In re Waycaster, Case Number: 20-30529-jda

CourtUnited States Bankruptcy Courts. Tenth Circuit. U.S. Bankruptcy Court — Eastern District of Michigan
Writing for the CourtJoel D. Applebaum, United States Bankruptcy Judge
Citation624 B.R. 616
Parties IN RE: Fred A. WAYCASTER and Sarah M. Waycaster, Debtors.
Docket NumberCase Number: 20-30529-jda
Decision Date18 November 2020

624 B.R. 616

IN RE: Fred A. WAYCASTER and Sarah M. Waycaster, Debtors.

Case Number: 20-30529-jda

United States Bankruptcy Court, E.D. Michigan, Southern Division.

Signed November 18, 2020


624 B.R. 619

John L. Hicks, Flint, MI, for Debtors.

OPINION DENYING CONFIRMATION OF DEBTORS' AMENDED PLAN

Joel D. Applebaum, United States Bankruptcy Judge

Introduction

Debtors, Fred and Sarah Waycaster, seek to confirm their amended chapter 13 plan (the "Amended Plan") [Dkt. No. 37]. The Chapter 13 Trustee ("Trustee") objects to confirmation on the ground that the Plan fails to satisfy 11 U.S.C. § 1325(a)(4) because the "value, as of the effective date of the plan, of property to be distributed under the plan on account of each allowed unsecured claim" is less than the amount that unsecured creditors would otherwise receive in a chapter 7 liquidation (the "Best Interest of Creditors Test"). According to the Trustee, the Amended Plan improperly ignores equity in a home owned by Fred Waycaster totaling approximately $155,000. The home, located in South Carolina, is occupied by Fred Waycaster's in-laws, Raymond Strzalkowski and Elizabeth Inman. Debtors argue that, although the South Carolina home is titled in Fred Waycaster's name, he holds only

624 B.R. 620

bare legal title. Fred Waycaster's father-in-law, Raymond Strzalkowski, holds equitable title to the property under a resulting trust arising under South Carolina law. Accordingly, Debtors argue that the South Carolina home equity should not be counted in determining whether Debtors have satisfied the Best Interest of Creditors Test. For the reasons set forth below, the Trustee's objection is sustained, and confirmation of Debtors' Amended Plan is DENIED.

Jurisdiction

This matter is a core proceeding under 28 U.S.C. § 157(b)(2)(L) over which the Court has jurisdiction pursuant to 28 U.S.C. § 1334 and 28 U.S.C. § 157(a).

Factual Background

The facts in this matter are not in dispute.1 Debtors filed their bankruptcy petition under chapter 13 of the Bankruptcy Code on February 28, 2020. Prior to filing bankruptcy, Fred Waycaster applied for a real estate loan for the purchase of a home located in Orangeburg, South Carolina. The purchase price of the home was $360,000. A down payment of $155,000 was put towards the price of the home resulting in a mortgage loan of $210,000. This down payment was provided by Raymond Strzalkowski pursuant to the terms of a Gift Letter dated January 16, 2019. The loan application was granted, and a closing occurred on January 18, 2019. Mr. Waycaster was not present at the closing and Ms. Inman, his mother-in-law, acted as his attorney in fact. The mortgage and loan note were recorded on the same day. All of the closing documents were prepared and executed in the name of Fred Waycaster as purchaser.

The South Carolina home is occupied by Mr. Strzalkowski and Ms. Inman. Debtors do not reside in South Carolina. Nothing in the record indicates their intention to relocate there. In addition to funding the down payment, the mortgage payments on the South Carolina property to date were apparently made by Mr. Strzalkowski. Mr. Strzalkowski would send a check made payable to Mr. Waycaster for the amount of the monthly payment. Mr. Waycaster would then deposit the check into his own account and make a corresponding payment to Plaza Home Mortgage, Inc., the mortgage lender ("Plaza"). Mr. Strzalkowski apparently missed several payments and Debtors' Amended Plan shows a pre-petition arrearage totaling $17,445. Debtor's counsel indicated that the need to stay collection action against Fred Waycaster and/or the South Carolina property was a significant reason for this bankruptcy filing.

As a result of the $155,000 down payment made pursuant to the terms of the Gift Letter, there is substantial equity in the South Carolina property that is at the heart of this dispute. Because Debtors' Amended Plan does not account for this equity, the Trustee argues that the Amended Plan fails to satisfy the Best Interest of Creditors Test. Debtors argue that any equity in the South Carolina property is shielded from Debtors' creditors by virtue of a resulting trust in favor of Raymond Strzalkowski. Accordingly, any equity should not be included in the Amended Plan, the Best Interest of Creditors Test is otherwise satisfied, and the Amended Plan should be confirmed. The Trustee and Debtors agree that this dispute is governed by South Carolina law.

624 B.R. 621

Legal Analysis

Under South Carolina law, "the general rule is that when real estate is conveyed to one person and the consideration paid by another, it is presumed that the party who pays the purchase money intended a benefit to himself, and accordingly a resulting trust is raised in his behalf ...." Anderson v. Architectural Glass Construction, Inc. (In re Pfister) , 749 F.3d 294, 298 (4th Cir. 2014), quoting Caulk v. Caulk , 211 S.C. 57, 43 S.E.2d 600, 603 (1947). But this presumption is just that – a presumption. A resulting trust is not presumed in the face of contrary intent. For example, "when the conveyance is taken to a wife or child, or to any other person for whom the purchaser is under legal obligation to provide, no such presumption attaches. On the contrary, the presumption in such case is that the purchase was designed as a gift or advancement to the person to whom the conveyance is made." In re Pfister , 749 F.3d at 298. See also Larisey v. Larisey , 93 S.C. 450, 77 S.E. 129, 130 (1913) ("[t]his presumption [of a resulting trust] cannot arise when a contrary intent appears, since it is based on the absence of evidence of such contrary intent.") Where a presumption of a resulting trust does not arise, "the evidence to establish it must be clear, definite and convincing." Green v. Green , 237 S.C. 424, 117 S.E.2d 583, 586 (1960). This heightened burden is in addition to the burden on plan proponents generally. In re McDonald , 437 B.R. 278, 283 (Bankr. S.D. Ohio 2010) ("The Debtors have the ultimate burden of proof to show the requirements of 11 U.S.C. § 1325 have been met.")

According to Debtors, because Fred Waycaster is the son-in-law of Raymond Strzalkowski and not one to whom "purchaser is under legal obligation to provide," In re Pfister , 749 F.3d at 298, the Court should not presume that the down payment was a gift and, therefore, a resulting trust should be found in favor of Mr. Strzalkowski. It is true that, under South Carolina law, no gift is presumed to a son-in-law or daughter-in-law. Jocoy v. Jocoy , 349 S.C. 441, 562 S.E.2d 674, 676 (S.C. Ct. App. 2002). However, the presumption against a resulting trust is not limited solely to where the payment was made on behalf of a person to whom "purchaser is under legal obligation to provide." As the Larisey court makes clear, "this presumption [of a resulting trust] cannot arise when a contrary intent appears, since it is based on the absence of evidence of such contrary intent ." Larisey v. Larisey , 77 S.E. at 130 (emphasis added, internal citations omitted). Stated another way, when contrary intent appears, a resulting trust is not presumed.

Here, there is ample evidence of contrary intent. Starting with the most obvious, this entire transaction was documented to show that Mr. Waycaster purchased and is the owner of the property. Hunt v. South Carolina Forestry Commission , 358 S.C. 564, 595 S.E.2d 846, 848 (S.C. Ct. App. 2004) (" ‘Deeds are construed to determine the intent of the parties. To construe a deed, a court looks first at the language of the instrument because a court presumes it declares the intent of the parties.’ ") (internal citation omitted). To enable this purchase, Mr. Strzalkowski executed a gift letter that Mr. Waycaster also signed. The Gift Letter specifically provided that "[n]o repayment of the gift is expected or implied in the form of cash or by future services of the recipient ...." [Dkt. No. 65-5]. More importantly, the Gift letter provided:

WARNING: Our signatures above indicate that we fully understand that it is a Federal Crime punishable by fine, imprisonment, of both to knowingly make any false statement concerning any of
624 B.R. 622
the above facts as applicable under the provision of Title 18, United States Code, Section 1012 and 1014.

As noted above, in addition to the...

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1 practice notes
  • Consol Energy, Inc. v. Murray Energy Holdings Co. (In re Murray Energy Holdings Co.), No. 20-8017
    • United States
    • Bankruptcy Appellate Panels. U.S. Bankruptcy Appellate Panel, Sixth Circuit
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    ...insurers' pre-petition rights under subject insurance policies and settlements." Combustion Eng'g , 391 F.3d at 216.5 The district 624 B.R. 616 court, reviewing and ultimately confirming the plan, modified the provision's language. On appeal from the district court, the circuit court e......
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  • Consol Energy, Inc. v. Murray Energy Holdings Co. (In re Murray Energy Holdings Co.), No. 20-8017
    • United States
    • Bankruptcy Appellate Panels. U.S. Bankruptcy Appellate Panel, Sixth Circuit
    • February 1, 2021
    ...insurers' pre-petition rights under subject insurance policies and settlements." Combustion Eng'g , 391 F.3d at 216.5 The district 624 B.R. 616 court, reviewing and ultimately confirming the plan, modified the provision's language. On appeal from the district court, the circuit court e......

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