In re Busby

647 B.R. 660

IN RE: Robin Lynn BUSBY

CIVIL ACTION NO. 22-3257

BKY. NO. 20-10529

United States District Court, E.D. Pennsylvania.

Signed December 14, 2022

William C. Miller, Office of Chapter 13 Standing Trustee, Philadelphia, PA, Trustee, Pro Se.

Jeffrey B. McCarron, Swartz Campbell LLC, Philadelphia, PA, for Respondent.

MEMORANDUM

KEARNEY, Judge.

A former wife asks us to reverse the bankruptcy court's Order denying her petition to hold a mortgage creditor and its lawyer in contempt for collecting proceeds to satisfy an existing mortgage when she sold a residence owned by her and her former husband as tenants in common under Pennsylvania law. The former wife continues to mistakenly assert she had a fee simple interest in the former marital residence under a property settlement agreement as part of her divorce. But she ignores her property settlement agreement conditioned her fee simple interest in the residence upon her timely refinancing the mortgage obligation and removing her former husband from the mortgage within sixty days of signing the property settlement agreement. She did not do so. The deed granting her a fee simple interest never left her lawyer's escrow. No one recorded the deed. She later sold the former marital residence for over $900,000. The title clerk paid the mortgage creditor from the sale proceeds to satisfy the husband's share of the mortgage as a tenant in common owner and co-signer on the mortgage.

We face a wrinkle based on the mortgage creditor's mistake in releasing the former husband when it filed a satisfaction of mortgage as to the former wife in exchange for her $20,000 payment. The successor to the mortgage creditor later discovered the mistake and petitioned the state court to strike the mistaken satisfaction notice. The former wife then sought bankruptcy protection. There is no evidence she timely notified the mortgage creditor of her bankruptcy before it persuaded the state court to strike the mistaken mortgage satisfaction and allow it to file a new one releasing only the former wife. The mortgage creditor only petitioned to proceed against the former husband's property interest as a tenant in common. It agreed to not proceed against the former wife.

The state court struck the undisputedly mistaken mortgage satisfaction. The mortgage creditor later sought and collected proceeds from the residence sale in exchange for releasing its mortgage. The former wife asked the state court to vacate its order striking the mistaken mortgage satisfaction. She lost this argument. The former wife then reopened her discharged bankruptcy and petitioned for contempt against the mortgage creditor and its lawyer for violating the earlier automatic stay by modifying the mortgage satisfaction and violating her discharge order by collecting proceeds at the residence sale. United States Bankruptcy Judge Ashely M. Chan held a hearing, evaluated post-hearing memoranda, and, like the state court Judge Wendy G. Rothstein reviewing the same facts, found the mortgage creditor and its lawyer acted lawfully.

We today evaluate the former wife's appeal of Judge Chan's denial of her contempt motion. Judge Chan's thorough analysis, like Judge Rothstein's analysis in state court, is soundly based on Pennsylvania law. The former wife created her problem by not complying with her obligations under a negotiated property settlement agreement. She never obtained clear fee simple title to the residence. The mortgage creditor and its lawyer acted lawfully seeking to vacate the mistaken mortgage satisfaction and ensuring payment from the residence sale in exchange for releasing the mortgage. We cannot find Judge Chan abused her discretion or erred as a matter of law. We affirm the August 1, 2022 Order denying the former wife's motion for contempt against the mortgage creditor and its lawyer.

I. Background

Robin Lynn Busby and her then-husband Robert Busby purchased a Montgomery County residence in March 2007.¹ They borrowed $100,000 from Guaranty Northeast Mortgage and gave Guaranty a mortgage on the residence.² Then married, they owned the residence as tenants by the entireties and each signed the mortgage to Guaranty promising to pay back the $100,000 as secured by the residence.³

The Busbys decided to end their marriage. Ms. Busby and Mr. Busby signed a Property Settlement Agreement as part of their divorce in September 2016 which would possibly allow Ms. Busby to own the residence by herself in fee simple.⁴ They agreed Ms. Busby's lawyer would hold the deed transferring title to her in fee simple in escrow conditioned on Ms. Busby taking steps within sixty days to refinance the mortgage and the line of credit into her own name or otherwise remove Mr. Busby's name from the mortgage.⁵ It is undisputed Ms. Busby did not satisfy this condition.⁶ She did not timely satisfy the mortgage nor remove Mr. Busby from his obligations.⁷ Her lawyer could not remove the deed from escrow and record it. The residence remained titled in both Mr. and Ms. Busby's name with the recorded mortgage to Guaranty.

The distinguished family court judge Honorable Daniel J. Clifford issued a divorce decree in October 2016.⁸ The divorce decree included both the Property Settlement Agreement including the representation the deed transferring the residence to Ms. Busby in fee simple must be held in escrow.⁹ The divorce decree, as a matter of Pennsylvania law, resulted in the Busbys now owing the residence as tenants in common.¹⁰

Ms. Busby does not satisfy the conditions in the Property Settlement Agreement.

Ms. Busby took four months (double her agreed sixty days) to settle her mortgage liability with Guaranty relating to the mortgaged residence. She settled in January 2017 in exchange for $20,000.¹¹ But she did not release her former husband's mortgage obligation or remove him from the mortgage obligation.¹² Guaranty agreed to file a release of mortgage as to Ms. Busby only.¹³ Guaranty filed the recorded mortgage satisfaction on March 28, 2017. But Guaranty mistakenly included a satisfaction of Mr. Busby's mortgage obligation.¹⁴ Another year passed. Ms. Busby did not remove Mr. Busby from the obligation. The deed held by her lawyer in escrow since the Property Settlement Agreement remained unrecorded.

The Federal Deposit Insurance Corporation, as Guaranty's receiver, assigned the mortgage to SMS Financial in January 2018.¹⁵ SMS Financial retained attorney Barry Krengel to evaluate opportunities to recover on the assigned mortgage.

SMS Financial moves to vacate the mistaken mortgage satisfaction solely to confirm it released only Ms. Busby.

SMS Financial and Attorney Krengel petitioned the Court of Common Pleas of Montgomery County to strike Guaranty's mistaken mortgage satisfaction against Mr. Busby in April 2018.¹⁶ Mr. Busby answered the petition in early June 2018.¹⁷ We have no record of what happened for the next several months. But on January 20, 2020, the state court set a hearing on the petition to strike to be heard on February 4, 2020.¹⁸ The state court mailed the hearing notice to both Ms. Busby (at the residence) and Mr. Busby and electronically served notice upon petitioner SMS Financial.

Ms. Busby promptly petitions for bankruptcy protection.

Ms. Busby (presumably with mail notice of the February 4, 2020 hearing on the motion to strike) then petitioned for bankruptcy relief under Chapter 13 on January 28, 2020.¹⁹ The parties do not adduce evidence of notice of the bankruptcy filing in early 2020 given to SMS Financial or Attorney Krengel. The Honorable Wendy G. Rothstein held the February 4, 2020 hearing with SMS Financial and Mr. Busby present.²⁰ Ms. Busby and her lawyer did not attend.²¹ Judge Rothstein granted SMS Financial's April 2018 petition to strike the mistaken mortgage satisfaction and ordered SMS Financial to refile a release of mortgage as to Ms. Busby only on February 7, 2020.²²

Returning to federal jurisdiction, United States Bankruptcy Judge Ashley M. Chan confirmed Ms. Busby's Chapter 13 plan and entered an order of discharge eighteen months later on August 5, 2021.²³ Ms. Busby signed an agreement of sale for the residence with proceeds in excess of $900,000 and settlement set for early October 2021.²⁴

SMS Financial requires satisfaction of its mortgage when the Busbys sell the residence.

Attorney Krengel learning of the potential sale repeatedly contacted Ms. Busby's attorney Paul Stewart throughout August and September 2021 attempting to confirm Mr. Busby's share of the proceeds from the residence's imminent sale.²⁵ Attorney Stewart responded: (1) Ms. Busby has been sole owner of the residential property since September 2016 under the Property Settlement Agreement; (2) Ms. Busby filed for bankruptcy on January 28, 2020; and (3) Attorney Krengel's repeated contacts attempting to collect proceeds from the sale of the residence violated the bankruptcy code's automatic stay in Ms. Busby's bankruptcy and Judge Chan's August 5, 2021 discharge order.²⁶

Attorney Stewart petitioned to strike or vacate Judge Rothstein's February 7, 2020 Order on September 17, 2021.²⁷ Neither party suggests Ms. Busby attempted to expedite the resolution of her motion.

The Busbys instead progressed to sell the residence for over $900,000 even though Judge Rothstein did not yet have an opportunity to decide Ms. Busby's September 17, 2021 petition to vacate the February 7, 2020 Order. Ms. Busby and Mr. Busby sold the residence on October 4, 2021 for over $900,000.²⁸ Attorney Krengel provided the title agency with the payoff amount for the existing mortgage against Mr. Busby's interest in the residential property.²⁹ The title agent wired $101,824.52 to SMS Financial in satisfaction of its mortgage lien against Mr. Busby.³⁰

Ms. Busby unsuccessfully challenges SMS's recovery in state and bankruptcy court.

Judge Rothstein denied Ms. Busby's September 17, 2021 petition on November 29, 2021.³¹ Judge Rothstein confirmed her order without prejudice to Ms. Busby...