Scott v. U.S. Bank, Nat'l Ass'n (In re Scott)

607 B.R. 211

IN RE: Michael David SCOTT, Debtor.

Michael David Scott, a/k/a The Crawford Group, LLC a/k/a MaCaulay Family Realty Trust, Plaintiff,

v.U.S. Bank, National Association, as Trustee for Credit Suisse First Boston Mortgage Securities Corp., Mortgage Backed Pass Through Certificates, Series 2004-AR-7, Korde & Associates, P.C., and Ocwen Loan Servicing, LLP, Defendants.

Bankruptcy No. 17-70045-JAD

Adversary Nos. 17-07028-JAD & 17-07050-JAD (consolidated 17-07028-JAD)

United States Bankruptcy Court, W.D. Pennsylvania.

Signed September 25, 2019

Mr. Michael Scott, Pro Se

Brett Messinger, Esquire, Counsel to U.S. Bank

James R. Walsh, Esquire, Chapter 7 Trustee

Related to ECF No. at 17-07028-JAD, ECF No. 1 at 17-07050-JAD, ECF Nos. 1, 8

MEMORANDUM OPINION

Hon. Jeffery A. Deller, United States Bankruptcy Judge

By this Adversary Proceeding, the Court is called upon to determine whether, under Massachusetts law, the mortgagee in this case is entitled to foreclose upon the debtor's residence. The debtor contends that the putative mortgagee does not have standing to foreclose due to, inter alia , defects associated with the mortgagee's receipt (or faulty receipt) of an assignment of the underlying note executed by the debtor and his non-debtor spouse.

As a result of the putative mortgagee's efforts to effectuate a power of sale in the face of the alleged defects, the debtor further contends that there should be adverse consequences imposed upon the mortgagee. The consequences sought by the debtor in this Adversary Proceeding include the avoidance of the mortgagee's lien, compensatory damages, and punitive damages.

The defendant mortgagee avers that it has standing to foreclose and seeks summary judgment asserting the same. Prior to seeking summary judgment, the defendant also questioned this Court's subject-matter jurisdiction based on the fact that the outcome of this matter will have no conceivable effect on the bankruptcy estate being administered before this Court. The mortgagee raised this question because the residence at issue has been exempted by the debtor and abandoned by the bankruptcy trustee.

For the reasons set forth below, the Court finds that the mortgagee's jurisdictional defense is persuasive and that the Court does not have the requisite subject-matter jurisdiction.

Even if this Court had the requisite jurisdiction, the Court would nonetheless also conclude that pursuant to the undisputed facts presented by the parties herein, the mortgagee does have the requisite standing to enforce the note and to effectuate a foreclosure on the debtor's residence. Under these circumstances, the debtor's claim for relief fails and summary judgment should be entered in favor of the mortgagee.

I.Background

While this case has been inundated with extensive filings by all parties, the underlying facts are not overly complicated. Nor are they materially controverted. Rather, the complexity of this case has been drawn out by the multiple pleadings filed of record, coupled with the confusing manner in which the mortgagee has set forth the chain of title as to its secured interest. Fortunately for all parties and the Court, the record is now robust enough for the Court to ascertain the pertinent chain of title, and a chart summarizing the chain of title is annexed hereto as Appendix A.

The record also enables the Court to determine this matter on the merits. The record reflects that the debtor, Mr. Michael David Scott ("Mr. Scott" or the "Debtor"), was an inmate housed at the Federal Corrections Institute located in Loretto, Pennsylvania. Mr. Scott filed his bankruptcy petition with this Court on January 25, 2017, and subsequent to the commencement of this bankruptcy case he was transferred to the Federal Corrections Institute in Ayer, Massachusetts. One of the assets scheduled by Mr. Scott in this bankruptcy is his entireties interest in residential real property located at 40 Old Stable Drive, Mansfield, Massachusetts 02048 (the "Stable Property"), where his non-debtor wife, Mrs. Eunice James-Scott ("Mrs. James-Scott"), currently resides.

The filing of this Adversary Proceeding was prompted by the filing of a motion for relief from the automatic stay on April 21, 2017 by the putative mortgagee and defendant: U.S. Bank National Association as Trustee for Credit Suisse First Boston Mortgage Securities Corp., Mortgage-Backed Pass Through Certificates, Series 2004-AR7 ("U.S. Bank").¹ See Motion of U.S. Bank National Association as Trustee for Credit Suisse First Boston Mortgage Securities Corp., Mortgage-Backed Pass Through Certificates, Series 2004-AR7 for Relief from the Automatic Stay Under § 362 Pursuant to Bankruptcy Procedure Rule 4001 (the "Motion for Relief From Stay"), 17-70045-JAD, ECF No. 106.

In connection with the relief from stay proceedings, U.S. Bank contended that it was the mortgagee with respect to the Stable Property. Since this case is a liquidation case under chapter 7 and not a reorganization case under other chapters of the Bankruptcy Code (thereby rendering the Stable Property not necessary for an effective reorganization), U.S. Bank contended in the Motion for Relief From Stay that it was entitled to relief because Mr. Scott had not made any payments on account of his mortgage obligations since 2014 (which was prior to Mr. Scott's incarceration).

U.S. Bank also contended that the Debtor had little or no equity in the Stable Property since (a) Mr. Scott averred that the property in question was worth $764,490, (b) U.S. Bank was owed in excess of $714,000 as of March of 2017, and (c) the lien interests of various junior lien holders, including the Internal Revenue Service, consume whatever little equity that remained against the premises.²

U.S. Bank therefore contended that ample "cause" existed for the Court to grant U.S. Bank relief from the automatic stay so that U.S. Bank could pursue in rem relief with respect to the Stable Property. See 11 U.S.C. §§ 362(d)(1) and 362(d)(2).

Mr. Scott opposed U.S. Bank's Motion for Relief From Stay. Mr. Scott's defense rested primarily on standing grounds. That is, Mr. Scott contended that the underlying Note³ for the loan obligation to U.S. Bank was lost shortly after the closing on the loan, and that U.S. Bank (as an assignee of the loan) lacked an ability to enforce the lost Note. Given the lost Note, Mr. Scott argued that U.S. Bank lacked standing to both prosecute the Motion for Relief From Stay and foreclose against the Stable Property.

At the June 2, 2017 hearing on the Motion for Relief From Stay, the Court was not persuaded by Mr. Scott's arguments. The Court was not convinced for a number of reasons. While not stated expressly on the record at the June 2, 2017 hearing, one reason why the Court was not persuaded by Mr. Scott's arguments was the fact that creditors of a debtor have standing to ask for relief from the automatic stay and that the term "creditor" in the Bankruptcy Code includes a creditor asserting a "disputed claim." Compare 11 U.S.C. § 101(5) with 11 U.S.C. § 101(10).

Recognizing that "cause" for granting stay relief is discretionary and turns on the totality of the circumstances, see e.g. In re Brown, 290 B.R. 415 (Bankr. M.D. Fla. 2003) and Egwineke v. Robertson (In re Robertson), 244 B.R. 880 (Bankr. N.D. Ga. 2000), this Court granted U.S. Bank relief from the automatic stay at the conclusion of the June 2, 2017 hearing.

In balancing the interests of Mr. Scott against the putative interests of U.S. Bank, this Court observed at the June 2, 2017 hearing that Mr. Scott acknowledged that he executed various loan modification agreements in favor of the putative mortgagee prior to his bankruptcy filing. See e.g., Bayview Loan Servicing, LLC v. Warter, No. 673-2013, 56 Misc.3d 1212(A), 2017 WL 3296531, at *4 (N.Y. Sup. Ct. July 27, 2017) (holding that the defense of lack of standing may be waived when borrower executes a loan modification agreement with foreclosing plaintiff). This Court also observed that, to the extent necessary, the parties' competing interests and defenses could be litigated by way of a separate lawsuit. See U.S. Bank, N.A. v. Brumfiel (In re Brumfiel), 514 B.R. 637, 645-46 (Bankr. D. Colo. 2014) (hearing on motion for relief from stay is a summary proceeding where no final determinations are made, and where creditor makes a colorable claim the court may allow relief from stay so that creditor may litigate its substantive claim in state court).

As such, the Court set forth its rationale in granting U.S. Bank relief from stay at the June 2, 2017 hearing as follows:

[T]he automatic stay in bankruptcy isn't designed to be there permanently. This is a Chapter 7 case and Chapter 7s are usually over within a matter of months, not years. And so even absent a motion for relief from stay, the stay is lifted in a very short period of time statutorily, again, assuming everybody cooperates and unnecessary litigation doesn't consume the docket. And what we have here is an instance where there is a lender [that] hasn't been paid in now three years.

Cases say that ... the automatic stay can be lifted for cause and the contours of cause is left to the discretion of the Court. And here we have a situation where the lender hasn't been paid and understandably now you're contending, Mr. Scott, even though you signed some documents reaffirming the underlying loan documents and even though that ... back when the loan modification agreement was signed by you and some payments were tendered and were accepted, that nonetheless you now contend that the creditor here shouldn't be bringing their motion for relief from stay because for some reason you contend that the lender ... isn't due anything because there is no note.

Some of those positions are inconsistent. Fact of the matter is, [and] that might be the rub of the entire case. Seems to me that if parties are going to actually litigate the bona fides of the debt, the bona fides of the obligation to pay,

...