Meis v. Fowler State Bank (In re Meis)

• Decision Date: 27 September 2012
• Docket Number: Case No. 10-13207,Adversary No. 11-5011
• Parties: In re: JAMES A. MEIS, Debtor. JAMES A. MEIS, Plaintiff, v. THE FOWLER STATE BANK, WELLS FARGO BANK, NA fka WELLS FARGO BANK, MINNESOTA, NA, Defendants.
• Court: United States Bankruptcy Courts. Tenth Circuit. U.S. Bankruptcy Court — District of Kansas

IN RE: JAMES A. MEIS, Debtor.JAMES A. MEIS, Plaintiff,

v.THE FOWLER STATE BANK, WELLS FARGO BANK, NA fka WELLS FARGO BANK, MINNESOTA, NA, Defendants.

Case No. 10-13207

Adversary No. 11-5011

UNITED STATES BANKRUPTCY COURT FOR THE DISTRICT OF KANSAS

Dated: September 27, 2012

SO ORDERED.

______________

Robert E. Nugent

United States Chief Bankrupty Judge

DESIGNATED FOR ON-LINE PUBLICATION

BUT NOT PRINT PUBLICATION

Chapter 11

ORDER GRANTING MOTION FOR SUMMARY JUDGMENT

If James Meis can stand in the shoes of a hypothetical bona fide purchaser for value, he canavoid Wells Fargo's mortgage on his homestead acting as a debtor in possession wielding the trustee's avoiding powers under 11 U.S.C. § 544(a)(3). But if the summary judgment record shows that as a matter of law, Meis was on actual or constructive notice of Wells Fargo's lien, summary judgment must be entered against him on that claim. That, in turn, depends on whether anything in the instruments in the chain of title did or should have placed a hypothetical purchaser on notice of the lien. After careful review of the record on summary judgment, I conclude that it did and that Meis cannot prevail as a hypothetical bona fide purchaser. Wells Fargo is entitled to summary judgment on the lien avoidance claim. Wells Fargo is also entitled to summary judgment on Meis's resuscitated standing objection that this Court previously dismissed in its December 9, 2011 Order¹ because the conclusions in that order are now the law of the case.²

Jurisdiction

An action to avoid a lien on debtor's homestead under 11 U.S.C. § 544(a)(3) is a core proceeding over which this Court may exercise subject matter jurisdiction.³ A chapter 11 debtor-in-possession has all the rights and powers of a trustee under 11 U.S.C. § 1107(a), including the right to exercise § 544(a) avoidance powers.⁴ Accordingly, Meis has standing to bring this lien avoidance action under § 544(a)(3).

Summary Judgment Standards

Fed. R. Civ. P. 56(c), incorporated in adversary proceedings by Fed. R. Bankr. P. 7056, directs the entry of summary judgment in favor of a party who "shows that there is no genuine dispute as to any material fact and that the movant is entitled to a judgment as a matter of law." If the party moving for summary judgment does not bear the burden of proof at trial, it must show that there is an absence of evidence to support the nonmovant's case.⁵ The Court's function in reviewing a motion for summary judgment is to first determine whether genuine disputes as to material facts exist for trial. In making this determination, the Court may not weigh the evidence nor resolve fact issues.⁶ All reasonable inferences and doubts are resolved in favor of the nonmovant Meis.⁷ Once the Court determines which facts are not in dispute, it must then determine whether those uncontroverted facts establish a sufficient legal basis upon which to grant movant judgment as a matter of law.⁸

Findings of Fact

After Wells Fargo filed this motion, the parties submitted an agreed pretrial order that contained a series of stipulations that, along with the facts that are uncontroverted on summaryjudgment, are summarized as follows.⁹

In 2001, Meis and his then-wife Sheri acquired a tract of land by deed in Section 12, Township 27 South, Range 28 West and another adjoining tract in Section 13, all in Gray County, Kansas. Meis's homestead is located on the Section 13 tract and is commonly known as 18502 U Road, Cimarron, Kansas. They mortgaged both tracts for construction to the First National Bank of Cimarron in 2001 and both mortgages were filed of record. In 2002, they made two mortgages to M&T Mortgage Company to refinance the Cimarron Bank debt, but both mortgages covered the section 12 land. In 2003, the Meis's applied to Bank of America for a mortgage loan that would encumber their homestead on section 13. They granted a mortgage to BOA to secure repayment of $400,000 and, on September 17, 2003, BOA recorded a mortgage that mistakenly described the section 12 tract instead of the section 13 property. Both the Meis's and BOA had intended that the mortgage would encumber the tract in section 13 and when BOA learned from James Meis that his homestead was situated on the section 13 tract, it re-recorded a correction mortgage on June 14, 2004 that included the correct legal description. Sheri and James Meis subsequently divorced, but the summary judgment record is silent as to when that occurred.¹⁰

That both mortgagors intended the lien to attach to section 13 is evidenced by the Uniform Residential Loan Application prepared and signed by Meis and his former wife as well as Meis'sdeposition testimony. Meis testified in his deposition that before BOA filed the correction mortgage, Meis faxed documents from his business office in May of 2004 indicating that the homestead was located on section 13. He also sent a copy of his original deed for both properties that he had marked with a handwritten notation that the section 12 property "should be clear."¹¹ When BOA filed the correction mortgage on June 14, 2004, it also filed a partial mortgage release rendering the section 12 tract free and clear. Neither Meis nor his wife executed the correction mortgage; instead, BOA simply annexed the section 13 tract's legal description to the original mortgage and filed the document with the Gray County Register of Deeds. BOA's mortgage as originally filed contained the wrong legal description, but it also contained a correct reference to the common address of the Meis homestead, 18502 U Road, and a "parcel ID number, GA00545." This parcel number is different from that which appeared on one of the M&T mortgages that encumbered the section 12 tract, 156130000000102-0.¹²

Meis filed this bankruptcy case on September 21, 2010.¹³ On September 22, 2011, Meis obtained a title insurance commitment covering the section 13 tract and the re-recorded mortgage was listed as an exception to the commitment. According to Mitch Little, a licensed abstractor familiar with the search methodology in Gray County and who examined the chain of title for the section 13 property, the re-recorded mortgage is in the chain of title.¹⁴

The BOA note was endorsed in blank by BOA.¹⁵ BAC Home Loans Servicing, L.P., as servicer for Wells Fargo, has filed a proof of claim on Wells Fargo's behalf, to which Meis has objected.¹⁶ In his amended complaint, Meis challenged BAC and Wells Fargo's standing to enforce the note and mortgage but as previously determined by this Court on Wells Fargo's motion to dismiss, BAC or Wells Fargo had standing to enforce the note and mortgage as it was the holder of the note and BAC was acting as Wells Fargo's servicer.¹⁷ This proceeding will determine whether Wells Fargo's claim is secured or unsecured. Under Meis's confirmed plan, if he successfully avoids Wells Fargo's lien against his homestead, the proceeds from the sale of the section 13 property will be divided between debtor and his unsecured creditors; if he fails, the homestead sale proceeds will be distributed to the lienholders in order of priority.¹⁸

Analysis

Meis asserts that the re-recorded mortgage is not sufficient to place a hypothetical bona fide purchaser [BFP] on notice of its existence because neither he nor his former wife signed the correction mortgage and because the correction mortgage was not properly acknowledged. Wells Fargo responds that re-recording a mortgage to correct a clerical error is an accepted legal practice and that the recording places successors in interest to Meis on notice of the mortgage lien.

Meis's second claim is that Wells Fargo and its servicer lack standing to enforce the mortgage. Though Meis reintroduces argument in favor of that claim in the briefing of this motion, the claim has already been dismissed. When Meis filed his amended complaint on August 1, 2011,¹⁹ Wells Fargo responded with a motion to dismiss for failure to state a claim. The Court denied the motion as it pertained to the count seeking to avoid the mortgage, concluding that the complaint met the plausibility standard. The Court granted Wells Fargo's motion to dismiss Meis's second count questioning its standing (and that of its servicer) to enforce the note.²⁰

The re-recorded correction mortgage was sufficient to place a BFP on notice of Wells Fargo's lien.

Only if a purchaser has neither constructive nor actual notice of an encumbrance in the chain of his grantor's title does he take the property free and clear of encumbrances.²¹ KAN. STAT. ANN. § 58-2222 provides that every recorded written instrument shall "impart notice to all persons of the contents thereof; and all subsequent purchasers and mortgagees shall be deemed to purchase with notice."²² As long as the instrument contains a sufficiently specific description that identifies the land that is encumbered, it imparts that notice.²³ The re-recorded mortgage contains the correct description of the land the parties intended to encumber and, if it is not otherwise subject to challenge, it is sufficient to place a potential bona fide purchaser on notice of the mortgage'sexistence.

Wells Fargo relies on Beck v. Brooks as authority for the proposition that a party's correction of an "obvious mistake" is not a material alteration of an instrument when it does not change the provisions of the corrected instrument from those the parties originally intended.²⁴ In Beck, Brooks bought two combines from Beck, an implement dealer in Oklahoma. In addition to granting Beck a security interest in the combines, Brooks granted Beck a real estate mortgage on land in Osborne County. The mortgage's legal description was erroneous: it purported to cover "80 acres SE ½ 19-5-11." When he granted the mortgage, Brooks owned an undivided one-fourth interest in the south half of that section. The following year, Brooks received a deed pursuant to a family settlement agreement that conveyed to him"80 acres E ½ SE 1/4 19-5-11."...