Punta Assocs. v. Ruiz (In re Puntas Assocs.)
| Decision Date | 29 October 2021 |
| Docket Number | Adv. Proc. 18-0127,18-03123 (ESL) |
| Parties | IN RE: PUNTAS ASSOCIATES LLC Debtor v. CARLOS M. MUÑIZ RUIZ, EDNA O. MUÑIZ RUIZ AND ADALIZ MUÑIZ AVILES Defendants PUNTA ASSOCIATES, LLC Represented by Noreen Wiscovitch, Chapter 7 Trustee Plaintiff |
| Court | U.S. Bankruptcy Court — District of Puerto Rico |
IN RE: PUNTAS ASSOCIATES LLC Debtor
PUNTA ASSOCIATES, LLC Represented by Noreen Wiscovitch, Chapter 7 Trustee Plaintiff
v.
CARLOS M. MUÑIZ RUIZ, EDNA O. MUÑIZ RUIZ AND ADALIZ MUÑIZ AVILES Defendants
No. 18-03123 (ESL)
Adv. Proc. No. 18-0127
United States Bankruptcy Court, D. Puerto Rico
October 29, 2021
CHAPTER 13
OPINION AND ORDER
Enrique S. Lamcoitte, United States Bankruptcy Judge.
This case is before the court upon the Motion for Summary Judgment filed by the chapter 7 Trustee, Noreen Wiscovitch-Rentas (the "Trustee") (Docket No. 32); the Opposition to the Trustee's Request for Summary Judgment at Docket No. 32, and the Heirs Statement of Facts, Memorandum of Law and Motion to Dismiss Pursuant to Rule 12(b)(6) FRCP filed by Carlos M. Muñiz Ruiz, Edna O. Muñiz Ruiz, and Adalid Muñiz Ruiz, individually and as Heirs of the Estate of Adalid Muñiz Aviles, referred to collectively as "Heirs of the Estate of Adalid Muñiz Aviles" (the "Muñiz Heirs") (Docket No. 37); and the Reply to Defendants Opposition to the Trustee's Motion for Summary Judgment filed by the Trustee (Docket No. 47).
Relevant Procedural History
On May 31, 2018, the Debtor, Puntas Associates LLC filed a Chapter 7 voluntary petition (Docket No. 1, Lead Case, 18-03123). On schedule A/B (Lead Case, 18-03123), the Debtor listed several real estate properties. On part 9, line 55.1, the Debtor listed Parcel G with a surface area of
13, 036.247 square meters located at Barrio Puntas, Rincón and listed the "current value of debtor's interest" in the amount of $75, 000.00 (the "Rincón property"). On Schedule D the Debtor listed Adalid Muniz Aviles & Carlos Muniz Rivera as mortgage lien holder over Parcel G included in Schedule A/B, with a claim in the amount of $4, 036, 323.00. Page 11. A collection of monies and foreclosure action in the United States District Court of Puerto Rico was listed in the Statement of Financial Affairs for Non-Individuals, Part 3, line 7.1. Page 18.
Although the Trustee filed a Notice of Abandonment of Property and Request for Clerk to Notice, regarding the property described as "[l]and: Parcel G with a surface area of 13, 036.247 square meters located at Bo. Puntas, Rincón" (Docket No. 10, Lead Case, 18-03123), the Trustee later filed a Motion to Set Aside Notice of Abandonment and for Reconsideration Under FRBP 9024 (Docket No. 28, Lead Case, 18-03123). The Trustee explained that her determination "to abandon the estate property was triggered because said property had no value and/or was burdensome to the estate, as per Debtor's schedules, testimony and the evidence presented in proof of claim No.4 ("POC 4") filed by Carlos M. Muñiz Ruiz, Edna O. Muñiz Ruiz and Adaliz Muñiz Aviles ("Defendant/Creditors"), which determined that, as of July 22, 2018, the Property was encumbered by virtue of the pre-petition presentment of a secured mortgage in the amount of $4, 036, 323.00." However, the Registrar, Mr. Gilden S. Caro Pérez, issued a notice for correction on July 31, 2018, which expired on October 1, 2018, without any corrective action by the notary. Therefore, the presentation made on May 29, 2007, lost its seat in the Registry. Furthermore, on October 2, 2018, the notary withdrew the mortgage deed and claimed a credit for the government stamps paid upon presentation.
On January 22, 2019, the Muñiz Heirs filed their Opposition to Motion to Set Aside Notice of Abandonment and for Reconsideration under Federal Rule 9024 (No. 28 and 29) and Memorandum of Law in Support Thereof (Docket No. 59, Lead Case, 18-03123). They alleged that they possessed a pre-petition "interest [over the property object of their lien]" under sections 362(b)(3) and 546(b)(1)(A). The federal statutory term "interest in property" is "[][i]nequivalent (sic) to, and broader than," the term "lien." See Soto Rios v. BPPR (1st Cir. 2011) and that "the acts performed to perfect the appearing creditors' security interest post-petition, if any, are exempted from the automatic stay pursuant to 362(b)(3) and were performed pursuant to Puerto Rico Mortgage Law to pursue and perfect the appearing creditors' pre-petition interest over the mortgage property. That interest is based in basic principles of the 14th Amendment to the Constitution of the United States."
After several substantive and procedural events, on October 5, 2021, the court entered an Opinion and Order granting the Trustee's request for revocation of the abandonment pursuant to Fed.R.Civ.P. 60(b)(6), made applicable to bankruptcy through Fed. R. Bank. P. 9024 (Docket No. 154).
On November 12, 2018, the Chapter 7 Trustee filed this Complaint and Objection to Claim (Docket No. 1). The Trustee objected proof of claim no. 4 filed by the Defendants, the Muñiz Heirs, which includes as a basis of its security interest a Mortgage Note and consented judgment of foreclosure, and a secured claim in the amount of $3, 918, 232.50. Although the proof of claim includes as a supporting document the mortgage note presented for registration in the Property Registry on May 29, 2007, the Registrar notified a fault in the presentation, and the notary failed to correct said fault. Therefore, the Trustee argues that upon the filing of the petition, there was no valid security interest encumbering the property. The document lost its prepetition ranking, and the lien ceased to exist. "Pursuant to Section 363(p)(2) of the Bankruptcy Code, an entity asserting an interest in property has the burden of proof on the issue of the validity, priority, or extent of such interest." The Trustee argues that the Creditors' alleged security interest was not validly perfected pursuant to Puerto Rico Law and therefore Defendant's alleged liens, if any, are unsecured in at least $2, 313, 000.00.
The Trustee further clarifies that although once abandoned, the property was no longer property of the estate pursuant to 11 U.S.C. § 362(c)(1) and the automatic stay imposed against the Debtor's Property by section 362(a)(2) and section 362(a)(3) terminated; the stay imposed by section 362(a)(5) and section 362(a)(6) continued to apply to any act to create, perfect or enforce a lien against "property of the debtor" until the case is dismissed or closed, or discharge is granted or denied. Citing In re Vicente, 446 B.R. 26 (Bankr. D. Mass. 2011).
"…[O]n October 3, 2018, the very same 2007 mortgage deed was willfully and illegally presented in the Property Registry for a second time, despite having full knowledge of the filing of Debtor's Chapter 7 voluntary petition." The Trustee alleges that the acts of the Defendants constitute a violation of the automatic stay. Additionally, the Trustee requests the court, pursuant to Rule 65 of the Federal Rules of Civil Procedure, made applicable to bankruptcy proceedings through Rule 7065 of the Federal Rules of Bankruptcy Procedure, to enter a preliminary injunctive relief and cautionary notice against the Defendant, prohibiting any transaction regarding the Property.
On January 23, 2019, the Defendants answered the Complaint. The Muñiz Heirs allege that the real estate property is not property of the estate and therefore, the court has no jurisdiction to entertain the adversary proceeding. The Heirs allege that they have a valid secured claim duly registered and/or presented for registration pre-petition pursuant to Puerto Rico Mortgage Law. The appearing creditors possess a pre-petition "interest [over the property object of their lien]" under sections 362(b)(3) and 546(b)(1)(A) of the United States Bankruptcy Court. The acts performed to perfect the appearing creditors' pre-petition security interest post- petition (of which the defendants did not have any knowledge), if any, are exempted from the automatic stay pursuant to 362(b)(3). They argue that any such acts were performed pursuant to Puerto Rico Mortgage Law to pursue and perfect the appearing creditors' pre-petition interest over the mortgage property. That interest is based in basic principles of the 14th Amendment to the Constitution of the United States. (Docket No. 12).
The parties filed a Joint Pretrial Report on November 12, 2020 (Docket No. 24). On June 1, 2021, the Trustee/Plaintiff filed her Trustee's Motion for Summary Judgment (Docket No. 32). The Trustee alleges that, given that the mortgage had expired, and the public deed was withdrawn, the creditor lost its pre-petition position ("asiento") in the Property Registry. The deed's presentation expired by operation of law because the deficiencies were not corrected and, given that the notary withdrew the documents, there was no valid pre-petition security interest constituted over the property when the bankruptcy petition was filed. The Puerto Rico Mortgage Law regulates the procedures that the Registrar must follow to register the deeds at the Property Registry, and it also regulates the process in case there is a defect or deficiency in the documents presented. In the present case, the notary never corrected the fault notified by the Registrar and, therefore, the seat that the mortgage had recorded pre-petition, expired on October 1st, 2018. Additionally, the notary withdrew the document on October 2, 2018. The withdrawal of the document results in the property having no liens during the pre-petition period. Therefore, upon the filing of the bankruptcy, there was no valid security interest encumbering the property.
The Trustee further argues that under 11 U.S.C.S. 101(37), a lien is a charge against or interest in property to secure payment of a debt or performance of an obligation, and while the classification of a lien is a matter of federal law, the issue of whether a particular mortgage is a charge against or interest in property to secure payment of a debt is one of state law. The Trustee's position is that, under the Puerto Rico Mortgage Law, as of the filing of the petition the Defendants did not hold a secured claim against the...
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