In re Rios, Bankruptcy No. 08-01890.

• Decision Date: 30 November 2009
• Docket Number: Adversary No. 09-00063.,Bankruptcy No. 08-01890.
• Citation: 420 B.R. 57
• Parties: In re Luis Soto RIOS; Brenda Tosado Arbelo d/b/a Ferreteros Soto; Ferreteros Soto Inc.; Ferreteria Soto Inc., Debtors. Luis Soto Rios; Brenda Tosado Arbelo d/b/a Ferreteros Soto; Ferreteros Soto Inc.; Ferreteria Soto Inc., Plaintiffs v. Banco Popular De Puerto Rico, Defendant.
• Court: U.S. Bankruptcy Court — District of Puerto Rico

420 B.R. 57

In re Luis Soto RIOS; Brenda Tosado Arbelo d/b/a Ferreteros Soto; Ferreteros Soto Inc.; Ferreteria Soto Inc., Debtors Luis Soto Rios; Brenda Tosado Arbelo d/b/a Ferreteros Soto; Ferreteros Soto Inc.; Ferreteria Soto Inc., Plaintiffs v. Banco Popular De Puerto Rico, Defendant.

Bankruptcy No. 08-01890.

Adversary No. 09-00063.

United States Bankruptcy Court, D. Puerto Rico.

November 30, 2009.

COPYRIGHT MATERIAL OMITTED

COPYRIGHT MATERIAL OMITTED

Andres Garcia Arregui, Garcia Arregui & Fullana, San Juan, PR, for Plaintiffs.

Patrick D. O'Neill, O'Neill & Gilmore, P.S.C., San Juan, PR, for Defendant.

OPINION AND ORDER

ENRIQUE S. LAMOUTTE, Bankruptcy Judge.

This adversary proceeding is before the court upon the motion for summary judgment filed on August 20, 2009 by Luis Soto Rios and Brenda Tosado Arbelo (hereinafter referred to as "Debtors" or "Plaintiffs") (Docket No. 32). Plaintiffs argue that in conformity with the Mortgage Law of the Commonwealth of Puerto Rico and the Puerto Rico Civil Code, unrecorded mortgage liens at the time of the filing of the bankruptcy petition are not valid against a bona fide purchaser of real property of the debtor, and thus the same may be set aside and avoided under the "strong arm powers" pursuant to 11 U.S.C. § 544(a) of the Bankruptcy Code. Plaintiffs also argue that pursuant to 11 U.S.C. § 547(b) the unrecorded mortgage liens are voidable as a preferential transfer since they were not perfected at the time of the filing of the bankruptcy petition. Banco Popular de Puerto Rico on September 17, 2009 filed an Opposition to Plaintiffs' Motion for Summary Judgment and Cross Motion for Summary Judgment (Docket No. 19) in essence arguing that Section 362(b)(3) of the Bankruptcy Code creates an exception to the automatic stay for "any act to perfect, or to maintain or continue the perfection of, an interest in property to the extent that the trustee's rights and powers are subject to such perfection under Section 546(b)" of the Bankruptcy Code, thus allowing for the postpetition perfection of mortgage liens or the maintenance or continuation of perfection of an interest in property. For the reasons set forth below Plaintiffs' motion for summary judgment is denied and Banco Popular de Puerto Rico's cross motion for summary judgment is granted.

Facts and Procedural Background

Plaintiffs filed a bankruptcy petition under Chapter 11 of the Bankruptcy Code on March 29, 2008. The 341 meeting of creditors was scheduled for May 5, 2008 (Docket No. 5 in lead case) and was subsequently continued on May 16, 2008, (Docket No. 12 in lead case) May 30, 2008 (Docket No. 16 in lead case) and finalized on June 23, 2008 (Docket No. 24). Plaintiffs failed to include in their Schedule D-Creditors Holding Secured Claims or in their Schedule F-Creditors Holding Unsecured Non-Priority Claims, the mortgage notes which were all guaranteed with the unrecorded mortgage liens in controversy (Docket Nos. 1, 13 & 22 in lead case¹). On July 14, 2008, Banco Popular de Puerto Rico (hereinafter referred to as "Defendant" or "Creditor") filed secured proof of claim number 35-1 in the amount of $2,594,269.81². Included in proof of claim number 35-1 are the mortgage notes and the corresponding mortgage deed pertaining to the three (3) mortgage deeds which were unrecorded at the time of the filing of the bankruptcy petition.

On March 25, 2009, Plaintiffs filed the instant adversary proceeding alleging several causes of action which include the following: (i) the recordation of the mortgage deeds in controversy constitutes a post-petition transfer that is avoidable pursuant to 11 U.S.C. § 549 of the Bankruptcy Code; (ii) the mortgage deeds were not recorded at the time of the filing of the bankruptcy petition, meaning that perfection of the same may be avoided as a preferential transfer pursuant to 11 U.S.C. § 547(b) of the Bankruptcy Code since the Defendant did not have a real estate interest on debtors' properties; and (iii) at the time of the filing of the bankruptcy petition, the mortgage liens had not been recorded and thus, pursuant to 11 U.S.C. § 544 of the Bankruptcy Code, the debtor in possession may avoid these liens as a hypothetical judicial lien holder or a bonafide purchaser of real property.

On April 14, 2009, Defendant filed a Motion to Dismiss Complaint Under Fed. R.Civ.P. 12(b)(6) in which it argues the following: (i) Section 362(b)(3) of the Bankruptcy Code provides an exception to the automatic stay to perfect or continue to perfect an interest in property pursuant to Section 546(b) of the Bankruptcy Code; (ii) Section 546(b) of the Bankruptcy Code limits debtors' avoidance powers hampering their ability to avoid post-petition transfers under Section 549(a) of the Bankruptcy Code if under applicable state law a lien which is perfected post-petition may relate back to a time before the commencement of the case; (iii) Article 53 of the Mortgage Law of Puerto Rico, 30 L.P.R.A. § 2256 "establishes that the recorded titles shall have effect against third parties from the date of their registration and that the registration date shall be the date of the original presentation of the documents at the Registry;" (Docket No. 6, paragraph 34) (iv) the Supreme Court of Puerto Rico has emphasized that registration of mortgage deeds in the Registry of Property becomes effective from the date of presentation; (v) the entry of presentation ("asiento de presentation") serves as an implicit notice to the public until the document is duly registered; (vi) the Mortgage Law of Puerto Rico nor the Regulations for Execution of the Mortgage Law establish a specific term for the Property Registrar to pass judgment on the titles presented for registration; (vii) the mortgage deeds that create the mortgage liens in controversy were presented to the corresponding Registries of Property on the following dates: (a) October 18, 2004 (mortgage deed #328); (b) August 11, 2005 (mortgage deed #281) and August 30, 2005 (mortgage deed # 283); (viii) the entries of presentation for the mortgage liens in controversy remain in effect at the corresponding Registries of Property since the same have not been cancelled, extinguished nor the deeds by which the entries of presentation were created have been removed or withdrawn; and (ix) Section 547(e)(1)(A) of the Bankruptcy Code is inapplicable to this adversary proceeding because recordation of a mortgage is not avoidable as a preferential transfer since the Mortgage Law of Puerto Rico relates back to a time before the commencement of the case.

Plaintiffs on May 12, 2009 filed a reply to Defendant's motion to dismiss by which it alleges that their complaint states various causes of actions upon which relief may be granted based on the following allegations: (i) Defendant's premise that the presentation of a deed of mortgage to the Registry of Property is sufficient to create a valid lien against third parties is incorrect; (ii) the act of recordation of a mortgage lien is a constituting act which produces real effects and is enforceable erga omnes, thus an unrecorded mortgage deed is not a valid property right enforceable against third parties; (iii) the Registrar of the Property is stayed from performing any review "calificación registral" of the mortgage liens presented since it would constitute a violation of the automatic stay pursuant to 11 U.S.C. § 362(a)(4); (iv) for the exception to the automatic stay pursuant to Section 362(b)(3) of the Bankruptcy Code to apply the following three requirements must exist; (a) an act to perfect; (b) an "interest in property;" and (c) under circumstances in which the perfection-authorizing statute fits within the contours of 11 U.S.C. § 546(b)(1)(A); (v) Plaintiffs argue that Defendant fails to comply with the first requirement because absent recordation, a creditor only has a personal obligation since the mortgage lien has not been created; (vi) Defendant fails to satisfy the second requirement because a mortgage lien is created after it is duly recorded by the Registrar of the Property, thus there is no property interest to perfect (the presentation of a deed of mortgage is not an act of perfection and until the mortgage is recorded, the creditor has no property interest on the debtor's property); and (vii) Plaintiffs in conformity with 11 U.S.C. § 544(a)(1) of the Bankruptcy Code have the rights of a judgment lien creditor and as such have priority over an unperfected security interest and may avoid the same (Docket No. 10).

Subsequently, Defendant on May 19, 2009 filed a Motion for Leave to File Sur-Reply to Plaintiffs' reply to Motion to Dismiss along with the sur-reply (Docket Nos. 11 and 12). In its Sur-Reply, Defendant basically argues that it complies with the three (3) requirements of Section 362(b)(3) of the Bankruptcy Code due to the following reasons: (i) the existence of a property interest is defined in conformity with state law thus, under the laws of the Commonwealth of Puerto Rico the legal issue of whether a creditor has a property interest in a real property when the mortgage deed has been presented but not recorded is an open question; (ii) an interest in property is much more than just a perfected lien; (iii) it has presented pre-petition to the corresponding Registries of Property the three (3) mortgage deeds in controversy and should not be prejudiced by the Property Registrar's delay in recording the same; (iv) Defendant's interest in the properties is superior when compared to other acts which are necessary to establish a valid property interest; (v) any acts undertaken by Defendant to continue the perfection will not be barred by the automatic stay; (vi) Section 546(b)(1)(B) applies to the instant case because Defendant has undertaken all the necessary acts to record its mortgage liens over Plaintiffs' properties; (vii) pursuant to Section 546(b) of the Bankruptcy Code, "the rights and powers of ...