LPP Mortg., Ltd. v. Ferris

LPP MORTGAGE, LTD., f/k/a LOAN PARTICIPANT PARTNERS, LTD., Plaintiff, v. ARTHUR H. FERRIS, a/k/a ARTHUR F. HUNT, Individuallyand d/b/a P.C.E. (PHOTO CONSTRUCTION ENTERPRISE),BOBBY FERRIS, FLAGSTAR BANK, FSB and THE GOVERNMENTOF THE U.S. VIRGIN ISLANDS, BUREAU OF INTERNAL REVENUE, Defendants.

Civil Action No. 2011-094

DISTRICT COURT OF THE VIRGIN ISLANDS DIVISION OF ST. CROIX

Date: June 2, 2014

Attorneys:

Richard H. Dollison, Esq.,

St. Thomas, U.S.V.I.

For the Plaintiff

Eric S. Chancellor, Esq.,

St. Croix, U.S.V.I.

For the Defendants Arthur H. Ferris, a/k/a

Arthur F. Hunt, Individually and d/b/a P.C.E.

(Photo Construction Enterprise), and Bobby Ferris

W. Mark Hillsman, Esq.,

St. Thomas, U.S.V.I.

For the Defendant Flagstar Bank, FSB

Raymond T. James, Esq.,

St. Croix, U.S.V.I.

For the Defendant Government of the U.S.

Virgin Islands, Bureau of Internal Revenue

MEMORANDUM OPINION

Lewis, Chief Judge

THIS MATTER comes before the Court on the Motion for Summary Judgment filed by Plaintiff LPP Mortgage, Ltd. f/k/a Loan Participant Partners, Ltd. ("Plaintiff" or "LPP"). (Dkt. No. 43). LPP seeks summary judgment on its action for debt and foreclosure against Defendant Arthur H. Ferris, a/k/a Arthur F. Hunt, Individually and d/b/a P.C.E. (Photo & Construction Enterprise) ("Arthur Ferris"), enforcing its priority lien on the property at issue; ordering the property to be sold at foreclosure sale; and foreclosing any junior liens on the property held by Defendants Flagstar Bank, FSB ("Flagstar") and the Government of the Virgin Islands, Bureau of Internal Revenue ("VIBIR").¹ Also before the Court is the Motion for Summary Judgment filed by Defendant and Cross-Claimant Flagstar, seeking summary judgment on its foreclosure cause of action against Cross-Claim Defendants Bobby Ferris and the VIBIR. (Dkt. No. 40). For the reasons that follow, the Court will grant in part and deny in part both motions.

I. BACKGROUND AND PROCEDURAL HISTORY

A. The LPP Note and Mortgage, and Motion for Summary Judgment

On September 28, 2011, LPP filed a Complaint against Arthur Ferris, his son Bobby Ferris, Flagstar, and VIBIR, alleging causes of action for debt and foreclosure of real property mortgage. (Dkt. No. 1). LPP asserts that Arthur Ferris defaulted on a Promissory Note and on a Mortgage regarding certain property (the "Property") described as:

Plot No. 6P of Estate Rattan Queens Quarter, St. Croix, U.S. Virgin Islands, consisting of 0.7985 U.S. acre,/more or less, all as is more particularly shown and described onPublic Works Department Drawing No. 1934, dated February 4, 1966.

(Mortgage, Dkt. No. 44-2 at 2). The Complaint alleges that, on December 6, 1990, Defendant Arthur H. Ferris (a/k/a Arthur F. Hunt) and his wife Icie Ferris (a/k/a Icilma V. Hunt, a/k/a Icilma Ferris), executed a promissory note (the "Note") in which they promised to repay the U.S. Small Business Administration ("SBA") the principal sum of $55,600.00, together with interest at the rate of 4.00% per annum. (Dkt. No. 1, ¶ 8; Promissory Note, Dkt. No. 44-1). The Note called for monthly payments of $587.00 over ten years. Id. To secure payment on the Note, Arthur Ferris and Icie Ferris executed a real estate mortgage (the "Mortgage") on January 16, 1991 in favor of the SBA, which provided that they would "promptly pay the indebtedness evidenced by said promissory note at the times and in the manner therein provided." Id. ¶ 9; Mortgage, Dkt. No. 44-2 at 3. The Complaint further alleges that, on May 22, 2001, the Note and Mortgage were assigned to LPP by an "Assignment of Notes and Liens," recorded on August 22, 2001 and also on May 2, 2002. Id. ¶ 11; Assignment, Dkt. No. 44-3. On December 18, 2002, Icie Ferris passed away, leaving Defendant Arthur Ferris as the sole owner of the Property. Id. ¶ 12, Warranty Deed, Dkt. No. 44-5.

The Complaint states that Arthur Ferris failed to comply with the terms and conditions of the Note and Mortgage, in that monthly installments of principal and interest became due and were not paid, despite demand, and that Arthur Ferris was in default under those instruments. Id. ¶ 17. Pursuant to the terms of these documents, LPP elected to declare the entire unpaid principal sum due, plus accrued interest and other charges, totaling $101,638.60 through February 28, 2011. Id. ¶ 18.

Arthur Ferris and Bobby Ferris filed an Answer to LPP's Complaint. Although styled as an "Answer and Counterclaim," the Answer did not contain a Counterclaim but rather fouraffirmative defenses. (Dkt. No. 17). Flagstar answered LPP's Complaint and filed a Cross-Claim against Defendants Bobby Ferris and VIBIR. (Dkt. No. 18). VIBIR answered and filed a Cross-Claim against Defendants Arthur Ferris and Bobby Ferris. (Dkt. No. 19). Subsequently, the parties engaged in discovery, during which LPP served Requests for Admissions on Arthur Ferris and Bobby Ferris. (Dkt. No. 38-1). Neither Defendant responded.

On July 31, 2012, LPP filed its Motion for Summary Judgment (Dkt. No. 43), accompanied by a Statement of Undisputed Facts (Dkt. No. 44) and a Memorandum of Law. (Dkt. No. 45). In its Memorandum, LPP contended that Arthur Ferris admitted all of the essential elements of the foreclosure and debt causes of action by not responding to its Requests for Admissions, and argued that Flagstar's and VIBIR's subordinate interests in the Property should be foreclosed and the priority of liens be determined. (Dkt. No. 45).

Attached to LPP's Statement of Undisputed Facts was an Affidavit of Account Officer, submitted by Ralph S. Wheatly, Vice-President of CLMG Corp., LPP's loan servicing agent. (Dkt. No. 44-10). In his Affidavit, Mr. Wheatly brought Arthur Ferris' indebtedness current as of July 26, 2012. He averred that the total amount due and owing was $104,895.19, consisting of $36,282.62 in principal; $18,691.24 in interest capitalized in accordance with the terms of the Note and Mortgage and accruing at the rate of $3.98 per day until the date of judgment; and $49,921.33 for payment of delinquent taxes, force place insurance, legal fees, and costs. (Dkt. No. 44-10 ¶ 10). Mr. Wheatly averred that, during the pendency of the action and prior to the foreclosure sale, LPP might have to pay real property taxes, insurance premiums, and other charges, as well as costs and fees (including attorney's fees) that, pursuant to the terms of the Mortgage, would become part of the principal indebtedness. Id. ¶ 11.

LPP's counsel, Richard H. Dollison, Esq., a partner in the law firm of Duensing, Casner, Dollison & Fitzsimmons, submitted an affidavit to which he attached an exhibit detailing the costs and attorney's fees expended in pursuing the action, totaling $27,691.32. (Dkt. No. 45-2).

Arthur Ferris opposed LPP's Motion for Summary Judgment (Dkt. No. 51), and LPP filed a Reply. (Dkt. No. 53).

In June 2013, the Court entered an Order requiring LPP to: (1) identify the provisions in the loan documents which provided for capitalization of interest, and how capitalization of interest related to the per diem interest rate; (2) specify what part of the $49,921.33 was requested for delinquent taxes, force place insurance, legal fees, and costs, and provide documentation substantiating those figures; and (3) explain why the hourly rates of certain employees who worked at LPP's law firm fluctuated from ten to fifty dollars per hour, and what positions those persons held. (Dkt. No. 57). In the supplemental filings submitted in response to the Court's Order, LPP identified the provisions in the Note and Mortgage that allowed for capitalization of interest and stated that there was no capitalization of expenses; showed how it calculated the accrued interest; and specified the amounts paid in real property taxes, force place insurance, legal fees and costs, with documentation of those costs. (Dkt. No. 59-1). In addition, Mr. Dollison submitted a supplemental affidavit in which he explained why the hourly billing rates at the law firm varied, and what positions the persons who worked on the case held. (Dkt. No. 59).

B. The Flagstar Note and Mortgage, and Motion for Summary Judgment

In its Cross-Claim against Defendant Bobby Ferris for debt and foreclosure, and against Defendant VIBIR for foreclosure, Flagstar alleged that, on July 30, 2007, Defendant Bobby Ferris executed and delivered a promissory note (the "Flagstar Note") in which he promised topay Flagstar the principal sum of $184,000.00, together with interest at the rate of 6.875% per annum. (Flagstar Cross-Claim, Dkt. No. 18 ¶ 1; Flagstar Note, Dkt. No. 18-1). The Flagstar Note called for monthly payments of $1,207.75 over thirty years. Id. As a condition of the loan, Bobby Ferris was required to escrow funds each month for hazard insurance and property taxes, which brought his monthly payment to $1,589.17. (Dkt. No. 18 ¶ 2, Flagstar's Notice of Admissions, Dkt. No. 39-1 ¶ 3).

The Cross-Claim alleged that the Flagstar Note was secured by a Mortgage on the Property (the "Flagstar Mortgage") also executed on July 30, 2007 by Bobby Ferris in favor of Mortgage Electronic Registration Systems, Inc. ("MERS"), acting as nominee for Flagstar. (Dkt. No. 18 ¶ 3; Flagstar Mortgage, Dkt. No. 18-2).

The Cross-Claim went on to allege that Bobby Ferris defaulted on the Flagstar Note and Mortgage by failing to pay principal and interest when due, and because he allowed the present action to be brought which could result in forfeiture of the Property or impairment of Flagstar's interest. (Dkt. No. 18 ¶ 6). The Cross-Claim further alleged that Bobby Ferris was notified of his default by letters dated February 19, 2010 and March 11, 2010; he failed to cure the default; and Flagstar elected to declare the entire unpaid principal sum plus interest and late charges due. Id. ¶¶ 7-8; Dkt. Nos. 18-3, 18-4. As a result of the default, Bobby Ferris owed Flagstar the sum of $213,797.26 through December 1, 2011 with interest and late charges accruing until judgment. Id. ¶ 8.

Bobby Ferris...