Jones v. Wells Fargo Bank, N.A. (In re Jones)

• Decision Date: 30 August 2017
• Docket Number: CASE NO. 16–31468–SGJ–13,Adversary No. 16–03110–SGJ
• Parties: IN RE: Rhonda K. JONES, Debtor. Rhonda K. Jones, Plaintiff, v. Wells Fargo Bank, N.A. as Servicing Agent for U. S. Bank National Association, as Trustee for Structured Asset Securities Corporation Mortgage Loan Trustee 2006–rf3, Defendants.
• Court: United States Bankruptcy Courts. Fifth Circuit. U.S. Bankruptcy Court — Northern District of Texas

573 B.R. 665

IN RE: Rhonda K. JONES, Debtor.Rhonda K. Jones, Plaintiff,

v.Wells Fargo Bank, N.A. as Servicing Agent for U. S. Bank National Association, as Trustee for Structured Asset Securities Corporation Mortgage Loan Trustee 2006–rf3, Defendants.

CASE NO. 16–31468–SGJ–13

Adversary No. 16–03110–SGJ

United States Bankruptcy Court, N.D. Texas, Dallas Division.

Signed August 30, 2017

Daniel Herrin, Herrin Law, PLLC, 4925 Greenville Ave., Suite 130, Dallas, TX 75206, Counsel for Debtor/Plaintiff

Thomas A. Connop, Matthew K. Hansen, Locke Lorde LLP, 2200 Ross Ave., Suite 2800, Dallas, TX 75201, Counsel for Defendants

MEMORANDUM OPINION AND ORDER GRANTING MOTION FOR SUMMARY JUDGMENT FILED BY DEFENDANTS [DE # 24]

Stacey G. Jernigan, United States Bankruptcy Judge

CAME ON FOR CONSIDERATION the Motion for Summary Judgment (the "Motion for Summary Judgment") [DE # 24], filed by Defendants Wells Fargo Bank, N.A. (the "Loan Servicer"), as Servicing Agent for U.S. Bank National Association, as Trustee for Structured Asset Securities Corporation Mortgage Loan Trustee 2006–RF3 (the "Lender") (collectively, the Loan Servicer and the Lender are referred to herein as the "Defendants"), along with the Defendants' Brief and Appendix [DE # 25]; the Response thereto (the "Response") filed by Rhonda K. Jones (the "Debtor" or the "Plaintiff"), along with the Debtor's Brief and Appendix [DE ## 29 & 30]; and the Defendants' Reply Brief [DE # 33]. Having considered the parties' submissions and applicable legal authorities, the court GRANTS the Defendants' Motion for Summary Judgment. This ruling is issued pursuant to Federal Rule of Bankruptcy Procedure 7056.

I. INTRODUCTION

The above-referenced adversary proceeding (the "Adversary Proceeding") involves what surely is a relatively common fact pattern. Specifically, it involves a prepetition, non-judicial foreclosure sale of the Debtor's homestead in Dallas County, Texas (the "Property") that: (a) occurred one day before the Debtor filed a Chapter 13 bankruptcy case; and (b) the Substitute Trustee who conducted the sale accepted a credit bid from the Lender on the Property; but (c) the Substitute Trustee's Deed arguably may not have been "delivered " (and definitely was not filed in the County property records yet) as of the time that the bankruptcy case was filed.

Through her First Amended Complaint (the "Complaint"), the Debtor seeks a declaration that the prepetition non-judicial foreclosure sale was not fully complete and did not effectuate a transfer of legal title of the Property and, thus, the Property remains "property of the estate"¹ that can be administered in her case. Specifically, the Debtor argues that, as of the time she filed her bankruptcy case, there was no completed foreclosure sale because the Substitute Trustee's Deed remained allegedly undelivered by the Substitute Trustee to the Lender (and also unrecorded ). Additionally (or alternatively), the Debtor argues that—to the extent there was, indeed, a foreclosure sale that should be deemed completed —she nevertheless has standing to assert bona fide hypothetical purchaser status and can avoid the foreclosure sale entirely, pursuant to sections 522(h) and 544(a)(3) of the Bankruptcy Code, due to the simple fact that the Substitute Trustee's Deed remained unrecorded at the time she filed for bankruptcy. To be clear, there is no allegation that the foreclosure sale was not performed in compliance with state law or the underlying loan documents. Finally, the Debtor seeks to recover damages for violation of the automatic stay under 11 U.S.C. § 362(k)(1), because of the Lender's postpetition act of recording the Substitute Trustee's Deed.

The Defendants' Motion for Summary Judgment now before the court argues essentially that, contrary to the Debtor's assertions, the foreclosure sale was fully completed to terminate the Debtor's interest in the Property when the Substitute Trustee placed and accepted a bid on the Lender's behalf. More specifically, the Defendants argue that the Substitute Trustee, acting as agent to the Defendants, was entitled to and did both: (a) make and accept a bid for the sale of the Property; and (b) make and accept delivery of the Substitute Trustee's Deed upon its execution on the day of the sale, thus completing the foreclosure sale before the Debtor filed for bankruptcy. In other words, the Debtor retained no interest in the Property that could have accrued to the bankruptcy estate. The Lender's postpetition recordation of the Substitute Trustee's Deed was ministerial and did not violate the automatic stay—since the Debtor no longer had a property interest.

Furthermore, the Defendants refute the Debtor's additional (or alternative) position that—even if the foreclosure sale was completed prepetition—a hypothetical, bona fide purchaser at the time of the bankruptcy petition (as contemplated in Bankruptcy Code section 544(a)(3) ) would be deemed to lack notice of the occurrence of the foreclosure sale because the Substitute Trustee's Deed was unrecorded and, thus, could avoid the sale. While conceding that the Substitute Trustee's Deed remained unrecorded at the petition date, the Defendants argue that other duly recorded documents in the chain of title would have triggered inquiry notice and placed a hypothetical purchaser under a duty to make a reasonable inquiry into the status of the original Deed of Trust. This reasonable inquiry, they argue, would have revealed that the foreclosure sale occurred prepetition. Accordingly, the Defendants request the court grant the Motion for Summary Judgment and dismiss the Debtor's Complaint.

For the reasons set forth below, the court grants the Defendants' Motion for Summary Judgment.²

A. Jurisdiction

Bankruptcy subject matter jurisdiction exists in this Adversary Proceeding, pursuant to 28 U.S.C. § 1334(b). This matter is a core proceeding over which the bankruptcy court may exercise subject matter jurisdiction, pursuant to 28 U.S.C. §§ 157(b)(2)(A), (G), (H), and (O) and the Standing Order of Reference of Bankruptcy Cases and Proceedings (Misc. Rule No. 33), for the Northern District of Texas, dated August 3, 1984. This bankruptcy court has Constitutional authority to issue a final order or judgment in this Adversary Proceeding, as the claims asserted arise under bankruptcy statutes.³ Moreover, the court believes that the parties provided necessary consent for the bankruptcy court to enter a final order in this Adversary Proceeding. See Complaint [DE # 15], at ¶ 1; Defendants' Answer [DE # 17], at ¶¶ 2–3.

B. Venue

Venue is proper in this district, pursuant to 28 U.S.C. § 1409(a), as the Debtor filed her Chapter 13 case in this district.

C. Summary Judgment Standard

Rule 56 of the Federal Rules of Civil Procedure, made applicable in this Adversary Proceeding, pursuant to Rule 7056 of the Federal Rules of Bankruptcy Procedure, requires the entry of summary judgment "if the movants show 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) ; Celotex Corp. v. Catrett , 477 U.S. 317, 322–23, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986). A factual dispute is material if it may affect the outcome of the suit under the governing law. Smith v. Bd. of Supervisors of So. Univ. , 656 Fed.Appx. 30, 32 (5th Cir. 2016) (per curiam) (quoting Anderson v. Liberty Lobby, Inc. , 477 U.S. 242, 248, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986) ). A genuine dispute of material fact exists when the evidence is such that a reasonable fact finder could return a verdict for the non-movant. Campos v. Webb Cty., Tex. , 597 Fed.Appx. 787 (per curiam) (5th Cir. 2015) (quoting Anderson , 477 U.S. at 248, 106 S.Ct. 2505 ). This court must view the facts presented in the light most favorable to the non-movant (i.e., the Debtor) and draw all reasonable inferences in her favor. Johnson v. World Alliance Fin. Corp. , 830 F.3d 192 (5th Cir. 2016). If the movants meet their burden, the opposing party must go beyond the pleadings and show by affidavits, depositions, answers to interrogatories, admissions on file, or other admissible evidence that specific facts exist over which there is a genuine issue for trial. In re Goff , 579 Fed.Appx. 240, 244 (5th Cir. 2014) (citing Anderson , 477 U.S. at 256, 106 S.Ct. 2505 ).

II. UNDISPUTED MATERIAL FACTS

The following material facts are not in controversy in this Adversary Proceeding.

A. On May 14, 2004, the Debtor executed a promissory note (the "Note") in favor of CTX Mortgage Company, LLC ("CTX") in the principal amount of $158,110. See Exh. A–1, D. App'x 7–9. To secure the Note, the Debtor also executed a deed of trust (the "Deed of Trust") granting the holder of the Note a lien on the Property. See Exh. A–2, D. App'x 11–21. On March 16, 2012, CTX assigned the Note and Deed of Trust (together, the "Loan") to the Lender. See Exh. A–3, D. App'x 23. The Loan Servicer serviced the Loan for the Lender. See Exh. A–4, D. App'x 25–26.

B. The Debtor failed to make payments on the Note, which led the Loan Servicer to send a notice of default to both the Debtor and her husband individually on September 15, 2014. See Exhs. A–5 and A–6, D. App'x 28–31, 33–36. More than a year later, the Debtor had failed to cure her default and, on February 25, 2016, a law firm for the Loan Servicer (Buckley Madole) filed a Notice of Acceleration and Notice of Trustee's Sale, which scheduled the Property for nonjudicial foreclosure on April 5, 2016. See Exh. B–3, D. App'x 49–51. Buckley Madole also recorded an appointment of substitute trustee on February 25, 2016, and another on February 26, 2016, each naming Brett Baugh, among others, as a substitute trustee (the "Substitute Trustee"). See Exhs. B–1 and B–2, D. App'x 43–44, 46–47. On February 29, 2016, Buckley Madole sent the Debtor a letter stating where and when the Property would be sold at foreclosure, enclosing copies of the Notice of Acceleration and Notice of Truste...