Todaro v. Wells Fargo Bank, N.A. (In re Todaro)

648 B.R. 50

IN RE: Nicki M. TODARO, Debtor

Nicki M. Todaro, Plaintiff

v.Wells Fargo Bank, N.A. Defendant

Wells Fargo Bank, N.A. Third-Party Plaintiff

v.PNC Bank, N.A. Third-Party Defendant

Case No. 19-23010-CMB

Adv. No. 20-2035-CMB

United States Bankruptcy Court, W.D. Pennsylvania.

Signed January 5, 2023

Daniel R. White, Esq., Uniontown, PA, Bradley A. King, Esq. Michael P. Oliverio, Esq., Pittsburgh, PA, for Debtor.

MEMORANDUM OPINION

Carlota M. Böhm, United States Bankruptcy Judge

This adversary proceeding was initiated when the Debtor filed a Complaint to Determine Secured Status ("Complaint") pursuant to 11 U.S.C. § 506(d) against Wells Fargo Bank, N.A. ("Wells Fargo"), which holds a second position mortgage against her residence. Debtor seeks a finding from the Court that her residence is subject to a first place mortgage held by PNC Bank, N.A. ("PNC"), that the residence has a value that is less than the amount owed on the PNC mortgage, and that therefore the Wells Fargo mortgage is completely unsecured. Wells Fargo filed an Answer to the Complaint in which it also raised a number of counterclaims against the Debtor, the gist of which is that Wells Fargo loaned money to the Debtor on the promise and understanding that it would be used in part to pay off the debt to PNC and satisfy the PNC mortgage, thereby leaving Wells Fargo's mortgage in a first position, but that the Debtor breached that promise and understanding, to the detriment of Wells Fargo.

In addition to these counterclaims against the Debtor, Wells Fargo also filed a Third-Party Complaint against PNC, asserting a number of different claims that all seek to result in a finding that the mortgage held by Wells Fargo has priority over the one held by PNC even though it was filed later in time. PNC filed an Answer to the Third-Party Complaint denying any wrongdoing that would justify the relief being sought by Wells Fargo.

The Parties have completed discovery and motions for summary judgment have been filed by Wells Fargo as against both Debtor and PNC, see Doc. No. 94, and by PNC as against Wells Fargo, see Doc. No. 90. The Court has jurisdiction over this matter pursuant to 28 U.S.C. §§ 1334 and 157 . This is a core proceeding pursuant to 28 U.S.C. § 157(b)(2)(A) and (K) . Oral argument on the motions for summary judgment was held on December 6, 2022. For the reasons set forth below, the Court will grant the PNC motion for summary judgment, deny the Wells Fargo motion for summary judgment as against PNC, and enter judgment in favor of PNC and against Wells Fargo on the Third-Party Complaint. The Court will also grant the Wells Fargo motion for summary judgment as against the Debtor, in part, while denying without prejudice Wells Fargo's attempt to have the Debtor's bankruptcy dismissed on the grounds of bad faith.

FACTS

All three of the Parties filed a Stipulation of Facts and Documents ("Stipulation") in the case at Doc. No. 68, several months prior to either of the summary judgment motions. The Stipulation sets forth a series of undisputed facts and attaches relevant documents that the Parties agree are authentic. Based just on this Stipulation many of the material facts for the case can be gleaned. Wells Fargo and PNC have also each separately filed a "Concise Statement of Material Facts" in connection with their respective motions for summary judgment, and have each responded to the opposing party's Concise Statement. See , Doc. Nos. 88, 91, 98, 101. These have added some additional undisputed material facts to those set forth in the Stipulation, though the Parties also assert some disagreements as to the scope or meaning of the presented facts. The Court below sets forth the undisputed relevant and material facts.

The Debtor is the owner of and resides on real property located at 736 2nd Street, Newell, Pennsylvania that is designated as Fayette County Tax Parcel ID Number 23-02-0007 (the "Property"). On or about April 23, 2007, PNC's predecessor in interest, National City Bank ("NCB"),¹ provided a home equity line of credit to the Debtor up to the maximum principal amount of $50,000.00 (the " Line of Credit"). In connection therewith Debtor executed an "Equity Reserve" agreement with NCB dated April 23, 2007, that memorializes the Line of Credit (the "PNC Agreement"). See , Stipulation, Exhibit A. The PNC Agreement provides that: "Your Line is an open-end line of credit which you may use to obtain cash advances (Advances) from time to time for a period of 10 years." It also provides that it is governed by federal laws and regulations, and the laws of Ohio except to the extent they are preempted by federal law.

The Debtor's obligations under the PNC Agreement were secured by a mortgage on the Property executed by her on April 23, 2007, in favor of NCB, and recorded on May 11, 2007, in the Office of the Recorder of Deeds of Fayette County, Pennsylvania at Instrument No. 200700006581 ("the PNC Mortgage"). See , Stipulation, Exhibit B. The PNC Mortgage states in large type near its beginning that it is an "Open-End Mortgage." It also provides, in an introductory paragraph preceding the covenants and agreements, that:

... should Borrower [i.e., Debtor] pay in full all sums secured by this Mortgage, and perform all covenants and agreements secured by this Mortgage, the estate hereby granted shall be discharged, provided Lender has no further obligation to make Advances under the [PNC] Agreement.

As of July 23, 2009, a little more than two years later, the Debtor's balance on the Line of Credit was $50,019.66.

In response to a "request" made by or on behalf of the Debtor, the details of which have not been presented by the Parties, NCB issued a letter to the Debtor on August 3, 2009 ("Payoff Letter"). See , Stipulation, Exhibit G. The Payoff Letter shows a "Payoff amount" of $50,102.58 for the Line of Credit and also includes a line item for "Prepayment penalty" in the amount of $350.00.² The Parties have not located any other revised, amended, or corrected payoff letter that was issued at that time.

On or about August 11, 2009, the Debtor executed and submitted a loan application to apply for a loan from Wells Fargo in the amount of $69,190.00 ("WF Loan Application"). See , Stipulation, Exhibit C. The WF Loan Application indicates that the purpose of the proposed loan was a "refinance" of the Debtor's primary residence. Following the submission of the Debtor's WF Loan Application, Wells Fargo issued a Commitment Letter to the Debtor, which was received by the Debtor.³ See , Stipulation, Exhibit D. The Commitment Letter includes among its conditions for loan approval that:

Unless otherwise provided in the specific conditions section of this commitment, any and all existing liens on the property must be paid in full at closing.

...

HUD-1 Settlement statement to reflect payoff of the following accounts: ... NCB NE ER #448961811025 $49,980.00

The Commitment Letter also provides under the "Title Matters" condition that a title insurance binder acceptable to Wells Fargo was to be provided prior to the closing and that it must "insure the validity and priority of the Lender's first lien on the property."

The Parties agree that the Debtor's agreement and understanding with respect to the Commitment Letter was that Wells Fargo would pay off the Line of Credit from the loan proceeds to be provided by Wells Fargo on behalf of the Debtor in exchange for the Debtor granting Wells Fargo a mortgage on her residence and executing a note reflecting the loan payment terms. See , Stipulation at ¶15. To that end, in connection with the loan transaction as reflected in the Commitment Letter (the "WF Loan"), the Debtor executed a mortgage in the amount of $69,190.00 in favor of Wells Fargo, encumbering the Property (the "WF Mortgage"). See , Stipulation, Exhibit E. The WF Mortgage was dated August 11, 2009, and recorded on August 19, 2009 in the Office of the Recorder of Deeds of Fayette County, Pennsylvania at Instrument No. 200900009878. The Debtor also executed a note in the amount of $69,190.00 in favor of Wells Fargo on or about August 11, 2009 (the "WF Note").⁴ See , Stipulation, Exhibit F.

The closing on the WF Loan also occurred on August 11, 2022. A HUD-1A Settlement Statement was prepared in connection with the closing of the WF Loan (the "Settlement Statement"). See , Stipulation, Exhibit H. The Settlement Statement accurately identifies various disbursements made in connection with the closing of the WF Loan. As reflected on the Settlement Statement, Wells Fargo disbursed $50,481.66 to NCB as a "Mortgage Payoff" on August 18, 2009, via a branch payment ("Branch Payment"). No further details as to this Branch Payment were provided, however, the Parties agree that in disbursing these funds, it was Wells Fargo's intention to pay the payoff amount and prepayment penalty set forth in the Payoff Letter that had been issued by NCB on August 3, 2009. The Settlement Statement further indicates that the closing occurred at the Property and that an entity named Economy Settlement Services acted as a settlement agent.

When NCB received the Branch Payment, it applied the funds to the balance then due on the Debtor's Line of Credit account, after which the Debtor's balance on the Line of Credit was – $354.73 (indicating her account had a credit of that amount) as reflected on a statement prepared by NCB in late August 2009 and sent to the Debtor showing the activity on the account. See , Stipulation, Exhibit I. The Parties have not located any written request or written instruction that was sent by Debtor or anyone on behalf of Debtor to NCB or PNC which directed that the Line of Credit was to be terminated or otherwise frozen, closed, or canceled in connection with the Branch Payment. See , Stipulation at ¶18.

As indicated above, NCB did not terminate the Line of Credit upon receipt of the Branch Payment. Accordingly, the Line of Credit remained open, the ten year draw period not yet...