In Re Tarun N. Surti

• Decision Date: 13 August 2010
• Docket Number: Adversary No. 3:10-0064A.,Bankruptcy No. 3:09-01213.
• Citation: 434 B.R. 515
• Parties: In re Tarun N. SURTI and Lata T. Surti, Debtor.HHP-Brentwood, L.L.C., Plaintiff,v.Aurora Loan Services, LLC, Defendant.
• Court: U.S. Bankruptcy Court — Middle District of Tennessee

434 B.R. 515

In re Tarun N. SURTI and Lata T. Surti, Debtor.HHP-Brentwood, L.L.C., Plaintiff,v.Aurora Loan Services, LLC, Defendant.

Bankruptcy No. 3:09-01213.

Adversary No. 3:10-0064A.

United States Bankruptcy Court M.D. Tennessee.

Aug. 13, 2010.

Austin Lenoy McMullen, Bradley Arant Boult Cummings LLP, Nashville, TN, Attorney for Plaintiff.

Edward Dale Russell, Loeb & Loeb LLP, Nashville, TN, Attorney for Defendant.

Memorandum

KEITH M. LUNDIN, Bankruptcy Judge.

On cross-motions for summary judgment, the issue is whether a Deed of Trust on tenancy by the entirety property that was initialed on each page and signed by both spouses as “Borrower” encumbers the entirety estate when one spouse is defined as a “Borrower” who signed the Note and the other spouse is a “Borrower ... ‘co-signer’ ” who did not sign the Note. The Deed of Trust encumbers the entirety estate. Defendant's motion for summary judgment is granted; Plaintiff's motion for summary judgment is denied. The following are findings of fact and conclusions of law. Fed. R. Bankr.P. 7052.

I. Facts

Tarun N. Surti and Lata T. Surti are husband and wife, and Chapter 11 debtors. By warranty deed recorded June 22, 1993, the Surtis acquired real property at 899 South Curtiswood Lane, Nashville, TN (the “Property”). (J. Stip. Ex. 1.) The Surtis have continuously owned the Property as tenants by the entirety.

On December 12, 2003, Lata Surti, identified as “a married person” and defined as “Borrower,” executed a Deed of Trust against the Property in favor of First Horizon Home Loan Corporation to secure a loan of $1.2 million.¹ (J. Stip. Ex. 3.) This Deed of Trust was initialed on each page by both Lata and Tarun Surti,² and executed by each on preprinted lines labeled “Borrower.” Lata Surti's name was typewritten below the “Borrower” line on which she signed. Tarun Surti's name was printed by hand below the “Borrower” line on which he signed. Immediately before the lines on which the Surtis signed, the document states: “BY SIGNING BELOW, Borrower accepts and agrees to the terms and covenants contained in this Security Instrument [.]” (J. Stip. Ex. 3, at 11.)

The acknowledgment only named “Lata N. Surti, a married person.” ³ The legal description identifies the Property as “the same property conveyed to Tarun N. Surti and wife, Lata T. Surti, by Deed from, the Saar Foundation, Inc. dated 6/18/93[.]” (J. Stip. Ex. 3, at 2 & Ex. A.) Through a series of recorded assignments (J. Stip. Exs. 4-6) this Deed of Trust found its way to Defendant, Aurora Loan Services LLC (the “Aurora Deed of Trust”).

On page 1, in a section labeled “DEFINITIONS,” the Aurora Deed of Trust states: “Borrower is LATA N.⁴ SURTI, A MARRIED PERSON. Borrower is the trustor under this Security Instrument.” (J. Stip. Ex. 3, at 1.) Just below, in that same section, “ ‘Note’ ” is defined as: “the promissory note signed by Borrower.... The Note states that Borrower owes Lender ... $1,200,000.00 ... plus interest.” (J. Stip. Ex. 3, at 1.)

On page 2, the Aurora Deed of Trust provides for the “TRANSFER OF RIGHTS IN THE PROPERTY,” including: “Borrower irrevocably grants and conveys to Trustee, in trust, with power of sale, the following described property located in the county of Davidson[.]” (J. Stip. Ex. 3, at 2.) A legal description of the South Curtiswood Lane property is attached, including a Derivation Clause that identifies the Property as owned by “Tarun N. Surti and wife, Lata T. Surti.” (J. Stip. Ex. 3, at 2 & Ex. A.) On page 3, “BORROWER COVENANTS that Borrower is lawfully seised of the estate hereby conveyed and has the right to grant and convey the Property and that the Property is unencumbered, except for encumbrances of record.” (J. Stip. Ex. 3, at 3.)

Paragraph 13 on page 8 of the Aurora Deed of Trust provides:

13. Joint and Several Liability; Co-signers; Successors and Assigns Bound. Borrower covenants and agrees that Borrower's obligations and liability shall be joint and several. However, any Borrower who co-signs this Security Instrument but does not execute the Note (a “co-signer”): (a) is co-signing this Security Instrument only to mortgage, grant and convey the co-signer's interest in the Property under the terms of this Security Instrument; (b) is not personally obligated to pay the sums secured by this Security Instrument; and (c) agrees that Lender and any other Borrower can agree to extend, modify forbear or make any accommodations with regard to the terms of this Security Instrument or the Note without the co-signer's consent.

(J. Stip. Ex. 3, at 8.)

On January 16, 2004, “TURAN N. SURTI” ⁵ and “LATA N. SURTI” ⁶ executed a Deed of Trust against the Property to secure a $250,000 home equity line of credit in favor of First Tennessee Bank. (J. Stip. Ex. 7.) The acknowledgment reads “Turan N. Surti and wife Lata T. Surti.” (J. Stip. Ex. 7, at 4.) This Deed of Trust was recorded on February 26, 2004.

On August 30, 2007, “Tarun N. Surti and wife, Lata T. Surti” executed a Deed of Trust, Assignment of Leases and Security Agreement against the Property to secure a loan of $1,000,000 to Tarun N. Surti from Plaintiff, HHP-Brentwood, L.L.C. (the “HHP Deed of Trust”). (J. Stip. Ex. 8.) In the HHP Deed of Trust, an exhibit listed “PERMITTED ENCUMBRANCES” including:

6. Deed of Trust dated December 12, 2003, executed by Lata N. Surti, a married person, in favor of First Horizon Home Loan Corporation, in the sum of $1,200,000 of record as instrument No. 20031218-0180613, said Register's Office, as assigned to Mortgage Electronic Registration Systems, Inc., of record as Instrument No. 20040702-00779003, said Register's Office. Appointment of Successor Trustee of record as Instrument No. 20060615-0071289.

7. Deed of Trust dated January 16, 2004, executed by Turan N. Surti and Lata T. Surti, in favor of First Tennessee Bank National Association, in the sum of $250,000.00 of record as Instrument No. 20040226-0021881, said Register's Office.

(J. Stip. Ex. 8, at 16.) The HHP Deed of Trust was recorded August 31, 2007.

Tarun and Lata Surti filed Chapter 13 on February 5, 2009. Their case was converted to Chapter 11 on June 12, 2009.

Four Deeds of Trust on the Property were scheduled by the Debtors.⁷ (J. Stip. Ex. 9, at 6-7.) Aurora filed a secured proof of claim for $1,153,937.93. (J. Stip. Ex. 10.) HHP filed a secured proof of claim for $1,015,000. (J. Stip. Ex. 11.)

Debtors' proposed Chapter 11 plan treats Aurora as fully-secured with a first lien on the Property. In second position, the plan provides for First Tennessee bank with a fully-secured claim of $304,043. In third position, the plan lists Regions Bank with a claim of $242,359, and in fourth position, Plaintiff HHP. Regions Bank and HHP are treated as unsecured creditors based on the absence of value in the Property to secure these claims.

HHP filed this adversary proceeding challenging the validity and extent of Aurora's lien. HHP argues that since Tarun Surti is not identified as a “Borrower” on the first page of the Aurora Deed of Trust, his interest in the Property was not conveyed as security for the Aurora note. Because the Property is owned by the Debtors as tenants by the entirety, HHP continues, the only interest that secures Aurora's note is Lata Surti's survivorship right in the Property. HHP cites Ethridge v. TierOne Bank, 226 S.W.3d 127 (Mo.2007), and Sullivan v. Mortgage Electronic Registration Systems, Inc. (In re Wirth), 355 B.R. 60 (N.D.Ill.2005), in support of this outcome.

Citing Kelton v. Brown, 39 S.W. 541, 543 (Tenn.Ch.App.1897), Aurora responds that Tennessee law does not require the harsh result HHP seeks. Aurora argues that Mr. Surti signed the Aurora Deed of Trust as a “Borrower” and was identified elsewhere as a “Co-signer” for the explicit purpose of conveying his interest to secure his wife's debt. Aurora cites Rouse v. Wells Fargo Bank, N.A. (In re Suhrheinrich), Adv. No. 08-3048, 2009 WL 3335027 (Bankr.W.D.Mo. Oct.14, 2009), in which the bankruptcy court distinguished Ethridge on facts Aurora claims apply here.

II. Discussion

A. Summary Judgment Standard

Summary judgment is appropriate when “the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, 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); Celotex Corp. v. Catrett, 477 U.S. 317, 322, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986); Booker v. Brown & Williamson Tobacco Co., 879 F.2d 1304, 1310 (6th Cir.1989). The court is not to “ ‘weigh the evidence and determine the truth of the matter but to determine whether there is a genuine issue for trial.’ ” Browning v. Levy, 283 F.3d 761, 769 (6th Cir.2002) (quoting Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 249, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986)). “A genuine issue for trial exists only when there is sufficient ‘evidence on which the jury could reasonably find for the plaintiff.’ ” Id. (quoting Liberty Lobby, 477 U.S. at 252, 106 S.Ct. 2505).

The moving party bears the initial burden of showing that there is an absence of evidence to support the nonmoving party's case. Celotex Corp. v. Catrett, 477 U.S. at 325, 106 S.Ct. 2548. The burden then shifts to the nonmoving party to produce evidence that would support a finding in its favor. See Anderson v. Liberty Lobby, Inc., 477 U.S. at 250-52. All inferences are drawn in the light most favorable to the nonmoving party. Spradlin v. Jarvis (In re Tri-City Turf Club, Inc.), 323 F.3d 439, 442 (6th Cir.2003) (citations omitted). The party opposing a motion for summary judgment, however, “ ‘may not rest upon mere allegations or denials of his pleading, but ... must set forth specific facts showing that there is a genuine issue for trial.’ The party opposing the motion must ‘do more than simply show that there is some metaphysical doubt as to the material facts.’ ” In re Tri-City Turf Club, Inc., 323 F.3d at...