In the Matter of Brian H. Corley v. Citizens Bank of Effingham

• Decision Date: 07 February 2011
• Docket Number: Adversary No. 10–4033.,Bankruptcy No. 10–40181.
• Citation: 447 B.R. 375
• Court: U.S. Bankruptcy Court — Southern District of Georgia
• Parties: In the matter of Brian H. CORLEY, Misty S. Corley, Debtors.James L. Drake, Jr., Trustee, Plaintiffv.Citizens Bank of Effingham, Ocwen Loan Servicing, LLC, Successor in Interest to Taylor Bean & Whitaker Mortgage Corporation, and Mortgage Electronic Registration Systems, Inc., Individually and as Nominee for Citizens Bank of Effingham, Defendants.

447 B.R. 375

In the matter of Brian H. CORLEY, Misty S. Corley, Debtors.James L. Drake, Jr., Trustee, Plaintiff

v.Citizens Bank of Effingham, Ocwen Loan Servicing, LLC, Successor in Interest to Taylor Bean & Whitaker Mortgage Corporation, and Mortgage Electronic Registration Systems, Inc., Individually and as Nominee for Citizens Bank of Effingham, Defendants.

Bankruptcy No. 10–40181.

Adversary No. 10–4033.

United States Bankruptcy Court, S.D. Georgia, Savannah Division.

Feb. 7, 2011.

James L. Drake, Jr., Savannah, GA, pro se.Shawna Y. Staton, James L. Drake, Jr., PC, Savannah, GA, for Plaintiff.David W. Adams, Paul W. Painter, Jr., Ellis, Painter, Ratterree & Adams LLP, Kathleen Horne, Inglesby, Falligant, Horne, Courington, Savannah, GA, for Defendants.

MEMORANDUM AND ORDER

LAMAR W. DAVIS, JR., Bankruptcy Judge.

Debtors purchased real property in 2006.To complete the transaction, they borrowed the purchase money from Citizen's Bank of Effingham (“CBE”), executed a promissory note for the borrowed amount (the “Note”), and executed a deed to secure debt as security for that loan (the “Security Deed”).The Security Deed named Mortgage Electronic Registration Systems, Inc.(“MERS”)¹ as grantee and nominee for CBE and its successors.The Note was transferred multiple times, with different entities taking possession, ownership, and servicing rights at different times.Ownership and possession of the Security Deed were transferred at least once.When Debtors filed Chapter 7, the Trustee commenced an adversary proceeding to determine the extent, validity, and priority of the Security Deed, asserting that the Note was unsecured.The Defendants have moved for summary judgment, alleging that there is no genuine issue of material fact, and that the Note remains secured by the real property.Based on the evidence and applicable authorities I make the following Findings of Fact and Conclusions of Law.

FINDINGS OF FACT

On November 22, 2006, Debtors executed the Note in favor of CBE in exchange for a loan in the amount of $158,250.00.Defendant's Facts,Dckt. No. 30, ¶ 1;Plaintiff's Response,Dckt. No. 38, ¶ 1.The Note was secured by real property known as 132 Huger Street, Rincon, Georgia, 31326 (the “Property”).Id.At the closing, Debtors executed the Security Deed, naming Debtors as “Borrowers” and “Grantors,” CBE as “Lender,” and MERS as “Grantee.”Defendant's Reply,Dckt. No. 44, ¶ 2;Plaintiff's Response,Dckt. No. 38, ¶ 2.The Security Deed further provided that MERS would act as “nominee for Lender and Lender's successors and assigns.”Defendant's Facts,Dckt. No. 30, ¶ 3;Plaintiff's Response,Dckt. No. 38, ¶ 3.The Security Deed specifically identifies the Note by borrower, property, date, and amount, and it provides that the Property is collateral for the Note.Security Deed,Dckt. No. 28–1, exhibit 2 thereto.

A.The Note

The Note was executed in favor of CBE, and CBE took possession of the Note at the time of the execution.Defendant's Facts,Dckt. No. 30, ¶ 2;Plaintiff's Response,Dckt. No. 38, ¶ 2.MERS had entered into a Third Party Originator (“TPO”) agreement with Taylor, Bean, & Whitaker Mortgage Corp.(“TBW”), giving TBW the ability to partner with institutions (that were not members of the MERS system) to originate loans for TBW under the MERS system.Hultman Affidavit,Dckt. No. 28–3, ¶ 10;TPO Agreement, Dckt.No. 28–3, exhibit 2 thereto.CBE originated the Note, but assigned all its rights and interests in the Note to TBW.Transfer Letter,Dckt. No. 28–1. exhibit 4 thereto.TBW took possession of the Note, and indorsed the Note (pursuant to a power of attorney) from CBE to TBW.Note,Dckt. No. 28–2;Defendant's Facts,Dckt. No. 30, ¶¶ 10, 11: Power of Attorney,Dckt. No. 28–1, exhibit 9 thereto.TBW then indorsed the Note in blank.Note,Dckt. No. 28–2;Defendant's Facts,Dckt. No. 30, ¶ 12;Plaintiff's Response,Dckt. No. 38, ¶ 12.Such an indorsement is consistent with Federal Home Loan Mortgage Corporation(“Freddie Mac”) requirements.Defendant's Facts,Dckt. No. 30, ¶ 13;Plaintiff's Response,Dckt. No. 38, ¶ 13.²On or about January 11, 2007, Freddie Mac became the record owner of the Note, and TBW remained the servicer of the loan.Defendant's Facts,Dckt. No. 30, ¶¶ 16, 17;Meyer Affidavit, Dckt.No. 28–5, ¶ 6.

On August 4, 2009, Freddie Mac terminated TBW's status as an approved Freddie Mac servicer.Defendant's Facts, Dckt.No. 30, ¶ 20;Plaintiff's Response,Dckt. No. 38, ¶ 20.Thereafter, in August of 2009, the servicing rights were transferred to Ocwen Loan Servicing, LLC(“Ocwen”).³Defendant's Facts,Dckt. No. 30, ¶¶ 21, 22;Plaintiff's Response,Dckt. No. 38, ¶¶ 21, 22.

B.The Security Deed

On November 22, 2006, Debtors executed the Security Deed, naming MERS as “grantee under this Security [Deed]” and as “nominee for Lender and Lender's successors and assigns.”Security Deed, Dckt.No. 28–1, exhibit 2 thereto, pp. 1, 3.The Security Deed granted MERS the power of sale, and “the right to exercise any or all of [Lender's, and Lender's successors and assigns'] interests, including, but not limited to, the right to foreclose and sell the Property; and to take any action required of Lender including, but not limited to, releasing and cancelling this Security [Deed].”Id. at p. 3.The Security Deed was recorded in the Office of the Clerk of Superior Court of Effingham County on November 28, 2006.Defendant's Facts,Dckt. No. 30, ¶ 5;Plaintiff's Response,Dckt. No. 38, ¶ 5.The Security Deed specifically contemplates that the Note may be sold “together with this Security [Deed]” more than once.Security Deed,Dckt. No. 28–1, exhibit 2 thereto, ¶ 20.The Security Deed was transferred to Ocwen on or about April 29, 2010.Defendant's Facts,Dckt. No. 30, ¶ 32;Plaintiff's Response,Dckt. No. 38, ¶ 32.

C.The Note and Security Deed Together

The Note and Security Deed were executed together in favor of CBE and MERS (respectively) at the inception of the loan.The Security Deed specifically identifies the Note by borrower, property, date, and amount, and provides that it is granted to secure payment on the Note.The Note was sold and transferred multiple times, eventually ending up in the possession of Ocwen.MERS, as nominee for CBE and its assigns, remained the Grantee under the Security Deed until MERS transferred the Security Deed to Ocwen.At that time, the Note and the Security Deed were physically united.

The transfer of the Security Deed from MERS to Ocwen occurred on April 29, 2009, almost three months after Debtors filed their Chapter 7.The Trustee now alleges that the Note is unsecured because at some point at or after the inception of the loan, the Note and Security Deed were “split,” and that the post-petition transfer of the Note and the Security Deed violated the automatic stay.

CONCLUSIONS OF LAW

Standard of Review

Federal Rule of Bankruptcy Procedure 7056 makes Federal Rule of Civil Procedure 56(Summary Judgment) applicable in adversary proceedings such as this one.Summary judgment is appropriate “if the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law.”Fed.R.Civ.P. 56(a);SeeCelotex Corp. v. Catrett,477 U.S. 317, 106 S.Ct. 2548, 91 L.Ed.2d 265(1986)(applying a linguistically different, but substantively identical legal standard).The moving party has the burden of demonstrating that there is no dispute as to any material fact.Adickes v. S.H. Kress & Co.,398 U.S. 144, 156, 90 S.Ct. 1598, 26 L.Ed.2d 142(1970).

Once this burden is met, the nonmoving party must present specific facts that demonstrate that there is a genuine dispute over material facts.Finally, a court reviewing a motion for summary judgment must examine the evidence in light most favorable to the non-moving party, and all reasonable doubts and inferences should be resolved in the favor of the non-moving party.

In re Williamson,414 B.R. 895, 899(Bankr.S.D.Ga.2009)(Davis, J.)(citingIn re Davis,374 B.R. 362, 364(Bankr.S.D.Ga.2006)(Davis, J.)).The Note is Fully Secured

I hold that the Note is fully secured.I reach this conclusion for the following reasons:

I) The Note was secured by the Security Deed, which was properly perfected at its inception and was never released or cancelled.

II) When the Note and Security Deed were physically separated, there was neither contractual language nor any statutory provision which stripped the security from the debt.

III) The physical separation of the Note and Security Deed affected, if anything, the standing of the noteholder to enforce the Note and the deedholder to enforce the Security Deed, without obtaining the appropriate assignment.However, any temporary disconnect between the two documents was curable, and in fact was cured by the post-petition assignment which reunited possession of the Note and Security Deed.

IV) The post-petition assignment did not violate the automatic stay.

I.The Note was Secured at Inception

When the Debtors executed the Note to CBE to evidence their purchase money debt on the Property, they also executed the Security Deed to MERS as Grantee, as nominee for CBE, and CBE's successors and assigns.Security Deed,Dckt. No. 28–1, exhibit 2 thereto.CBE assigned the Note to TBW (a TBW employee completed the assignment pursuant to a power of attorney), and TBW indorsed it in blank and timely recorded the deed.TBW was within the common understanding of the term “successors and assigns,” and as such, MERS's designation as nominee for all of Lender's “successors” applied to TBW.MERS was granted rights and powers commensurate with that designation.See discussionsupra Findings of Fact, Part B.

The Security Deed that Debtors granted to MERS meets all the requirements of a deed to secure debt.

A deed to secure debt, often referred to as a security deed or debt deed, is in form an outright conveyance of land by warranty deed to which has...