Deutsche Bank Nat'l Trust Co. v. Medina (In re Medina)

In re: RAQUEL MEDINA, Debtor.

DEUTSCHE BANK NATIONAL TRUST COMPANY, as Certificate Trusteeon behalf of Bosco Credit II Trust Series 2010-1, Appellant, v. RAQUEL MEDINA, Appellee.

BAP No. NC-18-1078-FBKu

UNITED STATES BANKRUPTCY APPELLATE PANEL OF THE NINTH CIRCUIT

Argued and Submitted: November 29, 2018

December 10, 2018

NOT FOR PUBLICATION

Bk. No. 16-41967

MEMORANDUM^*

Argued and Submitted on November 29, 2018 at San Francisco, CaliforniaAppeal from the United States Bankruptcy Court for the Northern District of California

Honorable Roger L. Efremsky, Chief Bankruptcy Judge, Presiding

Appearances: Kristin A. Zilberstein of The Law Offices of Michelle Ghidotti argued on behalf of appellant Deutsche Bank National Trust Company, as Certificate Trustee on behalf of Bosco Credit II Trust Series 2010-1; Raymond R. Miller argued on behalf of appellee Raquel Medina.

Before: FARIS, BRAND, and KURTZ, Bankruptcy Judges.

INTRODUCTION

Appellant Deutsche Bank National Trust Company, as Certificate Trustee on behalf of Bosco Credit II Trust Series 2010-1 ("Deutsche Bank"), held a junior lien on chapter 13¹ debtor Raquel Medina's real property. Ms. Medina moved the court to avoid Deutsche Bank's junior lien and to confirm her plan. Deutsche Bank knew of the motions and had information inconsistent with the factual predicate for the motion to avoid lien, but decided not to object. Nearly a year later, Deutsche Bank moved for reconsideration. The bankruptcy court denied the motion forreconsideration because Deutsche Bank had waited too long to seek relief.

On appeal, Deutsche Bank argues that its failure to protest the lien avoidance was excused, because it was seeking information from the senior lienholder and negotiating with Ms. Medina behind the scenes. It contends that the bankruptcy court ignored its newly discovered evidence and improperly recalculated the amount owed under the senior lien.

The bankruptcy court did not abuse its discretion in denying the motion for reconsideration. We AFFIRM.

Ms. Medina requests that we sanction Deutsche Bank for bringing a frivolous appeal. We DENY her request.

FACTUAL BACKGROUND²

A. Prepetition events

On or around October 21, 2005, Ms. Medina and her husband executed a promissory note in the principal sum of $414,000. The promissory note was secured by a deed of trust ("First Deed of Trust") encumbering real property in Pittsburg, California (the "Property"). JPMorgan Chase Bank, National Association ("Chase") eventually acquired the First Deed of Trust.

On the same day, Ms. Medina and her husband executed a secondpromissory note for $103,500. The promissory note was secured by another deed of trust ("Second Deed of Trust") encumbering the Property. In October 2005, Deutsche Bank acquired the Second Deed of Trust.

B. Ms. Medina's chapter 13 case

On July 13, 2016, Ms. Medina filed a chapter 13 petition. She listed the Property in her schedules as having a value of $351,000. She identified Chase as a creditor with a $518,000 claim partially secured by the Property; as such, $167,000 of Chase's lien was unsecured. She listed Deutsche Bank as having a $102,512.28 unsecured claim.³

Ms. Medina also filed her proposed chapter 13 plan on July 13. Chase initially objected to plan confirmation because the original plan did not provide for treatment of its claim for prepetition arrears. It stated that it was "finalizing its proof of claim for this matter and estimates that its total secured claim is in the approximate amount of $286,161.58 . . . ." It later withdrew its objection after Ms. Medina amended her plan to include Chase's prepetition arrearage.

The operative plan, the seventh amended plan, provided that Ms. Medina would pay $419 monthly for sixty months. Chase held a Class 1 claim for prepetition arrears totaling $12,856.89. The plan reduced thevalue of Deutsche Bank's collateral to zero and treated its claim as wholly unsecured.

Deutsche Bank filed a proof of claim for $198,351.46 based on the Second Deed of Trust.

C. The motions to avoid Deutsche Bank's lien

On July 28, 2016, Ms. Medina filed a motion to value Deutsche Bank's lien at zero and avoid the lien pursuant to §§ 506, 1322, and 1327 ("First Motion to Avoid Lien"). Deutsche Bank knew about the First Motion to Avoid Lien. It also had information suggesting that the amount due under the First Deed of Trust was less than Ms. Medina stated: it had pulled Ms. Medina's credit report in July 2016, which indicated that Chase was owed $277,120. In August 2016, it corresponded with Ms. Medina's counsel to discuss the discrepancy but did not take further action. It later tried to contact Chase to request a payoff quote, but did not receive a timely response. It did not file a response to the First Motion to Avoid Lien.

Ms. Medina sought entry of an order granting the motion by default. The bankruptcy court denied the First Motion to Avoid Lien on September 7, 2016 because Ms. Medina did not present any evidence to support the amount of the First Deed of Trust as of the petition date.

On October 8, 2016, Ms. Medina filed another motion to avoid Deutsche Bank's lien ("Second Motion to Avoid Lien"). She represented that the Property was worth $351,000 (according to www.zillow.com) andthat the amount due under Chase's First Deed of Trust was $518,000. Accordingly, she proposed to strip Deutsche Bank's second priority lien from the Property.

In support of her assertion that she owed Chase $518,000, she attached a partially executed copy of a loan modification agreement effective March 1, 2011 that provided:

B. The modified principal balance of my Note will include all amounts and arrearages that will be past due (excluding unpaid late charges) and may include amounts toward taxes, insurance, or other assessments. The new principal balance of my Note is $518,727.23 (the "New Principal Balance").

C. $217,000.00 of the New Principal Balance shall be deferred (the "Deferred Principal Balance"), and I will not pay interest or make monthly payments on this amount. The New Principal Balance less the Deferred Principal Balance shall be referred to as the "Interest Bearing Principal Balance," and this amount is $301,727.23. The Interest Bearing Principal Balance will re-amortize over 480 months.

The loan modification agreement specified that Ms. Medina would "pay in full . . . the Deferred Principal Balance . . . by the earliest of the date [she] sell[s] or transfer[s] an interest in the Property, . . . the date [she] pay[s] the entire Interest Bearing Principal Balance, or the Maturity Date."

Deutsche Bank was served with and knew about the Second Motionto Avoid Lien but again did not respond. On November 14, the bankruptcy court entered an order ("Lien Avoidance Order") avoiding Deutsche Bank's junior lien and providing that "the Lien is valued at zero, Lien holder does not have a secured claim, and the Lien may not be enforced, pursuant to 11 U.S.C. §§ 506, 1322(b)(2) and 1327."

Deutsche Bank also did not oppose confirmation of Ms. Medina's seventh amended plan. After a hearing, the bankruptcy court entered an order ("Plan Confirmation Order") confirming the plan on November 21.

In December 2016, Deutsche Bank received a payoff quote from Chase showing that the amount due under the First Deed of Trust was $286,554.01 with $0.00 in deferred principal.⁴ Chase confirmed by e-mail in April 2017 that the amount due was $285,766.35 with no deferred principal due. Deutsche Bank's counsel communicated with Ms. Medina's counsel in an attempt to settle Deutsche Bank's claim, but Ms. Medina maintained that the total amount due to Chase was $518,000. The last e-mail Deutsche Bank's counsel sent to Ms. Medina's counsel was dated April 6, 2017.

D. Deutsche Bank's motion for reconsideration

On October 10, 2017, nearly a year after the Lien Avoidance Order and Plan Confirmation Order were entered and over six months since itslast attempt to communicate with Ms. Medina, Deutsche Bank filed a motion ("Motion for Reconsideration") to reconsider the two orders. It sought relief under Civil Rule 60(b)(1), (2), and (6) based on "a mistake of fact concerning the amounts owed on the first position lien secured by the Property[,]" "newly discovered evidence after the avoidance of [Deutsche Bank's] lien that prevents the valuation of its lien and avoidance of its claim[,]" and "the principals [sic] of equity[.]"

Deutsche Bank argued that it "was forced to accept" Ms. Medina's representation of Chase's lien amount because it could not verify otherwise soon enough to file a timely response to the Second Motion to Avoid Lien; Chase did not file a proof of claim and did not timely respond to Deutsche Bank's request for a payoff quote. Rather, it obtained Ms. Medina's credit report in July 2016, which reported that the amount due under the First Deed of Trust was only $277,120. As a part of its exhibits, Deutsche Bank attached various correspondence between its counsel and Ms. Medina's counsel showing that it had raised the issue of the discrepancy concerning the First Deed of Trust in August 2016, while the First Motion to Avoid Lien was pending.

Once it received the payoff quote (after the Lien Avoidance Order and Confirmation Order), Deutsche Bank claimed that it then tried to negotiate with Ms. Medina to undo the Lien Avoidance Order, but to no avail. When Ms. Medina ceased communications in April 2017, DeutscheBank claimed that it "was forced to file the instant motion to seek reconsideration" in October 2017.

Deutsche Bank argued that, under Civil Rule 60(b)(1), a mistake of fact warranted reconsideration of the Lien Avoidance Order and Plan Confirmation Order. It said that the court mistakenly relied upon the "completely erroneous fact" and "improper assertion" that the First Deed of Trust was $518,000, when it was actually only $285,766; as such, Deutsche Bank's lien was partially secured.

Deutsche Bank contended that the payoff quote and confirmation e-mail that it received from...