Pfenning v. Brewer et al.

2016 DNH 078

• Court: District Court, D. New Hampshire
• Decided: April 6, 2016
• Docket: 15-cv-422-PB
• Status: Published

Opinion

UNITED STATES DISTRICT COURT FOR THE DISTRICT OF NEW HAMPSHIRE

Bette Jane Pfenning, et al.

v. Civil No. 15-cv-422-PB Opinion No. 2016 DNH 078 Jon Brewer, et al.

MEMORANDUM AND ORDER

Bette Jane Pfenning and Lawrence Sumski, the Chapter 13

trustee of Pfenning’s estate, brought an adversary action

against Jon Brewer and the Lord Family Trust in the United

States Bankruptcy Court for the District of New Hampshire.

There, plaintiffs alleged that Brewer breached the warranty of

title and violated the New Hampshire Consumer Protection Act

(“CPA”) by selling real property to Pfenning without first

obtaining the mortgagee’s consent to convey the property subject

to an outstanding mortgage. The Bankruptcy Court determined

that plaintiffs’ CPA claim was barred by the applicable three-

year statute of limitations, and that their warranty of title

claim failed on the merits. Here, plaintiffs appeal the

Bankruptcy Court’s ruling on their warranty of title claim. I. BACKGROUND

A. Facts

In 2006, Brewer purchased property located at 2 Highland

View Road in Claremont, New Hampshire (“the Property”). Brewer,

who acquired the Property as Trustee of the Lord Family Trust,

took title subject to an outstanding first mortgage held by

National City Mortgage Company, now known as PNC Mortgage. That

mortgage contained a due-on-sale clause, which provided in

relevant part,

If all or any part of the Property or any Interest in the Property is sold or transferred . . . without Lender’s prior written consent, Lender may require immediate payment in full of all sums secured by [the National City Mortgage].

Doc. No. 6-2 at 2 (the due-on-sale clause).

In June 2009, Brewer, in his capacity as Trustee, and

Pfenning, as buyer, executed a purchase and sale agreement for

the Property. Although the parties agreed that Brewer would

finance Pfenning’s purchase, the purchase and sale agreement did

not indicate that the sale would be subject to the existing

National City Mortgage. At the July 2009 closing, however,

before signing the closing documents, Pfenning learned that her

financing consisted of a “wrap around” note and mortgage, and

that the sale would be subject to the National City Mortgage in

2 addition to the mortgage she would grant Brewer. Doc. No. 1 at

9. Pfenning was upset with that arrangement, but nonetheless

executed the “All Inclusive (Wrap Around) Promissory Note

Secured by Deed of Trust” (the “Note”) and mortgage (the “Brewer

Mortgage”) that same day. Id.

The Note reflected a loan of $144,600.00, accruing interest

at an annual rate of 4%, payable in $1,100 monthly installments

for three years, with a balloon payment for the entire

outstanding balance due on July 20, 2012. Id. at 3. The Note

provided that “the balance . . . includes the unpaid balance of

an underlying note and mortgage,” and identified the National

City Mortgage and the note it secured. See Doc. No. 5-8 at 3

(the Note). In addition, both the Warranty Deed and the Brewer

Mortgage provided: “[t]he within conveyance is made subject to

an outstanding mortgage from Jeffrey A. Lord to National City

Mortgage Co. by mortgage deed dated September 24, 2004, recorded

in Volume 1475, Page 833 of the Sullivan County Registry of

Deeds.” Doc. Nos. 5-9 at 4 (Warranty Deed); 5-10 at 13 (Brewer

Mortgage). Despite the National City Mortgage’s due-on-sale

provision, however, Brewer did not inform PNC Mortgage of his

sale to Pfenning, or ask the company to waive the clause.

After the closing, Pfenning contacted a mortgage broker,

her bank, the New Hampshire Banking Commission, and an attorney, 3 but was unable to change the terms of her financing. Then, for

three years, she made all monthly payments due under the Note to

Brewer (totaling about $39,000), but did not pay the balloon

payment due in July 2012, or seek to refinance the obligation.

And, when Pfenning stopped paying Brewer, Brewer stopped making

payments on the National City Mortgage to PNC Mortgage. In

October 2012, PNC Mortgage instituted foreclosure proceedings.

Pfenning filed a Chapter 13 petition on October 26, 2012.1

B. Bankruptcy Proceedings and Appeal

On October 15, 2014, Pfenning brought an adversary action

in the Bankruptcy Court against Brewer and the Lord Family

Trust. Pfenning alleged that Brewer had breached the warranty

of title by failing to obtain PNC Mortgage’s consent to sell the

Property to Pfenning, as contemplated by the National City

Mortgage’s due-on-sale provision. Pfenning further alleged that

Brewer’s actions violated the New Hampshire Consumer Protection

1 Pfenning claims that she first learned of Brewer’s alleged breach of the warranty of title in 2012, when she was unable to deal directly with PNC Mortgage regarding the pending foreclosure. See Doc. No. 5 at 10. As a result of the Chapter 13 proceedings, Pfenning has reinstated the National City Mortgage with a catch-up payment, required PNC Mortgage to accept monthly mortgage payments from Pfenning directly, and brought the mortgage current. See Doc. No. 6 at 8. In addition, because the balance of the National City Mortgage (the first mortgage) greatly exceeded the value of the Property, the Brewer Mortgage (the second mortgage) was avoided as being wholly unsecured. See Doc. No. 1 at 4 n.9. 4 Act (“CPA”). Pfenning sought, among other relief, reimbursement

for her previous payments to Brewer, and an order directing the

defendants to “pay the balance of the National City Mortgage”

note. See Doc. No. 2 at 14-15.

The Bankruptcy Court conducted a trial in September 2015.

At the close of Pfenning’s case, defendants moved for judgment

on both Pfenning’s warranty of title and CPA claims pursuant to

Federal Rule of Civil Procedure 52(c). In a subsequent written

order, the Bankruptcy Court granted the defendants’ motion,

concluding that (1) Pfenning’s CPA claim was barred by the

applicable three-year statute of limitations, and (2) Pfenning’s

warranty of title claim failed on the merits. Doc. No. 1 at 11-

13. Accordingly, the court dismissed both of Pfenning’s claims.

Id. at 14. Pfenning then filed this appeal, appealing the

Bankruptcy Court’s decision only as it relates to her warranty

of title claim. See Doc. No. 5 at 5 (waiving her appeal with

respect to the CPA claim).

II. STANDARD OF REVIEW

This court has jurisdiction pursuant to 28 U.S.C. §

158(a)(1) to hear appeals from the Bankruptcy Court’s final

judgments, orders, and decrees. In conducting my review, I

“scrutinize that court's findings of fact for clear error, and 5 afford de novo review to its conclusions of law.” Brandt v.

Repco Printers & Lithographics, Inc. (In re Healthco Int'l), 132

F.3d 104, 107 (1st Cir. 1997). I may “affirm the bankruptcy

court order on any ground apparent from the record on appeal.”

Cromwell v. Countrywide Home Loans, Inc., 483 B.R. 36, 40 (D.

Mass. 2012) (quoting Spenlinhauer v. O'Donnell, 261 F.3d 113,

117 (1st Cir. 2001)).

III. ANALYSIS

On appeal, Pfenning argues that the Bankruptcy Court erred

in granting defendants’ motion with respect to her warranty of

title claim. Under New Hampshire law, a duly executed and

delivered warranty deed includes four covenants by the grantor:

(1) that, at the time of the delivery of such deed, the grantor was lawfully seized in fee simple of the granted premises; (2) that the said premises were free from all incumbrances, except as stated; (3) that the grantor had good right to sell and convey the same to the grantee, heirs, successors and assigns; and (4) that the grantor will . . . warrant and defend the same to the grantee and heirs, successors and assigns, against the lawful claims and demands of all persons.

Coco v. Jaskunas, 159 N.H. 515, 537-38 (2009) (citing N.H. Rev.

Stat. § 477:27). Here, Pfenning focuses exclusively on the

third covenant, and argues that Brewer did not have “good right

to sell and convey” the Property, because he did not get PNC

Mortgage to waive its due-on-sale clause before the sale. I

6 disagree.

The covenant of the right to convey represents that the

grantor has legal authority to convey the property described in

the warranty deed. Lloyd v. Estate of Robbins, 997 A.2d 733,

740 (Me. 2010); 4 Herbert Thorndike Tiffany, Real Prop. § 1001

(3d ed. 1975) (“The covenant of a right to convey generally only

represents that the individual has the authority and legal

capacity to sell the property upon the same terms and conditions

as the owner and does not imply any other warranties.”); 17-5

New Hampshire Practice: Real Estate § 5.06 (2015). In most

cases, the covenant of the right to convey is equivalent to the

covenant of seisin. Lloyd, 997 A.2d at 740; see Peters v.

Bowman, 98 U.S. 56, *3 (1878); Willard v. Twitchell, 1 N.H. 177

(1818) (“The covenants in our deeds, ‘that the grantor is the

lawful owner, that he is seized in fee, and that he has good

right to sell and convey,’ have always received a construction

that makes them merely synonimous.”). Consequently, the grantor

breaches these covenants when he purports to transfer real

property by warranty deed that he does not own, or otherwise

have the authority to convey.

Under the facts of this case, I reject Pfenning’s

contention that the National City Mortgage’s due-on-sale clause,

or Brewer’s failure to get PNC Mortgage to waive that clause, 7 affected Brewer’s right to convey the Property. The due-on-sale

clause here provided that “[i]f all or any part of the Property

or any Interest in the Property is sold or transferred . . .

without Lender’s prior written consent, Lender may require

immediate payment in full of all sums secured by [the National

City Mortgage].” Doc. No. 6-2 at 2. The due-on-sale provision

thus allowed PNC Mortgage to accelerate the loan if Brewer

transferred the Property without the company’s consent. Yet, by

its terms, the clause did not limit Brewer’s right to convey the

property; it merely provided for certain consequences if he did

so without first obtaining PNC Mortgage’s permission. Indeed,

as the New Hampshire Supreme Court has explained, due-on-sale

clauses do not themselves “result in the forfeiture of the

owner's title and [do] not preclude the mortgagor from conveying

the property.” Mills v. Nashua Fed. Sav. & Loan Ass’n, 121 N.H.

722, 725 (1981) (holding that due-on-sale clauses are not per se

unreasonable restraints on alienation). More to the point,

these provisions do not themselves constitute “any impingement

on the owner's freedom to convey the property.” Id.

Pfenning does not explain why, in light of this precedent,

the due-on-sale clause here affected Brewer’s right to convey

the Property. See Doc. No. 5 at 10-15. Nor does she cite any

authority that substantiates such an argument, and I am aware of 8 none. See id. Instead, Pfenning apparently claims that Brewer

did not have the right to convey because Pfenning “does not have

good and marketable title.” Id. at 13; see also Doc. No. 7 at 9

(“Pfenning did not receive good and marketable title because

Brewer lacked good right to sell and convey when he failed to

obtain permission from PNC to sell without paying its mortgage

off.”). Yet, Pfenning does not offer any precedent to support

this supposed connection between the right to convey and “good

and marketable title.” Likewise, she does not explain why the

marketability of her title affects whether Brewer had the right

to convey the Property in 2009. Absent some reasoned argument

on this point, I decline to go further.

Accordingly, I reject Pfenning’s claim that Brewer breached

the covenant of the right to convey by failing to get PNC

Mortgage to waive its due-on-sale clause.2 I instead conclude

that Brewer did not breach the warranty of title, and therefore

affirm the Bankruptcy Court’s decision.

2 Nor did defendants violate the covenant that the Property was “free from all incumberances, except as stated.” The Warranty Deed here provided that “[t]he within conveyance is made subject to an outstanding mortgage from Jeffrey A. Lord to National City Mortgage Co.” Doc. No. 5-9 at 4. The Warranty Deed thus explicitly “stated” that it was subject to the National City Mortgage. Pfenning did not challenge this conclusion on appeal. See Doc. No. 5 at 9. 9 III. CONCLUSION

For the reasons provided above, the Bankruptcy Court’s

order granting judgment for the defendants is affirmed.

SO ORDERED.

/s/ Paul Barbadoro Paul Barbadoro United States District Judge

April 6, 2016

cc: Peter S. wright, Jr., Esq. Eleanor Wm. Dahar, Esq. Geraldine Karonis, Esq.