Sutter v. U.S. Nat'l Bank (In re Sutter)
| Decision Date | 03 January 2012 |
| Docket Number | No. 10–1656.,10–1656. |
| Citation | 665 F.3d 722 |
| Parties | In re Daniel Joseph SUTTER; Sheryl Lynn Sutter, Debtors.Daniel Joseph Sutter; Sheryl Lynn Sutter, Appellees, v. U.S. National Bank; Saxon Mortgage Services, Inc., Appellants. |
| Court | U.S. Court of Appeals — Sixth Circuit |
OPINION TEXT STARTS HERE
ARGUED: David A. Lerner, Plunkett Cooney, Bloomfield Hills, Michigan, for Appellants. Rex C. Anderson, Davison, Michigan, for Appellees. ON BRIEF: David A. Lerner, Plunkett Cooney, Bloomfield Hills, Michigan, Hilary A. Ballentine, Plunkett Cooney, Detroit, Michigan, for Appellants. Rex C. Anderson, Davison, Michigan, for Appellees.Before: BATCHELDER, Chief Judge; SILER and COLE, Circuit Judges.
Appellants U.S. National Bank and Saxon Mortgage Services, Inc., appeal the order of the district court overturning a judgment of the bankruptcy court granting them an equitable mortgage on property owned by Debtors Daniel and Sheryl Sutter. We AFFIRM the judgment of the district court.
In September 1994, Daniel and Sheryl Sutter (“the Sutters”) bought a home in Lapeer, Michigan (“the Sutter property”). Beginning sometime in the mid to late 1990s, the Sutters experienced financial difficulties that ultimately resulted in the filing of a petition under Chapter 7 of the bankruptcy laws, followed by a grant of discharged issued by the Bankruptcy Court for the Eastern District of Michigan on January 30, 2004.
Prior to entry of the discharge, the Sutters attempted to refinance their existing mortgages on the subject property. Eventually, they came into contact with World Wide Financial Services, Inc. (“World Wide”), also known as LoanGiant.com.1 Following the entry of discharge, World Wide agreed to refinance the Sutters' loan and mortgage obligations by issuing a new mortgage on their property, to be funded by New Century Mortgage Corporation. In order to facilitate a quick closing, the Sutters requested to close the refinancing transaction in California, where they would be visiting as part of a previously scheduled vacation. World Wide agreed to this request, and arranged for a closing in Sacramento, California, on April 8, 2004.
At the April 8 closing, the Sutters signed a note payable to World Wide in the amount of $78,000. The Sutters signed a number of additional documents in connection with their refinancing, but apparently did not sign a mortgage instrument. Nevertheless, New Century provided the funds to pay off the two existing mortgages on the Sutter property, as well as allowed the Sutters to pay off additional existing debts. At some point after the closing, World Wide and New Century assigned the mortgage instrument (“the World Wide mortgage”) to U.S. National Bank, with Saxon Mortgage Services, Inc. (“Saxon”) as the mortgage servicer (collectively “the Appellants”).
Within a few months of the closing, the Sutters began to fall behind on their payments on the World Wide mortgage. When Appellants initiated foreclosure proceedings, the Sutters filed a Chapter 13 bankruptcy petition on November 21, 2005. Saxon filed a proof of claim in the Sutters' Chapter 13 case asserting a secured claim in the amount of $83,498.26, secured by the Sutter property. Attached to the proof of claim was the World Wide mortgage, notarized and ostensibly bearing the signatures of the Sutters. The certificate of acknowledgement on the World Wide mortgage states that “[t]he foregoing instrument was acknowledged before me [the notary] this April 8th, 2004, by Daniel J. Sutter and Sheryl L. Sutter, his wife” in the State of Michigan, County of Oakland. The mortgage was recorded with the Lapeer County, Michigan, Register of Deeds on May 25, 2004.
The Sutters filed an objection to the proof of claim, alleging that it should be disallowed because their signatures on the mortgage instrument were forged. In addition, the Sutters brought an adversary proceeding against the Appellants, asserting a variety of claims for relief under the Bankruptcy Code, other federal statutes, and Michigan law. Count I of the complaint sought the disallowance of the claim pursuant to 11 U.S.C. § 502(b)(1). Count II, pleaded in the alternative to Count I, sought avoidance of the World Wide mortgage pursuant to 11 U.S.C. § 544(a)(3) (the “strong-arm” provision). Both counts sought a judgment “extinguishing, expunging, and avoiding all claimed interest [of U.S. National Bank and Saxon] in the Debtor's property.”
At the April 24, 2007 hearing on the Sutters' adversary proceeding (“the April 2007 hearing”), the bankruptcy court found as part of its findings of fact that “the debtors have established by the necessary burden of proof that the signatures on the mortgage before the Court are not theirs.” This determination was based on the uncontested fact that, while the certificate of acknowledgement states that the Sutters acknowledged their signatures on the mortgage in Michigan, the Sutters were in California on April 8, 2004, the date on which they supposedly signed it. The bankruptcy court concluded that those who acquire an interest under a forged instrument are in no better position as to title than if they had purchased with notice. Thus, the bankruptcy court granted summary judgment on Count I to the Sutters, disallowing Saxon's claim.
At the same hearing, the bankruptcy court also indicated that it would grant summary judgment to the Sutters on Count II. In addition, at the end of the hearing, the court raised the issue of whether an equitable mortgage should be imposed between Appellants and the Sutters. Although the court did not render a decision on the issue, it did instruct the trustee to “monitor the case very closely” and noted that the court “reserves the right if need be to address the equitable mortgage issue.” The trustee submitted a proposed order stating that the World Wide mortgage “is hereby avoided and preserved for the benefit of the bankruptcy estate pursuant to 11 U.S.C. § 551.” The court ultimately signed the order tendered by the Chapter 13 trustee (“the July 2007 Order”). Neither the Sutters, U.S. National Bank, nor Saxon appealed this order.
Soon after the hearing, the Sutters filed an Amended Chapter 13 plan. The amended plan listed the Appellants' claim as that of an unsecured creditor and the mortgage as void ab initio. On September 19, 2007, the Chapter 13 trustee filed a motion to sell the World Wide mortgage to Appellants for $30,000, relying on the provision in the July 2007 Order avoiding the World Wide mortgage for the benefit of the estate. The trustee also proposed, once the sale was completed, to abandon the Sutter property, presumably so Appellants could complete foreclosure proceedings on it. In return, Appellants agreed to waive any additional claims against the estate. The bankruptcy court granted the trustee's motion to sell the World Wide mortgage on March 12, 2008, via a minute order.
The Sutters filed a notice of appeal to the District Court for the Eastern District of Michigan, pursuant to 28 U.S.C. § 158 on March 7, 2008. In a memorandum opinion and order, the district court reversed the orders of the bankruptcy court and remanded for clarification. The district court relied on the finding of facts made by the bankruptcy court at the April 2007 hearing and concluded that the bankruptcy court made “an inference that the signatures had been forged.” Referencing Michigan law, the district court stated that “[w]here a deed is forged, those innocently acquiring interests under the forged deed are in no better position as to title than if they had purchased with notice.” The district court noted that the bankruptcy court had suggested, but did not definitively hold, that an equitable mortgage might exist on the Sutter property, and reversed and remanded for consideration of the equitable mortgage issue. This order was not appealed.
On remand, after a hearing, the bankruptcy court imposed an equitable mortgage on the Sutter property. The court relied on the Sutters' receipt of the benefits of the mortgage as the basis for imposing the equitable mortgage. The court also rejected the Sutters' “unclean hands” argument on the theory that “[d]ebtors did not allege or prove that U.S. Bank or Saxon engaged in any improper conduct.”
The Sutters appealed the bankruptcy court's decision to the district court. The district court once again reversed the bankruptcy court, ruling that, because “no transfer ever occurred” as a result of the World Wide mortgage, the mortgage was void ab initio and there could be no equitable transfer of the interest to the trustee. This appeal followed.
Before us in this appeal is the district court's judgment holding that an equitable mortgage does not exist on the Sutter property. The district court also found, in both this order and its previous order, that the World Wide mortgage was void under Michigan law. Legal conclusions made by the district court when functioning as an appellate court for bankruptcy decisions are reviewed de novo. McMillan v. LTV Steel, Inc., 555 F.3d 218, 225 (6th Cir.2009); In re Batie, 995 F.2d 85, 88 (6th Cir.1993). We directly review a bankruptcy court's factual findings for clear error. McMillan, 555 F.3d at 225.
As a threshold matter, Appellants argue that the district court should not have considered whether the mortgage was void under Michigan law, because the bankruptcy court entered an order providing that the mortgage was avoided and preserved for the benefit of the bankruptcy estate pursuant to 11 U.S.C. § 551; it did not hold that the mortgage was void as a matter of law. This claim is unavailing for several reasons.
First, Appellants are incorrect that the Sutters sought only to avoid the mortgage in...
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