Sanders v. Crespin (In re Crespin)

• Decision Date: 15 June 2016
• Docket Number: Adv. No. 15–01028–j,Case No. 14–13751–j7
• Citation: 551 B.R. 886
• Parties: In re: Edward D. Crespin and Janis M. Crespin, Debtors. David Sanders and Dorie Sanders, Plaintiffs, v. Edward D. Crespin and Janis M. Crespin, Defendants.
• Court: U.S. Bankruptcy Court — District of New Mexico

551 B.R. 886

In re: Edward D. Crespin and Janis M. Crespin, Debtors.

David Sanders and Dorie Sanders, Plaintiffs

v.Edward D. Crespin and Janis M. Crespin, Defendants.

Case No. 14–13751–j7

Adv. No. 15–01028–j

United States Bankruptcy Court, D. New Mexico.

Signed June 15, 2016

Arun A. Melwani, Melwani Law P.C., Albuquerque, NM, for Debtors.

Scott E. Turner, The Turner Law Firm, LLC, Albuquerque, NM, for Plaintiffs.

Michael K. Daniels, Albuquerque, NM, for Defendants.

MEMORANDUM OPINION

ROBERT H. JACOBVITZ

, United States Bankruptcy Judge

Plaintiffs/Creditors, David and Dorie Sanders, object to the dischargeability of debt pursuant to 11 U.S.C. §§ 523(a)(2)(A), (4) and (6)

. The heart of the dispute relates to a 1997 Patriot Home, Serial # 2PTX906B/ATX (the “Mobile Home”) that Mr. and Mrs. Sanders purchased from Defendants/Debtors, Edward D. Crespin and Janis M. Crespin, and what Mr. and Mrs. Crespin said, or did not say, to Mr. and Mrs. Sanders during that transaction. After consideration of the evidence, arguments of counsel and applicable law, the Court has determined that the debt Mr. and Mrs. Crespin owe Mr. and Mrs. Sanders arising out of that transaction is non-dischargeable pursuant to 11 U.S.C. § 523(a)(2)(A) and that a state court judgment fixes the amount of the debt.

Procedural History

The Underlying Bankruptcy Case

On December 31, 2014, Mr. and Mrs. Crespin filed their voluntary petition for relief under Chapter 7 of the Bankruptcy Code. See Bankruptcy Case No. 14–13751–j7, Docket No. 1. On February 26, 2015, Green Tree Servicing, LLC (“Green Tree”) filed a Motion for Relief from the Automatic Stay (the “Motion for Relief from Stay”). See Motion for Relief from Stay, Bankruptcy Case No. 14–13751–j7, Docket No. 15. In the Motion for Relief from Stay, Green Tree alleged that Mr. and Mrs. Crespin were $3,516.16 in arears on an $84,478.75 obligation evidenced by a promissory note secured by a mortgage and security agreement that encumbered both the Mobile Home and certain real property.¹ See id. at p. 3. On April 3, 2015, the Court entered a Default Order granting the Motion for Relief from Stay, and allowing Green Tree to enforce its rights under its mortgage and security agreement. See Bankruptcy Case No. 14–13751–j7, Docket No. 18. On April 21, 2015, the Court entered an order granting Mr. and Mrs. Crespin a discharge under 11 U.S.C. § 727

. See Bankruptcy Case No. 14–13751–j7, Docket No. 20. A week later, Mr. and Mrs. Crespin's bankruptcy case was closed, leaving this adversary proceeding as the lone pending matter associated with the bankruptcy case.

The Adversary Proceeding

On March 27, 2015, Mr. and Mrs. Sanders initiated this adversary proceeding by filing the Complaint to Determine Dischargeability of Debt Pursuant to 11 U.S.C. §§ 523(a)(2), (4) and (6)

(the “Complaint”). See Docket No. 1. Mr. and Mrs. Crespin timely filed an answer to the Complaint. See Docket No. 5. On July 10, 2015, Mr. and Mrs. Crespin consented to the Court hearing and finally determining all issues in this adversary proceeding. See Consent or Refusal to Consent to the Bankruptcy Court Hearing and Determining Claims, Docket No. 11.

FINDINGS OF FACT

In accordance with Fed. R. Civ. P 52(a)(1)

, made applicable by Fed. R. Bankr.P. 7052, the Court finds the following facts.

Jennifer Montoya owned the Mobile Home before she sold it to Mr. and Mrs. Crespin. The Mobile Home was personal property. It was not affixed to the land. On February 6, 1997, she executed and delivered to Green Tree Financial Servicing Corporation a Universal Note (the “Note”) in the original principal amount of $109,617.59. See Exhibit 1. To service the Note, Ms. Montoya also executed a Line of Credit Mortgage (the “Mortgage and Security Agreement”) encumbering both the Mobile Home and real property she owned located in Rio Rancho, New Mexico² (the “Real Property”). See Exhibit 2. The Mortgage and Security Agreement provides that “[t]he total unpaid balance secured by this mortgage at any one time shall not exceed a maximum principal amount of [$109,617.59], plus interest, plus any amounts dispersed under the terms of this mortgage to protect the security of this mortgage or to perform any of the covenants contained in this mortgage with interest on such disbursement.”

On July 24, 2001, Ms. Montoya and Mr. and Mrs. Crespin entered into a Purchase Agreement (the “Purchase Agreement”) providing for Mr. and Mrs. Crespin to purchase the Mobile Home and the Real Property from Ms. Montoya subject to the Mortgage and Security Agreement.³ Pursuant to the Purchase Agreement, Mr. and Mrs. Crespin made a down payment of $2,000.00 to Ms. Montoya and agreed to assume the Note. A few days later, Ms. Montoya, Mr. and Mrs. Crespin, and Conseco Finance Servicing Corporation executed an Assumption–Agreement for Land–and–Home Loan and Related Mortgage (the “Assumption Agreement”). See Exhibit 7. Pursuant to the Assumption Agreement, Mr. and Mrs. Crespin purchased the Mobile Home and the Real Property⁴ from Ms. Montoya subject to the Mortgage and Security Agreement. Mr. and Mrs. Crespin also assumed Ms. Montoya's obligations under the Note, which then had a total principal balance of $106,083.80.

Sometime prior to 2006, Green Tree became the owner and holder of the Note. Mr. and Mrs. Crespin decided to sell the Mobile Home in late 2006 after residing there approximately six years. At that time, Mrs. Crespin contacted Green Tree and inquired into how she could obtain a release of the lien against the Mobile Home granted in the Mortgage and Security Agreement. A representative of Green Tree informed Mrs. Crespin that the lien against the Mobile Home would be released only upon payment in full of the balance of the Note secured by both the Mobile Home and Real Property. Mr. and Mrs. Crespin planned to obtain a construction loan large enough not only to build their dream home on the Real Property, but also to pay off the balance of the Note and obtain a release of the Mortgage and Security Agreement. However, Mr. and Mrs. Crespin had poor credit and needed to substantially improve their credit score to have any realistic chance of obtaining a construction loan. They intended to retain a company to help them repair their credit. Mr. and Mrs. Crespin believed they would be able to repair their credit, obtain the construction loan, and free up title to the Mobile Home. However, Mr. and Mrs. Crespin did not attempt to obtain a construction loan or improve their credit score before listing the Mobile Home for sale for $45,000.00 in a local classified publication.

Around late December 2006, Mr. and Mrs. Sanders saw Mr. and Mrs. Crespin's classified advertisement and were interested in purchasing the Mobile Home. Mrs. Sanders contacted Mr. Crespin and set a time for Mr. and Mrs. Sanders to view the Mobile Home. Mr. and Mrs. Sanders met Mr. and Mrs. Crespin at the Mobile Home and Mr. and Mrs. Crespin gave Mr. and Mrs. Sanders a tour. At this meeting, Mr. and Mrs. Crespin discussed their intention to build their dream home on the Real Property and showed Mr. and Mrs. Sanders their house plans. Mr. and Mrs. Sanders liked what they saw of the Mobile Home, informed Mr. and Mrs. Crespin of their desire to purchase the Mobile Home from Mr. and Mrs. Crespin at their asking price of $45,000.00, and gave Mr. and Mrs. Crespin a check for $500.00 as a down payment of the purchase price. The parties agreed to meet soon to execute a formal purchase agreement that Mr. and Mrs. Crespin would prepare. The purchase price of the Mobile Home was not nearly enough to pay off the Note.

On January 13, 2007, the parties met at a local restaurant to execute a purchase agreement. Mrs. Crespin created an Agreement to Sell Personal Property (the “First Contract”) by editing a form she found online. See Exhibit 11. In the First Contract, “[t]he parties agree[d] to transfer title on April 23, 2007[ ], at the address of the Seller.” Exhibit 11, ¶ 5. The First Contract also provides that Mr. and Mrs. Sanders were to deliver the remainder of the purchase price at closing.

The parties met at a credit union in Rio Rancho on April 24, 2007, where they executed a second Agreement to Sell Personal Property (the “Second Contract”), which was identical to the First Contract. See Exhibit 13. Following their execution of the Second Contract, the parties executed a document entitled Receipt (the “Receipt”), which was also drafted by Mrs. Crespin. By signing the Receipt, Mr. and Mrs. Crespin acknowledged receipt of the remaining $44,500.00 of the purchase price, which Mr. and Mrs. Sanders paid by certified check. See Exhibits 12 and 14. Paragraph 3 in the First Contract, Second Contract, and Receipt are identical. Paragraph 3 states: “Seller warrants it has good and legal title to said property, full authority to sell said property, and that said property shall be sold by warranty bill of sale free and clear of all liens, encumbrances, liabilities and adverse claims of every nature and description whatsoever.” Exhibit 11, ¶ 3; Exhibit 12, ¶ 3; Exhibit 13, ¶ 3. Paragraph 5 of the Receipt provides “[t]he parties agree to transfer title within 60 days at the address of the Seller.” Exhibit 14, ¶ 5.

Mr. and Mrs. Crespin added Paragraph 5 to the Receipt to conceal from Mr. and Mrs. Sanders the fact that title to the Mobile Home was encumbered and to allow them time to obtain a construction loan for their dream home. Mr. and Mrs. Crespin needed the construction loan to borrow sufficient additional funds to pay off the lien against the Mobile Home and deliver free and clear title to Mr. and Mrs. Sanders. However, Mr. and Mrs. Crespin did not disclose to Mr. and Mrs. Sanders that they had bad credit and needed to obtain a construction loan to build a house and obtain sufficient funds to deliver free and clear title to the Mobile Home. Mr. and Mrs. Sanders did not ask Mr. and Mrs. Crespin about the reason for adding Paragraph 5 to the Receipt. Mr. Sanders...