Opinion
Case #02-10835, Adversary Proceeding #02-1034
November 22, 2002
Gleb Glinka, Esq., Cabot, Vt., For the Debtors.
Jan M. Sensenich, Esq., White River Junction., Vt., For the Trustee.
Grant C. Rees, Esq., Burlington, Vt., For the Defendants.
MEMORANDUM OF DECISION Denying Defendants' Motion for Summary Judgment and Granting Plaintiffs' Cross-Motion for Summary Judgment
Defendants P.B. Investment Corporation and Olympus Servicing L.P. filed a Motion for Summary Judgment (doc. #11) seeking a determination whether the mortgage of the Debtors, Jennie A. Dion and Wayne R. Dion, is valid and enforceable. The Debtors and Chapter 13 Trustee, Jan M. Sensenich, cross-move for summary judgment on the same issue. See doc. #13. This Court has jurisdiction over the subject motions pursuant to 28 U.S.C. § 157 and 1334. For the reasons stated below, the Court finds the subject mortgage to be invalid and unenforceable. Accordingly, the Cross-Motion filed by the Debtors and Trustee is granted and the Motion filed by the Defendants is denied.
I. BACKGROUND
The parties stipulate that, on March 11, 1998, the Debtors executed a mortgage in favor of Platinum Capital Group to secure a promissory note documenting a $65,000 loan from Platinum Capital Group to the Debtors. See Statement of Undisputed Facts ¶¶ 1, 3 (doc. #14). The parties agree that the mortgage was properly acknowledged. See id. at ¶ 5. Moreover, the parties stipulate that the mortgage "does not contain the signature of any witnesses; the lines reserved for witness signatures are blank." Id. at ¶ 6. The only issue before the Court is whether the signed, acknowledge, but unwitnessed mortgage is valid and enforceable.
II. DISCUSSION A. Standard for Summary Judgment
Summary judgment is proper only if the record shows that there is no genuine issue as to any material fact and the moving party is entitled to judgment as a matter of law. FED. R. CIV. P. 56(c); FED. R. BANKR. P. 7056. A genuine issue exists only when "the evidence is such that a reasonable [trier of fact] could return a verdict for the nonmoving party." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986); see also Celotex Corp. v. Catrett, 477 U.S. 317 (1986). The substantive law will identify which facts are material. Only disputes over facts that might affect the outcome of the suit under the governing law will properly preclude the entry of summary judgment. See Anderson, 477 U.S. at 247. Factual disputes that are irrelevant or unnecessary are not material. See id. Furthermore, materiality is determined by assessing whether the fact in dispute, if proven, would satisfy a legal element under the theory alleged or otherwise affect the outcome of the case. See id. The court must view all the evidence in the light most favorable to the nonmoving party and draw all inferences in the nonmovant's favor. See Cruden v. Bank of New York, 957 F.2d 961, 975 (2d Cir. 1992). In making its determination, the court's sole function is to determine whether there is any material dispute of fact that requires a trial. See Anderson, 477 U.S. at 249; see also Delaware Hudson Ry. Co. v. Conrail, 902 F.2d 174, 178 (2d Cir. 1990).
B. Vermont's Requirements
Vermont law is clear regarding the requirements of execution of an instrument representing an interest in land:
(a) Deeds and other conveyances of lands, or of an estate or interest therein, shall be signed by the party granting the same and signed by one or more witnesses and acknowledged by the grantor before a town clerk, notary public, master, county clerk or judge or register of probate and recorded at length in the clerk's office of the town in which such lands lie. Such acknowledgment before a notary public shall be valid without an official seal affixed to his or her signature.
VT. STAT. ANN. tit. 27, § 341(a) (Supp. 1998) (emphasis added).
C. Precedential Cases
This Court has recently ruled that, "[I]nstruments that are deemed defective because of a missing signature fail to impart constructive notice to a subsequent purchaser. . . . Vermont law is clear that an invalid mortgage is not sufficient to put someone on notice and that a deed or mortgage that is improperly witnessed or acknowledged is deemed invalid." In re Potter, No. 00-10595, A.P. No. 01-1031, slip op. at 7 (Bankr. D. Vt. Sept. 21, 2001), aff'd, Mortgage Lenders Network, USA v. Sensenich, No. 1:01CV335, slip op. (D.Vt. Jan. 22, 2002). Indeed, contrary to the Defendants' argument that case law has been eroding this requirement, both state and federal case law is clear that a mortgage not properly witnesses is defective and does not impart constructive notice. The law on this point is longstanding and consistent. See, e.g., Day v. Adams, 42 Vt. 510 (1869) (ruling that a mortgage lacking signatures of witnesses was "defective" under Vermont's recording statute); In re Ryan, 851 F.2d 502 (1st Cir. 1988) (construing Vermont law and finding mortgage deed that lacked requisite signatures of witnesses was defective and could not serve as constructive notice); In re Orf, No. 90-00581, A.P. No. 90-0066, slip op. (Bankr.D.Vt. May 11, 1991) ("The language of [ 27 V.S.A. § 341] leaves no room for doubt that what is required of witnesses to a deed is their signatures as witnesses, not merely to be present at the signing of a deed.").
D. The Instant Case
The parties agree that the subject mortgage deed was not witnessed. Both sides request the Court determine whether the unwitnessed mortgage is valid or void. Given the stipulated facts of this case, the state law statutory requirements for executing an instrument conveying an interest in land, and both state and federal case law, the Court must, and does, find that the mortgage at issue is void ab initio. The Court further finds that, under 11 U.S.C. § 544(a), the subject mortgage is unenforceable against the Chapter 13 Trustee.
III. CONCLUSION
As the parties have stipulated to all of the material facts, the Court finds there is no material dispute as to any genuine fact. After considering all of the papers submitted by the parties, the Court finds the granting of summary judgment is proper in this case. Based upon the agreed facts, the Court finds the Plaintiffs are entitled to judgment as a matter of law. Since the subject mortgage was not witnessed as required by 27 V.S.A. § 341(a), the Court must declare it defective and invalid. The mortgage is void ab initio. Therefore, the Court grants Plaintiffs' Cross-Motion for Summary Judgment and denies Defendants' Motion for Summary Judgment.
This Memorandum constitutes the Court's finding of facts and conclusion of law.
ORDER Denying Defendant's Motion for Summary Judgment and Granting Plaintiff's Cross-Motion for Summary Judgment
In conjunction with the Court's Memorandum of Decision granting Plaintiffs' Cross-Motion for Summary Judgment (doc. #13) and denying Defendants' Motion for Summary Judgment (doc. #11),
IT IS HEREBY ORDERED that the Motion for Summary Judgment filed by P.B. Investment Corporation and Olympus Servicing L.P. is denied; and
IT IS FURTHER ORDERED that the Cross-Motion fro Summary Judgment filed by the Debtors and the Chapter 13 Trustee is granted; and
IT IS FURTHER ORDERED that any lien on the subject premises arising from the subject March 11, 1998 mortgage is avoided, subject to the caveat that if this bankruptcy case is dismissed prior to the completion of all payments under the Debtors' plan, the avoided lien is reinstated under 11 U.S.C. § 349(b)(3);
IT IS FURTHER ORDERED that the Order of Lien Avoidance shall provide that it is not be entered on the real estate records of the subject property until an order of discharge has been entered in this case; and
IT IS FURTHER ORDERED that the subject property not be transferred or encumbered in the interim without the further order of this Court.
SO ORDERED.
I. Introduction
In conjunction with its Motion to Amend Proof of Claim, Defendant NCS 1, L.L.C. filed a Motion for Partial Summary Judgment (doc. #53), seeking judgment that three loans it holds are secured. Plaintiff-Debtors filed an objection to Defendant's Motion and cross-moved for the entry of partial summary judgment declaring the three loans to be unsecured (hereinafter, "Vescios' Cross-Motion") (doc. #73). For clarity, the three loans being discussed will be identified as follows: the Jeep Loan (which is account #51-3805017 and is addressed in count I of the complaint); the $350,000 Loan (which is account #51-3804853 and is addressed in count II of the complaint); and the $950,000 Loan (which is account #51-3804838 and is addressed in count III of the complaint).
For the reasons stated below, the Defendant's Motion to for Partial Summary Judgment is granted with certain limitations and the Vescios' Cross-Motion is denied.
II. Jurisdiction
This Court has jurisdiction over this proceeding under 28 U.S.C. § 157 and 1334.
III. Discussion A. The Summary Judgment Standard
Summary judgment is proper only if the record shows that there is no genuine issue as to any material fact, and the moving party is entitled to judgment as a matter of law. FED. R. CIV. P. 56(C); FED. R. BANKR. P. 7056. A genuine issue exists only when the evidence is such that a reasonable [trier of fact] could return a verdict for the nonmoving party." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986); see also Celotex Corp. v. Catrett, 477 U.S. 317 (1986). The substantive law will identify which facts are material. Only disputes over facts that might affect the outcome of the suit under the governing law will properly preclude the entry of summary judgment. See Anderson, 477 U.S. at 247. Factual disputes that are irrelevant or unnecessary are not material. See id. Furthermore, materiality is determined by assessing whether the fact in dispute, if proven, would satisfy a legal element under the theory alleged or otherwise affect the outcome of the case. See id. The court must view all the evidence in the light most favorable to the nonmoving party and draw all inferences in the nonmovant's favor. See Cruden v. Bank of New York, 957 F.2d 961, 975 (2d Cir. 1002). In making its determination, the court's sole function is to determine whether there is any material dispute of fact that requires a trial. See Anderson, 477 U.S. at 249; see also Delaware Hudson Ry. Co. v. Conrail, 902 F.2d 174, 178 (2d Cir. 1990).
B. The Jeep Loan
Debtor Pasquale Vescio owned a 1990 Jeep that he pledged to the Defendant as collateral for a $21,812 loan. In its proof of claim, NCS 1, L.L.C. (hereinafter, "NCS") claimed this loan was secured. Attached to the proof of claim was the certificate of title for the automobile, a promissory note evidencing the loan and a corresponding security agreement. The certificate of title indicates Mr. Vescio is the owner of the vehicle and that there is a lien on the vehicle. Both the promissory note and security agreement were executed by Mr. Vescio and witnessed. These documents certainly establish a prima facie case for a finding that the Jeep Loan is secured. See 23 V.S.A. § 2042; see also, e.g., In re Farnham, 57 B.R. 241, 247-48 (holding that a lienholder who has complied with 23 V.S.A. § 2042 and who has not contributed to the erroneous omission of the lien on the certificate of title enjoys a perfected security interest in the titled vehicle). Moreover, the Court finds the Vescios have not provided any evidence that would disturb such a finding. Therefore, finding no material fact in dispute as to the secured status of the Jeep Loan and that the Defendant is entitled to judgment as a matter of law, the Court grants the Defendant's motion for summary judgment on the validity of its secured status as to the Jeep Loan.
NCS is the successor-in-interest to the claims of AMRESCO New England II, Inc., the entity that originally filed the proof of claim. Subsequent to the filing of the instant motion for partial summary judgment, the indebtedness was assigned to Landstar Investment II, Inc. For convenience, the Court shall refer to the subject proof of claim as N CS's and intends to refer to the curr ent ho lder of the notes when referring to "the Defendant."
The extent of the security interest is a distinct question. The Vescios bifurcated the Jeep Loan in their amended plan, treating $5,000 of the loan as secured and the balance as unsecured. NCS did not object to this treatment. The Vescios assert that the amount NCS claims to be due on the Jeep Loan is erroneous because NCS has not properly applied payments they have made under the amended plan. The questions of how much is due and whether payments made have been properly applied turn on the resolution of material facts in dispute. However, the Defendant's motion for partial summary judgment does not seek a determination on either of these issues. The Vescios may pursue these two issues before the trier of facts at the trial in this adversary proceeding.
Section 506(a) of the Bankruptcy Code specifically provides that a claim is secured only to the extent of the value of the collateral.
C. The $350,000 Loan
In the Vescios' Cross-Motion, they state that the $350,000 Mortgage Note "might be secured if the Court were to allow NCS to amend its proof of claim to add the omitted $350,000 Mortgage Deed . . ." Vescios' Objection and Cross-Motion at p. 5 (doc. #73). Indeed, on April 7, 2003, the Court did grant NCS's Motion to Amend Proof of Claim (doc. #99), allowing, inter alia, NCS to attach the omitted $350,000 Mortgage Deed to its proof of claim. After reviewing the amended proof of claim in support of the claim under the $350,000 note, the Court finds the $350,000 promissory note is secured by a $350,000 mortgage deed. See generally, Jones v. Guaranty and Indemnity Co., 101 U.S. 622 (1879) (where a note secured by a mortgage is renewed or otherwise changed, the lien of the mortgage continues until the debt is paid.). The Court further finds there is no material fact in dispute regarding the secured nature of the $350,000 loan. Therefore, granting the Defendant summary judgment on this issue is appropriate.
The Vescios have not appealed this Order.
In their Opposition, the Vescios also allege that NCS failed to apply all payments made by the Vescios to the $350,000 loan and consequently the amount NCS claims to be due on this obligation is in error. This is a material factual dispute. However, the Defendant's motion for partial summary judgment does not seek a determination on either of these issues. Therefore, the Vescios may pursue the propriety of NCS's application of payments against this debt, and the amount now due under this note, before the trier of facts at the trial in this adversary proceeding
D. The $950,000 Loan
As required by the Local Rules, NCS filed a Statement of Uncontested Facts (doc. #55) in support of its Motion for Partial Summary Judgment, see Vt. LBR 7056-1(a)(1). The Court will accept as true the facts presented in NCS's Statement of Uncontested Facts. Based upon these facts, the Court finds there is a $950,000 promissory note, dated April 4, 1994, that is secured by a $780,000 mortgage deed dated July 19, 1993 (hereinafter, the "$780,000 Mortgage").
The Vescios never filed any opposition to this Statement of Uncontested Facts. Cf., Vt. LBR 7056-1(a)(2) ("Opposition to a motion for summary judgment, if any, must be filed no more than 21 days after the motion is served. A sepa rate, short, and concise statement of disputed material facts must accompany the opposition brief.") (emphasis added).
There are two mortgages between the parties dated July 19, 1993 (a commercial mortgage securing a $350,000 promissory note and a mortgage securing the payment of a promissory note dated July 19, 1993 in the principal amount of $780,000). The Court is satisfied that the commercial mortgage secured the $350,000 pro missory note. See supra Part C.
The Court reaches this conclusion after considering both the validity of the security and the extent of the security. First, the Court has been presented with a mortgage that recites that it secures a $780,000 promissory note. In their supplemental papers, the Vescios contend there is no such promissory note, and in its Supplemental Memorandum of Law in Support of Motion for Partial Summary Judgment (doc. #89), NCS acknowledges this. NCS explains that initially there was a $605,000 promissory note that was executed on July 19, 1993 in conjunction with the $780,000 Mortgage; and, thereafter, on January 19, 1994, the Vescios renewed the $605,000 promissory note and executed a new promissory note in the amount of $780,000. See $605,000 Promissory Note (#3230001162) (July 19, 1993), attached as Ex. 1 to NCS's Supplemental Memorandum (doc. #89); "Renewal" Promissory Note (#3230001162) (Jan. 19, 1994), attached as Exhibit 2 to NCS's Supplemental Memorandum (doc. #89). Finally, on April 4, 1994, the Vescios executed another new promissory note, documenting yet another renewal of the same promissory note, this time with an advance of new money and reflecting a total indebtedness of $950,000. See "Renewal w/New Money" Promissory Note (#3230001162) (Apr. 4, 1994), attached as Exhibit 3 to NCS's Supplemental Memorandum (doc. #89). All three promissory note documents signed by the Vescios indicate they were or are secured by the $780,000 Mortgage. See, e.g., Nutting v. Bradford National Bank (In re Nutting), 44 B.R. 233, 236 (D. Vt. 1984) (instructing that "where the debtor executes renewal notes with the intent that the original security continue, the original security becomes an incident to the renewal note.").
Second, having examined the language of the $780,000 Mortgage, the Court finds NCS's loan is secured to a maximum extent of $780,000. The Court bases this finding on the plain language of the $780,000 Mortgage Deed, which states, inter alia:
d. For better security of the indebtedness hereby secured, upon the request of the mortgagee, its successors or assigns, he shall execute and deliver a supplemental mortgage or mortgages covering any additions, improvements, or betterments made to the property hereinabove described and all property acquired by it after the date hereof (all in form satisfactory to mortgagee). . . .
This language, in combination with the absence of any "future advance" clause, convinces the Court that the parties contracted to have additional mortgages executed if additional collateral was deemed necessary. See id ("a prerequisite to secured status under an accrual clause is a showing by the lender that such intent existed at formation of the subsequent loan agreement.). Therefore, finding no material factual dispute regarding the secured status of the $950,000 loan and that the Defendant is entitled to judgment on this issue as a matter of law, the Court grants NCS's Motion for Partial Summary Judgment on this note to the extent of $780,000.
In its Supplemental Memorandum of Law, NCS acknowledges that, unlike the commercial mortgage securing the $350,000 promissory note, the $780,000 Mo rtgage does not contain a future advance clause.
The Vescios challenge whether NCS has properly applied all payments made on the $950,000 promissory note and dispute the balance NCS claims to be due on this promissory note. Since this turns on material facts that are in dispute, the accuracy of NCS' application of the Vescios' loan payments on this note and the balance due on this loan shall be determined by the trier of fact at the trial in this adversary proceeding.
E. The Vescios' Cross-Motion for Partial Summary Judgment
The Vescios did not file the required Statement of Undisputed Facts in support of their Cross-Motion for Partial Summary Judgment. See Vt. LBR 7056-1(a)(1) ("A separate, short, and concise statement of undisputed material facts must accompany every motion for summary judgment. Failure to submit this statement constitutes grounds for denial of the motion.") (emphasis added). Therefore, the Court does not have before it any undisputed facts upon which to grant the Vescios' Cross-Motion for Summary Judgment as to the secured nature of the three enumerated loans. Accordingly, the Court denies the Vescios' Motion for Partial Summary Judgment as to the secured status of the Jeep Loan, the $350,000 Loan and the $950,000 Loan both because of the procedural deficiency of the Cross-Motion and for the reasons set forth above.
IV. Conclusion
Finding no material facts in dispute and determining that the Defendant is entitled to judgment as a matter of law, the Court grants NCS's Motion for Partial Summary Judgment on the three enumerated loans, and finds that the loans were secured, subject to the following limitations: (1) the Jeep Loan was secured, as of the confirmation of the amended plan, to the extent of $5,000; (2) the $350,000 Loan, when made, was secured to the extent of $350,000; and (3) the $950,000 loan, when made, was secured to the extent of $780,000.
The Defendant has not sought, and the Court is not granting, summary judgment on the questions of whether the Defendant applied the Vescios' payments properly or what amount is currently due on each loan. The Vescios may pursue those issues before the trier of fact at the trial in this adversary proceeding.
Conversely, finding the Vescios failed to create an evidentiary record upon which summary judgment could be granted, the Vescios' Motion for Partial Summary Judgment is denied.
This Memorandum of Decision constitutes the Court's findings of fact and conclusions of law.