VIP Fin. Servs. v. Frost Bank (In re Munn)
| Decision Date | 15 July 2022 |
| Docket Number | 4:21-cv-1121-P |
| Citation | 643 B.R. 141 |
| Parties | IN RE: John William MUNN and Becky Jane Munn, Debtors. VIP Financial Services et al., Appellants, v. Frost Bank et al., Appellees. |
| Court | U.S. District Court — Northern District of Texas |
643 B.R. 141
IN RE: John William MUNN and Becky Jane Munn, Debtors.
VIP Financial Services et al., Appellants,
v.
Frost Bank et al., Appellees.
No. 4:21-cv-1121-P
United States District Court, N.D. Texas, Fort Worth Division.
Signed July 15, 2022
Weldon Reed Allmand, Allmand Law Firm, Dallas, TX, James M. Morrison, Allmand Law Firm PLLC, Hurst, TX, for Debtor.
Jeremy T. Brown, Keating Brown PLLC, Richardson, TX, for Appellant VIP Financial Services LLC.
Perry J. Cockerell, Perry Cockerell PC, Dallas, TX, for Appellant/Appellees Bozie Madison.
Chad Berry, Jerry Douglas Bullard, Stacy Brent Loftin, Adams, Lynch & Loftin, P.C., Grapevine, TX, Behrooz P. Vida, Venable & Vida, Bedford, TX, for Appellee Frost Bank.
Jeremy T. Brown, Keating Brown PLLC, Richardson, TX, for Appellee VIP Financial Services LLC.
MEMORANDUM OPINION & ORDER
Mark T. Pittman, United States District Judge
VIP Financial Services, LLC ("VIP"); Bozie Madison, Jr.; and Vera Madison (collectively, "Purchasers") appeal the bankruptcy court's September 23, 2021 Order ("Appealed Order") Denying VIP's Motion ("Motion") for Interpretation or Modification of Order Approving Sale of Real Property ("Sale Order"). ECF No. 1-1 at 1–5; ECF No. 2-4 at 8–9; ECF No. 2-5 at 78–103.1 In four issues, Purchasers contend that the bankruptcy court erred by not interpreting the Sale Order to expressly discharge Appellee Frost Bank's lien ("the Frost Lien") (Issue One) and abused its discretion by refusing to modify the Sale Order to reflect that the sale would be made free and clear of all liens and encumbrances (Issue Two), refusing to fashion an equitable remedy (Issue Three), and excluding
certain VIP exhibits (Issue Four). ECF No. 21 at 15. Because the bankruptcy court properly interpreted the Sale Order and did not otherwise abuse its discretion, the Court overrules Purchasers’ four issues and affirms the Appealed Order.
FACTUAL & PROCEDURAL BACKGROUND2
A. The former bankruptcy judge approved the Munns’ short selling the Property to VIP.
John and Becky Munn filed a Chapter 13 petition for bankruptcy in June 2012. ECF No. 3-5 at 16. They owned a residential property located at 903 Shady Creek Drive in Kennedale, Texas ("Property") that was subject to a first-priority lien held by Ocwen Loan Servicing ("Ocwen Lien") and a second-priority lien held by Frost Bank ("Frost Lien"). Id. at 17. Two weeks after filing their petition, the Munns filed their schedules of assets and liabilities. Id. at 16; ECF No. 2-2 at 22. They scheduled the Property with a value of $310,700. ECF No. 3-5 at 16; ECF No. 2-2 at 22. In July 2012, Frost filed its proof of claim, asserting a secured claim of $45,906.89. ECF No. 3-5 at 16; ECF No. 4-6 at 14–15. Frost attached to its proof of claim all the underlying loan documents: the promissory note, homestead lien contract and deed of trust, and extension of real estate note and lien. ECF No. 3-5 at 16; ECF No. 4-6 at 14–35. Ocwen's claim ("Ocwen Claim") was for $292,600.3 ECF No. 3-5 at 17; ECF No. 4-6 at 36. The scheduled value of the Property ($310,700) exceeded the value of the Ocwen Claim.
The Munns proposed a plan to satisfy both the Ocwen and the Frost Claims by surrendering the Property. ECF No. 3-5 at 17; ECF No. 2-2 at 58. The plan was confirmed in September 2012. ECF No. 3-5 at 17; ECF No. 2-2 at 72.
In October 2015, the Munns found a buyer for the Property—VIP. The Munns and VIP signed a real estate contract with a purchase price of $220,000. ECF No. 3-5 at 18; ECF No. 32 at 21–32. Because the purchase price was for less than the total lien amounts on the Property, the Munns and VIP agreed in the contract that closing would occur on or before "thirty days after short sale approved by all lienholders." ECF No. 3-5 at 18; ECF No. 32 at 25. VIP contacted Frost to negotiate either a reduced payoff of the Frost Claim or VIP's acquisition of the Frost Lien. ECF No. 3-5 at 19; ECF No. 3-3 at 40–46. They did not reach an agreement. ECF No. 3-5 at 19; ECF No. 3-3 at 40–46. The Munns secured Ocwen's tentative agreement to accept a reduced payoff of the Ocwen Claim. Id. at 19.
In late January 2016, VIP sent a draft of Ocwen's short-sale agreement to Frost and again tried to convince Frost to agree to a reduced payoff of the Frost Claim. ECF No. 3-5 at 19; ECF No. 3-3 at 47. Frost did not respond. ECF No. 3-5 at 19; ECF No. 3-3 at 47. Id. Meanwhile, the Munns and VIP revised the agreed purchase price of the Property downward to $215,000, and Ocwen agreed to a short sale at the new reduced price. ECF No. 3-5 at 19; ECF No. 32 at 33, 38.
In February 2016, the Munns filed their Motion to Short Sale Homestead ("Sale Motion") in their bankruptcy case. ECF No. 3-5 at 18; ECF No. 32 at 17. In the Sale Motion, they explain that they had scheduled the Property with a value of
$310,700; that the Property was encumbered by the Ocwen Lien in the approximate amount of $292,600; that they had contracted to sell the Property to VIP for $220,000, which they believed was the current fair market value;4 and that Ocwen had agreed to accept $215,000 of the sales proceeds in full and final satisfaction of its claim and lien. ECF No. 3-5 at 20; ECF No. 32 at 18–19.
The Sale Motion states that it seeks approval to sell the Property "free and clear of all liens, claims, and encumbrances," but little else about the Sale Motion or the circumstances of its filing indicates that it is a motion for a sale free and clear of liens under § 363(f) of the Bankruptcy Code.5 As the bankruptcy court pointed out, the Sale Motion differs from a § 363(f) motion for a sale free and clear of liens in several ways. First , the Munns did not file the Sale Motion with the available electronic designation that it was a motion for the approval of a sale free and clear of liens. ECF No. 3-5 at 20, 27. Second , the Munns likewise did not pay the filing fee applicable to a motion for a sale free and clear of liens. ECF No. 3-5 at 20, 27. Third , even though the initial paragraph of the Sale Motion states that the Munns filed it "for approval to short sale [the] Property ... free and clear of all liens, claims, and encumbrances," the Sale Motion does not include a reference to Section 363(f) of the Bankruptcy Code —the provision applicable to sales free and clear of liens. Id. at 20, 28; ECF No. 32 at 17–20. Fourth , the Sale Motion does not refer to any standard applicable to the approval of a sale free and clear of liens. ECF No. 3-5 at 20, 28; ECF No. 32 at 17–20. Fifth , the Sale Motion does not contain the court-approved negative notice language for a sale free and clear of liens. ECF No. 3-5 at 21, 27; ECF No. 32 at 17–20. Sixth , the Sale Motion provides for a 14-day objection deadline and does not mention a hearing; the then-governing local rule contemplated a hearing after at least 24 days’ notice. See former N.D. TEX. L.B.R. 9007(c); ECF No. 3-5 at 21, 27; ECF No. 32 at 17–20. Seventh , the Sale Motion's prayer contains no language requesting approval of the sale free and clear of all liens. ECF No. 3-5 at 20–21; ECF No. 32 at 19. Finally , even though the Sale Motion identifies Ocwen as a lienholder, it merely states that Ocwen had agreed to the Short Sale; it does not discuss the discharge of the Ocwen Lien. ECF No. 3-5 at 27.
Nothing about the Sale Motion shows that the parties or the former bankruptcy judge specifically contemplated the discharge of the Frost Lien. First , the Sale Motion does not mention the Frost Lien or any liens other than the Ocwen Lien. ECF No. 3-5 at 20, 27. ECF No. 32 at 17–20. Second , the certificate of conference does not show that the Munns’ counsel conferred with Frost's counsel. ECF No. 32 at 20, 51. Third , the Sale Motion's certificate of service expressly references service on certain "Interested Parties," but the only Interested Parties listed are Ocwen, Ocwen's counsel, and the title company assigned to the closing, not Frost. ECF No. 3-5 at 20–21, 28; ECF No. 32 at 19. Finally , as the bankruptcy court noted, a copy of the Sale Motion was mailed by regular first-class mail to Frost's San Antonio post office box solely because of
Frost's inclusion on the overall creditor mailing matrix in the Munns’ bankruptcy case.6 That is, Frost received the same notice of the Sale Motion that any other creditor of the Munns except Ocwen received. ECF No. 3-5 at 21; ECF No. 32 at 20.
No one objected to the Sale Motion, and no hearing was held. ECF No. 3-5 at 21–22. The Munns’ lawyer uploaded a proposed "unopposed" order for the former bankruptcy judge's signature. Id. at 22. On April 5, 2016, the former bankruptcy judge signed the Sale Order granting the Sale Motion without conducting a hearing. Id.
The Sale Order allowed the Munns to sell the Property in a short sale. ECF No. 32 at 17–20; ECF No. 3-5 at 22. The Sale Order does not mention Ocwen or Frost, nor does it contain any language referring to a sale of the Property free and clear of any liens or providing for any of the liens in the Property to reattach to the proceeds of sale. ECF No. 32 at 17–20; ECF No. 3-5 at 22. With this signed order, the Property sale was allowed to proceed.
The sale of the Property closed on April 20, 2016. ECF No. 3-5 at 22. VIP's $215,000 payment for the Property was transferred to Ocwen in full and final satisfaction of the Ocwen Lien, and the Munns executed a general warranty deed, without exception for any existing liens, to convey the Property to VIP. Id. Ocwen then signed a release of lien. Id. at 23. Frost did not receive any of the sales proceeds or a separate payment and never executed a release of lien. Id.
B. VIP sold the Property to the Madisons, triggering this dispute.
About five months after purchasing the Property, VIP sold it to the Madisons for $346,000. Id. VIP executed a general warranty deed with a vendor's lien, without exception for any existing liens, dated September 30, 2016, to convey the Property to the Madisons. Id.
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