Bank of America, N.A. v. Welsh (In re Welsh)

539 B.R. 713, 2015 Bankr. LEXIS 3428
CourtUnited States Bankruptcy Court, D. Delaware
DecidedOctober 1, 2015
DocketCase No. 14-11503(BLS)
StatusPublished

This text of 539 B.R. 713 (Bank of America, N.A. v. Welsh (In re Welsh)) is published on Counsel Stack Legal Research, covering United States Bankruptcy Court, D. Delaware primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
Bank of America, N.A. v. Welsh (In re Welsh), 539 B.R. 713, 2015 Bankr. LEXIS 3428 (Del. 2015).

Opinion

OPINION

Brendan Linehan Shannon, Chief United States Bankruptcy Judge

Before the Court is Debtor-Defendant Brian J. Welsh’s (“Debtor”) Motion to Dismiss (the “Motion”) Bank of America N.A.’s (“BofA” or “Plaintiff’) Complaint to Determine the Validity, Priority or Extent of Bank of America’s Lien [Adv. Docket No. 11]; Plaintiffs Response to the Motion (“Response”) [Adv. Docket No. 15]; and Debtor’s Reply thereto (“Reply”) [Adv. Docket No. 16]. Because the parties have presented matters outside the pleadings, the Court will treat the Motion as a request for summary judgment. See Fed. R. Bankr. P. 7056 (incorporating Fed. R. Civ P. 56(d)). For the following reasons, Debtor’s Motion will be granted.1

[715]*715I. INTRODUCTION

Plaintiff was assigned the mortgage and note to Debtor’s real property. ■ BofA thereafter mistakenly filed a satisfaction piece for the mortgage while Debtor was in material default and still had payments due. Plaintiff filed a complaint in state court to strike its erroneous satisfaction, but Debtor filed for bankruptcy relief in this Court prior to the state court adjudicating the satisfaction issue. In the bankruptcy case, Plaintiff filed a complaint, which requested that, inter alia, the Satisfaction be declared null and void and the mortgage reinstated. Debtor filed a motion to dismiss, asserting that Bankruptcy Code § 522(h) permits him to step into the role of a trustee and avoid Plaintiffs lien under the strong arm provision embodied in § 544(a)(3). For the reasons stated below, the Court finds that a bona fide purchaser would not have been on notice of the state court action as of the Petition Date. Therefore, Debtor may avoid the lien pursuant to § 544(a)(3), and the Court will grant the Motion.

II. BACKGROUND

Debtor owns and resides at 1908 Gheen Road, Wilmington, DE 19808 (the “Property”). On April 19, 2007, Debtor purchased the Property by executing and delivering to C & F Mortgage Corporation (“C & F”) a promissory note (the “Note”) for $205,000 plus 5.875% per annum interest rate, attorneys’ fees, costs, and late charges to be paid over thirty years. That same day, Debtor also executed and delivered a $205,000 mortgage on the Property to Mortgage Electronic Registration Services, Inc. (“MERS”) (“First Mortgage”). The First Mortgage showed C & F as the lender; and it was subsequently recorded on April 25, 2007, in the Office of New Castle County Recorder of Deeds in Delaware (the “Recorder of Deeds”). On May 3, 2007, Debtor executed and delivered a second mortgage for $60,000 on the Property (“Second Mortgage”) with MERS .that was also recorded in the Recorder of Deeds. C & F was also the lender on the Second Mortgage.

MERS assigned the First Mortgage and Note to BofA on November 1, 2011. On April 13, 2012, BofA prepared a satisfaction instrument (the “Satisfaction”) for the First Mortgage and recorded it that same day, even though Debtor was in material default and still had payments due. Although the Satisfaction referenced Debt- or’s First Mortgage and the Property, the record indicates that it was actually intended for an unrelated Pennsylvania property owned by a different Brian Welsh. As of November 10, 2014, Debtor owed $240,632.81 on the note.

The Second Mortgage was also assigned by MERS to Wells Fargo Bank, N.A. (“Wells Fargo”) on November 3, 2013. Wells Fargo recorded its interest that same day. No satisfaction was filed as to Wells Fargo’s mortgage.

On February 7, 2014 — nearly two years after the filing of the Satisfaction^-Plaintiff filed a complaint in the Superior Court of the State of Delaware (the “Superior Court Complaint”). Plaintiff sought to set aside the Satisfaction pursuant to 25 Del. Code § 2122. All parties were served in May 2014. A hearing to set aside the Satisfaction was scheduled to be heard on June 20, 2014.

However, Debtor filed a Chapter 13 petition with this Court on June 18, 2014. Notice of Debtor’s bankruptcy petition was filed with the Superior Court the next day, and the proceedings relating to the Superi- or Court Complaint were stayed by operation of Bankruptcy Code § 362(a).

[716]*716The record reflects that a title search of the Property does not identify the First Mortgage, but it does show the Second Mortgage. A lis pendens was not filed with the Recorder of Deeds to reflect the commencement of the state court lawsuit to strike the Satisfaction and reinstate the First Mortgage. In addition to the Second Mortgage, two judgments 'from Calvary SPV 1, LLC (“Calvary”), a collection party not named in this adversary proceeding, also appear on a title search of the Property. Calvary’s judgments appear separately as N13J-02520 and N14J-02097, and were electronically filed on July 15, 2013, and May 22, 2014, respectively. Both judgments and the Second Mortgage are treated in Debtor’s amended Chapter 13 plan (the “Second Amended Plan”). Debt- or does not provide for payments on account of the First Mortgage in the Second Amended Plan.

On October 31, 2014, BofA commenced this adversary proceeding by filing the Complaint to Determine the Validity, Priority or Extent of its Lien with this Court. The following relief is requested: (1) the Satisfaction be declared null and void; (2) the Second Mortgage be subordinated to the First Mortgage; (3) the Recorder of Deeds cancel or remove the Satisfaction and the First Mortgage be reinstated; (4) the Recorder of Deeds record the Court’s Order amongst its records; and, (5) Debt- or be responsible for Plaintiffs attorney’s fees for filing and prosecuting this Complaint. A Motion to Dismiss the Complaint was filed by Debtor on January 1, 2015. Plaintiffs Response and Debtor’s Reply thereto was filed on May 1, 2015, and May 13, 2015, respectively. Briefing is complete and the issue is ripe for disposition.

III. JURISDICTION & VENUE

The Court has jurisdiction over this adversary proceeding pursuant to 28 U.S.C. §§ 1334 and 157(a) and (b)(1). Venue is proper in this Court under to 28 U.S.C. §§ 1408 and 1409. Consideration of this Motion constitutes a core proceeding in accordance with 28 U.S.C. § 157(b)(2)(A), (K), and (O).

IV. STANDARD OF REVIEW

Debtor has filed a motion to dismiss for failure to state a claim upon which relief can be granted pursuant to Federal Rules of Bankruptcy Procedure 7012 and Federal Rules of Civil Procedure 12(b)(6). The Court treats the Motion as a motion for summary judgment, as each side’s submissions address matters outside the four corners of the Complaint. See Fed. R. Bankr. P. 7056

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Cite This Page — Counsel Stack

Bluebook (online)
539 B.R. 713, 2015 Bankr. LEXIS 3428, Counsel Stack Legal Research, https://law.counselstack.com/opinion/bank-of-america-na-v-welsh-in-re-welsh-deb-2015.