In re Trinity Homes, LLC

• Decision Date: 22 July 2020
• Docket Number: Case No. 19-bk-1035
• Citation: In re Trinity Homes, LLC, Case No. 19-bk-1035 (Bankr. N.D. W.Va. Jul 22, 2020)
• Parties: In re: TRINITY HOMES, LLC, Debtor.
• Court: U.S. Bankruptcy Court — Northern District of West Virginia

In re: TRINITY HOMES, LLC, Debtor.

Case No. 19-bk-1035

UNITED STATES BANKRUPTCY COURT FOR THE NORTHERN DISTRICT OF WEST VIRGINIA

July 22, 2020

Chapter 7

MEMORANDUM OPINION

On June 30, 2020, the court entered an order granting the motion of Thomas H. Fluharty(the "Trustee") to compromise the claim filed against the estate by Pendleton Community Bank.In conjunction with its approval of the Trustee's motion, the court overruled the lone objection to the motion, which 21^stMortgage Corporation filed on June 29, 2020.¹The court delivered its ruling upon the motion orally during a telephonic hearing on June 30, 2020.On July 14, 2020, 21^st Mortgage filed a notice of appeal of the court's order.To create a more robust record for the District Court, the court issues this memorandum opinion restating its justification for overruling 21^st Mortgage's objection and granting the Trustee's motion.

I.BACKGROUND

Prepetition, Trinity Homes, LLC(the "Debtor"), operated a business selling mobile, manufactured, and modular homes.The Debtor's principal place of business was located at 644 Andell Road, Bridgeport, West Virginia (the "Property").Notably, however, title to that property was vested in a related, non-debtor entity, Endeavor Investments, LLC. 21^st Mortgage financed the Debtor's operation and held a security interest in the Property, among other collateral.

On April 5, 2018, Pendleton Community Bank loaned $130,000 to the Debtor for the purchase of a modular home described as "Mainstreet, Model No. 350MS-Mainstreet-00000R C/S/Ranch (M), SerialNumber 50345(the "Modular Home").To secure the Debtor's repayment of the $130,000, the Debtor executed and Pendleton Community Bank recorded a financing statement giving Pendleton a security interest in the Modular Home.Notably, however, Pendleton's interest in the Modular Home is not also secured by a deed of trust.On December 9, 2019, the Debtor filed its voluntary petition for relief under Chapter 7 of the Bankruptcy Code.

On March 11, 2020, the trustee filed a motion to sell the Property.Therein, he identified three liens to be paid from the sale proceeds.²According to his motion, the trustee proposed to sell the Property for $844,000, and the proposed sale would result in net proceeds of $149,300.Notably, the sales contract provided for a closing date forty-five days from the court's approval of the sale.On April 8, 2020, the court entered its order approving the sale.According to the trustee, Pendleton Community Bank first asserted a lien on the Modular Home during April but after the court approved the sale of the Property.With the closing of the sale of the Property imminent, the trustee endeavored to resolve Pendleton's claim so as to not lose the sale.On June 12, 2020, Pendleton formally made its claim against the Modular Home and the trustee almost immediately—on June 19, 2020—proposed the extant settlement to the court.

II.ANALYSIS

Pendleton Community Bank initiated the underlying contested matter by filing its June 12, 2020 motion to permit its late-filed proof of claim because it allegedly did not receive timely notice of the Debtor's bankruptcy case.Notably, Pendleton also did not receive notice of the Chapter 7trustee's motion to sell the Property, which is where the Modular Home currently sits.Pendleton contends that it possesses a lien upon the Modular Home securing the repayment of approximately $92,983.26, but it agrees to resolve its dispute against the estate by accepting $80,000 in full satisfaction of its secured claim.According to the trustee, the settlement is fair and reasonable for two principal reasons.First, it satisfies the purported secured claim of Pendleton Community Bank for almost $13,000 less than the amount purportedly owed without having to litigate over the amount owed and the issue of whether Pendleton possesses a properly secured claim.More importantly, it removes any potential impediment to the trustee's sale of the Property.

Pendleton Community Bank supports the resolution.In support of the proposed settlement, it directs the court's attention to its pre-petition agreement with the Debtor that it may remove the Modular Home upon Debtor's default of the loan.That is critical in its view based upon West Virginia law governing "fixtures."As noted at the outset, only 21^st Mortgage objects to the proposed resolution.It contends that the court should not approve the settlement because Pendleton Community Bank is not properly secured in the Modular Home.Specifically, 21^st Mortgage asserts that Pendleton Community Bank's financing statement is ineffective to maintain a security interest in the Modular Home because the Modular Home is affixed to the Property upon a concrete block foundation. 21^st Mortgage therefore argues that Pendleton Community Bank can only hold a lien upon the Modular Home with a perfect deed of trust, which it admittedly does not possess.At bottom, that dispute surrounds whether the Modular Home is a fixture.However, the issue before the court is whether the proposed settlement is reasonable, and the court is not required to rule on the merits of the underlying dispute.

Rule 9019(a) provides that the court may approve a settlement "on motion by the trustee and after notice and a hearing.""Among the factors the bankruptcy judge should consider in his analysis are the litigation's probability of success, the litigation's complexity, and the litigations attendant expense, inconvenience, and delay (including the possibility that disapproving the settlement will cause wasting of assets)."In re Fort Wayne Telsat, Inc., 489 B.R. 773, 778(Bankr. N.D....