Federico A. Ramos Garcia v. DLJ Mortgage Capital Inc c/o Select Portfolio Servicing

• Court: United States Bankruptcy Court, D. Puerto Rico
• Decided: June 4, 2019
• Docket: 15-00297
• Status: Unknown

Opinion

1 IN THE UNITED STATES BANKRUPTCY COURT FOR THE DISTRICT OF PUERTO RICO 2

4 IN RE: CASE NO. 14-05463 BKT 5 6 FEDERICO A RAMOS GARCIA Chapter 13

7 Adversary No. 15-00297 8 9 Debtor(s)

10 FEDERICO A RAMOS GARCIA 11

12 Plaintiff 13 vs.

14 DLJ MORTGAGE CAPITAL INC C/O 15 SELECT PORTFOLIO SERVICING 16 Defendant(s) FILED & ENTERED ON 06/04/2019 17

19 OPINION & ORDER 20 21 Before the court is Defendant DLJ Mortgage Capitol, Inc.’s (hereinafter “DLJ”) Motion for 22 Summary Judgment [Dkt. No. 70]; DLJ and Plaintiff Federico A. Ramos Garcia’s (hereinafter 23 “Debtor” or “Plaintiff”) Joint Motion Submitting Factual Stipulations [Dkt. No. 67]; and Plaintiff’s 24 25 Reply to Defendant’s Request for Summary Judgment [Dkt. No. 76]. Both DLJ and Plaintiff state in

their motions that this case presents a matter of law and legal interpretation.

1 1 There are no material facts in dispute. For the reasons set forth below, DLJ’s Motion for Summary 2 Judgment [Dkt. No. 70] is DENIED. Plaintiff’s cross motion request for summary judgment 3 contained in his Reply to Defendant’s Request for Summary Judgment [Dkt. No. 76] is GRANTED. 4 5 A. FINDINGS OF FACT 6 After considering the totality of the record, including DLJ and Plaintiff’s Joint Motion 7 Submitting Factual Stipulations [Dkt. No. 67], the following are the material facts in this 8 9 controversy: 10 1. On July 1, 2014, Debtor filed a petition for relief under chapter 13 of the Bankruptcy Code 11 [Main Case, Dkt. No. 1].

12 2. In the related legal case, claim numbers 8-1, 8-2, 9-1, 9-2 and 9-3 were filed by the Debtor 13 and listed as secured. The last amendment to these claims was done on January 27, 2015. 14 3. Upon an unfavorable recommendation by the chapter 13 trustee, on June 12, 2015, the 15 Debtor eliminated the direct mortgage payments and arrears and increased the base of the plan. 16

17 4. On December 14, 2015, Plaintiff, filed a Complaint to Determine Validity and Extent of DLJ Mortgage Capital’s and Banco Popular de Puerto Rico’s Lien and to Establish Their Claims 18 as Wholly Unsecured Claims [Dkt. No. 1, adversary case]. 19 5. The Plaintiff is the sole owner of a real property located in Las Cuevas Ward, Km. 13.3, 20 Trujillo Alto, Puerto Rico (hereinafter, the “Property”) The description of the Property, as 21 found in the Property Registry, is:

22 URBANA: Solar en el Barrio Cuevas del Municipio de Trujillo Alto, Puerto 23 Rico, con una cabida superficial de veintiún (21) centésimas de cuerda equivalente a ochocientos diecisiete punto cincuenta y dos (817.52) metros 24 cuadrados. En lindes por el Norte, en trece punto sesenta y seis (13.66) 25 metros con terrenos de Juan Feliciano; por el Sur, en catorce punto treinta y nueve (14.39) metros con carretera estatal #175; por el Este, en cincuenta y

nueve punto veinte (59.20) metros con terrenos de Aguedo Adorno y por el Oeste, en cincuenta y ocho punto veintinueve metros (58.29) con terrenos de Cándido Arroyo.

2 1 6. This Property is currently in possession of Plaintiff’s mother, Nydia Elisa García Monge. 2 7. Plaintiff obtained partial legal title and ownership of the Property through a Declaration 3 of Heirs entered in the state court Case No. FJV2003-09402, establishing that Plaintiff, Plaintiff’s sister, Rosa Amarilis Ramos García and Plaintiff’s mother, Nydia Elisa García 4 Monge are the heirs of deceased Plaintiff’s father, Catalino Ramos Díaz. 5 8. Plaintiff obtained sole legal title over the above-mentioned property through a donation 6 executed through Deed No. 1, dated January 16, 2006, authorized by Notary Ramon 7 Rivera Cano. Through this deed, Plaintiff’s mother and sister donated their participation in the Property to Plaintiff. 8 9 9. With regards to the referenced donation deed, on April 14, 2008, the Registrar of the 10 Property (hereinafter “Registrar”) notified certain defects. Such notification expired on June 16, 2008, without the correction of the defects. 11 12 10. Specifically, the Registrar notified the following defects with regards to the referenced Deed No. 1: 13 14 The certificate of release of estate tax lien (“relevo de hacienda”) must be amended for it incorrectly states that the value of the property and the 15 participation of the deceased (Catalino Ramos Díaz) in the property are for 16 the same amount when from the document filed it appears that the property is part of a legal conjugal partnership (“ganancial”). 17

18 The releases accompanied with the donations do not add up to the value that is provided in the deed for the donation, therefore the other documents 19 pending (Mortgage Deed No. 140 of March 14, 2003, Mortgage Deed No. 20 141 of March 14, 2008, Mortgage Deed No. 125 of December 16, 2004 and the Declaration of Heirs of December 28, 2005) must be clarified. 21 (Translation ours). 22 11. The heirs’ declaratory judgment which provided “chain of title” for Deed No. 1 was also 23 notified with defects by the Registrar April 14, 2008. Such notification expired on June 16, 24 2008. 25 12. Specifically, the Registrar notified the following defect with regards to the heirs’ declaratory judgment:

The certificate of release of estate tax lien (relevo de Hacienda) must be amended for it incorrectly states that the value of the property and the participation of the deceased (Catalino Ramos Diaz) in the property are for 3 1 the same amount when from the document filed it appears that the property is part of a legal conjugal partnership (“ganancial”) and/or was owned by both 2 the deceased and his wife Nydia Elisa Garcia Monge. (Translation ours). 3 13. On March 14, 2008, Debtor executed mortgage deed No. 140 before Notary Rafael A. Ojeda 4 Diez, to guarantee a mortgage note in the principal sum of $120,000.00 with interest at the 5 rate of 8.625% per annum in favor of Doral Mortgage, LLC, successor in interest to DLJ. This document was presented to the Puerto Rico Registry of Property (hereinafter “Property 6 Registry”) on June 3, 2009. 7 14. On the same day, Plaintiff executed a second mortgage deed in the amount of $22,500.00 8 with accruing annual interests of 8.625%. It was presented to the Property Registry on June 9 3, 2009. 10 15. On December 27, 2010, Law No. 216 was enacted. By virtue of Act 216 of December 27, 11 2010 (hereinafter “Law 216”), both of the mortgage deeds referenced herein were recorded at the Property Registry. See 30 P.R. Laws Ann. §1821-1831. 12 13 16. On June 21, 2017, the Defendant took the deposition of the Plaintiff. 14 17. During his deposition, Plaintiff testified that approximately three years after Mortgage Deed 15 No. 140 was executed, Notary Rivera Cano informed him that the Registrar had notified 16 certain defects in connection with the donation deed. (Deposition, P. 16, Line 13-18). The Registrar notified certain defects on April 14, 2008, and such notification expired on June 16, 17 2008. 18 18. Specifically, Plaintiff testified that Notary Rivera Cano informed him that he had to take 19 action regarding the defects notified by the Registrar. Notary Rivera informed Plaintiff that 20 there was an error in the Certificate of Release of Estate Tax Lien. (Deposition, p. 19). 21 19. Plaintiff testified that he personally prepared the Certificate of Estate Tax Lien (Deposition, 22 P. 25, Lines1-15).

23 20. Plaintiff testified that he did not take any steps to correct defects notified by the Registrar in 24 connection with the Certificate of Estate Tax Lien he prepared. (Deposition, P. 33, Lines 2- 7). 25 21. Plaintiff testified that he may not have corrected the defects notified by the Registrar due to lack of knowledge. (Deposition, P. 33, Lines 2-8).

4 1 22. Currently the Property is recorded in favor of Catalino Ramos Diaz and his wife Nydia Garcia Monge, Plaintiff’s parents. 2

3 B. STANDARD OF REVIEW

4 The object of summary judgment is to "pierce the boilerplate of the pleadings and assay the 5 parties' proof in order to determine whether trial is actually required." Wynne v. Tufts Univ. Sch. of 6 7 Med., 976 F.2d 791, 794 (1st Cir. 1992). Pursuant to Fed. R. Civ. P. 56(c), made applicable in 8 bankruptcy by Fed. R. Bankr. P. 7056, summary judgment is proper only when there is no genuine 9 issue of material fact and the moving party is entitled to judgment as a matter of law. See Fed. R. 10 11 Civ. P. 56(a). The court must view the evidence in the light most favorable to the nonmoving party. 12 Alt. Sys. Concepts, Inc. v. Synopsys, Inc., 374 F.3d 23, 26 (1st Cir. 2004). Therefore, summary 13 judgment is “inappropriate if inferences are necessary for the judgment and those inferences are not 14 15 mandated by the record.” In re Edgardo Ryan Rijos & Julia E. Cruz Nieves v. Banco Bilbao Vizcaya 16 & Citibank, 263 B.R. 382, 388 (B.A.P. 1st Cir. 2001). 17 C. LEGAL ANALYSIS 18 19 Plaintiff’s Complaint refutes the validity of the mortgage securing the note currently held by 20 DLJ, and seeks a ruling from this court: (i) that the mortgage guaranteeing the mortgage note held by 21 DLJ’s is invalid; (ii) that Proof of Claim 8-1 (as transferred to DLJ) should be treated as an 22 23 unsecured claim; (iii) that the court enter an order directed at the Property Registry to eliminate the 24 mortgage deed recorded therein; and, (iv) to order DLJ to return to the Chapter 13 Trustee any 25 payments received after the petition date.

5 1 Plaintiff contends that the issue in controversy is whether Law 2161 may register a mortgage 2 deed executed by Plaintiff, over Plaintiff’s property, when the property itself is registered in the 3 name of a third party. At the time that Debtor filed his voluntary petition, the Property was recorded 4 5 by a mortgage deed presented by DLJ pursuant to Law 216. This, Plaintiff argues, was in error. First, 6 Law Number 216 only establishes a presumption of correctness. Second, such presumption can be 7 refuted through a judicial decision. Third, in the instant case Doral’s2 registration of its mortgages 8 9 was a mistake, and Law Number 216 provides for the rectification of such mistakes. Doral’s 10 mortgages should not have been registered because they lacked “tracto” or sequence in the chain of 11 titleholders. Thus, the basic principle of Article 57 of the Puerto Rico Mortgage Law, which 12 13 indicates that an act to mortgage needs to be done by the registered owner, is absent in the instant 14 case. Moreover, the bad faith allegations made by DLJ in their answer to the complaint have no 15 foundation. After the Order for Relief, the Debtor continued his mortgage payments to DLJ and only 16 17 filed the instant adversary proceeding when the trustee questioned the validity of the secured status 18 of claims 8 and 9. 19 DLJ submits that the mortgage in question has been properly recorded by operation of Puerto 20 21 Rico law and, as such, Plaintiff’s request for relief in the instant adversary proceeding is the result of 22 an incorrect legal interpretation of said law. In this context, Law 216 provides the legal framework 23 for the validity of the mortgage being attacked by Plaintiff. In the same vein, the interpretative 24 25

1 Act to Streamline the Property Registry. 2After its demise Doral Bank transferred Debtor’s mortgages to DLJ and Banco Popular de Puerto Rico (hereinafter “BPPR”). Plaintiff named both DLJ and BPPR as Defendants in this adversary however Plaintiff settled with BPPR in July 2016. See Dkt. No.’s 33, 35, 37. 6 1 jurisprudence of Law 216 lends further support to DLJ’s contention that its mortgage is valid under 2 Puerto Rico law. DLJ alleges that Plaintiff is not the registered owner of the property as a direct 3 result of his lack of diligence. Plaintiff’s donation deed was not recorded at the Registry because 4 5 Plaintiff failed to correct the required certificate of release of estate tax lien. Such error prevented the 6 recordation of the vesting deed. Taking these arguments as a whole, DLJ requests that the court 7 dismiss Plaintiff’s complaint as to DLJ, find that the mortgage was validly recorded at the Registry 8 9 and, that DLJ’s claim in the legal case be treated as secured. 10 1. Puerto Rico Mortgage Law 11 Pursuant to Puerto Rico Law, every mortgage must satisfy three essential requisites in order 12 13 to be validly constituted: (i) “secure the fulfillment of a principal obligation” In re Ramos, 493 B.R. 14 355, 365 (Bankr.D.P.R. 2013); (ii) be “stipulated in a deed” and; (iii) it shall be recorded at the 15 Registry of Property. P.R. Laws Ann. Tit. 30, § 2607. In its linguistic term, “constitutive” stands for: 16 17 (i) “[m]aking a thing what it is; essential[] and (ii) [h]aving power to institute, establish, or enact.” 18 Random House Webster’s Dictionary (Random House, Inc., 1990). Without the recording, “[t]he 19 mortgage deed turn[s] the promissory note into a personal obligation, unsecured, solely enforceable 20 21 against the maker.” Roig Commercial Bank v. Dueno, 617 F. Supp. 913, 915 (D.P.R. 1985). In other 22 words, “[a] creditor [will] only ha[ve] an unsecured personal obligation regarding the underlying 23 debt.” Soto-Rios v. Banco Popular de Puerto Rico, 662 F.3d 112, 121 (1st Cir. 2011); see also In re 24 25 Amelan, 499 B.R. 236, 238 (Bankr.D.P.R. 2013).

7 1 In accordance to the above, it is safe to say that “[t]he presentation of the mortgage deed at 2 the Registry of Property is the catalyst for the recording process in Puerto Rico.” ACM Penfield, 3 LLC v. Jolley-Talley, 2016 WL 715761 at 1 (internal citations omitted). Following the presentation, 4 5 “the registrar must pass judgment on the documents within sixty days, or some ‘just cause’ period 6 thereafter, and then either…record them or alert the applicant [should there be] any defect.” Soto 7 Rios, 662 F. 3d at 121. 8 9 Also, in order for a mortgage deed to properly gain access to the Registry it must comply with 10 the successive chain of ownership, also known as “tracto sucesivo” in Spanish. Article 57 of Puerto 11 Rico Mortgage Law of 1979 prescribes, in pertinent part, that: 12 13 In order to record documents that declare, convey, encumber, modify or extinguish dominion and other real rights on real property, the right of the 14 person who grants them or in whose name the referred transactions or 15 contracts are granted must appear previously recorded.

16 Registration shall be refused if the right is recorded in the name of a person 17 other than the one who is granting the conveyance or lien. P.R. Laws Ann. Tit. 30, § 2260. 18

19 It is well established law that “[t]he principle of chain of title is manifested in the Registry’s 20 entries in two ways: (i) the system of prior registration so that each device has its own entry, and (ii) 21 the abbreviated system version of chain of title which allows successive devices to appear in an 22 23 orderly manner with their corresponding acquisitions.” Chase Manhattan Bank v. Registrador, 136 24 P.R. Dec. 650 (1994). Article 57 seeks that the “[r]eal estate registry system be predicated on the 25

certainty and correction of its entries.” In re Perez Mujica, 457 B.R. 177, 188 (Bankr.D.P.R. 2011).

8 1 As stated earlier, Article 57’s sole purpose is to assert that every document that gains access to the 2 registry is “[c]omplete and clear as possible.” Id. In other words, “[i]f the title submitted appears to 3 be authorized by someone different from that in the Registry, that is, the titular registrant, Registry 4 5 must be ‘closed’ making inscription impossible.” Chase Manhattan Bank, 136 P.R. Dec. at 650. By 6 doing so, the Registrar safeguards third parties’ interests in real property, giving certainty that every 7 8 document that is recorded pursuant to Puerto Rico Mortgage Law is exact and reliable. 9 Professor Luis Rafael Rivera Rivera (hereinafter “Rivera”) posits that the principle of the 10 successive tract or continuance requires that the judicial history of every registered real property, in 11 regards to its successive titleholders, should appear without any gap or interruptions. Luis Rafael 12 13 Rivera Rivera, Derecho Registral Inmobiliario Puertorriqueño, 226 (3.d ed., 2012). Thus, stating 14 that “today’s transferee shall be yesterday’s acquirer, and the actual titleholder according to the 15 registry shall be tomorrow’s transferee.” Id. In other words, when a mortgage deed tries to record the 16 17 property right of someone that appears to be different from that of the granter, such recordation shall 18 be denied prima facie. Id. at 228. 19 Analogous to the case under consideration, the plaintiff in In re Ramos challenged the 20 21 defendant’s status as a secured creditor. The plaintiff’s argument was that the registration of the 22 mortgage deed was invalid pursuant to Article 57 of the Puerto Rico Mortgage Law, because the 23 successive chain in the Registry was interrupted. In re Ramos, 493 B.R. at 36. In both, In re Ramos 24 25 and the case at bar, the registered owner is someone different from the person who executed the

mortgage deed. As noted before, when a link in the successive chain of title is missing, the mortgage 9 1 deed is by virtue invalid, thus making the lien void, and turning the obligation into an unsecured 2 personal one. Roig Commercial Bank, 617 F. Supp. at 915. 3 In the case before us, DLJ contends that its mortgage deed was validly recorded under Law 4 5 216, even though the purchase deed was not recorded due to several defects. For the reasons set forth 6 below, this court disagrees. 7 2. Law 216 8

9 Acknowledging the judicial traffic and the backlog in the Commonwealth’s Property 10 Registry, Legislature enacted Law 216. Pursuant to this law, “all documents presented as of April 30, 11 2010, with enumerated exceptions, are deemed re[corded] as a matter of law.” ACM Penfield, LLC., 12 13 2016 WL 715761 at 1; (citing Soto-Rios, F.3d at 114 n. 1. Law 216 contains several exceptions to its 14 general dispositions not applicable to the case at bar. Id. “Law 216 creates, in essence, a rebuttable 15 presumption of valid recordation.” In re Ramos, 493 B.R. at 368. Examining the Legislative Ratio 16 17 behind Law 216 one can attest that its sole purpose was “[t]o facilitate the recordation of documents 18 that in several instances took over 10 to 15 years for the registrar to be able to review and record.” Id. 19 at 367. In pertinent part, Law 216, prescribes: 20 21 Various factors have caused this delay, to wit, the dramatic increase in the presentation of documents during the 1990s; the slow implantation of modern 22 computerized systems, the complexity of the documents; and above all, the 23 serious disproportion between the human and fiscal resources allocated to the Property Registry and the function it carries out within our society. 24

25 2010 P.R. Laws No. 216 at 2.

10 1 The presumption established by Law 216 is easily rebutted given the lack of “tracto” or 2 sequence in the chain of titleholders, which constitutes a clear violation of the basic principle of 3 “tracto sucesivo” found in article 17 of Puerto Rico Mortgage Law and Registry of the Property Law, 4 5 30 L.P.R.A. section 6032. There is no doubt that the anomaly in the recordation process “[i]mpedes 6 the mortgage loans from having actual guarantees, which renders access to capital and consequently, 7 economic growth more difficult.” In re Ramos, 493 B.R. at 367; (citing Law 216’s Statements of 8 9 Motives, 2010 P.R. Laws No. 216 at 2; Sanchez Diaz v. Estado Libre Asociado de Puerto Rico, 181 10 P.R. Dec. 810, 826-827 (2011)). 11 This backlog was the finality to promote Law 216 as a temporary measure for all those 12 13 documents that were not yet recorded in the Registry. In re Ramos, 493 B.R. at 367. Law Number 14 216 was enacted to accelerate the registration of documents, but it was not a free pass for all 15 mistakenly presented documents to be registered and remain registered. If the registration is 16 17 mistaken, it must be rectified as per the same Law Number 216. In this case, through judicial 18 intervention. Consequently, we concur with the holding in In re Ramos. Law 216 does not save DLJ 19 from the inevitable conclusion that there is a defect in the recordation which prevents it from having 20 21 a valid registered lien on the property. 22 CONCLUSION 23 In closing, the court finds no merit in DLJ’s argument that the Plaintiff has no standing to 24 25 pursue this action. The first case cited by DLJ, In re Turner, 490 B.R. 1 (Bankr.D.C.C. 2013), deals

11 1 || with the avoidance powers of a chapter 13 trustee pursuant to 11 U.S.C. §§ 522(h) and 544. Thes 2 sections are inapplicable to the case presently before the court. In the complaint, the Plaintiff seek 3 4 || the determination of the secured status of claims 8 and 9 pursuant to 11 U.S.C. § 506. The othe > || cases cited by DLJ will not be discussed by the court as they are wholly irrelevant to the specifi 6 rights of a debtor to seek a determination under section 506. 7 8 There is no question that when Debtor filed his voluntary petition, the purchase deed was no 9 |! recorded in the Property Registry. As such, pursuant to Puerto Rico Law, DLJ does not have a vali 10 lien and consequently does not have a secured claim over Debtor’s Property. It is well establishe 11 12 || that “[w]ithout successive record, a mortgage lien may not be validly recorded in accordance wit 13 |! Article 57 of the P.R. Mortgage Act of 1979, P.R. Laws Ann. Tit. 30, § 2260.” Id. 14 Accordingly, DLJ’s Motion for Summary Judgment [Dkt. No. 70] is DENIED, and Plaintiff? 15 16 ||cross motion request for summary judgment contained in his Reply to Defendant’s Request fo 17 Summary Judgment [Dkt. No. 76] is GRANTED. 18 SO ORDERED 19 20 San Juan, Puerto Rico, this 4th day of June, 2019. 21

23 Brian K. Tester a4 U.S. Bankruptcy Judge 25