Rentas v. Rodriguez (In re Malavet)

IN RE: JESUS SANTIAGO MALAVET DebtorNOREEN WISCOVITCH RENTAS Plaintiff v. MARIA MILAGROS MALAVET RODRIGUEZ Defendant

CASE NO. 09-07657 (ESL)

ADV. PROC. NO. 13-00021 (ESL)

UNITED STATES BANKRUPTCY COURT FOR THE DISTRICT OF PUERTO RICO

Dated: November 14, 2013

CHAPTER 7

OPINION AND ORDER

This case is before the court upon the Motion for Judgment on the Pleadings (Docket No. 10) filed by Mrs. Maria Milagros Malavet Rodriguez's (hereinafter referred to as "Defendant" or "Mrs. Malavet Rodríguez") and the Motion for Summary Judgment (Docket No. 11) filed by the Chapter 7 Trustee (hereinafter referred to as "Trustee" or "Plaintiff"). The Plaintiff seeks to sell a real estate property free and clear of any interest, including Mrs. Malavet Rodríguez's right to usufruct, pursuant to 11 U.S.C. §363(f) and (h). The Defendant filed her Opposition to Summary Judgment and Request for Summary Judgment in Favor of Defendant (Docket No. 13) arguing that Sections §363(f) and (h) are inapplicable in the instant case and, thus, the Trustee is unable to sell the real estate property free and clear of any interest, in particular Defendant's right to usufruct over the real estate property. For the reasons stated below, Defendant's Motion for Judgment on the Pleadings is denied. Plaintiff's Motion for Summary Judgment is denied and Defendant's Opposition to Summary Judgment and Request for Summary Judgment in Favor of Defendant is denied.

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(b)(2)(N). Venue of this proceeding is proper under 28 U.S.C. §§1408 and 1409.

Factual and Procedural Background

On September 12, 2009, Jesus Santiago Malavet (the "Debtor") filed a voluntary Chapter 11 Bankruptcy Petition (Lead Bankruptcy Case No. 09-07657¹). The Debtor included in Schedule A-Real Property- the real estate property in controversy and described the same as follows:

"[p]roperty located at Urb. Roosevelt, 470 Ave. Hostos, San Juan, PR 00918. Consists of 2 story concrete residential building on a 313 sq mts. lot. Appraisal of $375,000 was based on similar sales in community in previous years. Actual devaluation in real property is 15% or $56,250.00. Debtor owns the property but Maria Malavet, [his] mother, has [a] life [e]state ("usufructo") over the property. The commercial space is vacant."

The Debtor listed the nature of its interest on the property as "JTWROS." The Debtor listed the current value of the property in the amount of $318,750.00 and the secured claim is included in the amount of $141,536.11.

On March, 2, 2011, the case was converted to Chapter 7 (Lead Case, Docket No. 208), then the Order converting the case to Chapter 7 was set aside on May 10, 2011 because there was no opposition (Lead Case, Docket No. 229). On September 6, 2011, the court ordered the case to be reconverted to Chapter 7 for Debtor's failure to adequately address the reasons for not having filed a disclosure statement and plan (Lead Case, Docket No. 263). On October 4, 2011, the Debtor filed several amended schedules, including Amended Schedule A- Real Property- in which the Debtor included in the description of the real property in controversy that it was the Debtor's principle residence and that, "[t]he $318,750.00 is divided as follows:$159,375.00 dollars life estate ("usufructo") [and] $159,375.00 dollars Debtor's ownership." (Lead Case, Docket No. 270).

Subsequently, on August 7, 2012, the Debtor filed an Urgent Motion Requesting Determination by Trustee requesting the Trustee to express her intent to abandon the property or to attempt to invalidate the impending judicial sale (Lead Case, Docket No. 345). On August 8, 2012, the court granted the Debtor's Urgent Motion Requesting Determination by Trustee, and ordered the Trustee to reply (Lead case, Docket No. 347). On August 12, 2012, the Trustee filed her Response to Order and Response to Debtor's Motion for Determination (Lead Case, Docket No. 349). On September 24, 2012, the Trustee filed the Notice of Private Sale of Estate's Interest in Property Free and Clear of Liens informing that she will sell the real property in controversy at a private sale to JIMF Asset Management Corp. in the amount of $250,000.00. The real estate property taxes owed to CRIM amount to $6,580.88 as of September 20, 2012. The mortgage owed to FirstBank of Puerto Rico is approximately $141,536.11. The Trustee reserved the right to dispute the validity of the lien. Closing costs are estimated in the amount to be approximately $5,500 for notary stamps and cancellation of deeds and the realtor fee is in the amount of $10,000. The Trustee will also pay the remaining value of the usufruct held by Debtor's mother, Mrs. Maria Milagros Malavet Rodríguez (Lead Case, Docket No. 365). The value of the usufruct was not disclosed or estimated. On October 19, 2012, the Debtor filed an Objection to Private Sale of Hostos 470 premised upon the reasonability of the offer as well as the estate's interest in the property (Lead Case, Docket No. 369).

On January 28, 2013, the Debtor filed a Supplementary Objection to Private Sale of Hostos 470 upon Noncompliance with 363(h) and Puerto Rico's Homestead Exemption Amendment (Lead Case, Docket No. 387). On January 31, 2013, the Debtor filed a Motion Requesting Entry of Order Denying Trustee's Intent to Sell Property for Failure to Comply with Rule 7001(3) of the Federal Rules of Bankruptcy Procedure because Fed. R. Bankr. P. 7001(3) requires the Trustee to file an adversary proceeding to sell a property pursuant to Section 363(h) (Lead Case, Docket No. 390).

On February 1, 2013, a hearing was held to consider the Trustee's Notice of Private Sale of Estate's Interest In Property Free and Clear of Liens and Debtor's Objection to Private Sale of Hostos 470 in which the following material uncontested facts were established: (i) the property at Hostos #470 is part of the bankruptcy estate in this case and is subject to an usufruct on behalf of Maria Milagros Malavet Rodríguez; and (ii) apart from the claimed exemption on Hostos #470, the Debtor has no other pecuniary interest in the real property (Lead Case, Docket No. 396). At the hearing, the court established that the parties must move the court on the applicable procedure to calculate the usufruct on the real property. The court after considering the testimony of witnesses, the pleadings filed and the exhibits admitted, found that $275,000 is a reasonable value for Hostos #470 under the circumstances (Lead Case, Docket No. 396).

On February 1, 2013, the Trustee filed the instant adversary proceeding to obtain court approval to sell the real estate property pursuant to 11 U.S.C. §363(f) and (h). The Trustee argues that Section 363(h) is applicable based upon the following: (i) "[p]artition in kind of the property between the Estate and the Defendant is impracticable; property in Puerto Rico comprises the usufruct and the bare property;" (ii) "[s]ale of the estate's undivided interest would realize significantly less for the Estate than a sale of the entire property free of the interests of such co-owner;" (iii) "[t]he benefits of the Estate of a sale of such property free of the interest of Defendant outweighs the detriment, if any, to the Defendant; and (iv) "[t]he property involved is not used in the production, transmission, or distributions of electric energy or natural gas sold for heat, power, or light." (Docket No. 1). On February 27, 2013, the Trustee filed a Motion for Entry of Default and Default Judgment (Docket No. 5). On March 15, 2013, the Defendant filed a Motion Requesting Extension of Time to Answer the Complaint (Docket No. 6). On March 20, 2013, the court granted Defendant's request for a ten (10) day extension of time to answer the complaint (Docket No. 7). On March 27, 2013, the Defendant answered the complaint (Docket No. 9).

On April 10, 2013, the Defendant filed a Motion for Judgment on the Pleadings by which she argues that: (i) Section 363(f) is inapplicable in the instant case because Defendant'susufruct is not an undivided interest as a tenant in common, joint tenant, or tenant by the entirety; (ii) Section 363(f)(1) is inapplicable because the sale of Defendant's usufruct right is not permitted pursuant to Articles 396 through 441 of the Civil Code of Puerto Rico; (iii) Section 363(f)(2) does not apply because Defendant has not consented to the sale other interest in property; (iv) Section 363(f)(3) is inapplicable because Defendant's usufruct is not a lien on the property but an ownership right; (v) Section 363(f)(4) is also inapplicable because Defendant's interest is not in dispute; and (vi) Section 363(f)(5) is also inapplicable because Defendant may not be compelled, in a legal or equity proceeding, to accept a money satisfaction of her interest (Docket No. 10).

On May 2, 2013, the Plaintiff filed a Motion for Summary Judgment arguing that: (i) Trustee has a superior right than the Defendant pursuant to Section 544(a)(1); (ii) Trustee may sell the property free and clear of any interest pursuant to 11 U.S.C. §363(f) and (h); and (iii) the Defendant's interest over the real property will not be impaired because the Trustee will warrant that her right of usufruct be estimated and paid accordingly (Docket No. 11). On May 9, 2013, the Defendant filed her Opposition to Summary Judgment and Request for Summary Judgment in Favor of Defendant presenting the following arguments: (i) Section 363(h) is not applicable because the Civil Code of Puerto Rico has not incorporated the forms of ownership which are found in common law jurisdictions such as tenant in common, joint tenant and tenant by the entirety. Defendant's usufruct is not an undivided interest; and (ii) Section 363(f) is not applicable for the same reasons as stated in the Motion for Judgment on the Pleadings (Docket No. 13).

Material Uncontested Facts

1. The property at Hostos

...