Waldschmidt v. Bank of Am., N.A. (In re Wheeler)
| Decision Date | 26 October 2012 |
| Docket Number | ADV No. 12-90228,Case No. 12-02452 |
| Parties | In re: ANTHONY JAY WHEELER, CARRIE ANN WHEELER Debtors. ROBERT H. WALDSCHMIDT, TRUSTEE, Plaintiff, v. BANK OF AMERICA, N.A, ANTHONY JAY WHEELER CARRIE ANN WHEELER Defendants. |
| Court | U.S. Bankruptcy Court — Middle District of Tennessee |
___________
Randal S. Mashburn
U.S. Bankruptcy Judge
What a difference a day makes. The Chapter 7 Trustee is attempting to exercise his "strong-arm powers" to bring the Debtors' residence into the bankruptcy estate, and he would be successful if the release of the deed of trust by the secured lender had been recorded the day before the bankruptcy filing instead of the day after.
The secured creditor mistakenly executed a release of the deed of trust during a home refinancing without simultaneously recording the substitute deed of trust. Indeed, the new deed of trust was not recorded as of the date of the bankruptcy filing. Fortunately for thesecured creditor, and unfortunately for the Trustee, the release document relating to the old deed of trust was also not recorded until after the bankruptcy petition was filed. Therefore, a deed of trust relating to this property and this secured creditor remained a matter of public record on the day the bankruptcy was filed. The release of that old deed of trust was not recorded until the next day - one day after the Trustee's recovery powers were established for this case.
The result is that the respective rights of the parties must be viewed from the standpoint of how applicable law would treat a refinanced deed of trust that remained of record at that point in time. The Court finds that applicable law would not allow the old deed of trust to be ignored without recognizing the concept of equitable subrogation as it relates to the new substituted deed of trust. Thus, the Trustee's effort fails.
This matter is before the Court on the cross motions for summary judgment filed by Bank of America ("BOA") and Robert H. Waldschmidt, Chapter 7 Trustee ("Trustee"). The parties agreed that there were no factual disputes and that the sole issue involved an interpretation of law based on the peculiar circumstances arising out of the case. The following constitutes the Court's findings of fact and conclusions of law. Fed.R.Bankr.P. 7052; 7056(a).
These facts have been stipulated or are not in dispute based upon the evidence in the record:
1. The debtors, Anthony Jay Wheeler and Carrie Ann Wheeler ("Debtors"), filed a Chapter 7 bankruptcy petition on March 13, 2012, and Robert H. Waldschmidt is the Chapter 7 Trustee.
2. The Debtors were the owners of their residence at 118 Deer Drive, La Vergne, Tennessee (the "property"), subject to a properly recorded deed of trust (the "2007 Deed of Trust") for the benefit of Countrywide Home Loans, Inc. ("Countrywide") reflecting a stated value of $279,000.
3. BOA became the successor to Countrywide, and on February 24, 2012, less than a month before the bankruptcy, the Debtors obtained refinancing from BOA (the "ReFi Loan").
4. The ReFi Loan satisfied the old debt of approximately $261,000 to BOA that was secured by the 2007 Deed of Trust and created a new debt secured by a new deed of trust in favor of BOA (the "2012 Deed of Trust"). This new debt to BOA was reflected in the Debtors' bankruptcy schedules.
5. As a part of the closing documents for the ReFi Loan, a release of the 2007 Deed of Trust was executed (the "Release"). Although the Release was signed on March 8, 2012, and the new loan had been funded by that time, the Release was not recorded until March 14, 2012, one day after the bankruptcy filing. Therefore, on the date of the bankruptcy, the 2007 Deed of Trust remained of record, the Release was unrecorded, and the 2012 Deed of Trust had also not yet been recorded - even though the ReFi Loan transaction had otherwise been consummated within the prior month.
Under Fed.R.Civ.P. 56(c), made applicable in this adversary proceeding by Fed. R. Bankr.P. 7056, summary judgment is appropriate where "the pleadings, the discovery and disclosure materials on file, and any affidavits show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law." Fed.R.Civ.P. 56(c); see also Novak v. MetroHealth Med. Ctr., 503 F.3d 572, 577 (6th Cir. 2007). In reviewing a motion for summary judgment, the Court views the evidence, all facts, and any inferences drawn therefrom in the light most favorable to the nonmoving party. Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 587, 106 S.Ct. 1348, 89 L.Ed.2d 538 (1986); Novak, 503 F.3d at 577; Skowronek v. Am. S.S. Co., 505 F.3d 482, 484 (6th Cir.2007) ().
The filing of cross-motions does not alter the standards governing the determination of summary judgment motions. See Taft Broad. Co. v. United States, 929 F.2d 240, 248 (6th Cir. 1991). "Cross motions for summary judgment do authorize the court to assume that there is no evidence which needs to be considered other than that which has been filed by the parties." Schafer v. Rapp (In re Rapp), 375 B.R. 421, 428 (Bankr. S.D. Ohio 2007) (quoting Greer v. United States, 207 F.3d 322, 326 (6th Cir. 2000)).
After reviewing all the material submitted to the Court and stipulated by the parties, the Court concurs with the parties that there are no material facts in dispute, there are no further facts that need to be developed that would assist in a resolution of this case, and this matter can be decided purely as a matter of law.
The filing of a bankruptcy petition creates an "estate" composed, among other things, of "all legal or equitable interests of the debtor in property as of the commencement of the case[.]" 11 U.S.C. § 541(a)(1). The Trustee in the bankruptcy case then becomes the representative of the bankruptcy estate, (11 U.S.C. § 323(a)) with the authority to "collect and reduce to money the property of the estate for which such Trustee serves, and close such estate as expeditiously as is compatible with the best interests of parties in interest[.]" 11 U.S.C. § 704(a)(1).
A bankruptcy Trustee who is claiming under § 541(a)(1), as successor to the debtor, generally cannot acquire any greater rights in property than the debtor. In re Dunlap, 158 B.R. 724 (Bankr. M.D. Tenn. 1993). However, property of the bankruptcy estate is not so limited. Inparticular, §§ 541(a)(3) and (a)(4), bring into the bankruptcy estate property that the debtor does not own but that the Trustee is able to recover for the benefit of creditors under one or more of his special avoidance powers, such as 11 U.S.C. § 544, the so called "strong-arm" powers. 11 U.S.C. § 541(a).
Section 544(a) provides in relevant part:
11 U.S.C. § 544(a); In re Biggs, 377 F.3d 515, 517 (6th Cir. 2004). "Simply stated, the bankruptcy Trustee is in the same position, with respect to real estate, as if he were a bona fide purchaser ("BFP") who bought the property from the debtor on the filing date and simultaneously perfected the transfer by recording a deed." In re Reasonover, 236 B.R. 219, 227 (Bankr. E.D. Va. 1999) subsequently remanded by 238 F.3d 414 (4th Cir. 2000). Similarly, the Trustee steps into the shoes of a hypothetical judgment lien creditor who recorded a judgment lien on the date of the bankruptcy filing. Even though federal law vests the Chapter 7 Trustee with therights and powers of a such a judicial lien creditor, applicable state law determines what rights and powers exist. Waldschmidt v. Dennis (In re Muller), 185 B.R. 552 (Bankr. M.D. Tenn. 1995). In this case, Tennessee state law determines what rights the Trustee acquired pursuant to § 544(a).
The inquiry, therefore, is: if the Trustee had purchased the property as of commencement of the case and recorded the deed on that same day, would he have taken free and clear of BOA's interest? Biggs, 377 F.3d at 517. Or if the Trustee held a judgment lien recorded on the date of the bankruptcy filing, would that judgment lien recorded subsequent to the 2007 Deed of Trust nevertheless have superior rights to the 2007 Deed of Trust that had been the subject of the ReFi Loan?
A snapshot of the petition date looks like this:
2007 Deed of Trust & Debt: BOA has paid itself to satisfy the 2007 debt; a Release of the 2007 Deed of Trust is executed but not yet recorded; the 2007 Deed of Trust has always been and remains properly recorded.
2012 Refinanced Loan: New debt has been fully funded; 2012 Deed of Trust executed but not yet recorded.
As a matter of pure timing and the status of recorded documents, if the Trustee, as a BFP, recorded his deed on the petition date, he would normally be second in line behind BOA's 2007 Deed of Trust. Generally, liens are given priority based on the order in which they are recorded. See T.C.A. § 66-26-105 (1993). Under Tennessee's race notice...
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