Johnson v. Wilmington Sav. Fund Soc'y, FSB (In re Arp)
| Decision Date | 29 January 2020 |
| Docket Number | Adversary Proceeding No. 1:19-ap-1010-SDR,No. 1:18-bk-14974-SDR,1:18-bk-14974-SDR |
| Parties | In re: Barry Dean Arp and Lindsey Nicole Arp, Debtors; Douglas R. Johnson, Trustee, Plaintiff; v. Wilmington Savings Fund Society, FSB, as Trustee for Stanwich Mortgage Loan Trust A, Stanwich Mortgage Loan Trust A, and Wilmington Savings Fund Society, FSB, a/k/a/ WSFS Bank, Defendants/Counter-Plaintiffs/Third-Party Plaintiffs; v. Barry Dean Arp and Lindsey Nicole Arp, Third-Party Defendants. |
| Court | United States Bankruptcy Courts. Sixth Circuit. U.S. Bankruptcy Court — Eastern District of Tennessee |
On February 21, 2019, Douglas R. Johnson, chapter 7 trustee of the debtors' bankruptcy estate ("Trustee" or "Plaintiff"), filed a complaint in this adversary proceeding against Wilmington Savings Fund Society, FSB, as Trustee for Stanwich Mortgage Loan Trust A, Stanwich Mortgage Loan Trust A, and Wilmington Savings Fund Society, FSB, a/k/a/ WSFS Bank ("WSFS" or "Defendants").1 [Doc. No. 1].2 The parties' dispute arises from a warranty deed in lieu of foreclosure given by the debtors to WSFS in exchange for the release of a deed of trust on real property. Due to a scrivener's error, the deed in lieu of foreclosure described the real property to be conveyed as land which the debtors did not in fact own. Although WSFS attempted to correct the record by having one of its attorneys sign a recorded affidavit of scrivener's error, the recorded deed in lieu of foreclosure was not corrected before the debtors filed bankruptcy.
The Trustee now contends that the deed in lieu of foreclosure was ineffective to transfer the debtors' interest in the real property to the Defendants. Consequently, the Trustee argues that the real property is property of the debtors' bankruptcy estate subject to administration. The Trustee's complaint seeks a declaratory judgment that the Trustee holds title in the real property free and clear of any interest of the Defendants.
On April 15, 2019, the Defendants filed an answer, counterclaim, and third-party complaint. [Doc. No. 16]. Both the counterclaim against the Trustee and third-party complaint against the debtors seek reformation of the deed in lieu of foreclosure. On July 15, 2019, theTrustee filed a motion for summary judgment [Doc. No. 27], and on August 1, 2019, the Defendants filed their own motion for summary judgment. [Doc. No. 32]. During a scheduling conference, the debtors represented to the court that they did not wish to substantively participate in arguing the motions for summary judgment and were content to let the Trustee argue their position.
The court held a hearing on September 19, 2019, at which it heard the arguments of counsel. The parties' cross-motions for summary judgment are now ripe for the court's consideration. The court has reviewed the parties' respective motions and briefs, the record before it, and the applicable law. The parties have indicated that they do not believe an evidentiary hearing is required because the relevant material facts are undisputed. However, based on the court's review, neither party has established that it is entitled to judgment as a matter of law because there is insufficient evidence upon which the court can grant summary judgment and there appear to be genuine disputes of material facts. Specifically, the parties have failed to establish which documents are in the chain of title for the real property in dispute. As a result, the court is unable to determine: (1) whether the deed in lieu of foreclosure sufficiently described the property to be conveyed, or (2) whether the affidavit of scrivener's error provided constructive notice sufficient to defeat the Trustee's status as a bona fide purchaser. The court will, therefore, deny both parties' motions for summary judgment.
Title 28 U.S.C. §§ 157 and 1334, as well as the general order of reference entered in this district, provide the court with jurisdiction to hear and decide this adversary proceeding. This court has jurisdiction pursuant to 28 U.S.C. § 157(b)(2)(F), (H), and (K).
Federal Rule of Bankruptcy Procedure 7056 makes Federal Rule of Civil Procedure 56 applicable to bankruptcy adversary proceedings. See Fed. R. Bank. P. 7056. Summary judgment is appropriate if there is no genuine dispute as to any material fact and the moving party is entitled to judgment as a matter of law. Fed. R. Civ. P. 56(a). The burden is on the moving party to show conclusively that no genuine dispute of material fact exists, and the court must view the facts and all inferences to be drawn therefrom in the light most favorable to the nonmoving party. Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 587 (1986); Morris v. Crete Carrier Corp., 105 F.3d 279, 280-81 (6th Cir. 1997); Spradlin v. Jarvis (In re Tri-City Turf Club, Inc.), 323 F.3d 439, 442 (6th Cir. 2003).
Once the moving party presents evidence sufficient to support a motion under Rule 56, the nonmoving party is not entitled to a trial merely on the basis of allegations. The nonmoving party is required to come forward with some significant probative evidence which makes it necessary to resolve the factual dispute at trial. Celotex Corp. v. Catrett, 477 U.S. 317, 322-23 (1986). The moving party is entitled to summary judgment if the nonmoving party fails to make a sufficient showing on an essential element of the nonmoving party's case with respect to which the nonmoving party has the burden of proof. Id. at 323; Collyer v. Darling, 98 F.3d 211, 220 (6th Cir. 1996). This standard does not change when both parties move for summary judgment. Taft Broad. Co. v. United States, 929 F.2d 240, 248 (6th Cir. 1991). "When reviewing cross-motions for summary judgment, the court must evaluate each motion on its own merits and view all facts and inferences in the light most favorable to the nonmoving party." Wiley v. United States, 20 F.3d 222, 224 (6th Cir. 1994).
The court's role in deciding a motion for summary judgment "is limited to determiningwhether sufficient evidence has been presented to make the issue of fact a proper question for the factfinder." Deutsche Bank Nat'l Trust Co. v. Birchfield, No. 2:16-CV-19-TAV-MCLC, 2017 WL 3444694, at *2 (E.D. Tenn. Aug. 10, 2017) (citing Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986)). It is not the court's role at summary judgment to "weigh the evidence or determine the truth of the matter." Id. (citation omitted). Rather, "the inquiry performed is the threshold inquiry of determining whether there is a need for a trial - whether, in other words, there are any genuine factual issues that properly can be resolved only by a finder of fact because they may reasonably be resolved in favor of either party." Id. (quoting Anderson, 477 U.S. at 250).
The parties submit to the court that the material facts are not in dispute and that this matter is appropriate for summary judgment. Although the court has ultimately determined that it does not have sufficient facts upon which to grant summary judgment, the parties agree that the following facts are not in dispute.
On April 16, 2004, the debtors purchased Lot 1 in the Valley View acres subdivision in Bradley County, Tennessee. Lot 1's address is 7471 Mouse Creek Road, Cleveland, Tennessee. The conveyance was made by a warranty deed from Kastle Home Builders to the debtors ("2004 Warranty Deed"). The 2004 Warranty Deed mistakenly described the purchased property as Lot 2 rather than Lot 1. The 2004 Warranty Deed containing the legal description for Lot 2 was recorded in the Bradley County Register of Deeds at Book 1431, Page 15.
In 2008, the debtors refinanced the original mortgage through CitiFinancial Services, Inc. ("CitiFinancial"). On January 31, 2008, the debtors executed a promissory note ("2008 Note") and Deed of Trust ("2008 Deed of Trust") in favor of CitiFinancial. The 2008 Deed of Trust pledged Lot 2 to secure the 2008 Note, thereby continuing the mistake. The 2008 Deed of Trust with thereference to the wrong lot was recorded in the Bradley County Register of Deeds at Book 1811, Page 417.
Years later, CitiFinancial took action to correct the mistake. On May 22, 2017, CitiFinancial filed a lawsuit in Bradley County Chancery Court against the debtors seeking to reform the 2004 Warranty Deed and 2008 Deed of Trust and quiet title for Lot 1. On December 6, 2017, CitiFinancial assigned the 2008 Note to WSFS, and WSFS thereafter continued the litigation. On March 28, 2018, the Bradley County Chancery Court entered an order that reformed the 2004 Warranty Deed and the 2008 Deed of Trust to correct the property descriptions in both instruments to reflect that the conveyances were of Lot 1 rather than Lot 2 ("Reformation Order"). The Reformation Order stated that it was nunc pro tunc to the date of each document's recording. The Reformation Order required that a copy of the order be recorded and cross-referenced with the book and page number for the 2004 Warranty Deed and the 2008 Deed of Trust. A certified copy of the order was recorded with the Bradley County Register of Deeds on April 18, 2018, at Book 2516, Page 46. The parties' stipulated facts do not address whether the Reformation Order was in fact cross-referenced with the 2004 Warranty Deed or with the 2008 Deed of Trust.
On May 17, 2018, the debtors executed a Warranty Deed in Lieu of Foreclosure ("Deed in Lieu") in favor of WSFS. The Deed in Lieu stated that it was given in consideration of the cancellation and extinguishment of the 2008 Note and was executed, delivered, and accepted in lieu of foreclosure under the 2008 Deed of Trust. The Deed in Lieu was recorded on May 30, 2018, in the Bradley County Register of Deeds at Book 2524, Page 753.
Crucially, the Deed in Lieu resurrected the mistake in the property description that the Reformation Order had corrected. It referenced the property conveyed as Lot 2, which the debtors did...
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