Wolf v. Collins (In re Collins), Bankruptcy No. 11-19790-LT7
| Decision Date | 10 July 2017 |
| Docket Number | Bankruptcy No. 11-19790-LT7,Adversary No. 13-90063-LT |
| Parties | In re: CHADWICK C. COLLINS, Debtors. NANCY L. WOLF, TRUSTEE, Plaintiff, v. CHARLES G. COLLINS, JANELLE L. COLLINS, AND CHADWICK C. COLLINS, Defendants. |
| Court | United States Bankruptcy Courts. Ninth Circuit. U.S. Bankruptcy Court — Southern District of California |
WRITTEN DECISION - NOT FOR PUBLICATION
(Rent Recovery Timing Issue)1 2
As the Court has previously noted, this case is an example of what happens when an informal family deal is scrutinized through the cold objective lens of laws designed to govern impersonal commercial transactions.
Defendants initially agreed to transfer property between themselves as part of a loving father's attempt to financially help his son move his growing family into a better home; father gave money to be used for a down payment for the new home. Son and his wife agreed to deed an interest in their old home to the father while retaining some interest. Eventually, however, the deal as initially contemplated did not make sense, and they never formally transferred title to father or otherwise completed the original transaction. The consequences of their decision to discard legal formality in favor of an informal arrangement are many.
The Court has already determined that the real property ("Property") was not legally transferred from the Debtor, Chadwick Collins, and his wife, Janelle, to his father Charles Collins. The Court has also already ruled that the Property was held as community property as between Debtor and Janelle. The Court, therefore, ruled that the entire Property was property of the Debtor's bankruptcy estate. Defendant Charles Collins has been ordered to turn the Property over to the Trustee, and the Court is informed that he has done so.
The Trustee also seeks to recover the net rent Charles garnered from the Property during the bankruptcy case. The sole issue addressed in this memorandum decision is the date back to which the Trustee may reach in recovering rent. The parties have identified possible dates: the petition date; the date Charles received notice that the Trustee asserted an interest in the Property; the date the Trustee demanded turnover; the date the Trustee commenced this adversary proceeding; and the date the Court ordered turnover of the Property. For the reasons set forth below, the Court concludes that the petition date is the appropriate choice.
In 2000, Chadwick and Janelle Collins, husband and wife, purchased a residence at 1480 Beech Tree Road, San Marcos California (the "Property") and took title as Joint Tenants. In 2002, Chadwick and Janelle decided to move into a larger house. In an effort to facilitate the move, Chadwick's father, Charles Collins, agreed to take the Property. Inexchange he agreed to assume responsibility for the mortgage thereon and to make a down payment on the new home. The down payment was made in a series of payments.
Charles memorialized the initial agreement in a Purchase Agreement dated August 5, 2002 ("Purchase Agreement'). The Purchase Agreement provided the terms of the transaction including that upon closing, title to the home would be held as "Charles G. Collins & The Collins Family Trust, Join (sic) Tenants With Rights of Survivorship (JTWROS)." The Purchase Agreement also provided The parties to the Purchase Agreement were "Buyer: Charles G. Collins" and "Seller: Chadwick & Janelle Collins." The Purchase Agreement was signed by Charles, Chadwick, and Janelle.
In September of 2002, however, Chadwick applied to refinance the mortgage on the Property through Merrill Lynch Credit Corporation ("MLCC"), his employer. Chadwick signed a promissory note dated September 6, 2002 ("2002 Note"). The 2002 Note had a fixed interest rate of 4.875%. The 2002 Note provided that the Deed of Trust securing the 2002 Note:
describes how and under what conditions I may be required to make immediate payment in full of all amounts I owe under this Note. Some of those conditions are described as follows: ... If all or any part of the Property or any Interest in the Property is sold or transferred... without Lender's prior written consent, Lender may require immediate payment in full of all sums secured by this Security Instrument. However, this option shall not be exercised by Lender if such exercise is prohibited be Applicable Law.
The 2002 Note was secured by a Deed of Trust recorded October 1, 2002, which named the borrowers as "Chadwick C. Collins, Janelle L. Collins, HUSBAND AND WIFE," ("2002 Deed of Trust").
In late 2002 or early 2003, Chadwick and Janelle vacated the Property, and, shortly thereafter, Charles began to lease the Property to a tenant through a property manager; hecontinued to do so until recently. Since vacating the Property, neither Chadwick nor Janelle has resided at the Property.
In 2008, Chadwick again refinanced through MLCC. Chadwick submitted a Uniform Residential Loan Application which he executed on May 31, 2008 ("2008 Loan Application"). In the 2008 Loan Application under "Assets and Liabilities," "Schedule of Real Estate Owned," Chadwick listed an ownership interest in the Property with a value of $500,000.00. He designated the Property as "Rental," but did not indicate that it was Charles who was collecting the rent. Chadwick also listed the Archer Road Property. Chadwick signed a promissory note dated May 31, 2008 ("2008 Note"). The 2008 Note had a fixed interest rate of 2.717%. Like the 2002 Note, the 2008 Note provided that the deed of trust securing same would provide:
If all or any part of the Property or any interest in the Property is sold or transferred ... without Lender's prior written consent, Lender may require immediate payment in full of all sums secured by this Security Instrument.
This language was directly above Chadwick's signature.
The deed of trust securing the 2008 Note was recorded June 11, 2008, in favor of MLCC and naming as "Borrower," "CHADWICK C COLLINS, A MARRIED MAN, Janelle L Collins" ("2008 Deed of Trust"). The 2008 Deed of Trust provides that Chadwick covenants "that Borrower is lawfully seized of the estate hereby conveyed and has the right to grant and convey the Property and that the Property is unencumbered, except for encumbrances of record." It also provides "If all or any part of the Property or any interest in the Property is sold or transferred..., Lender may require immediate payment in full of all sums secured by this Security Instrument." The 2008 Deed of Trust was executed by Chadwick and Janelle.
The problem for Charles, and the reason the Court is involved, is the fact that, despite the requirement in the written Purchase Agreement that title was to be held by Charles and the Trust as joint tenants, title was never transferred. Neither Chadwick nor Janelle executed a grant deed before Charles took possession of the Property. Chadwick executed agrant deed years later, but Janelle never did, and the ineffective grant deed was never recorded. Likewise, Charles never formally assumed either of the obligations secured by the Property.
Notwithstanding until December 31, 2016, Charles leased out, paid expenses, and collected rents for the Property.
On December 12, 2011, Debtor filed his bankruptcy petition. He did not schedule the Property, nor did he schedule any claims relating to the Property.
On January 6, 2012, the Trustee conducted the initial Meeting of Creditors in the Bankruptcy case.
On February 15, 2012, in response to the Trustee's request at the first Meeting of Creditors, Chadwick's attorney provided the Trustee with copies of: the Purchase Agreement; Schedule E's from Charles' tax returns for 2004 through 2010; and copies of checks showing payment to mortgage holder being made by Charles.
On April 10, 2012, Charles' attorney, Ronald J. Cozad, sent a letter to counsel for the Trustee with a copy to Charles stating he was aware the trustee "may be contemplating asserting a claim against [the Property] in the pending bankruptcy case."
On April 26, 2012, the Trustee's counsel sent a letter to Charles' attorney, Mr. Cozad, asserting that the Property was property of Chadwick's bankruptcy estate and asserting a claim by the Trustee for its recovery.
On May 11, 2012, Charles' attorney, Mr. Cozad sent a letter to counsel for the Trustee disputing the assertion that " 'the [Property] should be liquidated for the benefit of creditors.' "
On June 29, 2012, Charles' counsel, Mr. Cozad sent a letter to counsel for the Trustee stating Charles "is in the process of retaining attorney Susan Stevenson" and "request[ing] forbearance on the complaint for 60 days to allow Ms. Stevenson time to come up to speed."
On March 7, 2013, the Trustee filed a complaint commencing this Adversary Proceeding ("Complaint"). The Trustee sought a declaratory judgment that Charles had nointerest in the Property; that the Property was property of the bankruptcy estate; and that the Property was the community property of Chadwick and Janelle. The Trustee also sought an order directing Charles to turn over the Property to the Trustee. Finally, the Trustee sought authority to sell the Property.
On March 11, 2013, the Trustee served the Complaint on Defendants.
After several rounds of summary judgment, the matter went to trial. In a Memorandum Decision entered August 29, 2016, the Court concluded that as of the petition date Chadwick had an ownership interest in the Property; and that as of the petition date Chadwick and Janelle owned the Property as Community Property. The Court, thus, ruled that the Property was property of the estate. The Court concluded, based upon the conduct of the parties from 2002 onward, that Defendants Charles and...
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