In Re Stephen W. Colbert

• Decision Date: 29 July 2010
• Docket Number: Adversary No. 09-2442.,Bankruptcy No. 09-59313.
• Parties: In re Stephen W. COLBERT and Dorothy S. Colbert, Debtors.Susan L. Rhiel, Chapter 7 Trustee, Plaintiff,v.Chase Home Finance, LLC, Defendant.
• Court: United States Bankruptcy Courts. Sixth Circuit. U.S. Bankruptcy Court — Southern District of Ohio

434 B.R. 844

Bankruptcy No. 09-59313.

Adversary No. 09-2442.

United States Bankruptcy Court S.D. Ohio Eastern Division In re Stephen W. COLBERT and Dorothy S. Colbert, Debtors.Susan L. Rhiel, Chapter 7 Trustee, Plaintiff,

v.Chase Home Finance, LLC, Defendant.

July 29, 2010.

Susan L. Rhiel, Treisa Martin, Columbus, OH, for Plaintiff.

Amelia A. Bower, Columbus, OH, Stephen Franks, Reimer, Lorber & Arnovitz, Twinsburg, OH, for Defendant.

MEMORANDUM OPINION AND ORDER DENYING MOTION FOR SUMMARY JUDGMENT

JOHN E. HOFFMAN, JR., Bankruptcy Judge.

I. Introduction

In this adversary proceeding, the Chapter 7 trustee of the estate of each debtor (“Trustee”) seeks a declaratory judgment that a mortgage (“Mortgage”) held by Chase Home Finance, LLC (“Chase”) on real property located at 1025 Doherty Road, Galloway, Ohio 43119 (“Property”) extends only to Dorothy Colbert's interest in the Property, not to the interest of her husband and joint debtor, Stephen Colbert. See Amended Complaint to Determine Validity and Priority of Liens (“Amended Complaint”) (Doc. 6). For the reasons stated below, the Court concludes that summary judgment is not appropriate here.

II. Jurisdiction

The Court has jurisdiction to hear and determine this adversary proceeding pursuant to 28 U.S.C. §§ 157 and 1334 and the general order of reference entered in this district. This is a core proceeding. See 28 U.S.C. § 157(b)(2)(K).

III. Background

The certificate of acknowledgment on the Mortgage (“Certificate”) provides:

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                ||State of Ohio,|Franklin County ss:|
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This instrument was acknowledged before me this 8 day of September 2003 by Stephen W. Colbert, releasing all rights of dower herein and Dorothy Colbert [a/k/a] Dorothy S Colbert, a married couple

Christopher J. Wilson

Notary Public

The text reproduced above in italics was set forth in legible handwriting; the remaining text was printed in one or more typefaces. On August 14, 2009, the Debtors filed a voluntary Chapter 7 petition.

IV. Arguments of the Parties

In support of her request for summary judgment on this cause of action, the trustee relies on two aspects of the refinancing transaction that gave rise to the Mortgage: (1) only Mrs. Colbert, not Mr. Colbert, signed the promissory note secured by the Mortgage (“Note”); and (2) the Certificate states that Mr. Colbert was releasing dower. See Trustee's Motion for Summary Judgment (“Motion”) (Doc. 9) at 6 & n. 3; Trustee's Reply Memorandum in Support of Motion for Summary Judgment at 5 (“Reply”) (Doc. 14). In its response (“Response”) (Doc. 13), Chase contends that the reference to dower in the certificate of acknowledgment is surplusage because nothing in the Mortgage itself suggests that Mr. Colbert was signing solely to release dower. See Response at 4. Chase does not address Mr. Colbert's non-execution of the Note.

V. Legal Analysis

A. Summary Judgment Standard

Under Federal Rule of Civil Procedure 56(c), made applicable in this adversary proceeding by Federal Rule of Bankruptcy Procedure 7056, summary judgment is appropriate where “the pleadings, the discovery and disclosure materials on file, and any affidavits show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law.” Fed.R.Civ.P. 56(c); see also Novak v. MetroHealth Med. Ctr., 503 F.3d 572, 577 (6th Cir.2007). In reviewing a motion for summary judgment, the Court views the evidence, all facts, and any inferences drawn therefrom in the light most favorable to the nonmoving party. Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 587, 106 S.Ct. 1348, 89 L.Ed.2d 538 (1986); Novak, 503 F.3d at 577; Skowronek v. Am. S.S. Co., 505 F.3d 482, 484 (6th Cir.2007) (the court “must draw all reasonable inferences in favor of the nonmoving party”).

“ ‘[A]s to materiality, the substantive law will identify which facts are material. Only disputes over facts that might affect the outcome of the suit under governing law will properly preclude the entry of summary judgment. Factual disputes that are irrelevant or unnecessary will not be counted.’ ” Niecko v. Emro Mktg. Co., 973 F.2d 1296, 1304 (6th Cir.1992) (quoting Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986)). “Entry of summary judgment is appropriate ‘against a party who fails to make a showing sufficient to establish the existence of an element essential to that party's case, and on which that party will bear the burden of proof at trial.’ ” Novak, 503 F.3d at 577 (quoting Celotex Corp. v. Catrett, 477 U.S. 317, 322, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986)); see also Ransier v. Standard Fed. Bank (In re Collins), 292 B.R. 842, 845 (Bankr.S.D.Ohio 2003).

B. Mr. Colbert's Non-execution of the Note

The Trustee's argument that she is entitled to summary judgment because Mr. Colbert did not sign the Note, purportedly rendering unenforceable any attempted mortgage of his one-half interest in the Property due to lack of consideration, is both (1) contrary to Ohio law ¹ and (2) unsupported by the summary-judgment record.

1. Applicable Ohio Law

The Ohio Supreme Court has held that one person may grant a mortgage on his or her property to secure another's debt, the result being that the mortgagor's property and the secured obligation have a “relation of suretyship.” People's Ins. Co. v. McDonnell, 41 Ohio St. 650, 659 (Ohio 1885). See also Robinson v. Boyd, 60 Ohio St. 57, 53 N.E. 494, 494 (syllabus ¶ 2) (Ohio 1899) (“Detriment or loss to a promisee being a sufficient consideration to support a promise, therefore, where property is pledged by one for the debt of another, the fact that the creditor, by reason of the pledge, may have been induced to forego efforts to obtain other security from his debtor, is a sufficient consideration to support the pledge.”); Restatement (Third) of Property § 1.3 (2010) (citing cases for the proposition that “[a]n obligation whose performance is secured by a mortgage may be that of the mortgagor or of some other person”). Thus, Ohio appellate courts consistently have held that “a mortgage given to secure the obligation of a third person is valid and enforceable, and creates a surety relationship between the mortgagor and mortgagee.” Cranberry Fin., L.L.C. v. S & V P'ship, 186 Ohio App.3d 275, 927 N.E.2d 623, 627 (2010) (internal quotation marks omitted); see also Liberty Sav. Bank, F.S.B. v. Sortman, 1998 WL 184483 at *4 (Ohio Ct.App. Apr.17, 1998) (“[I]n conveying a mortgage ... to secure payment of the debt represented by the notes [on which they were not personally liable, the mortgagors] effectively obligated themselves to pay the amounts due under the notes in the event of a default, or risk foreclosure of the mortgaged property.”). The trustee contends that a mortgage is unenforceable due to a lack of consideration when the mortgagor is not liable on the associated promissory note. To the contrary, under the case law discussed above, a mortgagor who is not liable on the promissory note enters into a surety relationship with the mortgagee, and other case law holds that “ ‘[t]he consideration running from the creditor to the debtor is deemed sufficient to support the surety's promise to make the debt good.’ ” Solon Family Physicians, Inc. v. Buckles, 96 Ohio App.3d 460, 645 N.E.2d 150, 152 (1994) (quoting United States v. Tilleraas, 709 F.2d 1088, 1091 (6th Cir.1983)). In other words, “[t]he obligation of the surety rests upon a consideration as adequate as that of the principal; for, though he receive no pecuniary or other benefit for his undertaking, credit is extended to the principal, and advantages are obtained by him, upon the faith of the surety's engagement.” Neininger v. State, 50 Ohio St. 394, 34 N.E. 633, 635 (1893). “This proposition has been the law of [Ohio] for over a century.” Medina Supply Co. v. Corrado, 116 Ohio App.3d 847, 689 N.E.2d 600, 605 (1996).

In light of the case law discussed above, it is unsurprising that, as far the Court is aware, Chapter 7 trustees historically have not challenged mortgages for lack of consideration merely because a mortgagor failed to sign the associated promissory note.² The Court suspects that the genesis of what appears to be a recent development in this District of certain trustees challenging such mortgages is Wells Fargo Bank, N.A. v. Nelson, 2009 WL 1651533 (S.D.Ohio June 10, 2009), the sole decision on which the trustee relies for her argument in this regard. The Trustee's reliance on this unreported decision to challenge-based on lack of consideration-a mortgage granted by a spouse who did not sign the promissory note is misplaced. In Nelson, the debtor, who co-owned mortgaged property with her non-debtor husband, signed the mortgage as a “Non-borrower,” and the mortgage itself stated that she was signing to release dower; the district court, therefore, affirming the bankruptcy court's decision, rightly held that the debtor had not granted a mortgage on her undivided one-half interest in the property. Having decided that issue, the court then stated that “it is clear that [the debtor] is not obligated on the Note and therefore, that there is no consideration to support the mortgage as to her one-half interest in the property.” Nelson, 2009 WL 1651533 at *4. The district court, however, cited no authority for this statement and did not address the Ohio case law discussed above, under which mortgages given to secure the debts of another can be enforceable. Thus, contrary to the Trustee's suggestion Nelson does not require the Court to grant the Motion and determine as a matter of law that the Mortgage is invalid. Nelson does not compel this result because the statement in Nelson on which the trustee relies is: (1) dictum, given the district court's prior holding that the debtor had not granted a mortgage on her one-half interest see United States v. Del Percio, 870 F.2d 1090, 1098 n. 1 (6th Cir.1989) (“Since...