In re Williams

• Decision Date: 04 September 2008
• Docket Number: Bankruptcy No. 07-52478 RFH.,Adversary No. 08-5026.
• Citation: 393 B.R. 813
• Parties: In the Matter of Bennie Lee WILLIAMS and Wanda Laverne Williams, Debtors. Bennie Lee Williams and Wanda Laverne Williams, Plaintiffs v. Suntrust Bank, Defendant.
• Court: U.S. Bankruptcy Court — Middle District of Georgia

393 B.R. 813

In the Matter of Bennie Lee WILLIAMS and Wanda Laverne Williams, Debtors Bennie Lee Williams and Wanda Laverne Williams, Plaintiffs v. Suntrust Bank, Defendant.

Bankruptcy No. 07-52478 RFH.

Adversary No. 08-5026.

United States Bankruptcy Court, M.D. Georgia, Macon Division.

September 4, 2008.

COPYRIGHT MATERIAL OMITTED

Wayne Gilleland, Macon, GA, for Plaintiffs.

Walter E. Jones, Stephen Louis A. Dillard, Macon, GA, Defendant.

Tony Coy, Laura D. Wilson, Macon, GA, for Chapter 13 Trustee.

MEMORANDUM OPINION

ROBERT F. HERSHNER, JR., Bankruptcy Judge.

Bennie Lee Williams and Wanda Laverne Williams, Plaintiffs, filed with the Court on March 11, 2008, their Complaint To Set Aside Foreclosure Sale. SunTrust Bank, Defendant, filed a response on April 10, 2008. Plaintiffs' complaint came on for trial on May 28, 2008. The Court, having considered the Stipulated Facts,¹ the evidence presented, and the arguments of counsel, now publishes this memorandum opinion.²

FINDINGS OF FACT

Wanda Laverne Williams³ purchased a residence in August 1997.⁴ Defendant financed the purchase.⁵ Ms. Williams executed a promissory note dated August 8, 1997, in favor of Defendant. Ms. Williams was to repay the principal, $39,100, plus interest by making monthly payments of $286.90 over a term of thirty years. Ms. Williams executed a deed to secure debt dated August 8, 1997, pledging her residence as security for her obligation. The deed to secure debt was filed for record in the public deed records of Bibb County, Georgia.

Ms. Williams failed to make her monthly payments to Defendant. The law firm of Morris Schneider & Prior, LLC⁶ represents Defendant in foreclosure proceedings. MR Default Services⁷ handles certain nonlegal preforeclosure and postforeclosure functions for Morris Schneider & Prior. MR Default Services sent Ms. Williams a Fair Debt Collection Practices Act Notice dated August 13, 2007, and a Notice Of Foreclosure Sale dated August 15, 2007.⁸

In preparation for the anticipated foreclosure on Ms. Williams's residence, MR Default Services prepared and sent to Defendant a Deed Under Power⁹ that was postdated¹⁰ with a date of October 2, 2007. Defendant's representatives executed, notarized, and witnessed the Deed Under Power sometime between August 15 and August 24, 2007. Defendant's representatives, notary, and witness were in close proximity to each other but may not have actually seen each other sign the Deed Under Power.¹¹ Defendant returned the executed Deed Under Power to MR Default Services on August 24, 2007. Legal notice of the pending foreclosure was advertised in Bibb County's "official newspaper"¹² during September 2007. On October 2, 2007, MR Default Services conducted the nonjudicial foreclosure. Defendant, by and through MR Default Services, made the highest bid of $38,116.93. MR Default Services notified Defendant of the results of the foreclosure at 5:21 PM on October 2, 2007.

Ms. Williams and her husband filed on October 11, 2007, a petition under Chapter 13 of the Bankruptcy Code. Defendant filed the Deed Under Power in the public deed records of Bibb County on October 22, 2007. The Court entered an order on December 31, 2007, confirming the Williams's Chapter 13 plan. Defendant filed a proof of claim which is dated February 27, 2008, in the Williams's bankruptcy case. Defendant withdrew its proof of claim on February 29, 2008. The Williams continue to reside in the residence.

At the trial of this adversary proceeding, Ms. Williams testified that, in her opinion, the current value of her residence is between $55,500 and $60,000. The Macon/Bibb County Tax Assessors's records show the value of Ms. Williams's residence as $52,400 for Tax Year 2008. The Court is persuaded that the current value of Ms. William's residence is $55,500. Defendant's foreclosure bid was $38,116.93. The Court is persuaded that the value of Ms. Williams's residence exceeds the amount of Defendant's foreclosure bid.

In this adversary proceeding, the Williams seek to set aside the foreclosure on Ms. Williams's residence. The Williams want to deal with the obligation owed to Defendant through their confirmed Chapter 13 plan. The Williams want to remain in possession of Ms. Williams's residence.

Defendant contends that Ms. Williams's interest in the residence was terminated before the Williams filed for bankruptcy relief. Defendant seeks relief from the automatic stay of the Bankruptcy Code to dispossess the Williams as tenants at sufferance.¹³

CONCLUSIONS OF LAW

In Howard v. Citizens Bank of Cochran (In re Howard)¹⁴ this Court stated:

"Under Georgia law, a deed to secure debt transfers legal title to the property conveyed to the grantee and the grantor retains equitable title with the equitable right of redemption by payment of the debt. Redemption can be accomplished only by payment in full of the secured debt. This equitable right of redemption is a property right of the debtor within the jurisdiction of the bankruptcy court. ... In Georgia, a properly conducted foreclosure cuts off the grantor's equitable right of redemption." Leggett v. Morgan, (In re Morgan), 115 B.R. 399, 401 (Bankr.M.D.Ga.1990).

Federal law determines whether an interest in property is property of the bankruptcy estate. The nature and existence of the interest is determined by state law. Witko v. Menotte, (In re Witko), 374 F.3d 1040, 1043 (11th Cir. 2004). A debtor's equitable right of redemption is property of the bankruptcy estate. Commercial Federal Mortgage Corp. v. Smith, (In re Smith), 85 F.3d 1555, 1557-58 (11th Cir.1996). Whether a debtor's equitable right of redemption is terminated by a foreclosure sale is a question of state law.

Neither Plaintiff, the Bank, nor Mr. Davis has cited a controlling appellate state court or federal court decision identifying the specific event in a foreclosure proceeding that terminates a debtor's equity of redemption.

351 B.R. at 255.

Section 1322 (c)(1) of the Bankruptcy Code provides:

§ 1322. Contents of plan

. . .

(c) Notwithstanding subsection (b)(2) and applicable nonbankruptcy law—

(1) a default with respect to, or that gave rise to, a lien on the debtor's principal residence may be cured under paragraph (3) or (5) of subsection (b) until such residence is sold at a foreclosure sale that is conducted in accordance with applicable nonbankruptcy law;

11 U.S.C.A. § 1322(c)(1) (West 2004).

Collier on Bankruptcy states:

Section 1322(c)(1) provides that a default on a mortgage on the debtor's principal residence may be cured until the residence is "sold at [a] foreclosure sale" that is conducted in accordance with applicable nonbankruptcy law. The legislative history states that the debtor may cure a home mortgage default "at least through completion of a foreclosure sale under applicable nonbankruptcy law."

The statutory language and legislative history thus leave to state law the question of when a foreclosure sale has been completed. In some states, a sale may not be deemed completed until the court has entered an order confirming the sale, or until a sheriff has conveyed the property, or until a debtor no longer may redeem the property. It may well be significant that Congress did not say that the debtor may cure "until the sale" or "until the date of the foreclosure sale," indicating that the completion of the sale might be on a later date than the date of the auction.

8 Collier on Bankruptcy ¶ 1322.15 (15th ed. rev.2008).

Under Georgia law, a valid foreclosure divests all of the debtor's rights and title in the property. Rhodes v. Anchor Rode Condominium Homeowner's Assoc., Inc., 270 Ga. 139, 508 S.E.2d 648, 650 (1998); Carrington v. Citizens' Bank of Waynesboro, 144 Ga. 52, 85 S.E. 1027 (1915).

The Williams and Defendant disagree on the specific event in the foreclosure process that terminates a debtor's rights and title in the property. The debtor's rights and title are known as the debtor's equity of redemption.

The Williams rely upon Federal Deposit Insurance Corp. v. Dye,¹⁵ a decision by the former Fifth Circuit Court of Appeals. The FDIC foreclosed on property pledged as security for several promissory notes. The FDIC was the highest bidder. No foreclosure deeds were executed nor did the FDIC make any payment pursuant to its bid at the foreclosure sales. The FDIC then sued Dye for the outstanding balances on the underlying promissory notes as though there had been no foreclosure sales. On appeal, Dye and the FDIC agreed that if the foreclosure sales were valid, then the FDIC was precluded from suing on the underlying promissory notes. The former Fifth Circuit held that the FDIC could sue Dye for the outstanding balance on the promissory notes. The former Fifth Circuit stated:

We are persuaded that FDIC's argument, however, that even if the [foreclosure] sales were not void, they were never consummated: no deed was transferred and no consideration passed. Georgia law treats the high bid at a foreclosure sale as forming a contract: the bidder contracts with the debtor to purchase the property at the bid price. See Moody v. Mendenhall, 238 Ga. 689, 234 S.E.2d 905 (1977) (suit by debtor to enforce specific performance by bidder). Until the deed is transferred the sale itself has not occurred; there is only a contract to buy and sell.

. . .

By analogy, we conclude that to constitute a foreclosure sale which would preclude a judgment for the full amount of the note, the proceeds of the sale must have been transferred from the bidder to the creditor. The next question is whether this transfer occurred in the case before us. Where the bidder and creditor are the same entity, there must be an objective standard to determine when or if the transfer has occurred. The parties direct us to no such standard. However, where the deeds have not been delivered nor have the notes been marked paid in full, it is clear that the proceeds of sale have not been transferred in the cases be...