U.S. Bank Nat'l Ass'n v. Barbee (In re Barbee)

• Decision Date: 12 December 2011
• Docket Number: BAP No. 10–8074.
• Citation: 461 B.R. 711
• Parties: In re Gary D. BARBEE, Debtor.U.S. Bank National Association as Trustee for the Truman FHA Trust 2008–1, by and through its Mortgage Servicing Agent BAC Home Loan Servicing, Appellant, v. Gary D. Barbee, Appellee.
• Court: U.S. Bankruptcy Appellate Panel, Sixth Circuit

461 B.R. 711

In re Gary D. BARBEE, Debtor.U.S. Bank National Association as Trustee for the Truman FHA Trust 2008–1, by and through its Mortgage Servicing Agent BAC Home Loan Servicing, Appellant,

v.Gary D. Barbee, Appellee.

BAP No. 10–8074.

United States Bankruptcy Appellate Panel of the Sixth Circuit.

Argued: Nov. 2, 2011.Decided: Dec. 12, 2011.

ARGUED: John P. Brice, Wyatt, Tarrant & Combs, LLP, Lexington, Kentucky, for Appellant. Jon Jay Lieberman, Atkinson, Simms & Kermode, PLLC, Lexington, KY, for Appellee. ON BRIEF: John P. Brice, Wyatt, Tarrant & Combs, LLP, Lexington, KY, for Appellant. John M. Simms, Atkinson, Simms & Kermode, PLLC, Lexington, KY, for Appellee.Before: BOSWELL, HARRIS, and McIVOR, Bankruptcy Appellate Panel Judges.

OPINION

ARTHUR I. HARRIS, Bankruptcy Judge.

The chapter 13 debtor, Gary D. Barbee (“Debtor”), instituted an adversary proceeding against U.S. Bank National Association as trustee for the Truman FHA Trust 2008–1, by and through its mortgage servicing agent BAC Home Loan Servicing (“Bank”) seeking to avoid the Bank's interest in his manufactured home pursuant to 11 U.S.C. § 544. The parties filed cross-motions for summary judgment on stipulated facts. Appellant appeals the bankruptcy court's September 17, 2010, order granting summary judgment in favor of Debtor. For the reasons that follow, the Panel AFFIRMS the bankruptcy court's order.

I. ISSUES ON APPEAL

The issue presented by this appeal is whether the bankruptcy court erred in granting summary judgment in favor of Debtor. Underlying this issue is whether the court correctly concluded that Debtor has standing to pursue an avoidance action, and whether the court correctly concluded that the Bank's lien on Debtor's manufactured home was not perfected, and therefore avoidable, because there was no notation of the lien on the certificate of title and the home was never converted from personal to real property.

II. JURISDICTION AND STANDARD OF REVIEW

The Bankruptcy Appellate Panel of the Sixth Circuit has jurisdiction to decide this appeal. The United States District Court for the Eastern District of Kentucky has authorized appeals to the Panel, and neither party has timely elected to have this appeal heard by the district court. 28 U.S.C. § 158(b)(6) and (c)(1). A final order of the bankruptcy court may be appealed as of right pursuant to 28 U.S.C. § 158(a)(1). For purposes of appeal, an order is final if it “ends the litigation on the merits and leaves nothing for the court to do but execute the judgment.” Midland Asphalt Corp. v. United States, 489 U.S. 794, 798, 109 S.Ct. 1494, 1497, 103 L.Ed.2d 879 (1989) (citations omitted). An order granting summary judgment is a final order. Drown v. Nat'l City Bank (In re Ingersoll), 420 B.R. 414, 414–15 (6th Cir. BAP 2009).

The bankruptcy court's final order granting Debtor's motion for summary judgment is reviewed de novo. See Int'l Dairy Foods Ass'n v. Boggs, 622 F.3d 628, 635 (6th Cir.2010). “ ‘Under a de novo standard of review, the reviewing court decides an issue independently of, and without deference to, the trial court's determination.’ ” In re Ingersoll, 420 B.R. at 415 (quoting Buckeye Check Cashing, Inc. v. Meadows (In re Meadows), 396 B.R. 485 (6th Cir. BAP 2008)).

III. FACTS

The relevant facts in this case are undisputed. On November 15, 1999, Debtor and Rebecca Ruth Gaunce (“Gaunce”) borrowed $75,558.93 from Countrywide Home Loans, Inc. (“Countrywide”), repayment of which was secured by the grant of a mortgage lien in favor of Countrywide. The mortgage granted to Countrywide is dated November 15, 1999, and was recorded in the office of the Bourbon County Clerk on December 1, 1999. That mortgage encumbered the real property and all improvements and fixtures located at 106 Vimont Street, Millersburg, Kentucky. On October 22, 2009, the note and mortgage were assigned to the Bank.

Debtor and Gaunce used the proceeds of the loan to acquire the real property from the Estate of Joseph F. O'Nan. Located on the property is Debtor and Gaunce's manufactured home. Attached to the home is a metal plate that states:

As evidenced by this label No. NTA 213282 the manufacturer certifies to the best of the manufacturer's knowledge and belief that this manufactured home has been inspected in accordance with the requirements of the Department of Housing and Urban Development and is constructed in conformance with the federal manufactured home construction and safety standards in effect at the date of manufacture.

(Adv. Proc. Doc. # 13, Ex. 8.) Also in the record is a letter from a loan officer to Countrywide regarding Debtor's loan from Countrywide advising that “[i]n 1997, this double wide mobile home was gutted and rebuild (sic) as an actual house.” (Adv. Proc. Doc. # 6–1, at 22.) Debtor and Gaunce did not acquire a separate title to the manufactured home; however, the record is unclear as to whether a certificate of title has ever been issued for the manufactured home.

On November 11, 2009, Debtor filed a petition for relief under chapter 13 of the Bankruptcy Code.¹ On April 16, 2010, Debtor filed a motion seeking derivative standing to file an adversary proceeding to avoid the Bank's lien on the manufactured home. On May 17, 2010, the bankruptcy court granted Debtor's motion.

Debtor filed his adversary complaint on May 23, 2010. In his complaint, Debtor asserted that as a hypothetical lien creditor, he has superior title to the manufactured home located on the property, and that any interest the Bank has in the home is avoidable pursuant to 11 U.S.C. § 544 because the Bank failed to perfect its lien on the manufactured home pursuant to Kentucky law. ²

The Bank and Debtor filed cross-motions for summary judgment. The Bank asserted that Debtor did not have standing to bring the avoidance action, and that he did not acquire title to the home pursuant to Kentucky Revised Statute § 186A.215. The Bank claimed that the home does not constitute an asset of the estate because Debtor acquired no interest in the home apart from its status as an improvement to real property or a fixture. Additionally, the Bank argued that Debtor's claims were barred by 11 U.S.C. §§ 1322(b)(2) and 1325(a)(5) in that Debtor may not modify the Bank's rights as the holder of a mortgage secured solely by his residence.³

The bankruptcy court heard oral argument on September 13, 2010. The parties agreed that there were no genuine issues of material fact and that disposition of the cross-motions for summary judgment would fully adjudicate all claims. On September 17, 2010, the bankruptcy court issued an order granting summary judgment in favor of Debtor and denying the Bank's motion for summary judgment. The bankruptcy court held that Debtor has standing to bring the avoidance action, and that the Bank's lien on the manufactured home was avoidable because the lien was not noted on the certificate of title, nor had the home been converted to real property.

IV. DISCUSSION

A. Derivative Standing of Debtor to Pursue Lien Avoidance Under 11 U.S.C. § 544

Citing to the Sixth Circuit Bankruptcy Appellate Panel's decision in Countrywide Home Loans v. Dickson (In re Dickson), 427 B.R. 399 (6th Cir. BAP 2010), the bankruptcy court held that Debtor has derivative standing to pursue the lien avoidance under § 544. The Bank argues that Debtor lacked standing to bring the avoidance action because a debtor cannot be granted derivative standing to exercise the trustee's strong arm powers with regard to consensual liens. Debtor asserts that he has derivative standing to pursue lien avoidance under § 544 pursuant to the Bankruptcy Appellate Panel's decision in Dickson.

In Dickson, Countrywide Home Loans asserted that a chapter 13 debtor lacked standing to pursue avoidance of the lien on her manufactured home. The bankruptcy court in that case concluded that the debtor had derivative standing to avoid Countrywide's lien under either § 544 or § 547. In addressing the issue, the Bankruptcy Appellate Panel acknowledged that courts are split on whether a chapter 13 debtor may be granted derivative standing to bring an avoidance action. See Realty Portfolio, Inc. v. Hamilton (In re Hamilton), 125 F.3d 292 (5th Cir.1997) (discussing split in cases with some courts granting standing by emphasizing “reality” of chapter 13 bankruptcies, limited role of chapter 13 trustees, and perceived unfairness to chapter 13 debtors of denying standing under § 544, and other courts refusing to grant standing based on lack of explicit statutory foundation for debtor to seek avoidance and relying on plain language of Code). The Dickson Panel concluded that the bankruptcy court had properly granted the debtor derivative standing to pursue lien avoidance. Dickson, 427 B.R. at 406.

In Dickson, the Bankruptcy Appellate Panel based its conclusion, in part, on the decision of the Sixth Circuit Court of Appeals in Hyundai Translead, Inc. v. Jackson Truck & Trailer Repair, Inc. (In re Trailer Source, Inc.), 555 F.3d 231 (6th Cir.2009). In In re Trailer Source, the Sixth Circuit held that the Bankruptcy Code allows courts to grant derivative standing to creditors to bring avoidance actions on behalf of the bankruptcy estate in chapter 11 and chapter 7 proceedings where the trustee refuses to do so. “Although the case was decided in the specific context of a Chapter 7 bankruptcy case wherein a creditor sought to avoid a fraudulent transfer, the Sixth Circuit in Hyundai Translead relied upon principles generally applicable to Chapter 13 debtors and lien avoidance under 11 U.S.C. §§ 544 and 547.” In re Dickson, 427 B.R. at 404. The Dickson Panel explained that the realities of chapter 13 bankruptcies “make it imperative for a debtor to be able to pursue avoidance claims if the Chapter 13 trustee refuses to do so.” Id. at 405. Those realities identified by the Bankruptcy Appellate Panel in Dickson included the chapter 13 trustee's lack of resources to pursue...