U.S. Bank, N.A. v. Brumfiel (In re Brumfiel)

• Citation: 514 B.R. 637
• Decision Date: 13 August 2014
• Docket Number: Case No. 11–39881 HRT
• Court: United States Bankruptcy Courts. Tenth Circuit. U.S. Bankruptcy Court — District of Colorado
• Parties: In re: Lisa Kay Brumfiel, Debtor. U.S. Bank, N.A., as Successor Trustee to Bank of America, N.A., as Successor Trustee to LaSalle Bank, N.A., as Trustee for the Holders of the Merrill Lynch First Franklin Mortgage Loan Trust, Mortgage Loan Asset–Backed Certificates, Series 2007–FF1, Movant, v. Lisa Kay Brumfiel, Respondent.

514 B.R. 637

In re: Lisa Kay Brumfiel, Debtor.

U.S. Bank, N.A., as Successor Trustee to Bank of America, N.A., as Successor Trustee to LaSalle Bank, N.A., as Trustee for the Holders of the Merrill Lynch First Franklin Mortgage Loan Trust, Mortgage Loan Asset–Backed Certificates, Series 2007–FF1, Movant,

v.Lisa Kay Brumfiel, Respondent.

Case No. 11–39881 HRT

United States Bankruptcy Court, D. Colorado.

Signed August 13, 2014

Scott Tene, Denver, CO, Dianne Zarlengo, Lakewood, CO, for Debtor.

David E. Lewis, Louisville, CO, for Trustee.

Chapter 7

ORDER ON MOTION FOR RELIEF FROM STAY

Howard R. Tallman, Chief Judge, United States Bankruptcy Court

This matter came before the Court on the Motion for Relief From Automatic Stay under 11 U.S.C. § 362(d) (the “Motion,” docket # 61), filed by U.S. Bank, N.A., as Successor Trustee to Bank of America, N.A., as Successor Trustee to LaSalle Bank, N.A., as Trustee for the Holders of the Merrill Lynch First Franklin Mortgage Loan Trust, Mortgage Loan Asset–Backed Certificates, Series 2007–FF1 (“U.S. Bank”), and the Objection thereto (docket # 65), filed by the Debtor, Lisa Kay Brumfiel (“Ms. Brumfiel”). The Court held a preliminary hearing on August 6, 2014, following which the matter was taken under advisement. The Court is now prepared to rule, and hereby finds and concludes as follows.

BACKGROUND

On or about November 14, 2006, Ms. Brumfiel signed (1) an Adjustable Rate Note (the “Note”), promising to pay the Lender, First Franklin a Division of National City Bank (the “Original Lender”), the principal amount of $169,350.00, plus interest, and (2) a Deed of Trust (the “Deed of Trust”) securing the Note and encumbering real property described as follows: Lot 40, Block 3, Brookvale Subdivision Filing No. 2, County of Arapahoe, State of Colorado Commonly Known As: 1499 S. Jasper Street, Aurora, CO 80017 (the “Property”). The Deed of Trust identifies Ms. Brumfiel as the Borrower, the Original Lender as Lender, the Public Trustee of Arapahoe County, Colorado as Trustee, and Mortgage Electronic Registration Systems, Inc. (MERS) as the nominee for Lender and Lender's successors and assigns, and as beneficiary.

Ms. Brumfiel made payments on the Note and Deed of Trust until June or August of 2010.¹ Since that date, Ms. Brumfiel has not made the payments required by the Note and Deed of Trust to any entity, nor has she deposited the required payments into any escrow account or court registry. Ms. Brumfiel admits that her failure to make payments constitutes a default under the Note and Deed of Trust, but she argues that her default is justified by her disbelief that the Note and Deed of Trust were properly assigned from the Original Lender to Bank of America, and subsequently to U.S. Bank.

On October 20, 2011, an Assignment of the Deed of Trust was recorded in the records of the Arapahoe County Clerk and Recorder. The Assignment states that MERS, as Nominee for the Original Lender, assigns the Deed of Trust to U.S. Bank, N.A., Successor Trustee to Bank of America, N.A., as Successor Trustee to LaSalle Bank, N.A., as Trustee for the Holders of the Merrill Lynch First Franklin Mortgage Loan Trust, Mortgage Loan Asset–Backed Certificates, Series 2007–FF1. Ms. Brumfiel admits that the Assignment was recorded, but disputes that it was properly signed or properly notarized, and maintains that the Deed of Trust was not properly assigned to U.S. Bank.

In October 2011, U.S. Bank commenced a non judicial foreclosure action against the Property under Colorado Rule of Civil Procedure 120, and sought an order authorizing sale in Arapahoe County District Court case number 2011 CV 204001 (the “Rule 120 Proceeding”). Ms. Brumfiel opposed the Rule 120 Proceeding, asserting that U.S. Bank was not the real party in interest and lacked standing to foreclose.

Ms. Brumfiel's Bankruptcy Case

On December 30, 2011, Ms. Brumfiel filed the above-captioned Chapter 7 bankruptcy case, which automatically stayed the Rule 120 Proceeding under 11 U.S.C. § 362(a). Ms. Brumfiel's schedules, prepared with the assistance of counsel and signed under penalty of perjury, list the Property as owned by Ms. Brumfiel and list Bank of America as a creditor holding a secured claim on the Property. Ms. Brumfiel disclosed the pending Rule 120 Proceeding in her Statement of Financial Affairs, prepared with the assistance of counsel and filed January 13, 2012. Ms. Brumfiel did not disclose the existence of any claims or potential claims arising out of the alleged improper assignment of the Note and Deed of Trust, Bank of America or U.S. Bank's attempts to collect payments under the Note and Deed of Trust, or U.S. Bank's institution of the Rule 120 Proceeding.

Ms. Brumfiel received her Chapter 7 discharge on April 24, 2012, and her bankruptcy case was closed on May 29, 2012. As stated in the Court's order closing the case, all nonexempt property listed by Ms. Brumfiel and not administered by her bankruptcy trustee was deemed abandoned to Ms. Brumfiel pursuant to 11 U.S.C. § 554(c).

Federal Action

Following the closing of Ms. Brumfiel's bankruptcy case and concomitant abandonment of the Property to Ms. Brumfiel, the Rule 120 Proceeding went forward in the Arapahoe County District Court. A hearing was scheduled for October 22, 2012.

On October 12, 2012, Ms. Brumfiel brought an action in the U.S. District Court for the District of Colorado, case number 2012–CV–02716–WJM–MEH (the “Federal Action”), naming as defendants U.S. Bank, the law firm of Castle Stawiarski, which represented U.S. Bank in the Rule 120 Proceeding, and attorney Larry Castle, principal of the Castle Stawiarski law firm. In the Federal Action, Ms. Brumfiel asserted claims under 42 U.S.C. §§ 1983, 1985, and 1988, and claims for wrongful foreclosure, fraud, common law conspiracy, and intentional and negligent infliction of emotional distress. Ms. Brumfiel also sought to enjoin the Rule 120 Proceeding.

On May 6, 2013, the U.S. District Court granted an Interim Preliminary Injunction against the Public Trustee's execution of the Rule 120 Proceeding and set the matter for hearing on a full preliminary injunction. Prior to the hearing date, U.S. Bank consented to a permanent injunction against the use of the Rule 120 foreclosure process against Ms. Brumfiel and stated its intention to proceed instead with a judicial foreclosure proceeding under Colorado Rule of Civil Procedure 105.²

On October 2, 2013, the U.S. District Court dismissed the Federal Action, finding that Ms. Brumfiel was not the real party in interest with respect to her damages claims, which were not scheduled in her bankruptcy case and therefore not abandoned to her when the case was closed, and finding that Ms. Brumfiel's request for injunctive relief was moot, given the dismissal of the Rule 120 Proceeding. Ms. Brumfiel filed a motion to reconsider the dismissal, which motion apparently remains pending before the U.S. District Court.

Rule 105 Action

On May 24, 2013, U.S. Bank brought its judicial foreclosure action under Rule 105 in the Arapahoe County District Court, case number 2013–CV–825 (the “Rule 105 Action”). Ms. Brumfiel removed the Rule 105 Action to the U.S. District Court, based on her pending Federal Action, but that court remanded the Rule 105 Action back to the Arapahoe County District Court by orders entered September 25, 2013, and October 4, 2013 (the latter remandfollowing a second notice of removal).

On January 14, 2014, the Arapahoe County District Court entered an Order on several pending motions to dismiss (the “January 14 Order”). The January 14 Order resolved U.S. Bank's standing to bring the Rule 105 Action, finding as follows:

The Court notes that at the hearing on these motions on December 9, 2013, counsel for U.S. Bank tendered to the Court what the Court finds to be the original Adjustable Rate Note (“Promissory Note”) dated November 14, 2006 signed by Lisa Kay Brumfiel and made payable to the order of First Franklin A Division Of National City Bank, and which bears two endorsements, both signed in blue ink, which read:

“Pay to the order of First Franklin Financial Corporation without recourse—signed by John Holzworth, Closer, First Franklin, a division of National City Bank”

“Pay to the order of _______________ without recourse First Franklin Financial Corporation—signed by John R. Holzworth, Post Closer”

January 14 Order (U.S. Bank's Exhibit K) at 3–4 (footnote omitted). Applying well-established law that the mere possession of negotiable paper payable to order, indorsed in blank, raises a legal presumption of ownership in the holder, seeIrvine v. Minshull, 60 Colo. 112, 152 P. 1150, 1154 (Colo. 1915); that a security instrument follows the note, seeStetler v. Scherrer, 75 Colo. 500, 226 P. 858, 859 (Colo. 1924); that the holder of the note is entitled to enforce the note and corresponding security interest, seeid.; Colo Rev. Stat. §§ 4–3–301, 4–1–201(b)(20); and that when a negotiable instrument is payable to bearer, negotiation occurs by delivery alone, seePierce v. DeZeeuw, 824 P.2d 97, 99 (Colo.Ct.App.1991), the Arapahoe County District Court denied Ms. Brumfiel's Motion to Dismiss the Rule 105 Action for U.S. Bank's lack of standing. That court further held that Ms. Brumfiel did not have standing to bring her claims for monetary damages, for the same reasons as stated by the U.S. District Court in the Federal Action—those claims remained property of Ms. Brumfiel's bankruptcy estate—and even if Ms. Brumfiel had standing to pursue her damages claims, they would be subject to dismissal on their merits. The January 14 Order dismissed all of Ms. Brumfiel's pending claims and set U.S. Bank's claim for judicial foreclosure for trial.

On February 28, 2014, the Arapahoe County District Court denied Ms. Brumfiel's motion for reconsideration of that court's January 14 Order. Also on February 28, 2014, the Arapahoe County District Court entered its Order re Motion for...