DeMore v. HSBC Bank USA., N.A. (In re DeMore)

530 B.R. 519

In re Andrew A. DeMore, Debtor

In re Maureen A. DeMore, Debtor

Donald Lassman, Chapter 7 Trustee of the Estate of Andrew A. DeMore, Plaintiff

v.HSBC Bank USA., N.A. U.S. Bank Home Mortgage and Andrew A. DeMore, Defendants

Donald Lassman, Chapter 7 Trustee of the Estate of Maureen A. DeMore, Plaintiff

v.HSBC Bank USA., N.A. U.S. Bank Home Mortgage and Maureen A. DeMore, Defendants

Case No. 13–16160–JNF

Case No. 13–17344–JNF

Adv. P. No. 14–1016

Adv. P. No. 14–1018

United States Bankruptcy Court, D. Massachusetts.

Signed April 29, 2015

Gary W. Cruickshank, Law Office of Gary W. Cruickshank, Stephen A. Lechter, Law Office of Stephen A. Lechter, Attleboro, MA, for Debtor.

Keri Linnea Wintle, Murtha Cullina LLP, Boston, MA, for Plaintiff.

Gary W. Cruickshank, Law Office of Gary W. Cruickshank, Sean R. Higgins, K & L Gates LLP, Boston, MA, Christine E. Devine, Kate P. Foley, Mirick, O'Connell, DeMallie & Lougee, LLP, Westborough, MA, for Defendants.

MEMORANDUM

Joan N. Feeney, United States Bankruptcy Judge

I. INTRODUCTION

The matters before the Court are 1) the Motions of Defendant, HSBC Bank, USA, N.A. (“HSBC”), for Certification of State Law Question to the Massachusetts Supreme Judicial Court (each, a “Certification Motion” and jointly, the “Certification Motions”) filed in each of the above adversary proceedings; and 2) HSBC's Motions to Dismiss, which owing to the allowance of an Assented to Motion to Convert Pending Motion to Dismiss to Motion for Summary Judgment filed in each of the above adversary proceedings, the Court shall treat as Motions for Summary Judgment.¹ Through its Certification Motions, HSBC seeks an order from this Court certifying to the Massachusetts Supreme Judicial Court the following legal issue:

Whether a mortgage encumbering registered land, whose certificate of acknowledgment is alleged to be potentially ambiguous regarding whether the execution of the mortgage was the voluntary act of the mortgagors, but which mortgage was accepted by Land Court for registration and is noted on the certificate of title to such registered land, provides constructive notice.

Pursuant to its Summary Judgment Motions, HSBC seeks summary judgment with respect to the complaints filed by Donald Lassman, the Chapter 7 trustee (the “Trustee”) of the separate bankruptcy estates of Maureen DeMore (“Mrs.DeMore”) and Andrew DeMore (“Mr.DeMore”) (jointly, the “Debtors”), through which the Trustee seeks to avoid and preserve for the benefit of the estate, pursuant to 11 U.S.C. §§ 544 and 551, a mortgage because the acknowledgment executed by the Debtors' attorney-in-fact contains, in the Trustee's view, a material and patent defect.²

The Court heard the Motions to Dismiss on September 17, 2014 and took them under advisement. The Court directed the parties to file supplemental materials to determine whether certification to the Supreme Judicial Court is warranted, or whether summary judgment pursuant to Fed.R.Civ.P. 12(d) would be appropriate. HSBC filed Motions to Convert the Pending Motions to Dismiss to Motions for Summary Judgment, and the parties filed all supplemental materials, including Joint Statements of Material Undisputed Facts in each adversary proceeding. Therefore, the Motions to Dismiss, which the Court shall treat as Motions for Summary Judgment are ripe for determination.

II. PROCEDURAL BACKGROUND

Mr. and Mrs. DeMore filed separate voluntary petitions under Chapter 7 of the Bankruptcy Code on October 22, 2013 and December 27, 2013, respectively. On his Schedule A—Real Property, Mr. DeMore listed property located at 65 Maryanne Way, North Attleboro, Massachusetts (the “property”) with a value of $385,000. Mrs. DeMore listed the property on Schedule A with a value of $400,000.³

On Schedule C—Property Claimed as Exempt, Mr. DeMore claimed the property as exempt in the amount of $500,000 pursuant to the homestead exemption available under the Massachusetts Homestead Act, Mass. Gen. Laws ch. 188, §§ 1 and 14 (the “Homestead”).⁴ No party objected to the validity of Mr. DeMore's homestead exemption and the time for doing so has expired. See Fed. R. Bankr.P. 4003(b)(1). Mrs. DeMore initially claimed a homestead exemption in the property in the amount of $125,000 under Mass. Gen. Laws ch. 188, §§ 1 and 2 on Schedule C. She later amended Schedule C on January 15, 2014, choosing the federal exemption scheme and claiming a homestead exemption in the amount of $10,000 pursuant to 11 U.S.C. § 522(d)(1).⁵ No party objected to the validity of Mrs. DeMore's homestead exemption and the time for doing so has expired.

On his Schedule D—Creditors Holding Secured Claims, Mr. DeMore listed “PHH Mortgage Svc Ctr” and “US Bank Home Mtg.” as the holder of a first mortgage on the property in the amount of $244,900, Citizens Bank as the holder of a “HELOC” on the property in the amount $134,116, and judicial liens on the property in the approximate amount of $37,075. In contrast, on her Schedule D, Mrs. DeMore listed “HSBC Mortgage Corporation” as the holder of a first mortgage on the property with a secured claim in the amount of $245,000, Citizens Bank as holder of a second mortgage on the property with a secured claim in the amount of $130,000,⁶ and two judicial liens encumbering the property in the approximate total amount of $38,000.

On May 6, 2014, HSBC timely filed a proof of claim in Mrs. DeMore's case in the amount of $254,697. It did not file a proof of claim in Mr. DeMore's case.

The Trustee commenced the instant adversary proceedings by filing a complaint against Mr. DeMore and HSBC on January 21, 2014, and a separate complaint against Mrs. DeMore and HSBC on January 22, 2014 (jointly, the “Complaints”). He set forth two counts in each Complaint, asserting the same claims for relief. He alleged that the notarized acknowledgment in a mortgage executed on April 27, 2004 in favor of HSBC Mortgage Corporation (USA) (the “Mortgage”) is materially and patently defective under Massachusetts law because it fails to unequivocally and unambiguously identify who appeared in front of the notary, and because it fails to unequivocally express that the execution of the Mortgage was the free act and deed of the Debtors. Through his status as a bona fide purchaser of the property, the Trustee also asserted that he may avoid the Mortgage pursuant to 11 U.S.C. § 544(a)(3), and he sought a determination, pursuant to 11 U.S.C. § 551, that the Mortgage is preserved for the benefit of the Debtors' bankruptcy estates, senior to the Homestead and the junior liens.⁷

Following the filing of the Complaints, HSBC and the Trustee filed several motions to extend the time for HSBC to file its answers. On May 23, 2014, HSBC filed the Certification Motions in the adversary proceedings pursuant to Rule 1:03 of the Rules of the Supreme Judicial Court. In the Certification Motions, HSBC maintained that, although the bankruptcy courts of this district, as well as the United States Bankruptcy Appellate Panel for the First Circuit, have invalidated mortgages containing materially defective acknowledgments, those mortgages were recorded in the recorded land system. In its view, certification to the Supreme Judicial Court is warranted because the notice provided by a mortgage containing an allegedly ambiguous acknowledgment noted on the certificate of title of registered land appears to be an issue of first impression for which there is no controlling precedent in the decisions of the Supreme Judicial Court. The Trustee opposes the Certification Motions, arguing that certification is inappropriate in this case because state law is sufficiently clear to allow this Court to predict how the Supreme Judicial Court would rule on this issue.

On May 23, 2014, HSBC filed motions in both adversary proceedings to extend the time to file answers or otherwise respond to the Complaints until either the Supreme Judicial Court ruled on the question presented in the Certification Motions; or until this Court denied the Certification Motions. The Court allowed the motions to extend time on May 30, 2014. On July 8, 2014, however, the Court determined that it was unable to rule on the Certification Motions without first determining whether the facts alleged in the Complaints were in dispute. Accordingly, on that date, the Court issued an order in Mrs. DeMore's adversary proceeding requiring HSBC to file a responsive pleading to the Complaint within 30 days pursuant to Fed. R. Bankr.P. 7012. HSBC filed Motions to Dismiss in both adversary proceedings on August 7, 2014. The Trustee opposed the Motions to Dismiss, and the parties filed supplementary memoranda in support of their positions.

The Court heard the Certification Motion⁸ and the Motions to Dismiss on September 17, 2014, observing that it was appropriate to treat HSBC's Motions to Dismiss as motions for summary judgment pursuant to Fed.R.Civ.P. 12(d). The Court directed the parties to file supplemental materials to support their positions and took the Certification Motions and the Motions to Dismiss under advisement. The parties complied with the Court's order and filed additional materials on September 26, 2014. Thereafter, on October 31, 2014, HSBC filed answers to both Complaints. Also, on October 31, 2014, HSBC filed assented-to motions in each adversary proceeding to convert the pending Motions to Dismiss to motions for summary judgment. As noted above, the Court allowed the motions on November 4, 2014, and the parties filed a Joint Statement of Material Undisputed Facts and additional briefs.⁹

III. FACTS

On February 23, 1994, the Debtors acquired the property as tenants by the entirety. The deed transferring the property to the Debtors was registered with the Northern Bristol County Registry of Deeds of the Land Court (the “Land Court”) on March 14, 1994 as a “Transfer Certificate of Title,” with a Document No. 48615 and a Certificate No. 10330, in Book 50, Page 71 (the “Certificate of Title”). On April 20, 2004, Mrs....