In re Short
| Decision Date | 21 September 2020 |
| Docket Number | Case No. 15-31474 |
| Citation | 619 B.R. 655 |
| Parties | IN RE: Patricia D. SHORT, Debtor |
| Court | U.S. Bankruptcy Court — Southern District of Ohio |
Joyce M. Deitering, Dayton, OH, for Debtor.
Decision Granting Debtor's Motion for Summary Judgment
This contested matter raises the issue of whether a debtor may avoid a mortgage interest which attached prepetition to the debtor's ex-husband's undivided one-half interest in residential real estate. The debtor was not personally liable under the mortgage or the promissory note that was secured by the mortgage. The parties stipulated that there was no value to which the mortgage would attach under 11 U.S.C. § 506 due to a superior mortgage. Because the debtor, at a minimum, held an equitable interest in her ex-husband's one-half interest in the property at the time the bankruptcy petition was filed, the court finds that the debtor may avoid the mortgage under § 506 and Lane v. Western Interstate Bancorp , 280 F.3d 663 (6th Cir. 2002).
Debtor Patricia Short ("Patricia") filed a Motion for Determination that the Mortgage/Lien of Multi-Investments is Wholly Unsecured and Void and the mortgagee, Multi-Investments, filed a response in opposition. Patricia has filed a Motion for Summary Judgment which Multi-Investments, LLC ("Multi-Investments") also opposed. The parties have filed stipulations which serve as the basis for the court's factual findings (the "Stipulations") (doc. 105).
In October of 2011, Patricia's then-husband, Kenneth Short ("Kenneth") granted a mortgage in favor of Multi-Investments (the "Mortgage"). Stipulations ¶ 9 and Exhibit D. Kenneth also executed a $50,000 Cognovit Promissory Note ("Note") payable to Multi-Investments in his individual capacity and in his capacity as the sole member of All Sports Apparel, LLC ("All Sports"). Stipulations ¶ 8 and Exhibit C. Patricia did not sign the Note or the Mortgage in any capacity. Stipulations ¶¶ 8, 9. The Mortgage was granted by Kenneth to secure the Note with his undivided "one-half interest" in 940 Hollendale Drive, Dayton Ohio, 45429, the Shorts' marital residence (the "Property"). Stipulations ¶¶ 2, 13. The Mortgage has second priority on the Property behind a senior mortgage held by The Bank of New York Mellon, as Trustee for CWMBS Reperforming Loans REMIC Trust Certificates, Series 2004-R2, assignee from Wells Fargo Home Mortgage, Inc. (the "First Mortgage"). Stipulations ¶¶ 6, 7, 11. At both the time that Kenneth executed the Mortgage and it was recorded, the Property was titled jointly to Patricia and Kenneth through a joint-survivorship deed. Stipulations ¶ 3, 4.
In 2012, Multi-Investments obtained judgment on the Note in state court, finding Kenneth and All Sports liable in the amount of $47,785.11, plus interest. Stipulations ¶ 14 and Exhibit E. In 2013 Patricia filed a complaint for divorce and on February 20, 2015, a Final Judgment and Divorce Decree was issued. Stipulations ¶ 15 and Exhibit F. In the Divorce Decree, the court ordered that the Property was to be the sole property of Patricia, that the Mortgage would remain on the Property, and both parties would be equally responsible for payment of the Mortgage, that Patricia would not be liable on the Mortgage as it was in Kenneth's name only, and that Kenneth would quit claim his interest in the Property to Patricia within 30 days of the filing of the Divorce Decree. Stipulations ¶ 16. Accordingly, while Patricia had no liability to Multi-Investments on the Note and Mortgage, she would have to pay one-half of the indebtedness through the Divorce Decree to retain the Property.
A few months after the Divorce Decree was entered, on May 6, 2015, Patricia filed her Chapter 13 bankruptcy petition. Stipulations ¶ 17. On December 4, 2015 she recorded a copy of the Divorce Decree to evidence transfer of the Property solely to her since Kenneth did not quit-claim his interest within 30 days of the filing of the Divorce Decree. Stipulations ¶ 18. The parties agreed that Patricia's recording of the Divorce Decree effected the transfer of Kenneth's undivided one-half interest in the Property to her.1
Multi-Investments filed a proof of claim in Patricia's case, asserting a secured claim in the amount of $73,036.86 and an unsecured claim in the amount of $3,651.85. Proof of Claim 8-1. The Chapter 13 Trustee filed an objection to that claim and the parties entered into an agreed order resolving that objection which provided in pertinent part that: "The claim of Multi Investments, LLC is not the Debtor's debt, and will not be paid by the Debtor or the Plan." Patricia subsequently filed the Motion to Avoid Lien commencing this contested matter.
The Property's appraised value as of April 21, 2015 was $95,000 and the balance due on the First Mortgage as of September 7, 2018 was $101,219.79. Stipulations ¶¶ 19-20. The balance on the First Mortgage was filed as $101,497.61 as of August 7, 2015. Proof of Claim 9-1.
The parties have stipulated that the amount owed on the First Mortgage exceeds the value of the Property and therefore the Mortgage is wholly unsecured. The only issue is whether Multi-Investments has a claim in the bankruptcy case and if it does, if Patricia may avoid the Mortgage.
Patricia's position is that she may strip the Mortgage from her property because (1) the amount owed on the First Mortgage exceeds the value of the Property; (2) she is the sole owner of the Property; (3) the Mortgage is a claim in her bankruptcy case that is subject to modification under 11 U.S.C. §§ 506(a) and 1322(b) ; and (4) stripping the Mortgage from the Property will not affect Kenneth's personal liability on the claim. Patricia focuses on the following cases to support her position: In re Mensah-Narh , 558 B.R. 134 (Bankr. D.N.J. 2016) ; Bailey v. Deutsche Bank Nat'l Trust Co. (In re Bailey) , Adv. No. 3:16-ap-125-PMG, 2017 WL 587980, 2017 Bankr. LEXIS 429 (Bankr. M.D. Fla. Feb. 13, 2017) ; Lopez v. Specialized Loan Servicing, LLC (In re Lopez) , Adv. No. 19-03046-KRH, 2019 WL 4935661 (Bankr. E.D. Va. Oct. 7, 2019).
Multi-Investments' position is the Mortgage is not an "enforceable obligation of the debtor" and therefore not a "claim" subject to § 506(a). Multi-Investments asserts that it is not a creditor of Patricia because Patricia did not sign the Note or the Mortgage and the Mortgage lien only attached to Kenneth's undivided one-half interest in the Property. Multi-Investments relies on In re Brown , 536 B.R. 837 (Bankr. D. Minn. 2015) to support its argument.
This court has jurisdiction pursuant to 28 U.S.C. § 1334, this is a core proceeding pursuant to 28 U.S.C. § 157(b)(2)(L) and (O), and this court has constitutional authority to enter a final judgment.
Federal Rule of Civil Procedure 56(a), made applicable to this contested matter by Federal Rules of Bankruptcy Procedure 7056 and 9014(c), sets forth the standard to address the parties' filings. It states, in part, that a court must grant summary judgment to the moving party if the movant shows that there is no genuine issue as to any material fact and the movant is entitled to judgment as a matter of law. In order to prevail, the movant, if bearing the burden of persuasion at trial, must establish all elements of its claim. Celotex Corp. v. Catrett, 477 U.S. 317, 331, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986). All inferences drawn from the underlying facts must be viewed in a light most favorable to the party opposing the motion. Matsushita Elec. Indus. Co., Ltd. v. Zenith Radio Corp., 475 U.S. 574, 587–88, 106 S.Ct. 1348, 89 L.Ed.2d 538 (1986).
Patricia seeks to avoid Multi-Investments' mortgage pursuant to § 506 of the Bankruptcy Code and Lane v. W. Interstate Bancorp (In re Lane ), 280 F.3d 663 (6th Cir. 2002).
Bankruptcy Code § 1322 describes permissible provisions for a Chapter 13 debtor's plan. Specifically, § 1322(b)(2) provides as follows:
11 U.S.C. § 1322(b)(2). Although this provision is phrased in permissive language, it is more commonly known as the anti-modification rule for mortgage loans made on a debtor's primary residence because it generally prohibits the modification of such a mortgage in Chapter 13. See Nobelman v. Am. Sav. Bank , 508 U.S. 324, 332, 113 S.Ct. 2106, 124 L.Ed.2d 228 (1993) ().
Section 506(a)(1), on the other hand, provides in pertinent part:
An allowed claim of a creditor secured by a lien on property in which the estate has an interest ... is a secured claim to the extent of the value of such creditor's interest in the estate's interest in such property ... and is an unsecured claim to the extent that the value of such creditor's interest ... is less than the amount of such allowed claim ....
11 U.S.C. § 506. Under § 506(a)(1), a claim is only a secured claim to the extent there is value in the collateral to which that lien attaches. If all of the value in that collateral is secured by higher priority liens, then the claim which would otherwise be secured by that collateral is deemed to be unsecured. See Bank of Am., N.A. v. Caulkett , 575 U.S. 790, ––––, 135 S. Ct. 1995, 1999, 192 L.Ed.2d 52 (2015).
In Lane , the Sixth Circuit analyzed § 1322(b)(2) in conjunction with § 506(a)(1) and determined that debtors in Chapter 13 c...
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