Pingora Loan Servicing, LLC v. Scarver (In re Lindstrom)

621 B.R. 42

Virginia Sue LINDSTROM, Debtor.

Pingora Loan Servicing, LLC & LoanDepot.com, LLC, Appellants,

v.Cathy L. Scarver, Appellee.

Case No. 1:19-cv-03979

United States District Court, N.D. Georgia, Atlanta Division.

Signed August 31, 2020

John K. Rezac, Taylor English Duma LLP, Atlanta, GA, for Appellants.

G. Frank Nason, IV, Lamberth Cifelli Ellis & Nason, PA, Atlanta, GA, for Appellee.

OPINION & ORDER

Michael L. Brown, United States District Judge The Bankruptcy Judge granted the trustee of a bankruptcy estate summary judgment. (Dkt. 1-2.) Appellants Pingora Loan Servicing, LLC ("Pingora") and LoanDepot.com, LLC ("LoanDepot") appeal the Bankruptcy Judge's findings. (Dkt. 7.) The Court reverses the Bankruptcy Court's order and remands this case to the Bankruptcy Court to be continued under the guidance in this order.

I. Leave to Appeal

Under 28 U.S.C. § 158(a), district courts have jurisdiction over appeals of bankruptcy court rulings upon a final judgment or an interlocutory appeal. The Bankruptcy Judge granted the Trustee summary judgment on only some issues in this case. Because one count remains, the Bankruptcy Judge's order was not a final judgment. (Dkt. 4-20 at 2.) A party can only file an interlocutory appeal with leave of the court.¹ § 158(a)(3). Leave to appeal is appropriate when the bankruptcy court's order involves a controlling question of law on which there is substantial ground for difference of opinion and resolution of the issue on appeal may materially advance the ultimate termination of the litigation. See Blue Cross & Blue Shield v. First Am. Home Health , No. 496-cv-183, 1997 U.S. Dist. LEXIS 21980, at *2 (S.D. Ga. Jan. 15, 1997).

Appellants say their appeal satisfies this standard and seek interlocutory appeal from the Bankruptcy Judge's order.² (Dkt. 4-20.) Appellee agrees with that assessment, (Dkt. 3 at 5), and so does the Court. The issues presented are close questions of law with substantial grounds for differences of opinion. The resolution of the issues will also materially advance the ultimate termination of the litigation. The Court thus grants Appellants' Motion for Leave to Appeal (Dkt. 4-20).

II. Background

Most of the facts are not in dispute. In 2005, Virginia Sue Lindstrom bought a house in Lawrenceville, Georgia. (Dkt. 4-1 ¶ 8.) In 2010, she borrowed nearly $175,000 from Loan Depot and used the Lawrenceville house as collateral. (Dkt. 4-3.) To secure the debt, she executed a security deed ("Security Deed"). (Id. )

She signed the Security Deed as Borrower. (Id. at 23.) One unofficial witness, Dorothy Lindstrom, also signed the Security Deed. (Id. ) On the page after the Lindstroms' signatures, the Security Deed has a notary acknowledgment section. (Id. at 24.) Elliott Braxton Smith, the closing attorney, signed there. (Id. ) The Security Deed was recorded in Gwinnett County in August 2015. (Id. at 23.) Attached to the Security Deed, and recorded contemporaneously, was an Acknowledgment and Waiver of Borrower's Rights Rider ("the Rider"). (Id. at 26–27.) The Rider states on the first page that it is "incorporated into and shall be deemed to amend and supplement the ... Security Deed." (Id. at 26.) The Rider includes a Closing Attorney's Affidavit ("the Affidavit").³ (Id. at 28.)

The Affidavit is on the third page of the attached documents. (Id. at 28.) It states, "[i]n closing the above loan, but prior to the execution of the Security Deed and [Rider] by the Borrower(s), I or a representative of the firm reviewed with and explained to the Borrower(s) the terms and provisions of the Security Deed.... After said review with and explanation to Borrower(s), Borrower(s) executed the Security Deed and [Rider]." (Id. ) Debtor, as well as Dorothy Lindstrom and Mr. Smith, signed the Rider. (Id. at 27.) Mr. Smith signed the Affidavit as the Closing Attorney, and Cory Borgerding signed and notarized it. (Id. at 28.)

In February 2017, Debtor filed for Chapter 7 Bankruptcy. (Dkt. 4-1 ¶ 4.) A month later, Cathy Scarver ("the Trustee") was named the trustee for the bankruptcy estate. (Id. ¶ 5.) In November 2017, LoanDepot transferred the Security Deed to Pingora. (Id. ¶ 10.)

In September 2018, the Trustee sued Pingora and LoanDepot. (Dkt. 4-1.) The Trustee claimed the Security Deed had been improperly recorded and so the Trustee could avoid the secured interest of LoanDepot under 11 U.S.C. § 544. Under that statute, a party can avoid an obligation on a deed if the deed is defective. The Trustee argued, and Pingora and LoanDepot conceded, that the Security Deed was defective. (Dkt. 1-2 at 8.) Pingora and LoanDepot argued, however, that they had cured the defects by meeting the requirements of Georgia's so-called Remedial Statute — a statute that allows parties to cure certain defects or errors in the recording of deeds. The Bankruptcy Judge found the Remedial Statute applied but that Pingora and LoanDepot had not met its requirements. The Bankruptcy Judge granted the Trustee summary judgment. Pingora and LoanDepot appeal the Bankruptcy Judge's grant of summary judgment.

III. Standard of Review

A district court reviews the appeal of a bankruptcy judge's conclusions of law de novo and its findings of fact for clear error. See Club Assocs. v. Consol. Capital Realty Inv'rs , 951 F.2d 1223, 1228–29 (11th Cir. 1992). Rule 56 of the Federal Rules of Civil Procedure provides that a court "shall grant summary judgment if the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law." Fed. R. Civ. P. 56(a).

A factual dispute is genuine if the evidence would allow a reasonable jury to find for the nonmoving party. Anderson v. Liberty Lobby, Inc. , 477 U.S. 242, 248, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986). A fact is "material" if it is "a legal element of the claim under the applicable substantive law which might affect the outcome of the case." Allen v. Tyson Foods, Inc. , 121 F.3d 642, 646 (11th Cir. 1997).

The party moving for summary judgment bears the initial burden of showing a court, by reference to materials in the record, that there is no genuine dispute as to any material fact. Hickson Corp. v. N. Crossarm Co. , 357 F.3d 1256, 1260 (11th Cir. 2004) (citing Celotex Corp. v. Catrett , 477 U.S. 317, 323, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986) ). A moving party meets this burden merely by " ‘showing’—that is, pointing out to the district court—that there is an absence of evidence to support the nonmoving party's case." Celotex , 477 U.S. at 325, 106 S.Ct. 2548. The movant, however, need not negate the other party's claim. Id. at 323, 106 S.Ct. 2548. In determining whether the moving party has met this burden, a court must view the evidence and all factual inferences in the light most favorable to the party opposing the motion. Johnson v. Clifton , 74 F.3d 1087, 1090 (11th Cir. 1996).

Once the movant has adequately supported its motion, the nonmoving party then has the burden of showing that summary judgment is improper by coming forward with specific facts showing a genuine dispute. Matsushita Elec. Indus. Co. v. Zenith Radio Corp. , 475 U.S. 574, 587, 106 S.Ct. 1348, 89 L.Ed.2d 538 (1986). Ultimately, there is no "genuine [dispute] for trial" when the record as a whole could not lead a rational trier of fact to find for the nonmoving party. Id. But "the mere existence of some alleged factual dispute between the parties will not defeat an otherwise properly supported motion for summary judgment; the requirement is that there be no genuine issue of material fact." Anderson , 477 U.S. at 247–48, 106 S.Ct. 2505. The court, however, resolves all reasonable doubts in favor of the non-movant. Fitzpatrick v. City of Atlanta , 2 F.3d 1112, 1115 (11th Cir. 1993). Additionally, "[i]t is not the court's role to weigh conflicting evidence or to make credibility determinations; the non-movant's evidence is to be accepted for purposes of summary judgment." Mize v. Jefferson City Bd. of Educ. , 93 F.3d 739, 742 (11th Cir. 1996).

IV. Discussion

A. Overview

Under Section 544(a)(3) of the Bankruptcy Code, a bankruptcy trustee can avoid an obligation on a security deed if that deed is defective. 11 U.S.C. § 544(a)(3) ("The trustee ... may avoid any transfer of property of the debtor ... that is voidable by ... a bona fide purchaser and has perfected such transfer at the time of the commencement of the case, whether or not such a purchaser exists."). "If a security deed is duly executed, filed, recorded, and indexed with the Clerk of the Superior Court of the appropriate county, recordation of the deed provides constructive notice to the subsequent bona fide purchasers." Kelley v. Wells Fargo, N.A. ("In re Perry "), 565 B.R. 442, 444 (Bankr. M.D. Ga. 2017). "Recordation of a patently defective security deed does not provide constructive notice to subsequent bona fide purchasers and has no binding effect on such purchasers." Id.

Section 44-14-33 of the Georgia Code ("the Recording Statute") governs whether parties have properly recorded a deed. Under it, a properly recorded deed must have the signatures of two witnesses, one of them being a notary.⁴ Only one witness, Dorothy Lindstrom, signed the Security Deed. Appellants conceded that the Security Deed was thus defective under the Recording Statute.

A party can cure a defective deed through compliance with Georgia's Remedial Statute which states,

If a deed is neither attested by nor acknowledged before one of the officers named in Code Section 44-2-15, it may be recorded upon the affidavit of a subscribing witness, which affidavit shall be made before any one of the officers named in Code Section 44-2-15 and shall testify to the execution of the deed and its attestation according to law. A substantial compliance with the requirements of this Code section shall be held sufficient in the absence of all suspicion of fraud.

O.C.G.A. § 44-2-18. "In other words, an affidavit of a subscribing official...