Tran v. Citizens Bank N.A.

656 B.R. 295

Andy Luu TRAN, Plaintiff-Appellant, v. CITIZENS BANK N.A. f/k/a RBS Citizens, N.A., and Herbert Jacobs, Defendant-Appellees.

Civil Action No. 23-40128-WGY

United States District Court, D. Massachusetts

Filed January 23, 2024

David G. Baker, Baker Law Offices, Boston, MA, for Appellant.

Lawson Williams, Brock and Scott, PLLC, Pawtucket, RI, Richard Thomas Mulligan, Brock & Scott, PLLC Bankruptcy Department, Winston Salem, NC, John F. Willis, Fidelity National Law Group, Boston, MA, for Appellees.

MEMORANDUM & ORDER

YOUNG, D.J.⁶

I. INTRODUCTION

This case comes before this Court as an appeal from a bankruptcy court order and judgment. The appellant, Andy Luu Tran ("Tran"), asks this Court to reverse the Bankruptcy Court's decision, while the appellee, Herbert Jacobs ("Jacobs"), requests the Court affirm the same.

Tran granted Citizens Bank N.A. f/k/a RBS Citizens, N.A. ("Citizens Bank") a mortgage on his property. Citizens Bank foreclosed on the property and sold it to Jacobs who was the highest bidder at the foreclosure auction sale. Citizens Bank and Jacobs executed a memorandum of sale. Subsequently, and prepetition, an Affidavit of Sale and a foreclosure deed, the latter of which Tran alleges is defective, were recorded. When asked to vacate the property, Tran filed for bankruptcy and initiated an adversary bankruptcy proceeding, contending that he still retained the equity of redemption over the mortgaged property, and could avoid the transfer of his equity of redemption because the foreclosure deed's defects rendered the transfer void as incompliant with the Commonwealth's applicable notice requirements.

Having reviewed the entire record, including the bankruptcy court docket, see Bankruptcy Docket, ECF No. 2 ("Bankruptcy Docket"), this Court holds that Tran's equity of redemption extinguished at the conclusion of the foreclosure auction sale upon the execution of a memorandum of sale between Citizens Bank and Jacobs. This Court also holds that the Affidavit of Sale relating to the auction sale that was properly recorded provided constructive notice to third parties such that Tran is unable to avoid the transfer and the extinguishment of his equity of redemption. Accordingly, and for the reasons stated below, this Court affirms the Bankruptcy Court's decision.

II. PROCEDURAL HISTORY

On September 13, 2022, Tran filed for Chapter 13 bankruptcy. Statement of Material Facts ¶ 6, Bankruptcy Docket No. 33 ("Material Facts").¹ On September 14, 2022, Tran filed a complaint in the Bankruptcy Court, seeking to recover his real property located at 47 Clinton Street, Framingham, Massachusetts (the "Property"), which was subject to a mortgage encumbering title to the Property, with Tran as the mortgagor and Citizens Bank as the mortgagee. See Compl. to Avoid Unperfected Pre-Petition Transfer, Bankruptcy Docket No. 1 ("Compl.").

After both Citizens Bank and Jacobs responded to the Complaint, Tran moved for judgment on the pleadings, which the Bankruptcy Court, following a hearing and with the assent of all parties, converted into a motion for summary judgment. See Order 1, Bankruptcy Docket No. 38 ("Bankruptcy Court Decision"). The parties were given an opportunity to provide supplemental pleadings, which they did, and Citizens Bank and Jacobs moved for summary judgment in their favor. Id. at 1-2.

On August 7, 2023, the Bankruptcy Court granted summary judgment in favor of Citizens Bank and Jacobs and against Tran. Id. at 2. In reaching that conclusion, the Bankruptcy Court held that Tran was unable to avoid the prepetition transfer of the Property because his equity of redemption over the Property had extinguished when the foreclosure auction concluded with the execution of a memorandum of sale. Id. at 4. The Bankruptcy Court held further that the delivery of a deed was not required to "complete[ ]" the foreclosure sale and that the execution of a memorandum of sale was sufficient to complete foreclosure and thus extinguish Tran's equity of redemption as mortgagor. Id. Finally, while acknowledging that the foreclosure deed was incomplete, as it lacked proper notarization, id. at 5 (referring to "the incomplete foreclosure deed"), the Bankruptcy Court nonetheless held that it did not need to reach the issue of whether an incomplete deed gave rise to the necessary constructive notice to third parties to effectuate the transfer of the equity of redemption, id. at 5-6. The Bankruptcy Court also held that the recordation of the Affidavit of Sale provided constructive notice to a hypothetical bona fide purchaser. Id. at 5-6. For these reasons, the Bankruptcy Court concluded that the equity of redemption on the Property, once belonging to Tran as the mortgagor, had been lawfully extinguished. Id. at 6. Subsequently, on August 29, 2023, the Bankruptcy Court denied Tran's motion for relief from judgment. See Order on Mot. for Relief from J., Bankruptcy Docket No. 44.

Tran then filed this appeal, contending that his equity of redemption extinguished, not upon the execution of a memorandum of sale at the close of the foreclosure auction, but at the time of the transfer of the deed, which in this case was defective and therefore incapable of extinguishing said equity of redemption. See Opening Br. of Appellant ("Appellant's Br."), ECF No. 7. The parties properly briefed the issue. See Opening Br. of Appellee ("Appellee's Br."), ECF. No. 8; Reply Br. for Appellant ("Appellant's Reply"), ECF No. 9; Surreply of Appellee ("Appellee's Surreply"), ECF No. 13; Reply to Mot. Leave to File Surreply ("Appellant's Surreply"), ECF. No. 11; Herbert Jacobs' Resp. to Debtors' Citation of Suppl. Authority ("Appellee's Resp. Suppl. Authority"), ECF No. 14.

The Court has carefully reviewed the entire record pertaining to this case as well as the orders and judgments entered by the Bankruptcy Court before preparing this opinion.

III. FACTS ALLEGED

The material facts in this case are uncontested. Bankruptcy Court Decision 2. On May 27, 2008, Tran granted a mortgage on the Property to Citizens Bank. Material Facts ¶ 1. Citizens Bank foreclosed on the mortgage and on August 16, 2022, Jacobs purchased the property at a foreclosure auction. Id. ¶ 2. On the same day, Citizens Bank and Jacobs signed a memorandum of sale in connection with the purchase. Id. ¶ 3. On August 22, 2022, a foreclosure deed regarding the purchase was signed. Id. ¶ 4. The deed and an Affidavit of Sale relating to the sale and purchase was recorded on September 8, 2022. Appellant's Br. 2; Appellee's Br. 5. Days later, on September 12, 2022, Jacobs served Tran a notice to vacate the Property. Appellee's Br. 5. Tran then filed for Chapter 13 bankruptcy on September 13, 2022, and a day later, on September 14, 2022, an adversary proceeding was initiated in the Bankruptcy Court, which has given rise to the present appeal. Id.; see also Compl.; Appellant's Br. 2.

Crucially, Tran takes issue with the foreclosure deed relating to the sale and purchase of the Property by Citizens Bank and Jacobs, signed on August 22, 2022, and recorded on September 8, 2022. To be sure, Tran agrees that the deed was recorded prior to Tran's Chapter 13 petition, and therefore prepetition. Appellant's Br. 2 ("Pre-petition, a foreclosure deed was recorded . . . ."). He argues, however, that the deed was defective and therefore unable to put third parties on constructive notice of the Property's conveyance to Jacobs. To that end, Tran makes three specific arguments.

First, Tran contends that the deed was deficient because it was not notarized, rendering it incompliant with applicable laws of the Commonwealth. Id. at 2 (mentioning the lack of a "notarized deed" (emphasis in original) and that "[t]he deed that was recorded was missing a notarization altogether"); id. at 4 (arguing that the deed has a "latent defect"); see also Appellant's Reply 2 (arguing that the "deed is void and was 'improvidently recorded' "); Compl. ¶ 10 (arguing that the deed "as recorded lacks an acknowledgment as required" by the laws of Commonwealth and therefore "was 'improvidently' recorded, and is no effect as a transfer of title").

Second, Tran argues that the deed, because it was "improvidently recorded," does not provide constructive notice to third parties of the extinguishment of his equity of redemption, and therefore, that he retains the equity of redemption over the Property. See, e.g., Appellant's Br. 4 (arguing that the lack of notarization "prevents the deed from giving constructive notice to anyone"); id. at 5 (contending that "the deed was improvidently recorded and does not give constructive notice"); Appellant's Reply 2 (contending that "the equity of redemption was not extinguished" (emphasis in original)); Appellant's Surreply 2 (asking this Court to remand the Bankruptcy Court Decision "for entry of judgment in Tran's favor, avoiding the transfer of Mr. Tran's equity of redemption").

Third, Tran argues that the Affidavit of Sale, attesting to the sale and purchase of the Property by Citizens Bank and Jacobs, signed on August 22, 2022, and recorded on September 8, 2022, cannot be substituted for a properly executed and recorded deed, and therefore cannot be regarded as having given constructive notice to third parties of the sale that would extinguish his equity of redemption on the Property. Appellant's Br. 2 ("There was only an Affidavit of Sale, which is not the same thing [as a notarized deed.]"); id. at 5 (arguing that the "Affidavit of Sale does not cure the latent defect" and that "the deed was improvidently recorded and does not give constructive notice"); Appellant's Reply 2 (arguing that "an 'affidavit' is not a 'deed' "); id. ("Whether the affidavit was 'properly recorded' is irrelevant."); id. ("All that the affidavit gives notice of is that the equity of redemption was sold, not that the property was conveyed.").

In response, Jacobs contends that "there is no need to reach [the] issue" of whether...