In re Tait, Case No. 07-12174-MAM-11 (Bankr.S.D.Ala. 9/10/2008)
| Decision Date | 10 September 2008 |
| Docket Number | Case No. 07-12174-MAM-11,Adv. Case No. 08-01015 |
| Parties | IN RE: JAMES E. TAIT, Debtor. AMELIA TAIT DRISCOLL, as trustee of the L.E. Tait Trust, PAULINE TAIT, SUELLEN TAIT, and DEBORAH TAIT, beneficiaries of trust, Plaintiffs, v. ULTIMATE RESERVE TRUST and JAMES E. TAIT, Defendants. |
| Court | U.S. Bankruptcy Court — Southern District of Alabama |
James L. Day, Memory & Day, Montgomery, AL, attorney for the Debtor, James E. Tait B. Kincey Green, Jr., and Allen S. Reeves, Reeves & Stewart, P.C., Selma, AL, attorneys for the Plaintiffs.
Timothy M. Lupinacci and James H. White, Baker, Donelson, Bearman, Caldwell & Berkowitz, P.C., Birmingham, AL, attorneys for the Defendant, Ultimate Reserve Trust Andrew M. Cromer, attorney for Town & Country Bank.
ORDER DECLARING MORTGAGE BETWEEN THE DEBTOR AND ULTIMATE RESERVE TRUST INVALID BUT IMPRESSING JAMES E. TAIT'S REMAINDER INTEREST IN THE TRUST WITH AN EQUITABLE LIEN
This case is before the Court on the adversary proceeding filed by the Plaintiffs for a determination of the validity/enforceability of a mortgage executed by James Tait, debtor/defendant as mortgagor, and Ultimate Reserve Trust, defendant. The Court has jurisdiction to hear this matter pursuant to 28 U.S.C. §§ 157 and 1334 and the Order of Reference of the District Court. This is a core proceeding pursuant to 28 U.S.C. § 157(b)(2)(I), and the Court has authority to enter a final order pursuant to 28 U.S.C. § 157(b)(2). For the reasons indicated below, the Court concludes that the mortgage between the Debtor, James E. Tait and Ultimate Reserve Trust is invalid as a mortgage against the property owned by the L.E. Tait Trust and but concludes that Ultimate Reserve Trust should have an equitable lien against the self-settled remainder interest of James E. Tait in the Trust in the amount of $980,000, or to the extent of the interest's value, whichever is less.
The Debtor, James E. Tait, ("the Debtor" or "Tait") filed a voluntary chapter 11 bankruptcy petition on August 7, 2007. The Debtor's schedules state that Tait owns an equitable interest in real property that Tait uses as his personal residence, a renovated plantation home that has been in his family since 1830. The value listed reflects a one third equitable interest in the real estate.1 The home and the surrounding land are held in a family trust, the L.E. Tait Trust, established by Tait's parents. The Debtor was previously the trustee of this trust. While trustee, the Debtor mortgaged the trust's real estate as part of a settlement of a lawsuit brought against Tait personally, and not against the Trust, by Ultimate Reserve Trust. The Debtor's schedules list the mortgage debt with a value of $1,020,000. The current trustee of the L.E. Tait Trust brought this adversary proceeding against the Debtor and Ultimate Reserve Trust to determine the validity of the mortgage against the Family Trust property. The details of the Family Trust and the Debtor's relationship and dealings with Ultimate Reserve Trust are discussed below.
On October 6, 1978, L.E. Tait and Pauline Tait created a trust ("Tait Trust" or "Family Trust" or "Trust"). The trust instrument named the Debtor as trustee.2 The trust instrument was recorded with the county probate office in Wilcox County on October 12, 1978. The Family Trust was created to pay income to L.E. Tait and his wife, Pauline, during their lives (and for the benefit of Suellen, if necessary) with the remainder of the trust to be distributed to their children, David Harold Tait, James Edwin Tait, Deborah Elizabeth Tait Crocker, Albert Lucas Tait, and Suellen Tait, (or their issue) at the death of the senior Taits. Mr. Tait died shortly after the Trust was established. Mrs. Pauline Tait is still living. Suellen suffers from a disability that prevents her from living independently.
The trust agreement contains the following provisions that are relevant to this case:
In order to carry out the purposes of this Trust Agreement, the Trustee, in addition to all other powers granted by law, shall have the following powers and discretion:
(1) To continue to hold any and all property received by the Trustee or subsequently added to the trust estate or acquired pursuant to proper authority if and as long as the Trustee, in exercising reasonable prudence, discretion, and intelligence, considers that the retention is in the best interest of the trust.
(2) To invest and reinvest in every kind of property, real, personal, or mixed, and every kind of investment, specifically including, but not by way of limitation, corporate obligations of every kind, and stocks, preferred or common, which men of prudence, discretion, and intelligence acquire for their own accounts without regard to any principle of diversification and without being confined to legal investments.
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(6) To sell for cash or on deferred payments and on such terms and conditions as are deemed appropriate by the Trustee, whether at public or private sale, to exchange, or to convey any property of the trust estate.
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(10) To manage, control, improve, and repair real and personal property belonging to the trust estate.
(11) To partition, divide, subdivide, assign, develop, and improve any trust property; to make or obtain the vacation of plats and adjust boundaries or to adjust differences in valuation on exchange or partition by giving or receiving consideration; and to dedicate land or easements to public use with or without consideration.
(12) To make ordinary and extraordinary repairs and alterations in buildings or other trust property, to demolish and improvements, to raze party walls or buildings, and to erect new party walls or buildings as the Trustee deems advisable.
(13) To borrow money for any trust purpose from any person, firm, or corporation, including one acting as Trustee hereunder, on the terms and conditions deemed appropriate by the Trustee, and to obligate the trust estate for repayment; to encumber the trust estate or any of its property by mortgage, deed of trust, pledge, or otherwise, using whatever procedures to consummate the transaction deemed advisable by the Trustee; and to replace, renew, and extend any encumbrance, and to pay loans or other obligations of the trust estate deemed advisable by the Trustee.
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(19) To commence or defend at the expense of the trust estate any litigation affecting the trust or any property of the trust estate deemed advisable by the Trustee.
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(23) To do all the acts, to take all the proceedings, and to exercise all the rights, powers, and privileges which an absolute owner of the property would have, subject always to the discharge of his fiduciary obligations. The enumeration of certain powers in this Trust Agreement shall not limit the general or implied powers of the Trustee, and the Trustee shall have all additional powers that may now or hereafter be conferred on it by law or that may be necessary to enable the Trustee to administer the trust in accordance with the provisions of the Trust Agreement, subject to any limitations specified in the Trust Agreement.
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Article V No one dealing with the Trustee need inquire concerning the validity of anything he purports to do, or need see to the application of any money paid or any property transferred to or on the order of the Trustee.
No Trustee appointed under the Trust Agreement shall at any time be held liable for any action or default of himself or his agent or of any other person in connection with the administration of the trust estate, unless caused by his own gross negligence or by a willful commission by him of an act in breach of trust.
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It is intended by the Settlors that this trust be in compliance with the rule against perpetuities and in no way violate the applicable statutes of the Code of Alabama.
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No interest in income or principal shall be alienated, encumbered, or otherwise disposed of by any income or remainder beneficiary while in the possession and control of the Trustee, and if any of them should attempt to alienate, encumber, or dispose of all or part of the income or grants of principal before the same has been delivered by the Trustee, or if by reason of bankruptcy or insolvency or any attempted execution, levy, attachment, or seizure of any assets remaining in the hands of the Trustee under claims of creditors or otherwise, all or any part of such income or principal might fail to be enjoyed by some other person, then such interest shall terminate.
At the time of creation, the Family Trust corpus consisted solely of real property of approximately 1000 acres. This included: (1) a home and approximately 90 acres known as the Coy Property; (2) 400-500 acres of property contiguous to the Coy Property; (3) 200-300 acres known as the Cemetery Property; (4) a historic plantation home and approximately 300 acres of property separated by County Road 12 known as Dry Fork.
Around 1980 or 1981, the Family Trust sold all the real property, except for approximately 10 acres of the Coy Property and the home on the Coy Property, to two of the Family Trust's beneficiaries, David Harold Tait and Albert Lucas Tait. The Family Trust retained a right of first refusal to repurchase the properties in the event that the property was to be sold to a third party. The Trust received approximately $200,000 from the sale. The sale proceeds were used to pay estate taxes, and the remainder, approximately $60,000, was invested in securities. The sale transaction provided that David and Albert relinquished their rights as beneficiaries under the Family Trust. Therefore, since 1980 or 1981, only Pauline Tait, James, Deborah and Suellen have been and presently are beneficiaries of the Trust. The trust corpus grew to approximately $ 500,000 by the early 1990s due to the investments made from the sales proceeds.
In 1991, when the brothers...
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