FOR THE DISTRICT OF PUERTO RICO 2 3 IN RE: : CASE NO. 99-10119 (ESL) 4 : SANTOS SURITA ACOSTA : 5 CARMEN CRUZ SILVA : CHAPTER 7 Debtors : ADVERSARY NO. 11-00146 (ESL) SANTOS SURITA ACOSTA : CARMEN CRUZ SILVA : g ||Plaintiffs :
REPARTO SAMAN INC. : [Defendant : eee TT D OPINION AND ORDER B Before this court is Defendant’s Motion to Dismiss (Docket No. 6) under Fed. R. Civ. P. 12(b)(6) claiming that the Complaint’s factual allegations are insufficient and that Section 362(b)(3) of the Bankruptcy Code, 11 U.S.C. § 362(b)(3), provides an exception to the automatic stay to perfect continue to perfect an interest in property pursuant to 11 U.S.C. § 564(b). Also pending before the Court is Plaintiffs’ Motion for Partial Summary Judgment (Docket No. 11) claiming that although Defendant had a pre-petition interest in Plaintiffs’ property, they subsequently withdrew their mortgage from the Property Registry and then proceeded to re-file and record the same after the commencement of the case. Plaintiffs therefore seek partial summary judgment regarding the alleged > violation of the bankruptcy discharge. A pre-trial hearing was held on November 22, 2011 (Docket > No. 27). After considering the arguments and pleadings on record, based on the totality of the circumstances, for the reasons stated herein Defendant’s Motion to Dismiss (Docket No. 6) is denied and Plaintiffs’ Motion for Partial Summary Judgment (Docket No. 11) is granted. Procedural Background Plaintiffs filed a voluntary Chapter 7 bankruptcy petition on August 2, 1999 (Lead Case No. 99-10119, Docket No. 1'). In Schedule A (Real Property), they listed one real property located at | ' References to the lead case are to the entries and documents filed in bankruptcy case no. 99-10119 (ESL) (the “Lead Case”).
1 [Reparto Saman, Street No. 10, Lot Q-17, Cabo Rojo, Puerto Rico (the “Real Property”) (Lead Case 2 [Docket No. 1, p. 5). In Schedule D (Secured Claims), they listed Defendant Reparto Saman, Inc. as 3 only secured creditor (Lead Case Docket No. 1, p. 9). 4 On September 17, 1999, Plaintiffs filed an Amended Schedule D, in which they clarified that 5 registration of “first mortgage on debtors [sic] house [referring to the Real Property] ... is pending 6 before the [Property Registry]” and that “the validity of this mortgage depends upon compliance of 7 lcreditor [with] certain requirements.” (Lead Case Docket No. 5, p. 2) 8 On December 21, 1999, the Chapter 7 Trustee (the “Trustee”) filed a Notice of Abandonment 9 for the Real Property indicating that it has no value or is burdensome to the estate (Lead Case Docket 8) and a Report of No Distribution (Lead Case Docket No. 9). No objections were filed. The Trustee listed the Real Property as secured in the amount of $36,505 and determined that this was a Ino-asset case. (Notice of Abandonment, Lead Case Docket No. 8) On February 11, 2000, the Discharge of Debtors and the Order Discharging Trustee and Closing Case were entered (Lead Case Dockets Nos. 13 & 14). On August 28, 2008, Plaintiffs filed a Motion to Reopen Chapter 7 Case (Lead Case Docket 17), which was initially granted on September 28, 2008 (Lead Case Docket No. 19) but later re- closed on February 13, 2009 for lack of prosecution (Lead Case Docket No. 21). On June 23, 2011, Plaintiffs again moved to reopen the case (Lead Case Docket No. 25), and on July 8, 2011 said Ipetition was granted (Lead Case Docket No. 29). On July 12, 2011, Plaintiffs filed the instant Adversary Proceeding for violation of discharge pursuant to 11 U.S.C. § 727(b) claiming that Defendant had filed, recorded and registered a mortgage jdeed after the filing of this bankruptcy case and had also initiated foreclosure proceedings against Plaintiffs in violation of the discharge injunction. The Trustee was duly notified of the Adversary \Proceeding. On August 1, 2011, Defendant filed a Motion to Dismiss (Docket No. 6) pursuant to Fed. R. Civ. P. 12(b)(6) for failure to state a claim upon which relief can be granted under 11 U.S.C. §§ 546, 362(b)(3) and 546(b)(1). Id., p. 6. On August 31, 2011, Plaintiffs moved for partial summary
1 judgment on Defendant’s alleged violation of the permanent discharge injunction’ pursuant to 11 U.S. 2 IC. § 727 (Docket No. 11). Plaintiffs also filed on that date an opposition to Defendant’s Motion to 3 !Dismiss (Docket No. 12), arguing that the mortgage had been withdrawn on October 18, 1999, that 4 las a result the reach back provision in Puerto Rico’s Mortgage Law is not applicable and that the 5 was not properly constituted at the time of Plaintiffs’ discharge on February 11, 2000. On 6 October 10, 2011, Defendant filed a Sur-reply (Docket No. 20) arguing solely that the Complaint was 7 not well-pleaded. However, Defendant did not address or contested Plaintiffs’ allegation that the 8 imortgage had been withdrawn during from the Property Registry during Plaintiffs’ bankruptcy 9 Iproceeding. After due notice to all interested parties, including the Trustee, a pre-trial and argumentative hearing was initially set for November 21, 2011 but later rescheduled for November 22, 2011. See [Dockets Nos. 3, 4, 21, 22, 23, 24,27 & 29. Both parties presented their respective arguments before court. The following material facts are uncontested by Defendant’s admission and/or stem from Ithe Docket entries in the Lead Case: Material Uncontested Facts 1. On May 13, 1996, Plaintiffs purchased the Real Property by virtue of Purchase and Mortgage Deed No. 98 (the “Purchase and Mortgage Deed”) executed on that day before Notary Public Susan Baez Dixon. 2. The Real Property was purchased for $35,800, of which $35,000 was secured by a mortgage to Defendant. The Purchase and Mortgage Deed was filed at the corresponding section of Puerto Rico Property Registry on October 7, 1998. 3. On August 2, 1999, Plaintiffs filed a voluntary Chapter 7 bankruptcy petition (Lead Case No. 99-10119, Docket No. 1)° * Plaintiffs requested that a partial summary judgment be entered upon Defendant’s alleged violation of the discharge and that the determination of actual and punitive damages be made at a later stage of the case. See Docket No. 11, p. 3, 99 13-14. * This fact was not admitted by Defendant during the hearing, but it is undisputed from the record of the Lead Case. See Lead Case Docket No. 1.
4. On August 20, 1999, the Property Registrar notified certain defects (“faltas”) in the documents presented. 5. On October 18, 1999, the Purchase and Mortgage Deed was withdrawn from the Property Registry by Notary Public Susan Baez Dixon Baez. 6. On February 11, 2000, the Discharge of Debtors and the Order Discharging Trustee and Closing Case were entered (Lead Case Dockets Nos. 13 & 14)*. 7. On March 29, 2000, Defendant filed foreclosure Complaint before the Court of First Instance at Cabo Rojo Court (Case No. 14CI20000211) which was dismissed by a Judgment entered on June 12, 2000 in light of the automatic stay resulting from this bankruptcy proceeding. 8. On June 26, 2001, the Purchase and Mortgage Deed was re-filed at the Property Registry. 9. On July 13, 2003, the mortgage was recorded by the Property Registrar. 10. On January 23, 2008, the Defendant filed another foreclosure Complaint before the Court of First Instance, Superior Court of Cabo Rojo (Case No. I14CI200800054). The court noted that the Trustee was not present at the hearing, although he was adequately notified. See Docket No. 27. Applicable Law & Analysis Defendant's Motion to Dismiss Fed. R. Bankr. P. 7012 makes Fed. R. Civ. P. 12(b)(6) applicable to adversary proceedings as this one. Pursuant to Fed. R. Civ. P. 8(a)(2), a complaint must contain a “short and plain statement of the claim showing that the pleader is entitled to relief.” Although detailed factual allegations are not required, the Rule does call for sufficient factual matter, accepted as true, to state a claim to relief that is plausible on its face. Therefore, to survive a motion to dismiss, a complaint must contain sufficient
—<“‘i‘< XW!!! * This fact was not admitted by Defendant during the hearing, but it is undisputed from the record of the Lead Case. See Lead Case Docket Nos. 13 & 14.
1 /factual matter, accepted as true, to “state a claim to relief that is plausible on its face.” Bell Atlantic 2 Corp. v. Twombly, 550 U.S. 544, 570, 127S. Ct. 1955, 167 L. Ed. 2d 929 (2007). A claim has facial 3 Iplausibility when the pleaded factual content allows the court to draw the reasonable inference that 4 the defendant is liable for the misconduct alleged. Twombly, 550 U.S. at 556. This new 5 “plausibility” standard replaced the traditional standard, under which the movant was required to 6 lshow “beyond doubt that the plaintiff can prove no set of facts in support of his claim that would 7 jjentitle him to relief.” Milton I. Shadurupdates and Mary P. Squiers, 2-12 Moore’s Federal Practice 8 Civil § 12.34[1][a]. The current standard requires sufficient facts that “raise the right to relief above 9 speculative level”. Twombly, 550 U.S. at 555. See also Wright & Miller, Federal Practice and {Procedure: Civil 3d § 1357. The plausibility standard is not akin to a “probability requirement”, but ht asks for more than a sheer possibility that a defendant has acted unlawfully. Where a complaint Ipleads facts that are “merely consistent with” a defendant’s liability, it “stops short of the line between possibility and plausibility of entitlement to relief.” Twombly, 550 U.S. at 557. The ‘Twombly standard was further developed by the Supreme Court in Ashcroft v. Iqbal, 556 U.S. 622, 129 S. Ct. 1937; 173 L. Ed. 2d 868 (2009), advising lower courts that “determining whether a complaint states a plausible claim for relief will ... be a context-specific task that requires the lreviewing court to draw on its judicial experience and common sense.” 129 S. Ct. at 1950. “In keeping with these principles, a court considering a motion to dismiss can choose to begin by jlidentifying pleadings that, because they are no more than conclusions, are not entitled to the jassumption of truth. While legal conclusions can provide the framework of a complaint, they must be supported by factual allegations. When there are well-pleaded factual allegations, a court should lassume their veracity and then determine whether they plausibly give rise to an entitlement to relief.” Hid. at 1950. In sum, allegations in a complaint cannot be speculative and must cross “the line between the conclusory and the factual”. Pefialbert-Rosa v. Fortufio-Burset, 631 F. 3d 592, 595 (1* 2011). In deciding whether to dismiss under Fed. R. Civ. P. 12(b)(6), the court may consider the facts jalleged in the pleadings, documents attached as exhibits or incorporated by reference in the pleadings, jand matters of which the judge may take judicial notice. See Fed. R. Civ. P. 10(c) (documents
1 attached to pleadings are part of pleadings); Young v. Lepone, 305 F.3d 1, 11 (1* Cir. 2002) (district 2 \court was entitled to consider letters that were not attached to complaint when complaint contained 3 jlextensive excerpts from letters and references to them; when factual allegations of complaint 4 jrevolved around document whose authenticity is unchallenged, that document effectively merges into 5 pleadings); and Lovelace v. Software Spectrum Inc., 78 F.3d 1015, 1017-1018 (5 Cir. 1996) 6 i(courts must limit inquiry to facts stated in complaint and documents either attached to or 7 incorporated in complaint; however, courts may also consider matters of which they may take judicial 8 Inotice). 9 The court will first rule upon Defendant’s contention that dismissal of the Complaint is warranted because it is not well pleaded. (Motion to Dismiss, Docket No. 6, p. 5) Pursuant to the Twombly and Ashcroft doctrines, the court must determine whether the pleadings of the Complaint are plausible. A careful reading of {{ 5-9 of the Complaint (Docket No. 1) together with the totality of the frecord, demonstrate sufficient factual matters that, if accepted as true, “state a claim to relief that is plausible on its face.” Twombly, 550 U.S. at 570. The essential claim that Defendant’s mortgage lwas not duly recorded and that the debt was discharged is not speculative nor a mechanic recitation defendant’s liability, especially in light of the fact that the documents attached thereto alert that Ithe Registrar had indeed notified defects (“faltas”) of the mortgage to the Notary prior to the entry ljof the discharge order by the court. See Docket No. 1, p. 14, and Lead Case Dockets Nos. 13 & 14. {Documents filed at the Property Registry, especially mortgages, often get notified by the Registrar defects (“faltas”) that impede their registration pursuant to Puerto Rico’s Mortgage Law. Based jion the foregoing, the Court finds that Defendant’s contention that the Complaint is not well pleaded junder Fed. R. Civ. P. 12(b)(6) is unfounded. See Docket No. 28. Defendant’s second contention in its Motion to Dismiss is that the Purchase and Mortgage Deed was filed prior to the bankruptcy petition but recorded afterwards, activating the relation-back [provision under 11 U.S.C.§ 546(b)(1) and the corresponding the Puerto Rico Mortgage Law, 30 L.P.R.A. § 2256. (Docket No. 6, p. 6). To support its contention, Defendant cites In re Soto-Rios, B.R. 57 (D.P.R. 2009), a case that was later appealed to the District Court for the District of
1 Puerto Rico and the Court of Appeals for the First Circuit®. See Soto-Rios v. BPPR (In re Soto Rios), 2 2011 U.S. App. Lexis 23503, 2011 WL 680609 (ruling that mortgagor enjoyed a pre-petition interest 3 lin the property when it had presented the deed prior to the bankruptcy petition, although recorded by 4 Registrar afterwards). The particular facts of this case are inapposite to Soto-Rios. In the instant 5 contrary to Soto-Rios, the Defendant filed the Purchase and Mortgage Deed prior to the 6 lbankruptcy petition, but then voluntarily withdrew it after the bankruptcy petition upon the 7 Registrar’s notification of certain defects that impeded its registration. The withdrawal of that 8 imortgage automatically caused the extinction of the entry. See Luis R. Rivera Rivera, Derecho 9 Registral Inmobiliario Puertorriquefio, San Juan, Juridica Editors, 2002, pp. 277-278. See also Roig }Commercial Bank v. Torres Duefio, 614 F. Supp. 913 (D.P.R. 1985) (ruling that a mortgage deed that }was presented for recording but subsequently withdrawn had no priority or effect over an IRS seizure property that was registered after the withdrawal of the mortgage, even if the mortgage was re-filed jjonce after the IRS’ registration). For this reason, the court denies Defendant’s argument that the {relation-back provision is applicable to this case. See also the subsequent discussion on this matter lregarding Plaintiff's Motion for Partial Summary Judgment (Docket No. 11), infra. —- Plaintiffs’ Motion for Partial Summary Judgment I. Partial Summary Judgment Standard Fed. R. Civ. P. 56, applicable to this proceeding through Fed. R. Bankr. P. 7056, provides that summary judgment should be entered “if the pleadings, depositions, answers to interrogatories, and ladmissions on file, together with the affidavits, if any, show that there is no genuine issue as to any fmaterial fact and that the moving party is entitled to a judgment as a matter of law.” Fed. R. Bankr. P. 7056; see also, In re Colarusso, 382 F.3d 51, 58 (1* Cir. 2004), citing Celotex Corp. v. Catrett, 477 U.S. 317, 322-23, 106 S. Ct. 2548, 91 L.Ed.2d 265 (1986). “The summary-judgment procedure authorized by Rule 56 is a method for promptly disposing jof actions in which there is no genuine issue as to any material fact or in which only a question of law 000¢C@C—~—”— ° The Court is aware that at the time that Defendant filed its Motion to Dismiss (Docket No. 6), the Opinion by the First Circuit had not been issued nor published.
1 involved.” 10A Wright, Miller & Kane, Federal Practice and Procedure: 3d § 2712 at 198. “Rule 2 provides the means by which a party may pierce the allegations in the pleadings and obtain relief 3 by introducing outside evidence showing that there are no fact issues that need to be tried.” Id. at 4 202-203. Summary judgment is not a substitute for a trial of disputed facts; the court may only 5 jdetermine whether there are issues to be tried, and it is improper if the existence of a material fact is 6 juncertain. Id. at 205-206. 7 Summary judgment is warranted where a party fails to make a showing sufficient to establish 8 existence of an element essential to its case and upon which it carries the burden of proof at trial. 9 !Celotex Corp. v. Catrett, 477 U.S. 317, 322 (1986). The moving party must “show that there is no [genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of jlaw.” Fed. R. Civ. P. 56(c). For there to be a “genuine” issue, facts which are supported by substantial evidence must be dispute thereby requiring deference to the finder of fact. Furthermore, the disputed facts must be material” or determinative of the outcome of the litigation. Hahn v. Sargent, 523 F.2d 461, 464 (1% Cir. 1975), cert. denied, 425 U.S. 904 (1976). When considering a petition for summary judgment, Ithe court must view the evidence in the light most favorable to the nonmoving party. Poller v. \Columbia Broadcasting Systems, Inc., 368 U.S. 464, 473 (1962); Daury v. Smith, 842 F.2d 9, 11 (1st 1988). The moving party invariably bears both the initial as well as the ultimate burden in \demonstrating its legal entitlement to summary judgment. Adickes v. Kress & Co., 398 U.S. 144, (1970); see also, Lopez v. Corporacion Azucarera de Puerto Rico, 938 F.2d 1510, 1516 (1st Cir. 1991). It is essential that the moving party explain its reasons for concluding that the record does not contain any genuine issue of material fact in addition to making a showing of support for those claims which it bears the burden of trial. Bias v. Advantage International, Inc., 905 F.2d 1558, 1560-61 Cir. 1990), cert. denied, 498 U.S. 958 (1990). The moving party cannot prevail ifany essential element of its claim or defense requires trial. Lopez, 938 F.2d at 1516. In addition, the moving party is required to demonstrate that there is an labsence of evidence supporting the nonmoving party’s case. Celotex, 477 U.S. at 325. See also
1 Prokey v. Watkins, 942 F.2d 67, 72 (1° Cir. 1991); Daury, 842 F.2d at 11. In its opposition, the 2 nonmoving party must show genuine issues of material facts precluding summary judgment; the 3 jexistence of some factual dispute does not defeat summary judgment. Kennedy v. Josepthal & Co., 4 814 F.2d 798, 804 (1* Cir. 1987). See also Kauffman v. Puerto Rico Telephone Co., 841 F.2d 5 1169, 1172 (1st Cir. 1988); Hahn, 523 F.2d at 464. A party may not rely upon bare allegations to 6 create a factual dispute but is required to point to specific facts contained in affidavits, depositions 7 jjand other supporting documents which, if established at trial, could lead to a finding for the 8 jnmonmoving party. Over the Road Drivers, Inc. v. Transport Insurance Co., 637 F.2d 816, 818 (1* Cir. 9 11980). The moving party has the burden to establish that it is entitled to summary judgment; no \defense is required where an insufficient showing is made. Lopez, 938 F.2d at 1517. The nonmoving party need only oppose a summary judgment motion once the moving party has met its burden. Adickes, 398 U.S. at 159. The court is required to view the pleadings in their entirety when passing a request for summary judgment. 10A Wright, Miller & Kane, Federal Practice and Procedure: Civil 3d § 2722 368. To do so, it may consider affidavits, depositions, admissions, answers to interrogatories and similar material to determine whether or not any of the post-pleading material suggests the existence any other triable genuine issues of material fact. Id., § 2721 at 365-366. For purposes of Fed. R. P. 56, admissions may include those on file, and those that emerge at the pretrial conference or freport, during an oral argument on the motion, and those made in connection with one of the other ldiscovery procedures or have their roots in a joint statement or stipulation. Id., § 2722 at 375-377; also L&E Co. v. USA, 351 F.2d 880, 882 (9" Cir. 1965) (admissions emerged from the pretrial lreport); Spur Bottling Co. v. Canada Dry Gingar Ale, Inc., 98 F. Supp. 972, 978 (D.W.Ark. 1951) (admissions emerged from the pretrial report); U.S. v. Dooley, 424 F. 2d 1067, 1067-1068 (5" Cir. (admissions by appellant’s counsel during oral argument were construed as a concession that ithe facts were not in dispute for purposes of Fed. R. Civ. P. 56); U.S. Hoffman Mach. Corp. v. Richa, 178 F. Supp. 969, 971-972 (D.C.Mo. 1948). Fed. R. Civ. P. 56 was extensively rewritten in 2010. See 10B Wright, Miller & Krane
Federal Practice & Procedure: Civil 3d § 2737. Amended subsection (a) of Fed. R. Civ. P. 56 now jincludes express authority for judgment on less than the entire case denominating it in its subsection ititle as “Partial Summary Judgment”, which allows summary judgment “upon all or any part” of a Iclaim or defense by any party. In the instant case, upon admission by Defendant of the material facts, summary judgment jis warranted. Property interests “Property interests are created and defined by state law.” Stern v. Marshall, 131 S. Ct. 2594, 2616, 180 L.Ed. 2d 475, 502 (2011), citing Travelers Casualty & Surety Co. of America v. Pacific & Elec. Co., 549 U.S. 443, 451, 127 S. Ct. 1199, 167 L. Ed. 2d 178 (2007), all quoting Butner United States, 440 U.S. 48, 55, 99 S. Ct. 914, 918, 59 L. Ed. 2d 136, 141-142 (1979). The llperfection of a security interest in a real property is governed by state law. See Allan N. Resnick and Henry J. Sommes, 5 Collier on Bankruptcy, § 547.06(1) (15" Ed. 2011). 3. 11 U.S.C. § 546(b) The purpose of Section 546(b)(1) of the Bankruptcy Code is to “protect, in spite of the lsurprise intervention of a bankruptcy petition, those whom State law protects by allowing them to Iperfect their liens as of an effective date that is earlier than the date of perfection.” Alan N. Resnick & Henry J. Sommer, 5 Collier on Bankruptcy J 546.03[1] (15" Ed. 2009) quoting S. Rep. No. 989, 195" Cong., 2d Sess. 86-87 (1978), reprinted in App. Pt. 4(e)(I); H.R. Rep. No. 595, 95" Cong., □□ 371-371 (1977) reprinted in App. Pt. 4(d)(i). Section 546(b)(1) of the Bankruptcy Code exempts from the trustee’s avoiding powers under \Sections 544, 545 and 549 of the Bankruptcy Code “any generally applicable law that permits the llperfection of an interest in property to be effective against an entity that acquires rights in such Ilproperty before the date of perfection; or provides for the maintenance or continuation of perfection an interest in property to be effective against an entity that acquires rights in such property before date on which action is taken to effect such maintenance or continuation.” 11 U.S.C. §§546(b)(1)(A) & 546(b)(1)(B). “Thus, simply stated, if a creditor possesses a prepetition interest property, and state law establishes a time period for perfection of a lien based upon that interest, 10
1 ‘lien does not lose its preferred standing by reason of the fact that it [is] not perfected until after 2 commencement of a bankruptcy’ so long as it is perfected within the time period established by 3 law.” Pérez Mujica v. FirstBank, PR (In re Perez Mujica), 457 B.R. 177, 185-186 (Bankr. 4 [D.P.R. 2011) citing Lincoln Say. Bank, FSB v. Suffolk County Treasurer (In re Parr Meadows 5 [Racing Ass’n), 880 F. 2d 1540, 1546 (2d Cir. 1989), cert. denied, 493 U.S. 1058, 110 S. Ct. 869, 107 6 IL. Ed. 2d 953 (1990) (quoting Poly Industries, Inc. v. Mozley, 362 F. 2d 453, 457 (9th Cir. 1966)). 7 A creditor must satisfy the following requirements for Section 546(b)(1) to be applicable: (2) it must 8 pursuant to the law of general applicability; (ii) the law must permit the creditor to perfect an 9 linterest in property; and (iii) such perfection must be effective against previously acquired rights in property. In re 229 Main St., 262 F. 3d at 9. Moreover, the “gist of section 546(b)(1)(A) is that filing of a bankruptcy petition does not prevent the holder of an interest in property from [perfecting its interest if, absent the bankruptcy filing, the interest holder could have perfected its linterest against an entity acquiring rights in the property before the date of perfection.’” In re 229 |[Main St., 262 F. 3d at 12 (quoting 5 Collier on Bankruptcy {| 546.03[2][a]). In this case, as discussed /further, Defendant had no recorded interest in the real property once he withdrew the mortgage from Property Registry after Plaintiffs had filed for bankruptcy. Compare with Pérez Mujica v. \FirstBank, PR (In re Perez Mujica), 457 B.R. at 188-189 (expiration of an entry at the Property Registry due to uncorrected defects of a document presented prior to the mortgage deed, which were jnotified by the Registrar, impeded the recordation of a subsequent mortgage deed due to lack of jsuccessive tract). Puerto Rico Mortgage Law and Doctrine regarding perfection of liens In Puerto Rico, it is well established that for a mortgage lien to be valid and enforceable, it be executed through a public deed before a notary and be recorded at the Property Registry. Article 1774 of Puerto Rico’s Civil Code, 31 L.P.R.A. § 5042, and Article 188 of the Puerto Rico Mortgage Law, 30 L.P.R.A. § 2607. See also Pérez Mujica v. FirstBank, PR (In re Perez Mujica), B.R. at 187-188 (“[u]nder the laws of Puerto Rico, mortgages are constitutive in nature, meaning for the same to be validly constituted, the instrument in which it is created must be duly entered recorded in the Property Registry”); In re Las Colinas, 426 F. 2d 1005, 1016 (1* Cir. 1970) 11
\(“under Puerto Rican law recording is essential to the validity of a mortgage, one that is not recorded lis a nullity”); Rosario Pérez v. Registrador, 15 P.R. Off. Trans. 644, 648 (1984) (‘the security of a ... credit does not constitute a real security -mortgage— until it is entered in the [Property] Registry”); lland Soto-Rios v. BPPR (In re Soto-Rios), 2011 U.S. App. Lexis 23503 at *18, 2011 WL 680609 (1* P.R. Nov. 23, 2011) (“recording is essential to the validity of a mortgage, and thus, a mortgage jmust be recorded in order to exist.’”) When a document is withdrawn or recalled from the Property Registry before it is recorded, ultimately entails the voluntary dismissal and extinction of the entry of register. See Derecho ? Registral Inmobiliario Puertorriquefio at pp. 277-278, and Roig Commercial Bank v. Torres Duefio, 1614 F. Supp. at 913 (D.P.R. 1985). " 5. Permanent discharge injunction pursuant to 11 U.S.C §§ 524 and 727 In Chapter 7, the debtor, if an individual, is entitled to a discharge of personal liability on pre- bankruptcy debts. See William D. Warren & Daniel J. Bussel, Bankruptcy, Foundation Press, 8" Ed., 2009, p. 129. The discharge is one of the fundamental in rem functions of the bankruptcy courts. See Central Virginia Community College v. Katz, 546 U.S. 356, 363-364, 126 S. Ct. 990, 163 L. Ed. 2d 945 (2006). A bankruptcy court’s discharge order provides the debtor with a financial “fresh start” by “releas[ing] [the] debtor from personal liability with respect to any discharged debt.” Tenn. Student Assistance Corp. v. Hood, 541 U.S. 440, 447, 124 S. Ct. 1905, 158 L. Ed. 2d 764 (2004). “The discharge injunction that arises upon the entry of a discharge order is perhaps the most important feature of the discharge.” Fla. Dep’t of Revenue v. Diaz (In re Diaz), 647 F. 3d 1073, 1087 59 (11® Cir. 2011). That injunction helps to ensure that the debtor’s “fresh start” is realized by 53 prohibiting creditors from attempting to collect discharged debts. See In re Jet Fla. Sys., Inc., 883 F.2d 970, 972 (11" Cir. 1989) as cited in Fla. Dep’t of Revenue v. Diaz (In re Diaz), 647 F. 3d at 1085. Section 727(a) of the Bankruptcy Code, provides for the grant of a discharge to debtors; Section 727(b) declares that the effect of a discharge is to free the debtor from all debts that arose 2g |lbefore bankruptcy. 11 U.S.C. §§ 727(a) and (b). Likewise, under 11 U.S.C. § 524(a)(2), a discharge 12
from bankruptcy operates as an injunction against in personam claims against a debtor. Parker v. Handy (In re Handy), 624 F. 3d 19, 20-21 (1* Cir. 2010). Section 524(a) ensures that the discharge jwill be completely effective and will operate as an injunction against the commencement or lcontinuation of an action or the employment of process to collect or recover a debt as a personal liability of the debtor. 11 U.S.C. § 524(a) Thus, it protects the debtor from a subsequent suit in a jstate court, or any other act to collect, by a creditor whose claim had been discharged. Allan N. Resnick and Henry J. Sommes, 4 Collier on Bankruptcy, § 524.02 (15" Ed. 2011). To ensure the foregoing, Section 524(a)(1) of the Bankruptcy Code provides that any judgment at any time obtained a debt that is discharged is void as a determination of the debtor’s personal liability. 11 U.S.C. 524(a)(1). i Upon Defendant’s admissions made by its counsel during the argumentative hearing held on INovember 22, 2011, partial summary judgment is warranted pursuant to Fed. R. Civ. P. 56 because is no dispute whatsoever as to the material facts. The Purchase and Mortgage Deed was voluntarily withdrawn from the Property Registry on October 18, 1999, that is, about two months after Tithe bankruptcy petition was filed. The discharge order in this case was entered on February 11, 2000. Thus, when the discharge order was entered, Defendant had not filed before the Property Registry a validly constituted mortgage. Consequently, pursuant to 11 U.S.C. §§ 524(a)(1) & 727, the Defendant automatically enjoined to re-file the mortgage and file two foreclosure proceedings after the discharge. To that extent, the court finds that Defendant willfully violated the discharge injunction when re-filed the Purchase and Mortgage Deed on June 26, 2001 at the Property Registry and when it initiated two separate foreclosure proceedings against Plaintiffs. Conclusion In view of the foregoing, Defendant’s Motion to Dismiss pursuant to Fed. R. Civ. P. 12(b)(6) 95 (Docket No. 6) is denied and Plaintiffs’ Motion for Partial Summary Judgment for violation of the discharge injunction (Docket No. 11) is granted. Partial judgment shall be entered accordingly. 13
In San Juan, Puerto Rico, this 27" day of December, 2011.
iP ique $. Lamoutte United States Bankruptey Court 14