First Volunteer Bank v. FMM Bushnell, LLC (In re Mixson), 1:20-bk-12728-SDR

In re: Michael Allen Mixson, Debtor.

First Volunteer Bank, Plaintiff, v. FMM Bushnell, LLC, Defendant.

No. 1:20-bk-12728-SDR

Adv. No. 1:20-ap-01051-SDR

United States Bankruptcy Court, E.D. Tennessee

September 10, 2021

Chapter 11

MEMORANDUM OPINION

Shelley D. Rucker, Chief United States District Judge

I. INTRODUCTION

This proceeding involves the priority of the liens of two banks. In 1998, debtor Michael Mixson and his then-wife Rebecca borrowed money from Union Planters Bank, N.A. ("Union Planters") through a note secured by a Deed of Trust (the "1998 Deed of Trust") on property that they owned. A 2003 modification to the 1998 Deed of Trust set a loan maturity date of March 7, 2008. After some assignments and mergers over the years, the 1998 note and Deed of Trust are held now by defendant FMM Bushnell, LLC ("Bushnell"). In 2013, the Mixsons borrowed money from plaintiff First Volunteer Bank ("First Volunteer") through a note secured by a Deed of Trust (the "2013 Deed of Trust") on the same property.

This case-In re Mixson, No. 20-bk-12728-SDR (the "Main Case")-is Mr. Mixson's second bankruptcy case in the last seven years, and the priority of the two Deeds of Trust was not resolved in the prior case. In short Bushnell contends that its 1998 Deed of Trust has priority because it was filed first and because its lien is still enforceable. As will be explained in more detail below, Bushnell had 10 years to enforce its Deed of Trust, but it believes that the automatic stays from Mr. Mixson's two bankruptcies left it with unused time in that 10-year time period.

First Volunteer, in contrast, contends that its 2013 Deed of Trust has priority because the bankruptcy stays did not prevent Bushnell's enforcement time from running. According to First Volunteer, if the time to enforce the 1998 Deed of Trust has expired then Bushnell has become a general unsecured creditor, and First Volunteer moves up in priority.

To resolve the dispute, First Volunteer filed this adversary proceeding. Now pending before the Court are cross-motions for summary judgment under Rule 56 of the Federal Rules of Civil Procedure, made applicable by Rule 7056 of the Federal Rules of Bankruptcy Procedure. (Doc. Nos. 15, 17.) The parties also have filed related procedural motions concerning First Volunteer's late answer to Bushnell's counterclaim. (Doc. Nos. 23, 25.) The parties do not dispute that this adversary proceeding is a core proceeding and that the Court has jurisdiction under 28 U.S.C. 157(a) and 28 U.S.C. § 1334.

The Court heard oral argument on May 5, 2021. For the reasons below, the Court grants First Volunteer's motion for summary judgment and denies Bushnell's motion. The Court grants First Volunteer a declaratory judgment that the lien evidenced by the 1998 Deed of Trust is discharged. The Court also denies Bushnell's procedural motion and grants First Volunteer's procedural motion.

II. BACKGROUND

A. Chronology

This adversary proceeding concerns the priority of liens on real property at 6228 Airpark Drive in Chattanooga, Tennessee (the "Airpark Property"). The following chronology summarizes the key events that contributed to the current situation between the parties:

1) January 6, 1990: Debtor Michael Mixson and Rebecca Mixson (who is not a joint debtor) marry. (Doc. No. 16-7 at 4.)^[1]

2) February 3, 1995: The Mixsons buy the Airpark Property as tenants by the entirety. (Doc. No. 16 at 1.)

3) February 26, 1998: The Mixsons record the 1998 Deed of Trust with Union Planters to secure a loan in the amount of $583, 425.76. (Doc. No. 1-1 at 1-18.) The 1998 Deed of Trust pledges the Airpark Property. The loan had a final payment date of February 20, 2018.

4) March 7, 2003: The Mixsons and Union Planters sign a modification of the 1998 Deed of Trust that increases the amount of loan principal secured to $684, 000.00 and shortens the maturity date to March 7, 2008. (Id. at 19.)

5) Sometime after March 7, 2003: AmSouth Bank succeeds Union Planters as holder of the 1998 Deed of Trust and its underlying note. Regions Bank succeeds AmSouth Bank.

6) April 27, 2011: The Mixsons sign a Deed of Trust with Gateway Bank and Trust ("Gateway") to secure a loan in the amount of $463, 207.67. (Doc. No. 1-3 at 8.) They record the Deed of Trust on May 31, 2011 and pledge the Airpark Property as security for the Gateway loan. The loan had a maturity date of November 10, 2014.

7) September 2012: Gateway merges into First Volunteer. (Doc. No. 1 at 5.) First Volunteer acquires all of Gateway's assets including the Mixsons' loans and Deeds of Trust.

8) July 29, 2013: The Mixsons sign the 2013 Deed of Trust with First Volunteer to secure a loan in the amount of $633, 363.41. (Doc. No. 1-4.) This loan appears to be a consolidation or replacement of the Gateway loan, because the 2011 Gateway Deed of Trust and the 2013 Deed of Trust are security instruments for the same debt. (Doc. No. 15 at 9.) The Mixsons pledge the Airpark Property as collateral. The new loan had a maturity date of February 2, 2015. (Id. at 8.) The 2013 Deed of Trust was recorded on August 1, 2013.

9) December 20, 2013: Regions Bank assigns the 1998 Deed of Trust and underlying note to Commercial Funding Solutions, LLC ("Commercial Funding"). (Doc. No. 1-5.)

10) May 19, 2014: Mr. Mixson files his first Chapter 11 voluntary petition, presided over by Judge Cook and later Judge Whittenburg in this District. (Case No. 1:14-bk-12133-NWW, the "First Mixson Case").

11) August 12, 2014: First Volunteer files Claim 11 in the First Mixson Case, asserting a cumulative indebtedness by Mr. Mixson of $657, 347.29 secured by the Airpark Property by way of the 2013 Deed of Trust.

12) September 18, 2014: Commercial Funding files Claim 14 in the First Mixson Case, asserting a cumulative indebtedness by Mr. Mixson of $560, 679.18 secured by the Airpark Property by way of the 1998 Deed of Trust.

13) June 1, 2017: Judge Whittenburg grants Mr. Mixson's motion to convert the First Mixson Case from Chapter 11 to Chapter 7. (First Mixson Case, Doc. No. 261.)

14) July 30, 2017: Commercial Funding assigns the 1998 Deed of Trust to Bushnell. (Doc. No. 1-6.)

15) September 15, 2017: Mr. Mixson signs a reaffirmation agreement with Bushnell in the First Mixson Case for the 1998 debt originally incurred with Union Planters and modified in 2003. (First Mixson Case, Doc. No. 279.) The principal balance is $508, 316.84, with a total of $579, 300.98 to be paid over the term of the reaffirmation agreement. The parties to the reaffirmation agreement assert that the debt is secured by the Airpark Property and assign the property a market value of $650, 000.00. First Volunteer admits that the 1998 Deed of Trust was valid when the debt was reaffirmed. (Doc. No. 21 at 2.)

16) October 4, 2017: Mr. Mixson receives an order of discharge in the First Mixson Case. (First Mixson Case, Doc. No. 281.)

17) November 12, 2019: Judge Whittenburg approves the Trustee's abandonment of the Airpark Property in the First Mixson Case. (First Mixson Case, Doc. No. 294.)

18) August 4, 2020: The Mixsons obtain a final decree of divorce. (Doc. No. 16-7 at 1-2.) Under the terms of the divorce, Mr. Mixson received all rights, title, and debt responsibilities for the Airpark Property. (Id. at 7.) The parties had mutual obligations to fulfil to make Mr. Mixson the full owner of the Airpark Property. Mr. Mixson was required to refinance the Airpark Property as needed to release Ms. Mixson from any debts associated with it. (Id.) Ms. Mixson, in turn, was required to execute a quitclaim deed of her interest in the Airpark Property. (Id.) The record is silent as to whether the Mixsons carried out their respective obligations, and the parties appear to dispute whether the obligations have been fulfilled.

19) October 2, 2020: Relying on the terms of the 1998 Deed of Trust, Bushnell took its first action toward foreclosure by publishing a foreclosure notice relating to the Airpark Property in the Hamilton County Herald. The sale was scheduled for October 23, 2020.

20) October 16, 2020: Mr. Mixson files his second Chapter 11 voluntary petition, which is the Main Case before the Court.

21) January 6, 2021: Bushnell files Claim 13 in the Main Case here, asserting a cumulative indebtedness by Mr. Mixson of $746, 133.00 secured by the Airpark Property by way of the 1998 Deed of Trust.

22) February 16, 2021: First Volunteer files Claim 15 in the Main Case here, asserting a cumulative indebtedness by Mr. Mixson of $767, 125.15 secured by the Airpark Property. Attached to Claim 15 is a copy of the note signed on April 27, 2011 along with the Deed of Trust signed on April 27, 2011 and recorded on May 31, 2011.

B. The Parties' Contentions

First Volunteer commenced this adversary proceeding by filing its complaint on October 21, 2020. (Doc. No. 1.) First Volunteer recited most of the history that the Court summarized above emphasizing that no one in the chain of ownership of the 1998 Deed of Trust-Union Planters, Regions Bank, Commercial Funding, or Bushnell-modified, enforced, or otherwise commenced any suit to enforce the lien granted by the Deed of Trust after March 7, 2003. The lack of action is significant to First Volunteer because, in its view, the 1998 Deed of Trust expired with respect to Ms. Mixson no later than March 7, 2018-the date when the right to enforce the lien under Tenn. Code Ann. § 28-2-111(a) expired. (See Doc. No. 1 at 6.) By a similar logic, the 1998 Deed of Trust allegedly expired with respect to Mr. Mixson no later than 30 days after the abandonment of the Airpark Property on November 12, 2019, by way of 11 U.S.C. § 108(c)(2) and/or 90 days by way of Tenn. Code Ann. § 66-21-110. (See id.) "Because the [1998 Deed of Trust] no longer is valid and...