Geltzer v. Bevilacqua (In re Schulter)

585 B.R. 670

IN RE: Joanne D. SCHULTER aka Joanne D. Bevilacquia, Debtor.

Robert L. Geltzer, as Trustee of the Estate of Joanne D. Schulter aka Joanne D. Bevilacquia, Plaintiff,

v.Antonio Bevilacqua, Defendant.

Case No. 14–43538–nhl

Adv. Pro No. 15–01176–nhl

United States Bankruptcy Court, E.D. New York.

Signed March 31, 2018

Robert L. Geltzer, Esq., The Law Offices of Robert L. Geltzer, 1556 Third Avenue, Suite 505, New York, NY 10128, Plaintiff, Chapter 7 Trustee

Robert A. Wolf, Esq., Tarter Krinsky & Drogin LLP, 1350 Broadway, 11th Floor, New York, NY 10018, Attorneys for Plaintiff

Derrick Hanna, Esq., Mark Hanna, Esq., Donna Vlahakis, Esq., Hanna & Vlahakis, 7504 Fifth Avenue, Brooklyn, NY 11209, Attorneys for Defendant

DECISION ON TRUSTEE'S MOTION FOR SUMMARY JUDGMENT

HONORABLE NANCY HERSHEY LORD, UNITED STATES BANKRUPTCY JUDGE

Before the Court is the motion (the "Motion") of Plaintiff Robert L. Geltzer, as Chapter 7 Trustee (the "Trustee") of the Estate of Joanne D. Schulter a/k/a Joanne D. Bevilacquia (the "Debtor"), for summary judgment on the third cause of action set forth in the amended complaint, seeking entry of an order, pursuant to 11 U.S.C. § 363(h),¹ authorizing the Trustee to sell certain real property located at 218 Beacon Avenue, Staten Island, NY 10360 (the "Property"). Defendant Antonio Bevilacqua (the "Defendant") filed opposition (the "Opposition") to the Motion, seeking to prevent the sale based on the imposition of a constructive trust, or, alternatively, a defense of promissory estoppel. For the reasons set forth below, the Trustee's Motion for summary judgment is granted and the Defendant's Opposition is overruled.

JURISDICTION

This Court has jurisdiction pursuant to 28 U.S.C. §§ 1334(b) and 157(b)(1), and the Eastern District of New York standing order of reference dated August 28, 1986, as amended by order dated December 5, 2012. This matter is a core proceeding pursuant to 28 U.S.C. § 157(b)(2)(A), (E), (M), (N), and (O). This decision constitutes the Court's findings of fact and conclusions of law to the extent required by Rule 52 of the Federal Rules of Civil Procedure, as made applicable by Rule 7052 of the Federal Rules of Bankruptcy Procedure.

BACKGROUND

The following facts are uncontested. The Defendant in this action is the former husband of the Debtor. Trustee's LBR 7056–1 Stat. ¶ 4, ECF No. 51–20. The two married in August of 2000. Id. at ¶ 10. On or about October 23, 2003, the Debtor and the Defendant jointly made a written offer to purchase the Property, and, around the same time, jointly applied for a purchase money mortgage from Washington Mutual Bank. Id. at ¶ 12. However, due to the Defendant's credit problems related to certain alimony and child support obligations to his first wife, the bank would not agree to a mortgage loan to which the Defendant was a party. Id. at ¶¶ 13–14; Apr. 4, 2016 Depo. Tr. at 29:20–23, ECF No. 51–3. It was, however, willing to approve the Debtor, alone, for mortgage financing. See LBR 7056–1 Stat. ¶ 15, ECF No. 51–20; Depo. Tr. at 22:23–25, ECF No. 51–3. Consequently, the Debtor purchased the Property solely in her name, for a purchase price of $750,000 and settlement charges of $37,230.04, LBR 7056–1 Stat. ¶ 17, ECF No. 51–20; Settlement Stat., ECF No. 51–5, pursuant to a deed dated March 30, 2004 (the "2004 Deed"), LBR 7056–1 Stat. ¶ 16, ECF No. 51–20; 2004 Deed, ECF No. 51–4.

The Debtor financed the purchase in substantial part by taking two secured loans from Washington Mutual Bank, which JPMorgan Chase Bank ("Chase") subsequently acquired. LBR 7056–1 Stat. ¶ 18, ECF No. 51–20. Specifically, the Debtor executed a promissory note dated March 30, 2004 in the original principal amount of $413,000, secured by a first mortgage on the Property (the "First Mortgage"), id. at ¶ 19; 1st Mortg., ECF No. 51–6, as well as a home equity loan with a maximum credit limit of $149,500, secured by an equity line of credit mortgage on the Property (the "Second Mortgage" and, together with the First Mortgage, the "Chase Mortgages"), LBR 7056–1 Stat. ¶ 20, ECF No. 51–20; 2d Mortg., ECF No. 51–7.

The Defendant, for his part, received a gift from his mother of $350,000, and made those funds available to the Debtor for use toward the purchase price of the Property. LBR 7056–1 Stat. ¶ 21, ECF No. 51–20. In exchange, the Debtor executed a note in the Defendant's favor (the "Defendant's Note"), secured by a mortgage against the Property in the amount of $350,000 (the "Defendant's Mortgage"). Def. Note, ECF No. 51–8; Def. Mortg., ECF No. 51–9. The Defendant's Mortgage was not recorded. LBR 7056–1 Stat. ¶ 23, ECF No. 51–20.

The Property is a residential house with five bedrooms, three bathrooms, a pool, a two-car garage, and a finished basement that functions, in essence, as "a big studio apartment." Id. at ¶ 26. Shortly after the Debtor took title to the Property, she, the Defendant, and the Defendant's mother moved in, and for the next several years, she and the Defendant occupied the first floor and the Defendant's mother lived upstairs. Id. at ¶ 27. The Defendant's mother, who passed away in 2010 or 2011, did not pay rent. Id. at ¶¶ 28, 30–31.

In or around January of 2012, the Debtor and the Defendant separated, and the Debtor moved out of the Property at some point thereafter.² Id. at ¶ 32. The Defendant remained at the Property, and is currently residing in its finished basement. Id. at ¶ 29. Though the Defendant has children from his prior marriage, they are adults and do not live in the Property. Id. at ¶ 29.

Several events occurred on or about October 12, 2012. First, the Debtor and the Defendant refinanced the First Mortgage with Chase (the "Refinanced First Mortgage"), jointly executing a promissory note in Chase's favor in the principal amount of approximately $367,000. LBR 7056–1 Stat. ¶ 34, ECF No. 51–20; see Lock–In Agreement, ECF No. 51–10.

Second, the Debtor delivered to the Defendant a deed (the "2012 Deed") conveying a one-half undivided interest in the Property. LBR 7056–1 Stat. ¶ 35, ECF No. 51–20. Pursuant to the 2012 Deed, recorded in the Richmond County Clerk's Office on November 19, 2012, the Debtor and the Defendant each own an undivided one-half interest in the Property. Id. at ¶¶ 35–36; 2012 Deed, ECF No. 51–11.

Finally, the Debtor and the Defendant executed a document entitled "Discharge of Mortgage Note," which states: "Antonio Bevilacqua hereby certifies that the mortgage note dated March 30, 2004 made by Joanne Schulter is paid." Discharge Doc., ECF No. 51–12. This document discharged the Debtor's obligations to the Defendant under the Defendant's Note and cancelled the Defendant's Mortgage in exchange for the Debtor's transfer to the Defendant of a one-half undivided interest in the Property. LBR 7056–1 Stat. ¶¶ 37–39, ECF No. 51–20.

To date, though the Defendant has disputed that this result was the parties' intention, the Debtor and the Defendant remain the record co-owners of the Property, with each owning a one-half undivided fee interest in the Property. Id. at ¶ 40. The Debtor remains a co-mortgagor on the Refinanced First Mortgage and the sole mortgagor on the Second Mortgage. Id. at ¶¶ 40–41.

On April 19, 2013, the Debtor and Defendant divorced. Id. at ¶ 42. According to a notarized letter executed by the Debtor and the Defendant on April 1, 2014, the Debtor and Defendant agreed to a certain separation of their property and debt (the "2014 Letter"). ECF No. 51–13. The 2014 Letter states, in part, that:

I Antonio Bevilacqua and I Joanne Schulter have to come a [sic] mutual aggreement [sic] about our seperation [sic] of property and debt without using the courts or lawyers. We are having a mutual uncontested divorce and have agreed on all the terms amoungst [sic] each other.

We have been separated since January 2012 and Antonio has been living at 218 Beacon Avenue. Joanne is renting at 34 Edison Street, SI NY 10306.

Antonio Bevilacqua will get full ownership of the house we both owned at 218 Beacon Avenue Staten Island New York 10306. Joanne will no longer reside or own any part of the home. Antonio will continue to pay the mortgage & Home Equity Loan as he has been since 2011.

Joanne Schulter will be obligated to pay all the Credit Debt owed by both parties except for the Chase Home Equity Loan on the house at 218 Beacon ave si ny [sic].

Id. Although the 2014 Letter provides that the Defendant will get full ownership of the Property, the parties never executed or recorded a deed to effectuate such a transfer. LBR 7056–1 Stat. ¶ 44, ECF No. 51–20. The Defendant concedes the same. Id. ; Apr. 4, 2016 Depo. Tr. 86:4–5, ECF No. 51–3.

On July 11, 2014 (the "Filing Date"), the Debtor filed a voluntary petition under chapter 7 of the Bankruptcy Code. See Petition, ECF No. 1, 14–43538–nhl. On August 21, 2014, she filed schedules reflecting that, as of the Filing Date, she was a co-owner of the Property and that, by virtue of the Chase Mortgages, Chase was the holder of two claims secured by the Property. Scheds., ECF No. 51–14.

On October 7, 2015, the Trustee commenced this adversary proceeding against the Defendant by the filing of a complaint, as amended on October 15, 2015, seeking: (i) to avoid an alleged fraudulent conveyance made by the Debtor to the Defendant in connection with the transfer of the one-half interest in the Property; (ii) to recover from the Defendant the value of that transfer, alleged to be a fraudulent conveyance; and (iii) a judgment in favor of the Trustee permitting him to sell the Property free of the interest of the Defendant with such interest to attach to the net proceeds of sale. Am. Compl., ECF No. 4.

On February 16, 2016, the Defendant filed an amended answer to the amended complaint. Am. Answer, ECF No. 21. The amended answer alleges, in relevant part, that the "Debtor's interest in the subject property was limited to bare legal title as nominee on the deed but Debtor had no equity whatsoever," and that the Defendant has...