In re Correa

1

IN RE: MARIA ELENA ORTIZ CORREA Debtor

No. 23-02072 (ESL)

United States Bankruptcy Court, D. Puerto Rico

August 7, 2024

OPINION AND ORDER

ENRIQUE S. LAMOUTTE UNITED STATES BANKRUPTCY JUDGE

This case is before the court upon the Motion to Dismiss for Bad Faith (Two-party Dispute) filed by Franklin Credit Management Corporation as servicing agent for Wilmington Fund Society, FSB, not in its individual capacity but solely as Certificate Trustee for Bosco Credit II Series 2017-1 ("Franklin") (dkt. #53)^[1] (the "Motion to Dismiss"), seeking the dismissal with prejudice of the Debtor's bankruptcy petition for bad faith; the Debtor's Reply and Opposition to Motion to Dismiss for Alleged Bad Faith Filed by [Franklin] Alleging Two Party Dispute (dkt. #57) (the "Opposition"); and Franklin's Motion in Compliance with Order to File Proposed Findings of Facts and Conclusions of Law in Connection with Hearing of Motion to Dismiss for Bad Faith (Two-party Dispute) (dkt. #64) (the "Proposed Findings of Facts and Conclusions of Law").

There is also a related adversary proceeding, Adv. Proc. No 23-00063 (the "Adversary Proceeding"), with various motions pending, including a request for dismissal by Franklin (Adv. Proc. No. 23-00063, dkt. #15), the Debtor's opposition thereto (Adv. Proc. No. 23-00063 dkt. #19), and Franklin's reply (Adv. Proc. No. 23-00063 dkt. #26), and requests for summary judgment by both the Debtor (Adv. Proc. No. 23-00063, dkt. #19) and Franklin (Adv. Proc. No. 23-00063, dkt. #27) with their corresponding oppositions (Adv. Proc. No. 23-00063, dkt. #27, #38).

For the reasons discussed below, the Motion to Dismiss is GRANTED, and the main bankruptcy case is dismissed with a twelve (12) month bar to re-file. Consequently, the Adversary Proceeding, Adv. Proc. No. 23-00063, is also dismissed.

Jurisdiction

The court has jurisdiction pursuant to 28 U.S.C. §§1334(b) and 157(a). This is a core proceeding pursuant to 28 U.S.C. §§157(a) and (b). Venue of this proceeding is proper under 28 U.S.C. §§1408 and 1409.

Procedural Background

A. The Main Bankruptcy Case, Bankr. Case No. 23-02072

1. This is not the Debtor's first bankruptcy case. She has two (2) prior bankruptcy petitions filed in 2011 and 2012 (see, the "First Bankruptcy Case", Bankr. Case No. 11-04551; and the "Second Bankruptcy Case", Bankr. Case No. 12-01990).

2. The Debtor filed the instant voluntary Chapter 13 petition on July 6, 2023 (dkt. #1) (the "Third Bankruptcy Case").

3. Debtor filed, and thereafter amended, the required schedules on July 31, 2023 (dkt. #20, #25).

4. In Schedule A/B, the Debtor identified two (2) properties: one located in Urb. Vista al Mar in Cataño, Puerto Rico, which the Debtor owns in its entirety and attributes a value of $90,000.00 (the "Property"); and one in Urb. Sierra Linda in Bayamón, Puerto Rico, which is part of an inheritance, and in which the Debtor has a partial ownership valued at $12,749.00 (the "Inheritance Property") (dkt. #25, p. 2).

5. In the schedules initially filed, the Debtor did not identify any unsecured creditors and only identified Wilmington Savings Fund Society as a secured creditor (dkt. #20, pp. 14 and 12-13). The Debtor later amended Schedule D to include Banco Popular de Puerto Rico ("Banco Popular") as a secured creditor with claim secured by a mortgage over the Inheritance Property of $11,132.55 (dkt. #25, p. 8). The Debtor also amended Schedule D as to Wilmington Savings Fund Society's secured claim, disclosing the same as a disputed, noncontingent, liquidated claim of $167,441.50 with a secured portion of $90,000.00 and an unsecured portion of $77,441.50 (id. at p. 9).^[2]

6. The Debtor did not identify any executory contracts or unexpired leases in Schedule G (see, dkt. #20, p. 15).

7. There are two (2) proofs of claim filed in the Claims Register. The first is a proof of claim filed by Franklin in the secured amount of $167,441.50 corresponding to a mortgage (see, Claims Register, POC #1-1). The second, is a proof of claim filed by Capital One N.A. in the unsecured amount of $437.99 related to a credit card (see, Claims Register, POC #2-1).

8. The filing deadline for proofs of claims, including that for governmental units, has since expired with no additional filings (see, Notice of Bankruptcy Case, dkt. #14).

9. On August 11, 2023, the Debtor filed an Objection to Claim Number 1 of Franklin Credit Management Corporation (dkt. #24) (the "Objection to Claim"),^[3] alleging that the mortgage over the Property was not recorded and, thus, Franklin's lien is inexistent. The Debtor further argues that Franklin obtained a judgment in its favor in the State Court Foreclosure Case, infra, because Franklin and the State Court did not understand the extent of the Debtor's prior discharge and the provisions of the Bankruptcy Code, and that the Debtor received a Notice for Sale of the Property "with the sole purpose of executing an inexistent and unrecordable lien at the time of her discharge in [a prior bankruptcy case] and debt discharged that intends to collect in the instance Bankruptcy case" (dkt. #24, p. 4).^[4]

10. On August 14, 2023, the Debtor filed a Chapter 13 Plan dated July 18, 2023 (dkt. #29) (the "Chapter 13 Plan") with a base of $9,612.00, to be paid in thirty-six (36) installments to the Chapter 13 Trustee with an additional $5,000.00 payment to be made "before month 33" "from the results of case at local court" (id., p. 2). The Debtor included a request for valuation of Franklin's claim, identified the secured amount as $0.00 (id., p. 3), and included a note that reads "[i]n regards to [Franklin] the claim has been objected and adversary filed because the Debtor had a previous Order of Discharge of the guarantee that was not registered neither perfected" (id.).

11. On September 1, 2023, Franklin filed an Objection to Confirmation of Plan dated July 18, 2023, and filed on August 14, 2023 (dkt. #31) arguing that the Chapter 13 Plan (dkt. #29) fails to provide for an acceptable treatment for curing the default to Franklin's secured claim and does not meet the requirements of 11 U.S.C. §1325(a)(5)(B)(i)(I)(aa) and (a)(6).

12. On that same date, September 1, 2023, Franklin filed an Answer to Objection to Claim Number 1 (dkt. #32) arguing that the mortgage deed securing its claim was presented at the Puerto Rico Property Registry (the "Property Registry") on April 4, 2011, and registered on April 3, 2019. Consequently, Franklin argues that it has a perfected lien. In support of its position, Franklin submitted a Title Search and an uncertified print-out of Karibe, the digital platform of the Puerto Rico Real Property Digital Registry ("Registro Inmobiliario Digital de Puerto Rico" in Spanish).^[5] Franklin also argues that the Debtor used an improper procedural vehicle to determine the validity, priority, and/or extent of Franklin's claim, which must be pursued and adjudicated by way of an adversary proceeding pursuant to Fed.R.Bankr.P. 7001(2).

13. On September 20, 2023, the court entered an Order setting a Pretrial Conference to address the Debtor's Objection to Claim and Franklin's response thereto (dkt. #40), but it was later continued without a date pending a decision on the Adversary Proceeding (see, dkt. #49).^[6]

14. On December 19, 2023, Franklin filed the Motion to Dismiss (dkt. #53), to which the Debtor filed the Opposition on January 31, 2024 (dkt. #57).

15. On February 5, 2024, the court entered an Order setting an evidentiary hearing to consider the Motion to Dismiss and the Opposition on May 14, 2024 (dkt. #58). Therein, the court ordered the parties to file proposed findings of fact and conclusions of law seven (7) days prior to the evidentiary hearing. The court advised the parties that it would not hold the evidentiary hearing if they failed to timely submit the proposed findings of fact and conclusions of law. In compliance, Franklin filed the Proposed Findings of Facts and Conclusions of Law on May 6, 2024 (dkt. #64) and submitted the related documents on May 7, 2024 (dkt. #66). The Debtor failed to comply with the Order dated February 5, 2024 (dkt. #58), and the hearing was vacated and set aside, and the contested matters before the court in the main bankruptcy case were deemed submitted and taken under advisement (dkt. #67).

B. The Adversary Proceeding, Adv. Proc. No. 23-00063

16. On August 11, 2023, the Debtor filed the Adversary Proceeding against Franklin regarding the validity, priority or extent of lien or other interest of Franklin's claim and seeking both a declaratory judgment and injunctive relief (dkt. #23; Adv. Proc. No. 23-00063, dkt. #1). In sum, the Debtor alleges that she is the owner of the Property, that she filed a prior bankruptcy petition in 2012 (Bankr. Case No. 12-01990) in which the court granted her homestead exemption over said Property (Bankr. Case No. 12-01990, dkt. #73) and the Debtor was granted a discharge (Bankr. Case No. 12-01990, dkt #103). The Debtor alleges that there was an issue with the recordation of the Property (and others in the same residential development or subdivision ("urbanización" in Spanish)) because the lot number where it was built was different from the lot number it was registered under in the Property Registry. The forgoing was the object of a class action in which the Debtor was a claimant. As a result of an Ordinance approved by the Municipality of Cataño in 2016, the properties in the residential development - including the Property - were recorded in a new parcel of land, which was different from the original parcel. The Debtor further argues that Franklin knew that the debt on the Property was discharged in the Second Bankruptcy Case "for lack of recording at the time...