Lassman v. Short (In re Foley), Case No. 13-14529-JNF

In re KEVIN FOLEY and LAUREN BETH RAMOS-FOLEY, Debtors

DONALD R. LASSMAN, CHAPTER 7 TRUSTEE, Plaintiff v. JAMES D. SHORT and GLORIA D. SHORT, Defendants

Case No. 13-14529-JNF

Adv. P. No. 14-1139

UNITED STATES BANKRUPTCY COURT FOR THE DISTRICT OF MASSACHUSETTS

January 22, 2016

Chapter 7

MEMORANDUM

I. INTRODUCTION

The matters before the Court are Cross-Motions for Summary Judgment with respect to the Amended Complaint filed by Donald R. Lassman, the Chapter 7 Trustee of the bankruptcy estate of Kevin Foley and Lauren Beth Ramos-Foley (the "Debtors") against James D. Short and Gloria D. Short (collectively, the "Shorts"). James Short is deceased, having passed away in April of 2013; his widow, Gloria Short ("Mrs. Short"), appears in this adversary proceeding through her son, Walter Dean Short, who holds a General Power of Attorney.

The Court heard the Trustee's Motion for Summary Judgment on November 17, 2015, as well as the "Motion of Gloria D. Short, Defendant, for Order Authorizing the Court to Rule for Dismissal and Return Any and All Interest and or [sic] Property Rights in Real Property and Personal Property Known as the Cinderella Motel Back to Her Without Prejudice (Cinderella Motel, 65 Park Street, Gilbersville, Kentucky" (the "Motion to Dismiss"). In view of the acquiescence of Walter Dean Short ("Mr. Short") and the absence of an objection from the Trustee, the Court shall treat the Motion to Dismiss as a Cross-Motion for Summary Judgment.

The material facts necessary to resolve the Cross-Motions are not in dispute. Accordingly, the Court makes the following findings of fact and conclusions of law in accordance with Fed. R. Bankr. P. 7056.

II. FACTS

The Debtors filed a voluntary Chapter 7 petition on July 30, 2013. On Schedule A-Real Property, they disclosed an interest in property located at "65 Park Street, Gilbersville, KY subject to a Contract for Deed 0-value unknown [sic]." On amended Schedule B-Personal Property, they listed a liquidated debt owed to them as follows:

Janine O'Brien and Christopher M. O'Brien. Debt obligation received by debtors in conjunction with a Contract for Sale of the Cinderella Motel, Gilbertsville, Ky. (March 2013)

The Debtors valued the Contract for Sale at $165,000.

On July 16, 2014, the Trustee commenced two adversary proceedings. One against the Shorts and the other against Janine and Christopher O'Brien (collectively, the "O'Briens"). In his Amended Complaint against the Shorts, the Trustee set forth five counts as follows: Count I (11 U.S.C. § 542 - Turnover); Count II (Unjust Enrichment); Count III (11 U.S.C. § 362 - Violation of the Automatic Stay); Count IV (Determination of Validity of Lien - Defective Mortgage under Massachusetts Law); and Count V (Determination of Validity of Lien - Defective Mortgage under Kentucky Law). Pursuant to his Motion, the Trustee seeks summary judgment as to all counts.

The Cross-Motions for Summary Judgment concern the sale by the Shorts to the Debtors of their interest in real property located at 65 Park Street, Gilbertsville, Kentucky (the "Property"), namely the land and buildings located in Marshall County, Kentucky, together with the Debtors' interest in the inventory, equipment and personal property located on the Property which is known as the Cinderella Motel, and the subsequent Contract for Deed executed by the Debtors and the O'Briens.

In connection with the sale of the Property from the Shorts to the Debtors, the Shorts provided the Debtors with financing for their acquisition of the Property. The Debtors, on March 1, 2007, in Benton, Kentucky, executed a promissory note (the "Note") in favor of the Shorts in the original principal amount of $168,000, with interest at the rate of 4.75% per annum. The Note required equal monthly payments of $934; it was scheduled to mature on January 1, 2022. In addition, the Shorts and the Debtors executed a Deed which reflected the following:

"GRANTOR"

James D. Short /s/

James D. Short

Gloria D. Short /s/

Gloria D. Short

"GRANTEE"

Lauren B. Ramos /s/

Kevin M. Foley by Lauren B. Ramos, his agent

Kevin M. Foley

The parties recited consideration of $180,000 in the deed. The Shorts' signatures were both notarized: in the case of James D. Short, in Wise Virginia on March 28, 2007, and in the case of Gloria D. Short, in Marshall County, Kentucky on April 11, 2007. The acknowledgment executed by James D. Short provided: "[t]he foregoing Deed was subscribed, sworn to and acknowledged before me this the 28^th day of March, 2007 by James D. Short, Grantor" (emphasis supplied). The acknowledgment of the Deed executed by Gloria D. Short provided: "[t]he foregoing Deed was subscribed, sworn to and acknowledged before me this the 10^th [sic] day of April, 2007 by Gloria D. Short, Grantee." (emphasis supplied). The Deed also contained an acknowledgment of a "Certificate of Consideration" which provided: "[t]he foregoing Certificate of Consideration was subscribed, sworn to and acknowledged before me this the 11^th day of April, 2007 by Lauren B. Ramos, individually and as agent for Kevin M. Foley, Grantees."

The Debtors executed a Real Estate Mortgage in favor of the Shorts (the "Mortgage") to secure the Note. The Mortgage was recorded in Marshall County, Kentucky on April 11, 2007. The acknowledgement applicable to Lauren Beth Ramos, who was single at the time, provided the following:

STATE OF KENTUCKY

COUNTY OF MARSHALL

The foregoing Mortgage was acknowledged before me this the 11 day of April, 2007, by Lauren Ramos, single.

Illegible /s/

Notary Public

My Commission expires: 6-8-08

The acknowledgement applicable to Kevin Foley, who also was single at the time, provided the following:

STATE OF MASSACHUSETTS [sic]

COUNTY OF PLYMOUTH

The foregoing Mortgage was acknowledged before me this the 5^th day of April, 2007, by Kevin M. Foley, single.

David R. DeBastos /s/

Notary Public

My Commission expires: March 10, 2011

The Mortgage was lodged in the Marshall County Court on April 11, 2007. The Mortgage sets forth the following Certification:

STATE OF KENTUCKY

COUNTY OF MARSHALL

I, Dan Duke Clerk of the County Court of said County, do certify that the foregoing Mortgage was on the 11 day of April, 2007 at 4:20 o'clock P.M. lodged in my office of record. Whereupon the same, the foregoing and this certificate have been duly recorded in my office in Mortgage Book 604, page 125

Given under my hand this the 12 day of April, 2007.

Dan Duke, Clerk

By Delia Riley, D.C.

The Mortgage provides that "[i]n the event Mortgagor sells, or contracts to sell the mortgaged property, or any part thereof, Mortgagee may without notice at its option declare the entire unpaid balance of the promissory note immediately due and payable." The Deed and the Mortgage both indicate that they were prepared by George E. Long II, an attorney with offices in Benton, Kentucky.

Approximately six years after the Debtors purchased the Property from the Shorts, the Debtors executed, on March 18, 2013, a "Contract for Deed" with the O'Briens for a purchase price of $195,000. The Contract required the O'Briens to pay the Debtors a total deposit of $30,000 and to pay the remaining $165,000 in equal monthly payments of $1,500 each over a ten-year period. The parties recognized the existence of the Mortgage in favor of the Shorts and the Debtors agreed to "be responsible and pay all outstanding liens against the property . . . [and] . . . "to take the necessary steps and make sufficient arrangements to pay these [lien] creditors in full." Upon completion of payments by the O'Briens, the parties agreed that "the Sellers [the Debtors] bind themselves, their heirs and assigns, to execute a General Warranty Deed conveying title in fee simple being a good and marketable title free and clear of any liens or encumbrances except those created by the Buyers."

In addition, the Contract for Deed provided remedies for non-payment as follows:

It is understood and agreed by and between the parties, that the Buyers will have caused a material breach of this contract in the event the Buyers are in default by non-payment of any payment for a period of thirty-one (31) days from the date it is due and payable, . . . provided the Sellers shall first give the Buyers at least fifteen (15) days written notice of their intention to forfeit this Contract and shall set forth therein the specific breach of contract and of their intention to re-enter the premises and declarethis Contract in default, if such breach shall be continued. If after expiration of fifteen (15) days provided the Buyers are then in default respecting the covenant or conditions complained of by the Sellers, then the Sellers may, at their option and without notice, cancel the contract and refuse to accept any further payment thereon, and treat the same paid up to the date of such default as liquidated damages for beach of contract. . .

In the alternative, the Sellers shall have the option to accelerate the entire unpaid principal and interest, claiming the same to be immediately due and payable and to enforce the terms and provisions of this contract. In addition to the balance due[,] the Sellers shall also be reimbursed for reasonable attorney's fees, court costs, any damages, unpaid taxes, insurance or other amounts that were to be paid to the Buyers.

Attorney George E. Long II prepared the Contract for Deed.

After the Debtors filed their Chapter 7 petition, the Shorts made demand upon the O'Briens to make the payments pursuant to the Note. The O'Briens complied and, beginning in July, 2013, made monthly payments under the Note, totaling at least $15,997, directly to Mrs. Short. Mrs. Short had notice of the commencement of the Debtors' Chapter 7 case and refused to turnover approximately $16,000 in funds received from the O'Briens to the Trustee.

In addition, on July 30, 2014, Walter Dean Short, under his General Power of Attorney, and the O'Briens executed a "General Promissory Agreement," pursuant to which the O'Briens, who reside at the...