In re Wagner

• Decision Date: 05 September 2006
• Docket Number: Bankruptcy No. 04-34875-TPA.,Adversary No. 06-2179-TPA.
• Citation: 353 B.R. 106
• Parties: In re Larry E. WAGNER, Debtor. Larry E. Wagner and Ronda J. Winnecour, Trustee, Plaintiffs, v. Christiana Bank & Trust Company as Owner Trustee for Security National Funding Trust, Defendant.
• Court: U.S. Bankruptcy Court — Western District of Pennsylvania

353 B.R. 106

In re Larry E. WAGNER, Debtor Larry E. Wagner and Ronda J. Winnecour, Trustee, Plaintiffs, v. Christiana Bank & Trust Company as Owner Trustee for Security National Funding Trust, Defendant.

Bankruptcy No. 04-34875-TPA.

Adversary No. 06-2179-TPA.

United States Bankruptcy Court, W.D. Pennsylvania.

September 5, 2006.

COPYRIGHT MATERIAL OMITTED

Jana S. Pail, Esq., Bellevue, PA, for Debtor.

Ronda J. Winnecour, Esq., Pittsburgh, PA, Chapter 13 Trustee.

William J. Levant, Esq., Kaplin, Stewart, Meloff, Reiter & Stein, P.C., Blue Bell, A, for Defendant.

MEMORANDUM OPINION

THOMAS P. AGRESTI, Bankruptcy Judge.

Currently before the Court is the Motion for Summary Judgment filed by the Debtor, Larry E. Wagner, as joined by the Chapter 13 Trustee, and the Motion of Defendant, Christiana Bank & Trust Company for Summary Judgment Pursuant to F.R.B.P. 7056 filed by the Defendant, Christiana Bank & Trust Company. Both motions relate to the Objection to Claim jointly filed by the Chapter 13 Trustee and the Debtor now in the form of an adversary proceeding. For the reasons expressed below, although numerous issues are now resolved streamlining the matter and allowing it to proceed to trial, a genuine issue of material fact exists as to the central claim in this dispute. Therefore, the cross-motions for summary judgment are denied.

FACTS

In 1997, the Debtor, Larry E. Wagner ("Debtor") and his then-wife, Deanna Bartman, purchased real property located at R.R.1 Box 149, Breezewood, Bedford County, PA ("Mattie Road Property"). The Debtor financed the purchase of the Mattie Road Property with a loan secured by a mortgage. On August 6, 1998, the Debtor refinanced the original mortgage on the Mattie Road Property with a $61,000 loan from North American Mortgage Company, which loan was assigned to the Defendant, Christiana Bank and Trust Company ("Bank"). The refinance loan was secured by a mortgage ("Mortgage") on the Mattie Road Property.

While the property description attached to the Mortgage included a description referring to a specific parcel number and incorporating a metes and bounds legal description from a prior deed, the first page of the Mortgage listed the address of a different property, i.e. "R.R. 1 Box 10A, Clearville, PA 15535," a property which the Debtor did not own during any relevant time period. And although the correct mortgagee was identified on the face of the Mortgage and indexed accordingly, the exhibit containing the legal description described an entity known as "America's Wholesale Lender" as the "mortgagee." At the refinance closing, the Debtor signed the note and accompanying Mortgage in the presence of Paul Rametta ("Rametta"), a notary public and the closing settlement agent. Even though at closing the Debtor informed Rametta that the address on the Mortgage was incorrect, Rametta failed to make any correction to the Mortgage document prior to the time of its recording. While Rametta notarized all of the relevant closing documents, including the Mortgage and deed, he failed to date the acknowledgment portion of the Mortgage.

After the Mortgage was recorded, and apparently upon realizing the absence of a "dated" acknowledgment, the Bedford County Recorder's Office returned the Mortgage to Rametta for purposes of correction. At that point, LeAnn Houser ("Houser"), also a notary public and co-employee to Rametta, employed by the company providing the settlement services, executed a second acknowledgment to the Mortgage indicating that the Debtor "personally appeared" before her on September 16, 1998. The "corrected" Mortgage, now containing the second acknowledgment with the original acknowledgment stricken, was then re-recorded at the Bedford County Recorder's Office.

It is important to also note that on September 28, 1999, the Debtor filed a prior Chapter 7 bankruptcy, receiving his Chapter 7 discharge on December 29, 1999. In that prior case, the Debtor failed to identify on his schedules or in his statement of financial affairs the existence of the above factual scenario. As a result, the Chapter Trustee took no action pursuant to 11 U.S.C. § 544(b)(1)¹ in the prior bankruptcy to avoid the August 6, 1998 "transfer" which is the subject of this adversary proceeding.

PROCEDURAL HISTORY

On November 9, 2004, the Debtor voluntarily filed the present Chapter 13 bankruptcy. On January 31, 2005, the Bank timely filed its Proof of Claim ("Claim") in the amount of $114,469.82 for unpaid sums arising from the Mortgage. Thereafter, on March 22, 2005, the Chapter 13 Trustee and the Debtor filed a joint Objection to the Bank's Proof of Claim. On consent of the Parties, the Objection was converted to an adversary proceeding pursuant to Fed. R. Bankr.P. 7001(2), since it involved "a proceeding to determine the validity, priority, or extent of a lien or other interest in property" being brought pursuant to the Trustee's 11 U.S.C. § 544 "strong-arm powers." In their Objection, the Trustee and the Debtor claimed that the lien on the Mattie Road Property should be avoided since: (1) at no relevant time did the Debtor own the property identified as "R.R. 1 Box 10A, Clearville, PA 15535" on the Mortgage; (2) the acknowledgment on the recorded Mortgage was "fraudulent" having no "notice effect" on the Trustee since the Debtor never personally appeared before notary Houser, and, neither Houser nor Rametta resided in the county where the property was located; (3) the Mortgage is avoidable under Section 544(a)(3) since the Chapter 13 Trustee is a bona fide purchaser of real property; (4) the Bank's in personam claim was extinguished upon the Debtor's receipt of his Chapter 7 discharge; (5) the Bank's in rem claim is extinguished because the Mortgage allegedly covers property not owned by the Debtor; and, (6) the Bank's claim is a previously discharged unsecured claim.

On January 30, 2006, the Trustee and Debtor filed their Motion for Summary Judgment seeking to avoid the Bank's "defective" Mortgage against the Mattie Road Property. The Plaintiffs contend that due to the "fraudulent" acknowledgments the Bank's Mortgage on the Mattie Road Property was not valid thereby estopping any attempt by it to "reform" the Mortgage to correct the errors after the bankruptcy was filed. Furthermore, the Motion claimed the Bank has no in personam or unsecured claim against the Debtor since any such claim was discharged in the Debtor's previous Chapter 7 Bankruptcy. Also on January 30, 2006, the Bank's Motion Summary Judgment was filed countering that the acknowledgment was proper and therefore the recorded Mortgage provided notice of the Bank's secured position unaffected by Section 544(a)(3); the notary's county of residency is irrelevant; and, even if the Debtor's personal liability under the note was discharged in his prior Chapter 7 bankruptcy and the Mortgage avoided, the outstanding indebtedness on the loan remains as an unsecured claim in the present bankruptcy.²

Subsequent to the filing of the Motion for Summary Judgment, with the Trustee and Debtor's consent, the Bank filed an Amended Answer to the Amended Complaint (previously filed by the Trustee and the Debtor as an Amended Objection to Proof of Claim.) In it, the Bank raised for the first time the Trustee and Debtor's lack of standing to attack the Bank's claim due to the Debtor's failure to schedule the current avoidance claim in his prior Chapter 7 bankruptcy. It is within this context the Court has decided the pending cross-motions for summary judgment.

STANDING OF THE CHAPTER 13 TRUSTEE AND DEBTOR

The first issue to be resolved by this Court is whether the Chapter 13 Trustee and the Debtor, either collectively or individually, possess the requisite standing to prosecute the pending avoidance action pursuant to Section 544 of the Code. See The Pitt News v. Fisher, 215 F.3d 354, 360 (3d Cir.2000) (the initial inquiry of whether a party has standing is analogous to the threshold question of Article HI subject matter jurisdiction); see also Geisenberger v. Gonzales, 346 B.R. 678, 680-81 (E.D.Pa. 2006) (since standing is perhaps the most important of jurisdictional doctrines, federal courts are under an independent obligation to examine their own jurisdiction when this issue arises); Virgin Islands Government Hospitals and Health Facilities Corp. v. Government of the Virgin Islands, 2006 WL 2059818, at *3 (V.I. June 30, 2006) (noting a federal court lacks jurisdiction over a dispute if a party lacks standing since standing is a component of subject matter jurisdiction); Giordano v. Wachovia Securities, 2006 WL 2177036, at *2 (D.N.J. July 31, 2006).

The Bank contends that neither the Trustee nor the Debtor have standing to object to its Claim, and therefore, this Court lacks jurisdiction to hear the matter. In support of its assertion, the Bank reasons that the avoidance action currently being asserted was and remains property of the Chapter 7 estate created by the filing of the Debtor's 1999 Chapter 7 bankruptcy. As a result, the Bank claims only the, Chapter 7 Trustee, if anyone, possesses the requisite standing to object to its Claim.

There is no dispute that while the 1999 case was pending the Chapter 7 Trustee took no steps to avoid the Mortgage. Regardless, the Chapter 13 Trustee claims that her power to avoid the transfer created by filing of the Mortgage is unaffected by the Debtor's prior Chapter 7 case since "transferred property subject to recovery in an avoidance action is not property of the estate until it is actually recovered by the bankruptcy trustee." In re ABNACO, Inc. et al. v. Bank of America, N.A., 331 B.R. 773 (Bankr.N.D.Ill.2005), citing In re Colonial Realty Co., 980 F.2d 125 (2d Cir.1992). As such, in her capacity as a "bona fide purchaser," the Chapter 13 Trustee believes that she possesses the requisite standing to avoid the August 8, 1998 Mortgage filing which is the subject of the within adversary proceeding.

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