IN RE McCUNE

661 B.R. 164

IN RE: Chuck McCUNE and Chuthamard McCune, Debtors.

No. 20-12326-j7

United States Bankruptcy Court, D. New Mexico

Signed April 5, 2024

Debtors: Chuck McCune, Chuthamard McCune, 2139 Don Andres Pl SW, Albuquerque, NM 87105.

MEMORANDUM OPINION

ROBERT H. JACOBVITZ, United States Bankruptcy Judge.

THIS MATTER comes before the Court on Creditor's Motion to Determine That Debtors' Real Estate Contract on Their Residence Has Been Rejected and That No Real Estate Is Part of the Bankruptcy Estate (the "REC Rejection Motion" — Doc. 257), filed by Robert Pidcock, as Personal Representative of the Estate of Thomas W. Kuehn (the "Personal Representative"). Debtor Chuck McCune filed an objection to the REC Rejection Motion (the "Objection" — Doc. 272), and the Personal Representative filed a reply (Doc. 275). The Court held a final evidentiary hearing on the REC Rejection Motion on November 3 and 8, 2023 (the "Final Hearing"). The Personal Representative and Mr. McCune both appeared at the Final Hearing.

The REC Rejection Motion relates to a real estate contract dated October 4, 2007 (the "REC" — Ex. 1), under which Mr. McCune and his wife, co-debtor Chuthamard McCune, are the purchasers of three parcels of real estate. For the reasons explained below, the Court holds that the REC is still in effect and is property of the estate.¹

FINDINGS OF FACT²,³

The Court FINDS:⁴

(A) Transfers to the Sister-in-Law and Mortgage Loan

In early 2007, Mr. and Mrs. McCune owned three parcels of real estate: a parcel on which the house where they reside is situated (the "Property with the House") and two adjacent or nearby parcels (the "Additional Property"). The Property with the House and the Additional Property shall together be referred to as the "Property."⁵ At some point in 2007, the McCunes sold the Property with the House to Kanoken Tungdeeteesud, who is Mrs. McCune's sister and Mr. McCune's sister-in-law (the "Sister-in-Law"). On June 14, 2007, the Sister-in-Law obtained a mortgage loan secured by the Property with the House (the "Mortgage Loan").⁶ The Mortgage Loan was made in the principal amount of $189,000, plus interest at a rate of 6.5% per year. Taylor, Bean & Whitaker Mortgage Corp. ("Taylor Bean") was the original mortgage lender (together with all subsequent owners and/or servicers of the Mortgage Loan, the "Mortgage Lender"). The original Mortgage Loan had a term of 30 years, with the first payment due August 1, 2007. Ex. 3 at ¶ 3. The Personal Representative asserted but did not establish that the McCunes sold the Property with the House to the Sister-in-Law for $210,000 with a down payment of $21,000.

Subsequent to the Sister-in-Law's purchase of the Property with the House and procurement of the Mortgage Loan, the McCunes on July 17, 2007 executed quit claim deeds transferring the Additional Property to the Sister-in-Law.⁷ Mr. McCune testified that the Mortgage Loan should have been secured by the Additional Property in addition to the Property with the House, and the fact that the Mortgage Loan was only secured by the Property with the House was an oversight by the original Mortgage Lender; however, there is insufficient evidence to establish this.⁸

(B) The Real Estate Contract

On October 4, 2007, the Sister-in-Law, as Seller, and the McCunes, as Purchaser, entered into the REC, under which the McCunes were purchasing the Property back from the Sister-in-Law. The purchase price under the REC was $210,000, with $21,000 due as a down payment and the remaining $189,000 due in monthly installments. REC at ¶ 2. The unpaid principal balance under the REC accrues interest at 6.5% per year.⁹ The REC also provides that the McCunes shall pay each month a pro-rated portion of the estimated annual property taxes and insurance premiums for the Property. Payments under the REC are due on the first of each month, with the first payment due October 1, 2007.

Under the REC, Sunwest Trust, Inc. ("Sunwest Escrow") is appointed as escrow agent. Pursuant to the REC, the following papers were placed in escrow: (1) signed copy of the REC, (2) original warranty deed signed by the Sister-in-Law conveying the Property to the McCunes, and (3) original special warranty deed signed by the McCunes conveying the Property to the Sister-in-Law. REC at ¶ 9.

As written, the REC provides that the McCunes do not assume or agree to pay the Sister-in-Law's Mortgage Loan, and that Sunwest Escrow shall forward the payments due under the Mortgage Loan to the Mortgage Lender from funds the McCunes pay to Sunwest Escrow. The REC provides:

The following lien(s) or obligation(s) is currently outstanding on the property:

TYPE OF LIEN OR OBLIGATION HOLDER that certain Mortgage with Taylor Bean & Whitaker Mortgage Corp.

Purchaser does not assume or agree to pay the above described lien(s) or obligation(s). All payments due on such lien(s) or obligation(s) shall be remitted by the Escrow Agent to the person or company to whom they are payable out of the payments made by Purchaser.... Upon payment in full of this Contract, Seller shall obtain a release of the property from the lien(s) or obligation obtained above.

REC at ¶ 2. The REC further provides that Sunwest Escrow shall forward the amounts the McCunes paid in escrow for taxes and insurance to the Mortgage Lender. REC at ¶ 2. Under the REC, the McCunes are entitled to possession and use of the Property during the performance of the contract.¹⁰ The house in which the McCunes currently live is situated on the Property with the House.¹¹

The REC provides that upon default of the McCunes' payment obligations, "the Seller may make written demand upon the Purchaser, with such notice to specify the default and the curative action required[.]" REC at ¶ 5(a). If the McCunes do not cure any default within 30 days after the Sister-in-Law's default notice is mailed, the Sister-in-Law may, at her option, either accelerate the entire unpaid balance under the REC or terminate the contract. REC at ¶ 5(c). Further, "[a]cceptance by Escrow Agent of any payment tendered shall not be deemed a waiver by Seller, or extension of the time for cure, of any other default" under the REC. Id. If the Sister-in-Law elects to terminate the REC, a recordable affidavit made by her with certain information —including that "the specified default has not been cured within the time allowed and that the Seller has elected to terminate" —and delivered to the escrow agent "shall be conclusive proof for the Escrow Agent and any subsequent Purchaser or encumbrancer for value of such uncured default and election of termination." REC at ¶ 5(d).

Upon full payment of all amounts due and owing to the Sister-in-Law under the REC by the McCunes, Sunwest Escrow is directed by the REC to release and deliver the original warranty deed and the original special warranty deed to the McCunes. REC at ¶ 9(c). In contrast, upon termination of the REC following an uncured default, Sunwest Escrow is directed to release and deliver the original warranty deed and the original special warranty deed to the Sister-in-Law. REC at ¶ 9(d).¹²

The REC has a provision requiring that any modifications be made in writing. It states, "This Contract can be modified only in writing signed by the parties hereto." REC at p. 4. No written modifications to the REC have been made.

(C) Comparison of Amounts Due Under the REC and the Mortgage Loan

Both the REC and the Sister-in-Law's Mortgage Loan provide for financing in the principal amount of $189,000, which accrues interest at the rate of 6.5% per year. See REC at ¶ 2; Ex. 3 at ¶¶ 1-2. Both the REC and the Mortgage Loan further provide for payment of taxes and insurance, although they are stated slightly differently. The REC provides that the McCunes shall pay "with each installment, a pro rata portion of the estimated annual taxes and insurance premiums for hazard insurance on [the] Property." REC at ¶ 2. Similarly, the Mortgage Loan requires that the Sister-in-Law pay, along with her monthly payment of principal and interest, certain escrow items. Ex. 4 at ¶ 3. The applicable escrow items appear to be amounts due for taxes and assessments and insurance premiums for hazard insurance. Id.¹³

Despite the similarities between the required payments under the REC and the Mortgage Loan, and both agreements providing for a principal amount of $189,000 and interest on the unpaid principal balance of 6.5% per year, the monthly payment amounts for principal and interest are different under the REC and the Mortgage Loan. The Mortgage Loan provides for monthly installments of principal and interest in the amount of $1,194.61, and the REC provides for monthly installments of principal and interest in the amount of $1,339.13.

The first payment under the Mortgage Loan was due two months earlier than the first payment under the REC (August 1, 2007 versus October 1, 2007), but this does not account for the difference in monthly payment amounts. At the higher monthly payment amount, the term of the REC as written would be several years shorter than the term of the original Mortgage Loan.

(D) Payments to Sunwest Escrow

After entering into the REC with the Sister-in-Law in October 2007, the McCunes initially made their payments to Sunwest Escrow as set forth in the REC. The McCunes made ten monthly payments to Sunwest Escrow, beginning October 2007 through July 2008. Ex. 2. Subsequently, the McCunes began paying the Mortgage Lender directly.

The payments forwarded by Sunwest Escrow to the Mortgage Lender were not received timely, which led to late fees under the Mortgage Loan, and the McCunes began paying the Mortgage Lender directly in order to avoid such late fees. The REC inadvertently created the timing problem because payments under the REC were due on the same day as payments under the Mortgage Loan, so there was insufficient time for payments to be forwarded by Sunwest Escrow to the Mortgage Lender and be received timely. The Court...