McChristian v. Ditech Holding Corp. (In re Ditech Holding Corp.)
| Decision Date | 09 November 2021 |
| Docket Number | 19-10412 JLG,Adversary Case 19-01137 (JLG) |
| Parties | In re: Ditech Holding Corporation, et al., Debtors.[1] v. Ditech Holding Corporation, Green Tree Credit LLC, and Breckenridge Prop Fund 2016 LLC, Defendants. Michael McChristian, Plaintiff, |
| Court | U.S. Bankruptcy Court — Southern District of New York |
NOT FOR PUBLICATION
WEDGEWOOD Attorneys for Breckenridge Property Redondo Beach CA 90278 Seth P. Cox, Esq.
Joseph C. La Costa, Attorney at Law A ttorneysfor Michael McChristian Joseph C. La Costa, Esq.
Introduction[2]
In this adversary proceeding, Michael McChristian (the "Plaintiff) is suing Green Tree Credit LLC ("Green Tree"), [3] Ditech Holding Corporation Mortgage, LLC ("Ditech," with Green Tree, the "Ditech Defendants") and Breckenridge Property Fund 2016, LLC ("Breckenridge" and together with the Ditech Defendants, the "Defendants") to unwind the nonjudicial Foreclosure Sale of the premises located at 11118 Ironwood Road, San Diego, California (the "Property"). The Ditech Defendants are debtors in these Chapter 11 Cases. Green Tree is the assignee of the Deed of Trust to the Property that secured payment of the $326, 000.00 loan that the Plaintiff obtained to purchase the Property. Ditech is Green Tree's parent company. Breckenridge is not a debtor; it purchased the Property at the Foreclosure Sale.
In May 2019, the Plaintiff commenced this adversary proceeding. In June 2019, he recorded a Notice of Pendency of Action (the "Lis Pendens") against the Property. The Complaint contains nine causes of action, each of which names Ditech and/or Green Tree as defendants. The Ditech Defendants jointly filed their own Rule 12(b)(6) motion to dismiss the Complaint.[4] On October 29, 2021, the Court granted the motion and dismissed the Ditech Defendants from the Complaint with prejudice.[5]
In the four counts that also name Breckenridge as a defendant (the "Breckenridge Claims"), the Plaintiff seeks equitable relief that, if granted, would result in setting aside the Foreclosure Sale and restoring Plaintiff with title to the Property. The matters before the Court are (i) Breckenridge's motion pursuant to Rule 12(b)(6) of the Federal Rules of Civil Procedure ("Rule 12(b)(6)")[6] to dismiss the Breckenridge Claims, with prejudice (the "Motion" or "Rule 12(b)(6) Motion"), [7] and (ii) Breckenridge's motion to expunge the Lis Pendens (the "Motion to Expunge").[8] As support for the Rule 12(b)(6) Motion, Breckenridge says the Court lacks subject matter jurisdiction over the Breckenridge Claims because they do not fall within the Court's core jurisdiction. It also argues that the Court should dismiss each of those claims because the Plaintiff has not and cannot state claims for relief thereunder, and in any event, because those claims are barred by application of the doctrines of collateral and judicial estoppel, and because it is a bona fide purchaser of the Property that took title to the Property free and clear of any competing interests. Breckenridge asserts that the Court should grant the Motion to Expunge and expunge the Lis Pendens because the Plaintiff cannot establish the validity of any "real property claim" asserted against Breckenridge. It also asserts that the Court should award it its fees and costs incurred in bringing the Motion to Expunge. The Plaintiff filed a single response to both motions (the "Opposition").[9] In the Opposition, the Plaintiff failed to address the Motion to Expunge and most of the arguments made by Breckenridge in support of the Rule 12(b)(6) Motion.
For the reasons set forth herein, the Court (i) grants the Rule 12(b)(6) Motion and dismisses the Breckenridge Claims with prejudice and (ii) grants the Motion to Expunge and expunges the Lis Pendens. The Court awards Breckenridge $900.00 for its fees and costs incurred in prosecuting the Motion to Expunge.
Background[10]
In 2005, the Plaintiff purchased the Property from Homecomings Financial Network Inc. ("Homecomings"). On February 18, 2005, Plaintiff executed a promissory note (the "Note") in the amount of $326, 000.00 to finance the purchase of the Property. As security for the Note, the Plaintiff executed a deed of trust (the "Deed of Trust") which was recorded with the County of San Diego on February 28, 2005. See Deed of Trust.[11] The Deed of Trust identified Homecomings as the lender and Mortgage Electronic Registration Systems, Inc. ("MERS") as nominee for the lender and beneficiary of the Deed of Trust. See id. at 2. Pursuant to an assignment recorded on September 17, 2010, MERS assigned its beneficial interest in the Deed of Trust to GMAC Mortgage, LLC ("GMAC"). See Assignment of Deed of Trust.[12] In turn, on February 16, 2015, GMAC assigned the Deed of Trust to Green Tree. See Corporate Assignment of Deed of Trust.[13]
The Plaintiff contends that beginning in December 2013 and continuing to December 2014, he received notices of past due payments and notices of default from Green Tree which were erroneous. See Compl. ¶¶ 38-59. He asserts that beginning in January 2015 and into 2017, he received notices that his loan was in default and the Property was going into foreclosure. See id. ¶¶ 60-73. See also Notice of Default recorded November 29, 2016.[14] The Plaintiff does not deny that he was in arrears under the Note but disputes the amount claimed due and owing under the notices. See Compl. ¶ 75. By Notice of Trustee's Sale dated November 9, 2017, a foreclosure sale of the Property was scheduled for January 5, 2018. See Notice of Trustee's Sale;[15] see also Compl. ¶ 66 (Plaintiff acknowledges, that "[o]n November 29, 2016, Plaintiff received 3 [Notices of Default] with a sale date[.]"), id. ¶ 74 (). On April 26, 2018, to avoid foreclosure of the Property, the Plaintiff commenced a case under chapter 13 of the Bankruptcy Code in the United States Bankruptcy Court for the Southern District of California (the "Chapter 13 Case"). See Compl. ¶ 79. See also Plaintiffs Voluntary Chapter 13 Petition.[16] In support of the petition, the Plaintiff filed Schedule A/B. In that schedule, the Plaintiff was asked to "Describe Your Financial Assets," and, in particular to state whether he "own[ed] or [had] any legal or equitable interest" in (i) "[c]laims against third parties, whether or not you have filed a lawsuit or made a demand for payment;" or (ii) "[o]ther contingent and unliquidated claims of every nature, including counterclaims of the debtor or any rights to setoff claims." See Schedule A/B, Part 4 ¶¶ 33, 34. The Plaintiff responded "No" to both questions; he did not disclose any of the claims he is asserting in the Complaint or any right to set-off against the Defendants. See id. On December 4, 2018, the bankruptcy court dismissed the Chapter 13 Case without prejudice. See Compl. ¶ 80; see also Notice of Entry of Order Dismissing Case.[17]
After the bankruptcy court dismissed the case, Clear Recon Corp., as trustee under the Deed of Trust, sold the Property at a nonjudicial foreclosure sale (the "Foreclosure Sale") to Breckenridge for the sum of $593, 500.00. On January 15, 2019, the trustee recorded a Trustee's Deed Upon Sale to Breckenridge. See Trustee's Deed Upon Sale.[18] On January 23, 2019, Breckenridge commenced an unlawful detainer eviction action in the Superior Court for the State of California - San Diego County (the "California Superior Court") against the Plaintiff for damages and to obtain possession of the Property (the "Unlawful Detainer Action"). See Complaint for Unlawful Detainer Action.[19] In his answer filed in the Unlawful Detainer Action, the Plaintiff raised affirmative defenses, including that the trustee's sale was invalid and did not convey clear title to the Property to Breckenridge. See Answer - Unlawful Detainer Action ¶ 3k.[20] The Plaintiff and Breckenridge subsequently entered into a Stipulated Agreement for Judgment or Dismissal in that action (the "Stipulated Judgment").[21] Pursuant to the Stipulated Judgment, Plaintiff agreed to surrender possession of the Property to Breckenridge on July 8, 2019 and to pay Breckenridge a monetary judgment of $23, 019.56. Stipulated Judgment at 1-2. The Stipulated Judgment conclusively resolved the complaint filed in the Unlawful Detainer Action in favor of Breckenridge.
On February 11, 2019 (the "Petition Date"), Ditech Holding Corporation (f/k/a Walter Investment Management Corp.) and certain of its affiliates ("Debtors") filed petitions for relief under chapter 11 of the Bankruptcy Code in this Court. Thereafter, the Debtors remained in possession and control of their business and assets as debtors in possession pursuant to sections 1107(a) and 1108 of the Bankruptcy Code. On September 26, 2019, the Debtors confirmed their Third Amended Plan, and on September 30, 2019, that plan became effective.[22]
On May 15, 2019, the Plaintiff commenced this adversary proceeding by filing the Complaint.[23] On June 4, 2019, the Plaintiff recorded the Lis Pendens against the Property, but did not serve a copy on Breckenridge. See Motion to Expunge at 3. See also Lis Pendens.[24] In substance, in the Complaint, the Plaintiff challenges the validity of the Foreclosure Sale. Plaintiff says that the sale was not authorized because the assignments of the beneficial interests in the Note and Deed of Trust to Green Tree were defective. He also asserts, for the same reason, that the Ditech Defendants improperly collected monthly payments from him on account of the Note. The...
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