In re Sorrell

• Decision Date: 10 September 2002
• Docket Number: Bankruptcy No. 96-43559.,Adversary No. 97-4023.
• Parties: In re Avery Ray SORRELL and Vergie Sorrell, Debtors. Avery Ray Sorrell and Vergie Sorrell, Plaintiffs, v. Electronic Payment Systems, Inc., Defendant.
• Court: United States Bankruptcy Courts. Fifth Circuit. U.S. Bankruptcy Court — Eastern District of Texas

292 B.R. 276

In re Avery Ray SORRELL and Vergie Sorrell, Debtors.

Avery Ray Sorrell and Vergie Sorrell, Plaintiffs, v. Electronic Payment Systems, Inc., Defendant.

Bankruptcy No. 96-43559.

Adversary No. 97-4023.

United States Bankruptcy Court, E.D. Texas, Sherman Division.

September 10, 2002.

COPYRIGHT MATERIAL OMITTED

COPYRIGHT MATERIAL OMITTED

Richard A. Pelley, Sherman, TX, for Debtors.

Barry L. Hardin, David, Goodman & Madole, Dallas, TX, for Electronic Payment Systems.

OPINION

DONALD R. SHARP, Chief Judge.

Now before the Court for consideration is the First Amended Complaint For Declaratory Judgment Avoiding Lien on Homestead Property filed by Avery Ray Sorrell and Vergie Sorrell, the Debtors in the above captioned bankruptcy case and Plaintiffs in this adversary proceeding ("Debtors"). This opinion constitutes the Court's findings of fact and conclusions of law required by Fed.R.Bankr.Proc. 7052 and disposes of all issues before the Court.

FACTUAL AND PROCEDURAL BACKGROUND

The Debtors, Avery and Vergie Sorrell, filed a petition for relief under Chapter 13 of Title 11 of the United States Code. Their plan of reorganization was confirmed and payments have been completed. The Debtors' Schedule "C" of exempt property listed the homestead as exempt under 11 U.S.C. § 522(d)(1) and no objections to such claim of exemptions was filed. Electronic Payment Systems, Inc. was included in their list of secured creditors. Thereafter, Debtors initiated this Adversary Proceeding seeking to avoid the lien of Electronic Payment Systems, Inc. Electronic Payment Systems, Inc., as servicing agent for Beal Bank, S.S.B. ("the Defendant")¹, is the assignee of a certain Builder's and Mechanic's Lien Contract Note and Deed of Trust allegedly recorded in the Real Property Records of Grayson County Texas purporting to place a lien against Debtors' homestead. The property that is the subject of this suit, located at 1019 S. Holly, Sherman, Texas 75090, is claimed by the Debtors' as their homestead ("Homestead"; "Property"). Although the Debtors lived in the home for many years and continuously claimed it as their homestead the evidence showed that the legal title to the real estate was in Elbert Dixon. Mr Dixon is Vergie Sorrell's brother. He had purchased the home for them with the understanding that upon payment to him of the purchase price he would transfer legal title to them. Testimony further revealed that the Sorrell's exercised total dominion and control over the property without any interference from Elbert Dixon.²

The Debtors' Complaint is that (a) the documentation attempting to place the lien against the Debtors' homestead under the laws of the State of Texas was not executed, acknowledged, delivered and recorded, prior to the inception of the work thus making those documents invalid and (b) that the work done on their homestead was inferior, giving rise to counterclaims for offset because the labor was performed improperly and the materials were defective. Thus, Debtors seek this Court's entry of a judgment and an order avoiding the purported lien on the Debtors' Homestead Property and an offset in the amount not less than $11,800, plus interest since November 3, 1995. The Defendant denied the allegations set forth in the complaint and raised the affirmative defense of estoppel, waiver and ratification. Electronic Payment Systems, Inc., filed a Motion For Relief from the Automatic Stay of Act Against Property which this Court consolidated with this Adversary Proceeding. Likewise, the Debtors' Objection to Claim of Electronic Payment Systems, Inc., was consolidated into the adversary proceeding. The consolidated matters came on for trial together with the Complaint and afterwards all were taken under advisement by the Court.

JURISDICTION

This Court has jurisdiction over the within proceeding pursuant to 28 U.S.C. §§ 157(a) and 1334. This is a core proceeding under 28 U.S.C. § 157(b)(2)(B), (C),(G) and (K).

BURDEN

A party who institutes a declaratory-judgment action carries at a minimum the risk of non-persuasion, if not the actual burden of proof. NRT Metals, Inc. v. Manhattan Metals (Non-Ferrous) Ltd., 576 F.Supp. 1046 (S.D.N.Y.1983). Michigan Mut. Liab. Co. v. Stallings [citing Wright & Miller, Fed. Prac. and Proc.] 523 S.W.2d 539, 544 n. 3 (Mo.App.1975).

DISCUSSION

"Even before the ink had dried on the joint resolution of Congress that admitted Texas as the twenty-eighth state in the Union, Texas citizens enjoyed broad homestead rights." See Tex. Const. art. VII, § 22 (1845). Not much has changed in the last 145 or so years. As it did in the dawning days of the state, the homestead exemption in Texas continues to "protect citizens and their families from the miseries and dangers of destitution." Matter of Bradley, 960 F.2d 502, 505 (5th Cir.1992) citing to Franklin v. Coffee, 18 Tex. 413, 415-16 (1857). See Tex. Const. Art. XVI § 50; Tex. Prop.Code § 41.001.50. Because homesteads are favorites of the law, courts must give a liberal construction to the constitutional and statutory provisions that protect homestead exemptions. Matter of Bradley, supra at 507. In the case before this Court, the Debtors/Plaintiffs seek a judgment for the cancellation and avoidance of the claimed security interest against their homestead. The Texas Property Code governs the fixing of a lien against homestead property.³ Texas Property Code § 53.059 requires:

(a) To fix a lien on a homestead, the person who is to furnish material or perform labor and the owner must execute a written contract setting forth the terms of the agreement.

(b) The contract must be executed before the material is furnished or the labor is performed.

(c) If the owner is married, the contract must be signed by both spouses.

(d) If the contract is made by an original contractor, the contract inures to the benefit of all persons who labor or furnish material for the original contractor.

(e) The contract must be filed with the county clerk of the county in which the homestead is located. The county clerk shall record the contract in records kept for that purpose.

(f) An affidavit for lien filed under this subchapter that relates to a homestead must contain the following notice conspicuously printed, stamped, or typed in a size equal to at least 10-point boldface or the computer equivalent, at the top of the page:

"NOTICE: THIS IS NOT A LIEN. THIS IS ONLY AN AFFIDAVIT CLAIMING A LIEN."

(g) For the lien on a homestead to be valid, the notice required to be given to the owner under Section 53.056, 53.057, or 53.058, as applicable, must include or have attached the following statement:⁴. ....[See footnote 3 herein for text of statement].

V.T.C.A. Texas Property Code, § 53.059.

Based upon the evidence, pleadings and record in this case, the events giving rise to this controversy were as follows. On or about October 3, 1995, the Debtor's met, at their home, with a representative of a contractor, G.L.Hunt, Co., in connection with a proposed home improvement project, specifically the installation of windows and siding. The form document memorializing the meeting (Plaintiffs' Exhibit 1) is dated "10-3-95" but bears additional notations dated "10-24-95". The form document, entitled "Proposal and Acceptance", appears to have been executed by Philip Miller, as representative of G.L. Hunt, Co., and Avery and Vergie Sorrell. Mr. Miller was not called upon by either party to testify in this matter. Avery Sorrell testified that he declined the initial offer because it was too expensive and G.L. Hunt's representative returned to the Sorrells' home with an amended offer. Thereafter,⁵ a representative of G.L. Hunt Company, presented the Debtors with documents purporting to be a Note and Builder's and Mechanic's Lien Contract and Deed of Trust ("Deed of Trust"). Plaintiffs admit they executed these documents which are made to the benefit of Associated Mortgage & Financial, Inc. Plaintiffs' Exhibits 2 and 3/ Defendant's Exhibits D-B and D-C. The Note, dated October 18, 1995 in the upper left hand corner and admitted into evidence, is marked "VOID" in red ink on both pages and a small adhesive note is attached upon which is written: "Give to Mr. & Mrs. Sorrell/Voided Note and Deed Voided Docs". The Deed of Trust, dated October 18, 1995 in the upper left hand corner and admitted into evidence is marked "VOID" in red ink on its first page and the successive pages contain an "X" in red ink. There is no indication on the face of the documents identifying who marked them "void" or when they were marked "void".⁶ The testimony revealed that the voided documents were hand delivered to the Debtors sometime after the documents' execution. The testimony and evidence support that the fourth page of the Deed of Trust had been removed by an unknown party at the time of its return to the Sorrells.

Subsequently, a second set of similar documents was prepared dated November 3, 1995. According to testimony, the second set was prepared later than November 3, 1995 then back dated. These documents were admitted into evidence as Plaintiffs' Exhibit 4 and 17 and also as Defendant's Exhibit D-F and D-H. Plaintiffs' Exhibits 4, entitled "Note" and Plaintiff's Exhibit 17, entitled "Builder's And Mechanic's Lien Contract and Deed of Trust" are prepared versions of the Note and Deed of Trust typed with names and dates, but have neither been executed nor initialed by either of the Debtors. There is a blank line awaiting signatures. In contrast, Defendant's Exhibit D-F and D-H, which are the versions of the same Note and Deed of Trust admitted by Defendant, bear the initials and signatures of Avery and of Vergie Sorrell. Defendant's Exhibit D-F differs from the Plaintiffs' version of same also in that it contains an allonge between Beal Bank, S.S.B., as payee and Associated Mortgage & Financial, Inc., as beneficiary. The Allonge To The Note is dated November 3, 1995. The Allonge to Note is not...