1 IN THE UNITED STATES BANKRUPTCY COURT FOR THE DISTRICT OF PUERTO RICO 2 3 IN RE: Case No. 10-08187 (MCF)
4 LEANDRO RAFAEL RODRIGUEZ RAMOS Chapter 13 and NELIMAR REYES TORRES, 5
6 Debtors
7 LEANDRO RAFAEL RODRIGUEZ RAMOS and NELIMAR REYES TORRES, Adv. No. 11-00268 (MCF) 8
9 Plaintiffs,
10 v.
11 BANCO POPULAR DE Puerto Rico, 12 Defendant. 13 14 OPINION AND ORDER 15 Before the court is the central issue of whether defendant 16 17 Banco Popular de Puerto Rico (hereinafter “BPPR”) holds a valid 18 mortgage on plaintiff Leandro Rafael Rodriguez Ramos and Nelimar 19 Reyes Torres’ real property under Puerto Rico’s “Act to Streamline 20 the Property Registry” enacted on December 27, 2010, 2010 P.R. Laws 21 22 No. 216 (in Spanish titled “Ley para Agilizar el Registro de la 23 Propiedad,” 30 L.P.R.A. §§ 1821-1831, hereinafter referred to as 24 "Law 216").1 25
1 Unless otherwise indicated, all statutory references to Law 216 are from the English slip translation, 2010 P.R. Laws No. 216. 1 1 Both parties filed cross motions for summary judgment.2 The 2 Chapter 13 Trustee stated his position with respect to the motions 3 for summary judgment which BPPR opposed and Debtors replied.3 4 After considering the motions and the arguments presented at 5 6 the oral hearing, the Court grants in part and denies in part the 7 cross motions for summary judgment, for the reasons set forth below. 8 I. JURISDICTION AND VENUE 9 The court has jurisdiction to hear this case, pursuant to 28 10 11 U.S.C. §§ 1334(b) & 157(a) and the general order of the United 12 States District Court dated July 19, 1984 (Torruellas, C.J.). This 13 is a core proceeding, pursuant to 28 U.S.C. § 157(b). Venue lies 14 in this district, pursuant to 18 U.S.C. §§ 1408 & 1409. 15 II. UNDISPUTED FACTS 16 17 Based upon the parties’ Statement of Uncontested Facts, 18 exhibits thereto, the pleadings and the docket entries of both the 19 adversary and bankruptcy cases, the uncontested material facts are 20 as follows: 21 22 1. On June 26, 2008, the Debtors acquired a real property 23 located in Bayamon, Puerto Rico from Milagros Torres 24 Ortiz (“Torres Ortiz”), through the purchase and sale 25
2 Dockets Nos. 15; 16, 23, 24, 25, 31 and 35. 3 Dockets Nos. 36, 38 and 41. 2 1 deed number 17 before the Notary Public Ignacio 2 Villamarzo Garcia (hereafter “Purchase Deed”).4 3 2. On the same date, Debtors executed mortgage deed number 4 18 before the same notary public to guarantee a mortgage 5 6 note in the principal amount of $108,605.00 with 7 interest at the rate of 6% per annum in favor of RG 8 Premier Bank (hereafter “Mortgage Deed”).5 9 3. BPPR is now the current holder of the aforementioned 10 mortgage note.6 11 12 4. On July 7, 2008, both the Purchase Deed and the Mortgage 13 Deed were presented by fax to the Registry of Property, 14 Bayamon Section 1 for recordation purposes at entry 15 number 1003 and entry number 1005, respectively, of 16 17 Daily Entries Book number 1276.7 18 5. These presentation entries expired (“caducaron” in 19 Spanish) on August 1, 2008, because certified copies of 20 both deeds were not physically delivered to the Registry 21 of Property in accordance with Puerto Rico law.8 22 23
24 4 BPPR’s Statement of Uncontested Facts ¶ 1 (Docket No. 15); Opposition to 25 B 1 P 0 P R ( ’ D s o c S k t e a t t e N m o e . n t 1 2 o ) f ; U A n n c s o w n e t r e s t t o e d t h F e a c A t m s e n ¶ d e 1 d ( C D o o m c p k l e a t i n N t o . ¶ 2 1 4 0 ) ; ( D A o m c e k n e d t e d N o C . o m 1 p 7 l ) a . i nt ¶ 5 Amended Complaint ¶ 10 (Docket No.12); Answer to the Amended Complaint ¶ 10 (Docket No. 17). 6 BPPR’s Statement of Uncontested Facts ¶ 8 (Docket No. 15); Debtors’ Statement of Uncontested Facts ¶ 8 (Docket No. 24). 7 BPPR’s Statement of Uncontested Facts, Exhibit 1, Title Search dated January 12, 2012 (Docket No. 15). 8 Id. 3 1 6. The Mortgage Deed was presented for a second time to the 2 Registry of Property on November 6, 2008, at entry 3 number 1053 of the Daily Entries Book number 1278.9 4 7. The Purchase Deed was never presented again to the 5 6 Registry of Property.10 7 8. The title of the property has not been recorded in the 8 name of the Debtors.11 9 9. Torres Ortiz appears as the registered title owner of the 10 subject property.12 11 12 10. On September 4, 2010, approximately two (2) years after 13 the Mortgage Deed was presented in the Registry of 14 Property, the Debtors filed a voluntary petition under 15 chapter 13 of the Bankruptcy Code.13 16 17 11. By virtue of the enactment of Law 216 on December 27, 18 2010, the Registrar recorded the Mortgage Deed in the 19 Registry of Property on March 21, 2011.14 20 21 22 23 24 ¶ 9 I d 1 . 2 ; ( A D m o e c n k d e e t d N C o o . m p 1 l 7 a ) i . n t ¶ 12 (Docket No. 12); Answer to the Amended Complaint 25 10 Amended Complaint ¶ 12 (Docket No. 12); Answer to the Amended Complaint ¶ 12 (Docket No. 17). 11 Answer to the Amended Complaint ¶ 9 (Docket No. 17). 12 Amended Complaint ¶ 9 (Docket No. 12); Answer to the Amended Complaint ¶ 9 (Docket No. 17). 13 Amended Complaint ¶ 8 (Docket No. 12); Answer to the Amended Complaint ¶ 8 (Docket No. 17). 14 Certification from the Registry of Property issued on March 21, 2011 (Docket No. 22, Debtors’ Exhibit 1). 4 1 12. The deadline to file unsecured claims in the bankruptcy 2 case of the Debtors, Case No. 10-08187, was January 4, 3 2011. 4 13. On November 5, 2010, the court confirmed the plan dated 5 6 October 21, 2010, without an objection from BPPR.15 7 14. On August 19, 2011, BPPR filed proof of claim number 4-1 8 as secured in the bankruptcy case for $107,480.82, 9 including $892.24 for pre-petition arrears.16 10 15. The confirmed plan does not provide for BPPR’s secured 11 12 proof of claim.17 13 III. PROCEDURAL HISTORY 14 On September 16, 2011, the Debtors objected to BPPR’s claim, 15 challenging its secured status and arguing that BPPR does not have 16 17 evidence to support the perfection of security due to the lack of 18 successive chain of title in the Registry of Property. Debtors 19 assert that BPPR’s claim is consequently unsecured and it is time 20 barred because it was filed after the bar date for unsecured 21 claims.18 22 23 On December 1, 2011, BPPR filed a reply to the objection to 24 claim, alleging that its Mortgage Deed was recorded by virtue of 25
15 Docket No. 24 in Case No. 10-08187. 16 BPPR’s Statement of Uncontested Facts ¶ 13 (Docket No. 15); Debtors’ Statement of Uncontested Facts ¶ 13 (Docket No. 24). 17 Amended Chapter 13 Payment Plan dated October 21, 2010 (Docket No. 18 in Case No. 10-08187). 18 Docket No. 31 of Case No. 10-08187. 5 1 Law 216, thereby making BPPR a secured creditor.19 2 On December 16, 2011, Debtors filed the instant adversary 3 proceeding asserting the following four causes of action against 4 BPPR: 1) challenging the recordation of the Mortgage Deed as a 5 6 voidable transfer and violation of the automatic stay; 2) 7 challenging the recordation of the Mortgage Deed as a voidable 8 preferential transfer; 3) BPPR’s unsecured claim should be 9 disallowed in its entirety because it was filed after the bar date 10 for filing unsecured claims; and 4) BPPR’s should be imposed 11 12 sanctions, fees and costs for filing a false secured claim.20 13 At the hearing to consider the cross motions for summary 14 judgment, the parties submitted their arguments to the 15 consideration of the court.21 16 17 IV. DISCUSSION 18 By agreement of the parties,22 this matter is appropriate for 19 summary judgment disposition as there are no material facts in 20 dispute and one of the parties is entitled to judgment as a matter 21 of law, pursuant to Fed.R.Civ.P. 56, as made applicable to these 22 23 proceedings by virtue of Fed.R.Bankr.P. 7056. Celotex v. Catrett, 24 25
19 Docket No. 37 of Case No. 10-08187. The objection to claim was essentially held in abeyance pending resolution of the adversary proceeding. 20 Amended Complaint (Docket No. 12). 21 Minutes of Hearing held on January 31, 2013 (Docket No. 47). 22 Id. 6 1 477 U.S. 317 (1986) (citing Anderson v. Liberty Lobby, Inc., 477 2 U.S. 242, 250 (1986)); Vega-Rodriguez v. Puerto Rico Tel. Co., 110 3 F.3d 174, 178 (1st Cir. 1997). 4 A. PARTIES’ POSITION ON LIEN STATUS 5 6 Debtors challenge BPPR’s status as a secured creditor because 7 BPPR failed to present the Purchase Deed along with the 8 presentation of the Mortgage Deed in the Registry of Property 9 before the commencement of the bankruptcy case. Debtors argue that 10 11 the registration of the Mortgage Deed is invalid under Article 57 12 of the Puerto Rico Mortgage Act of 1979, P.R. Laws Ann. tit. 30, § 13 2260, because there is a lack of successive chain of title in the 14 Registry of Property (in Spanish "tracto registral"). In other 15 words, without the presentation of the Purchase Deed, the real 16 17 property cannot be encumbered by the Debtors through the Mortgage 18 Deed because the registered owner is Torres Ortiz and she did not 19 execute the Mortgage Deed. To validly perfect the Mortgage Deed, 20 Debtors claim that prior to the commencement of the bankruptcy case 21 BPPR had to present the Purchase Deed to establish that Debtors had 22 23 the right to encumber the real property in question as required by 24 Puerto Rico Mortgage Law. 25 BPPR counters that it has a secured claim because the Mortgage Deed was presented to the Registry of Property before the filing of the petition and the Mortgage Deed was recorded by virtue of Law 7 1 216. BPPR argues that Law 216 allows for the automatic inscription 2 of documents pending recordation before the Registry of Property as 3 of April 30, 2010. Since BPPR’s Mortgage Deed had been presented 4 in 2008 and was pending recordation as of April 30, 2010, it was 5 6 automatically recorded by virtue of Law 216. BPPR believes that 7 the fact that the Purchase Deed was unrecorded does not affect the 8 validity of the lien given the provisions of Law 216. In addition, 9 BPPR argues that Debtors are the owners of the property, even if 10 the property is not registered in their names. So in the bank’s 11 12 view, the lack of successive chain of tile is irrelevant under Law 13 216.23 14 Debtors, on the other hand, argue that Law 216 creates a 15 presumption of validity but said presumption may be rebutted. 16 17 Debtors contend that they have rebutted the presumption of validity 18 of the mortgage because there is a missing link in the successive 19 chain of title, thereby invalidating the recordation of the 20 Mortgage Deed. 21 BPPR concedes that lack of chain of title would have resulted 22 23 in a finding of error by the Registry of Property.24 However, it 24 would have sixty (60) days to correct the error from its 25 notification by simply presenting the Purchase Deed in the Registry of Property. With the correction, the Mortgage Deed would have
23 BPPR’s Motion for Summary Judgment at 3, 11 and 19 (Docket No. 16). 24 BPRR’s Opposition to the Trustee’s Motion at 9 (Docket No. 38). 8 1 preserved its position in the Registry and would have been 2 retroactively recorded as of the date of its presentation. 3 The Trustee argues that the filing of the bankruptcy petition 4 precludes the correction of the chain of title defect. The Trustee 5 6 believes that BPPR has not demonstrated that post-petition 7 perfection of its claim is permissible under the exception 8 established by 11 U.S.C §§ 362(b)(3) and 546(b).25 9 B. SECTIONS 362(b)(3) AND 546(b)(1)(A) 10 One of the fundamental protections afforded a debtor in 11 12 bankruptcy is the automatic stay. It provides the debtor a 13 “breathing spell” from creditors. 3-362 COLLIER ON BANKRUPTCY ¶ 14 362.03 [hereinafter Collier]; H.R. Rep. No. 95-595, 95th Cong. 1st. 15 16 Sess. 340-342 (1977); S. Rep. N. 989, 95th Cong. 1st Sess. 54-55 17 (1978), reprinted in 1978 U.S.C.C.A.N. 5787, 5840, 6296-97. It bars 18 a wide range of creditor activities against a debtor to collect, 19 sue or foreclose, including “any act to create, perfect, or enforce 20 any lien against property of the estate.” 11 U.S.C. § 362(a)(4). 21 22 See also 11 U.S.C. § 362(a)(5)(“any act to create, perfect, or 23 enforce against property of the debtor….”). 24 25
25 Unless otherwise indicated, all statutory references are to title 11 of the United States Code, 11 U.S.C. §§ 101, et seq., as amended by the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005, Pub. L. No. 109-8 (the "Bankruptcy Code"). Trustee’s Motion to Comply with Court Order (Docket No. 34). 9 1 However, the automatic stay is not without limits. There are 2 exceptions to the automatic stay that are listed in § 362(b), which 3 are to be read narrowly. 11 U.S.C. § 362(b)(1)-(28); Hillis 4 Motors, Inc. v. Hawaii Auto Dealers’ Ass’n, 997 F.2d 581 (9th Cir. 5 6 1993). One of the exceptions, pertinent here, § 362(b)(3) provides 7 that the automatic stay does not extend to: 8 any act to perfect, or to maintain 9 or continue the perfection of, an interest in property to the extent 10 that the trustee's rights and powers are subject to such perfection under 11 section 546(b) of [the Bankruptcy 12 Code] or to the extent that such act is accomplished within the period 13 provided under section 547(e)(2)(A) 14 of this title.
15 11 U.S.C. § 362(b)(3). 16 To be eligible for this exception, BPPR has to satisfy three 17 requirements: “there must be (1) an ‘act to perfect’ (2) an 18 ‘interest in property’ (3) under circumstances in which the 19 20 perfection-authorizing statute fits within the contours of section 21 546(b)(1)(A).” 229 Main St. Ltd. P’ship v. Massachusetts Dept. of 22 Envtl. Protection (In Re 229 Main St. Ltd. P’ship), 262 F.3d 1, 4 23 (1st Cir. 2001). Section 362(b)(3)does not create new rights or 24 interests for the creditor. “Instead, it merely permits perfection, 25 or maintenance or continuation of perfection, free of the automatic stay that would otherwise be applicable, under circumstances in which the creditor’s action would be effective against a trustee.” 10 1 3 Collier ¶ 362.05[4]. 2 “While section 362(b)(3) limits the automatic stay, its 3 companion statute, Section 546(b), limits the debtor's power to 4 avoid statutory liens under the so-called strong arm provision.”26 5 6 Soto-Rios v. Banco Popular de P.R., 662 F.3d 112, 116 (1st Cir. 7 2011). Once a bankruptcy petition is filed, the bankruptcy trustee 8 (or the debtor here) is vested with the authority as a hypothetical 9 bona fide purchaser of real property to avoid any transfer of the 10 property or obligation of the debtor to the extent allowed under 11 12 state law. 13 Section 546(b)(1)(A) serves to “protect, in spite of the 14 surprise intervention of a bankruptcy petition, those whom State 15 law protects by allowing them to perfect their liens as of an 16 17 effective date that is earlier than the date of perfection.” Perez 18 Mujica v. FirstBank (In re Perez Mujica), 457 B.R. 177 (Bankr. 19 D.P.R. 2011)(Lamoutte, J.), aff’d, --- F. Supp.2d ---, 2013 WL 20 1408766(D.P.R. April 9, 2013)(Dominguez, J.) (quoting S. Rep. No. 21 989, 95th Cong., 2d Sess. 86-87 (1978), reprinted in App. Pt. 22 23 4(e)(i); H.R. Rep. No. 595, 95th Cong., 1st Sess. 371-372 (1977), 24 reprinted in App. Pt. 4(d)(i)). 25 Thus, simply stated, if a creditor possesses a prepetition interest in property, and state law establishes a time period for perfection of a
26 The other companion statute, § 547(e)(2)(A), is not pertinent to this case. 11 1 lien based upon that interest, the ‘lien does not lose its preferred 2 standing by reason of the fact that 3 it [is] not perfected until after the commencement of a bankruptcy’ so 4 long as it is perfected within the time period established by state 5 law. 6 7 Perez Mujica, 457 B.R. at 185(citing Lincoln Sav. Bank, FSB v. Suffolk Cnty Treasurer (In re Parr Meadows Racing Ass'n), 880 F.2d 8 1540, 1546 (2d Cir. 1989), cert. denied, 493 U.S. 1058, 110 S.Ct. 9 869, 107 L.Ed.2d 953 (1990) (quoting Poly Indus., Inc. v. Mozley, 362 F.2d 453, 457 (9th Cir. 1966)). 10 For a creditor to enjoy this haven from the trustee’s avoiding 11 12 powers: three elements must be met: “(1) the creditor must act 13 pursuant to a law of general applicability; (2) that law must allow 14 the creditor to perfect an interest in property; and (3) such 15 perfection must be effective against previously acquired rights in 16 17 the property.” 229 Main St., 262 F.3d at 10. “The gist of section 18 546(b)(1)(A) is that ‘the filing of a bankruptcy petition does not 19 prevent the holder of an interest in property from perfecting its 20 interest if, absent the bankruptcy filing, the interest holder 21 could have perfected its interest against an entity acquiring 22 23 rights in the property before the date of perfection.’” Id. at 12 24 (quoting 5 Collier on Bankruptcy ¶ 546.03[2][a]). 25 1. Interest in Property Applying these parameters to the case at bar, both §§ 362(b)(3) and 546(b)(1) require BPPR to have a pre-petition 12 1 interest in property in order to be able to perfect its security 2 after the petition is filed. In 229 Main St., 262 F.3d at 14, the 3 U.S. Court of Appeals for the First Circuit defined “interest in 4 property,” as that term is used in § 362(b)(3), to mean 5 6 “unequivalent to, and broader than, the term ‘lien.’” Id. at 13. 7 In other words, a party may have an interest in the property that 8 is not necessarily tantamount to a lien. In a subsequent appellate 9 case, Soto-Rios, dealing precisely with an unrecorded but presented 10 mortgage deed before Puerto Rico’s Registry of Property, the court 11 12 stressed that “our primary focus is whether Banco Popular gained a 13 pre-petition property interest in substance and scope that is 14 superior to that of a bona fide purchaser or a judicial lien holder 15 in accord with sections 362(b)(3) and 546(b)(1)(A).” Soto-Rios, 16 17 662 F.3d 117. 18 BPPR argues: (1)it presented the Mortgage Deed two years prior 19 to the bankruptcy petition; (2)the presentment of the Mortgage Deed 20 created an interest in the real property; and (3) Puerto Rico 21 Mortgage Law and Law 216 which authorize the recording of a lien 22 23 have a relation back provision and fit within the contours of § 24 546(b). In support of its position, BPPR cites Tosado v. Banco 25 Popular de P.R. (In re Soto-Rios), 420 B.R. 57 (Bankr. D.P.R. 2009), aff’d sub nom. Soto-Rios v. Banco Popular de P.R. (In re Soto-Rios), 662 F.3d 112 (1st Cir. 2011), wherein the bankruptcy 13 1 court determined that the mortgage deed that was presented pre- 2 petition but unrecorded in the Registry of Property at the time of 3 the bankruptcy petition coupled with the relation back provision of 4 Article 53 of the P.R. Mortgage Law, P.R. Laws Ann. tit. 30, § 5 6 2256, rendered the creditor a secured party. 7 We conclude that BPPR satisfied the interest in property prong 8 required in both §§ 362(b)(3) and 546(b)(1) due to the mere 9 presentation of the Mortgage Deed two years before the filing of 10 the petition. As discussed in the leading case of Soto-Rios, the 11 12 presentation of the mortgage deed at the Registry of Property is 13 the catalyst for the recordation process in Puerto Rico. Under 14 Article 53 of the P.R. Mortgage Law, P.R. Laws Ann. tit. 30, § 15 2256, “[p]resentment, as the decisive act for securing rank 16 17 provided notice to the public, including to any bona fide 18 purchaser, of the parties’ mortgage transaction and the acts to 19 preserve priority.” Soto-Rios, 662 F.3d at 122. When the document 20 is actually recorded in the Registry of Property, it relates back 21 to the moment of its presentation. P.R. Laws Ann. tit. 30, § 2256; 22 23 Soto-Rios, 662 F.3d at 121-122; Perez Mujica, 457 B.R. at 187. 24 BPPR presented its Mortgage Deed before the filing of Debtors’ 25 bankruptcy case, thereby acquiring an interest in property. Debtors point out that under Puerto Rico Mortgage Law the Mortgage Deed is defective because the mortgagor does not appear as 14 1 the registered property owner of the real property that BPPR is 2 attempting to encumber. However, the courts have found that the 3 presentation of the document in the Registry of Property prior to 4 filing bankruptcy relief gives the holder an interest in the 5 6 property even though there may be known or alleged defects in the 7 Registry of Property. Perez Mujica, 457 B.R. at 187) (“The court 8 concludes that the mortgage creditor had a pre-petition property 9 interest, but had knowledge of the expiration of the registry entry 10 for deed … due to the public nature of the information in the 11 12 Property Registry.”), aff’d Perez Mujica, 2013 WL 1408766 at 8(The 13 court found that the bank had properly shown that it has an 14 interest in property, as opposed to a lien because the record shows 15 that the bank has been unable to perfect the lien on two grounds.); 16 17 In re Feliciano Alvarado, 463 B.R. 200, 211 (D.P.R. 2011) (the 18 court found that the creditor had a potential secured claim and 19 remanded the case for further proceedings to determine whether the 20 creditor would be allowed to perfect its security interest by 21 obtaining a certification from the Registry of Property regarding 22 23 the recordation and presentation history). 24 In the instant case, both parties admit that the pre-petition 25 presentation of the Mortgage Deed was actually recorded by the Registrar after the petition was filed even though there is lacking successive chain of title in the Registry of Property. 15 1 Nevertheless, the presentation of the Mortgage Deed in the Registry 2 of Property provides an interest in property to BPPR under §§ 3 362(b)(3) and 546(b)(1), although not necessarily a valid lien over 4 the property. Perez Mujica, 457 B.R. at 187. 5 6 2. Perfection 7 As to second requirement for the exception of the automatic 8 stay to apply, BPPR must establish the existence of “any act to 9 perfect, or to maintain or continue the perfection, of an interest 10 in property” under § 362(b)(3). “[U]nder Puerto Rico law, the 11 12 registration is a ‘constitutive’ act for a mortgage, and without 13 the existence of a mortgage, a creditor only has an unsecured 14 personal obligation regarding the underlying debt.” Soto-Rios, 662 15 F.3d at 121. The definition of “constitutive” is: “(1) Making a 16 17 thing what it is; essential and (2) Having power to institute, 18 establish, or enact.” The American Heritage® Dictionary of the 19 English Language (4th ed. 2009). 20 The civil code sets forth the 21 ‘essential requisites’ of a mortgage contract, including that a mortgage 22 ‘be constituted to secure the 23 fulfillment of a principal obligation. P.R. Laws Ann. tit. 31, 24 §§ 5001, 5002.
25 16 1 Additionally, the civil code prescribes that ‘it is 2 indispensable, in order for the 3 mortgage to be validly constituted, that the instrument in which it is 4 created be entered in the registry of property. P.R. Law Ann. tit. 31,§ 5 5042.’ A companion statute under the 6 mortgage law also provides that‘[i]n order for voluntary mortgages to be 7 validly constituted’ the mortgage must be ‘stipulated in a deed’ and 8 must ‘be recorded in the Property 9 Registry.’ P.R. Laws Ann. tit. 30, § 2607. 10 Soto-Rios, 662 F.3d at 118-19. 11
12 Along with the presentation requirement, the mortgage must 13 gain access to the registry by complying with the successive 14 ownership tract (“tracto registral”) principle governing our 15 Mortgage Law. S.J. Credit, Inc. v. Ramirez, 113 P.R. Offic. Trans. 16 17 181, 189 (1982). See also P.R. Laws Ann. tit. 30, § 2260.27 Under 18 this principle, the Registry must keep the link or connection of 19 the acquisitions in a successive and chronological order of 20 21 27 Article 57 of the P.R. Mortgage Law, P.R. Laws Ann. tit. 30, § 2260, 22 provides: [i]n order to record documents that 23 declare, convey, encumber, modify or extinguish dominion and other real rights 24 on real property, the right of the person who grants them or in whose name the 25 referred transaction or contracts are granted must appear previously recorded. Registration shall be refused if the right is recorded in the name of a person other than the one who is granting the conveyance or lien. However, resolutions and judgments referred to in §§3761-2777 of this title may be recorded without the previous registration requirement. 17 1 titleholders to maintain a perfect continuity between all 2 registered acts of purchase, disposition or levy so that it 3 reflects the history of that particular property. LUIS RAFAEL 4 5 RIVERA RIVERA, DERECHO REGISTRAL INMOBILIARIO PUERTORRIQUEÑO 219 (2d. 6 ed., 2002)[hereinafter Rivera Rivera]; II R.M. ROCA SASTRE, DERECHO 7 8 HIPOTECARIO 87, 237 (7ma ed., Barcelona, Ed. Bosch, 1979). 9 Successive chain of title must be present or in existence before 10 the mortgage can be recorded and claim a secure footing to a 11 person’s real property. P.R. Laws Ann. tit. 30, § 2260. Absent 12 that continuity, the particular right cannot gain access to the 13 14 Registry. Id. A real property right will be denied recordation in 15 cases where the property right is recorded in the name of a person 16 different from the grantor. Rivera Rivera, supra at 220. In other 17 words, the person executing the mortgage must be the registered 18 19 title owner or have pending for recordation his title to the 20 property that is to be encumbered by the mortgage. 21 Although BPPR had presented its Mortgage Deed in the Registry 22 prior to the petition date, it is undisputed that the Purchase Deed 23 was not presented. The Purchase Deed is necessary to attain 24 25 successive chain of title. According to the Title Search dated January 12, 2012, that was attached by BPPR to its Statement of Uncontested Facts, both Purchase Deed and Mortgage Deed had been presented, via fax, to the Registry of Property but said 18 1 presentations had lapsed (“caducaron”) for failure to physically 2 deliver the documents to the Registry. Article 34 of the P.R. 3 Mortgage Law, P.R. Laws Ann. tit. 30, § 2154, allows the 4 presentation of documents by facsimile but the documents must be 5 6 physically presented within 10 days in order to maintain its 7 presentation rank.28 The Mortgage Deed was later presented to the 8 Registry; however, the Purchase Deed was never presented again. 9 Consequently, the property is currently registered in favor of 10 another party, Torres Ortiz. The Purchase Deed evidencing that the 11 12 property was sold by the registered owner, Torres Ortiz, to the 13 Debtors is absent from the Registry. This is a fatal defect that 14 prevents the post-petition perfection of the interest in property 15 into a valid recordable lien over the subject property. BPPR’s 16 17 mortgage cannot be validly recorded as a lien in accordance to 18 Article 57 of the P.R. Mortgage Law, P.R. Laws Ann. tit. 30, § 19 2260. Hence, there is no act to perfect because BPPR failed to do 20 all that is required by Puerto Rico law. Soto-Rios, 662 F.3d at 21 122; Perez Mujica,457 B.R. at 189. 22 23
24 28 Article 34 of the P.R. Mortgage Law, P.R. Laws Ann. tit. 30, § 2154 states in part: 25 [t]he presentation of documents shall be done personally, by mail or electronic means, and by fax to reserve the entry of presentation, which shall be completed through the physical presentation of the document within 10 working days from the presentation via fax, as provided by regulations.
19 1 In the Soto-Rios case, the bank had presented the mortgage 2 deeds two years before the bankruptcy filing but the record was 3 “devoid of any suggestion that the documents were defective in any 4 manner or that Banco Popular bears any responsibility for the 5 6 lengthy delay.” 662 F.3d at 122. The circuit court noted that “[i]n 7 normal course of events anticipated that, absent noticed and 8 uncured defects, recording of the three mortgage deeds would have 9 occurred well before the debtors filed for bankruptcy.” Id. The 10 court further pointed out that the newly enacted Law 216 recognized 11 12 that there was a widespread delay in the Registry of Property that 13 was not the fault of the applicants. Id. 14 Unlike the Soto-Rios case, BPPR in this case had not acted to 15 secure the in personam obligation over the real property by failing 16 17 to present the Purchase Deed before the bankruptcy proceedings 18 commenced. Thus, BPPR did not take all necessary administrative 19 steps in its power to effectuate due recording of its mortgage as 20 required by 229 Main St., 262 F.3d at 7, and Soto-Rios, 662 F.3d at 21 122. Consequently, at the time of petition, BPPR is not a holder of 22 23 a validly secured lien according to Puerto Rico Mortgage Law. 24 C. LAW 216 25 BPPR insists that it is a holder of a secured claim because its mortgage was recorded in the Registry of Property after the filing of the bankruptcy case by the enactment of Law 216. Both the 20 1 Debtor and the Trustee argue that the post-petition enactment of 2 Law 216 does not provide a secured status to BPPR. 3 According to Law 216, “any document presented in the Property 4 Registry by April 30, 2010, shall be deemed to be recorded” except 5 6 for enumerated exceptions which are not pertinent in this case. 7 Art. 2 of 2010 P.R. Law 216 (effective February 10, 2011). The 8 legislative intent behind Law 216 was to deal with the approximate 9 600,000 documents that were pending recordation in the Registry of 10 11 the Property, and to facilitate the recordation of documents that 12 in several instances took over 10 to 15 years for the registrar to 13 be able to review and record. 14 Various factors have caused this 15 delay, to wit, the dramatic increase in the presentation of documents 16 during the 1990s; the slow 17 implementation of modern computerized systems, the complexity 18 of the documents; and above all, the serious disproportion between the 19 human and fiscal resources allocated 20 to the Property Registry and the function it carries out within our 21 society. 22 2010 P.R. Laws No. 216 at 2. 23 The delay in the recordation process impedes the mortgage 24 25 “loans from having actual guarantees, which renders access to capital and consequently, economic growth more difficult.” Law 216’s Statement of Motives, 2010 P.R. Laws No. 216 at 2; Sanchez Diaz v. Estado Libre Asoc., 181 D.P.R 810,826-827 (2011). The delay 21 1 also “jeopardizes the legal process regarding real property and 2 impairs the rights of citizens.” Law 216’s Statement of Motives. 3 As a result of this situation, Law 216 passed as a temporary 4 measure. 5 6 After the law went into effect, the Mortgage Deed was recorded 7 post-petition despite the fact that there was a “missing link” in 8 the chain of registered title. However, Law 216 does not save BPPR 9 from the inevitable conclusion that there is a defect in the 10 recordation which prevents BPPR from having a valid registered lien 11 12 on the property. 13 As expressed above, it is undisputed that at the moment of the 14 filing of the petition the purported Mortgage Deed was presented by 15 BPPR at the Registry of Property without presenting the Purchase 16 17 Deed and that the mortgage could not be validly recorded in 18 accordance to local law. Failure to present the Purchase Deed 19 previous to the presentation of the Mortgage Deed necessarily 20 results in the lack of successive chain of title. Without 21 successive record, the mortgage lien may not be validly recorded in 22 23 accordance to Article 57 of the P.R. Mortgage Act of 1979, P.R. 24 Laws Ann. tit. 30, § 2260. 25 Although this Law was enacted in order to eliminate the backlog, ease the workload at the Registry and facilitate its modernization, it does not invalidate or leave without effect the 22 1 general principles that encompass the system of the Registry and 2 Puerto Rico Mortgage Law. For that reason, Article 7 of Law 216 3 establishes that “[r]ecords made in accordance with this Act shall 4 be deemed to be correct.” 2010 P.R. Laws No. 216 at 5; 30 L.P.R.A. 5 6 § 1826. However, “[a]ny error shall be corrected pursuant to Act 7 No. 198 of August 8, 1979, as amended, known as the ‘Mortgage and 8 Property Registry Act’; and the Regulations to Enforce the Mortgage 9 and Property Act, Regulations No. 2674 of July 13, 1980, as 10 amended, or any subsequent Regulations.” Art. 7 of Law 216. See 11 12 also Art. 11 of the Emergency Regulation for the Execution of Act 13 216 of December 27, 2010. Law 216 creates, in essence, a rebuttable 14 presumption of valid recordation. 15 BPPR argues that it is able to correct the defect after the 16 17 filing of the petition because if the Registrar had issued a notice 18 of defect it would have sixty (60) days to cure by simply 19 presenting the Purchase Deed in the Registry. 20 Law 216 in effect abolished the requirement of having the 21 Registrar to review documents (known in Spanish as “calificar”) 22 23 that were pending inscription on or before April 30, 2010. 24 Consequently, none of the Registrars will be issuing any notices of 25 defect for documents that fall under Law 216’s purview. In fact, according to the Certification from the Registry of Property issued on March 21, 2011, for the property in question, the Registrar 23 1 proceeded to record the Mortgage Deed by operation of law on the 2 same date that she issued the Certification without issuing a 3 notice of defect. 4 Once the bankruptcy petition is filed, the automatic stay 5 6 prevents BPPR from presenting the Purchase Deed in the Registry. 7 If BPPR had exercised due diligence by presenting the Purchase Deed 8 when it presented the Mortgage Deed then it would be entitled to 9 have its mortgage recorded post-petition under § 362(b)(3). 10 Because the Purchase Deed was left out of the Registry at the time 11 12 of the filing of the petition, Debtor has rebutted the presumption 13 that the Mortgage Deed was validly recorded and BPPR cannot use Law 14 216 as a shield. 15 BPPR is unable to use Article 69.1 of the P.R. Mortgage 16 17 Regulation to harmonize the presented Mortgage Deed by subsequently 18 presenting the absent Purchase Deed. This argument was similarly 19 dealt with in the bankruptcy court’s decision of Perez Mujica, 470 20 B.R. 257, 255-256. In a motion for reconsideration filed by a 21 creditor bank, the bankruptcy court rejected the application of 22 23 Article 69 of the P.R. Mortgage Law because the presentation entry 24 of the document lapsed when the defects notified on it remained 25 uncorrected within the sixty (60) day limitation period provided, P.R. Laws Ann. tit. 30, § 2272. Perez Mujica, 470 B.R. at 256. Similarly, in our case, the presentation entry of the Purchase 24 1 Deed by fax expired when the Purchase Deed failed to materialize in 2 the offices of the Registrar within 10 days of the presentation via 3 fax mandated in Article 34 of the P.R. Mortgage Law, P.R. Laws Ann. 4 tit. 30 § 2154. The interrupted successive chain of title in the 5 6 Registry invalidates the recordation that occurred by operation of 7 Law 216. 8 In light of the above, the court concludes that the exception 9 to the automatic stay does not apply because BPPR failed to prove 10 an act to perfect, maintain or continue the perfection.29 The court 11 12 holds that BPPR does not have a validly perfected mortgage lien as 13 a result of the missing link in title ownership, thereby resulting 14 in BPPR holding an unsecured claim under Puerto Rico’s Mortgage 15 Law, Law 216, sections 362(b)(3) and 566(b)(1)(A). 16 17 D. The Timeliness of BPPR's Proof of Claim 18 We now turn our attention to the issue of whether the 19 unsecured claim of BPPR was timely filed. Both Debtor and the 20 Chapter 13 Trustee contend that BPPR’s claim should be disallowed 21 because it was filed after the bar date elapsed. 22 23 The deadline to file unsecured claims was January 4, 2011. 24 BPPR's claim number 4 was filed on August 19, 2011, eight (8) 25 months after the bar date elapsed; and thus, was untimely filed.
29 There is no need to address the remaining prong under § 546(b). Neither is it necessary to address Debtors’ arguments of voidable post-petition transfer under § 549 nor avoidable preferential transfer under § 547(b) alleged in the Amended Complaint. 25 1 Pursuant to Fed.R.Bankr.P. 3002(c) and 9006(b)(3), the court 2 does not have discretion to enlarge the time period to file an 3 unsecured claim in a Chapter 13 case, unless one of the exceptions 4 in Rule 3002(c) applies. In re Gardenshire, 209 F.3d 1145 (9th 5 6 Cir. 2000); In re Greenig, 152 F.3d 631 (7th Cir. 1998); In re 7 Quinones, 2011 Bankr. LEXIS 727 (Bankr. D.P.R. Mar. 2, 2011). None 8 of the exceptions are applicable. Accordingly, BPPR's claim number 9 4 is disallowed in its entirety. 10 E. Violation of the Automatic Stay 11 12 Since the exception of the automatic stay does not apply, 13 Debtors assert that BPPR's willfully violated the automatic stay by 14 filing a secured claim in the legal case and a “false” secured 15 claim “under clear and evident knowledge of the absence of a 16 17 secured status.”30 They further allege that by filing of its claim, 18 BPPR performed an act to enforce a lien, created post-petition, 19 against property of the estate prohibited by § 362(a)(4)-(5). 20 21 BPPR argues that Debtors’ cause of action for violation of the 22 automatic stay fails because the post-petition recordation of the 23 Mortgage Deed was caused by Registry and by virtue of the enactment 24 of Law 216, not by any inducement on the part of BPPR. 25 The mere filing of a proof of claim does not constitute a
30 Plaintiffs’ Motion for Summary Judgment at 12 (Docket No. 23). 26 1 violation of the automatic stay as determined by the U.S. 2 Bankruptcy Appellant Panel for the First Circuit in Knowles v. 3 Bayview Loan Servicing, LLC, (In re Knowles), 442 B.R. 150, 160 4 (B.A.P. 1st Cir. 2011). It is not an act against a debtor. Id. 5 6 The Bankruptcy Code allows for the filing of the proofs of claim by 7 creditors so that they can participate in the bankruptcy process. 8 Id.; See Zotow v. Johnson (In re Zotow), 432 B.R. 252, 261 (B.A.P. 9 9th Cir. 2010) (while the automatic stay prevents creditor action 10 against the debtor it fosters creditor participation in the 11 12 bankruptcy case). The filing of proof of claim merely indicates the 13 creditor's desire to participate in bankruptcy process. Generally, 14 if a debtor disagrees with the amounts expressed in the proof of 15 claim, debtor is free to object to the same. Although the filing 16 17 of a claim may be construed as an act against the estate, the 18 Bankruptcy Code allows for such an action. In addition, BPPR did 19 not register the Mortgage Deed after the filing of the bankruptcy 20 case; it was the Property Registrar who recorded the lien as a 21 result of the passage of Law 216. Therefore, the Court holds that 22 23 there is no basis for finding a willful violation of the automatic 24 stay on behalf of BPPR for filing a proof of claim and for the 25 post-petition recordation of its mortgage by the Registry of Property. 27 1 Regarding the accusation of filing a false claim because BPPR 2 had clear and evident knowledge of the absence of a secured status, 3 the court rejects Debtor’s argument because “[t]he effects of the 4 new law have not been fully litigated … in Puerto Rico.” Soto- 5 6 Rios, 662 F.3d at 114 n.1. We have found very few federal cases on 7 Law 216 and much less at the local level. There are no Puerto Rico 8 Supreme Court cases and only a few appellate cases, which are not 9 applicable to resolve the issue that was raised in the cross 10 motions. BPPR cannot be penalized when the law in this area is 11 12 developing. 13 V. CONCLUSION 14 15 In summary, the Court holds that BPPR does not hold a secured 16 claim because the Mortgage Deed was invalidly recorded after the 17 filing of the petition. Therefore, BPPR's claim is unsecured. 18 Since the unsecured claim was untimely filed, it is disallowed in 19 20 its entirety. There was no automatic stay violation for filing an 21 alleged secured claim or an alleged false claim. 22 23 ORDER 24
25 WHEREFORE, IT IS HEREBY ORDERED that plaintiffs Leandro Rafael Rodriguez Ramos and Nelimar Reyes Torees’s motion for summary judgment (Docket No.23) is granted and denied in parts. It is 28 1 ||granted regarding the unsecured status of defendant Banco Popular 2 de Puerto Rico’s mortgage claim and Proof of Claim number 4 is disallowed in its entirety because it is untimely filed. It is
5 denied as to the request for imposition of liability for the 6 |}willful violation of the automatic stay and imposing liability, 7 |l[sanctions and/or attorney’s fees for the filing of a falsel 8 secured claim. Banco Popular de Puerto Rico’s motion for summary judgment 11 || (Docket #16) is denied and granted in parts. It is denied as to 12 ||the following: 1) with respect to the secured status under the 13 exception to the automatic stay provided under 11 U.S.C. 8&8 362(b)(3) and 546(b)(1)(A), Puerto Rico’s Mortgage Law and Law 216; 15 16 2) ordering Debtors to pay legal fees and costs to BPPR in the 17 |jamount of $7,000.00 for defending its claim pursuant to the terms 18 the note and the Mortgage Deed. BPPR’s motion for summar 19 judgment is granted with respect to denying Debtors' request for damages for violations of the automatic stay. 22 SO ORDERED. 23 San Juan, Puerto Rico, this 24th day of May, 2013. 24 BY THE COURT: 25 Milcuch Coban MILDRED CABAN FLORES U.S. Bankruptcy Judge 29