with the Debtor and obtained loans in order to finance the purchase of their homes. Closings, or what the parties understood to be closings, were scheduled in early 2003 and held in each case in order to consummate the purchases. The closing attorney for each of the closings was an attorney named Armina Swittenberg. Prior to the closings, the Lenders who had extended loans to the Purchasers wired the loan proceeds to Ms. Swittenberg's trust account. At each closing, one or more representatives of the Debtor and the respective Purchasers were present. At each closing, the Debtor received the purchase price of the property, including the portion that was paid from the loan proceeds that had been wired to Ms. Swittenberg, and a duly executed deed from the Debtor was delivered to the Purchasers that purportedly conveyed the property to the Purchasers. At each closing, the Purchasers executed a promissory note in favor of the Lender, along with a deed of trust purportedly granting the Lender a lien on the property being purchased to secure the promissory note. The deed from the Debtor and the deed of trust from the Purchasers were left with Ms. Swittenberg so that she could record the deed and deed of trust. Each of the properties involved in the six closings was encumbered by a pre-existing deed of trust from the Debtor and in each case Ms. Swittenberg retained a sufficient amount of funds at the closing to payoff the indebtedness secured by the pre-existing deed of trust. In each instance, Ms. Swittenberg, in fact, did pay off the indebtedness secured by the pre-existing deed of trust. However, Ms. Swittenberg failed to record either the deeds from the Debtor or the deeds of trust from the Purchasers to their Lender and none of the deeds or the deeds of trust had been recorded when the Debtor filed its Chapter 7 petition on January 24, 2004.

These adversary proceedings were filed on November 4, 2005, The plaintiffs allege a controversy with the Trustee regarding whether the bankruptcy estate has any beneficial interest in the properties and seek declaratory relief that would establish the Purchasers as the owners of the properties in question and establish a first lien in favor of the Lenders securing the indebtedness due under the promissory notes that were executed by the Purchasers. The Trustee denies that the plaintiffs are entitled to the relief sought in these proceedings and has asserted a counterclaim against the plaintiffs and a crossclaim against the Purchasers seeking an adjudication that as bankruptcy trustee, he holds title to the properties in question free and clear of all unrecorded interests, including any claims or interests of the plaintiffs or the Purchasers. The plaintiffs and the Trustee both assert that there are no material issues of fact and seek summary judgment in their favor.

STANDARD OF REVIEW

Summary judgment is appropriate when the matters presented to the court "show that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law." Fed.R.Civ.P. 56(c); Fed. R. Bankr.P. 7056; Celotex Corp. v. Catrett, 477 U.S. 317, 322, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986). The party moving for summary judgment has the initial burden of proving that there is no genuine issue as to any material fact Adickes v. S.H. Kress & Co., 398 U.S. 144, 161, 90 S.Ct. 1598, 26 L.Ed.2d 142 (1970). Once the moving party has met this initial burden of proof, the non-moving party must set forth specific facts sufficient to raise a genuine issue for trial, and may not rest on its pleadings or mere assertions of disputed facts to defeat the motion. Matsushita Elect. Indus. Co., Ltd. v. Zenith Radio Corp., 475 U.S. 574, 586-87, 106 S.Ct. 1348, 89 L.Ed.2d 538 (1986) (stating that the party opposing the motion "must do more than simply show that there is some metaphysical doubt as to the material facts"). The mere existence of a scintilla of evidence in support of the opposing party's position will not be sufficient to forestall summary judgment, but "the judge's function is not himself to weigh the evidence and determine the truth of the matter but to determine whether there is a genuine issue for trial." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 249, 252, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986). In ruling on a motion for summary judgment, "[t]he evidence of the nonmovant is to be believed, and all justifiable inferences are to be drawn in his favor." Id. at 255, 106 S.Ct. 2505. Having applied this standard in these proceedings, the court is satisfied that there are no material issues of act and that summary judgment as hereinafter provided is appropriate.

ANALYSIS OF CLAIMS

1. Plaintiffs' Section 365 Claim

Plaintiffs' first claim is based upon section 365 of the Bankruptcy Code and relies upon the contention that the purchase contracts between the Debtor and the Purchasers were executory contracts when the Debtor's Chapter 7 petition was filed. The relief sought in this claim is a declaratory judgment that: (a) the purchase contracts were executory on the petition date, (b) the purchase contracts be deemed rejected by the Trustee under section 365(d)(1) because they were not assumed by the Trustee, (c) sections 365(i) and (j) are applicable to the Purchasers; and (d) pursuant to section 365(i), the Purchasers be ordered to decide within a reasonable time to either remain in possession of the residences or treat the purchase contracts as terminated.

In order to prevail on this claim, the plaintiffs must establish that the purchase contracts were executory contracts on the petition date. Plaintiffs acknowledge that the applicable criteria for determining whether a contract is executory is stated in Lubrizol Enter., Inc. v. Richmond Metal Finishers, Inc., 756 F.2d 1043, 1045 (4th Cir.1985) (quoting Gloria Mfg. Corp. v. Int'l Ladies' Garment Workers' Union, 734 F.2d 1020, 1022 (...