Bankr WD Mo. Rejects 11th Circuit’s Meaning of “Surrender” in §521(a)(2) in Denying Wells Fargo’s Motion to Compel Debtor to Surrender Home

Bankr WD Mo. Rejects 11th Circuit’s Meaning of “Surrender” in §521(a)(2) in Denying Wells Fargo’s Motion to Compel Debtor to Surrender Home

The court is asked to consider the meaning of the word “surrender” in § 521(a)(2)(A) in an unusual context: where a secured creditor obtains stay relief, fails to timely foreclose, and mistakenly releases its lien, and the debtor who stated she would surrender the real estate attempts to leverage that mistake into a possible windfall. For the reasons stated below, the court denies the creditor’s motion to compel the debtor to “surrender” her real estate and to dismiss her state court case against the lender.

The Debtor filed a Chapter 13 plan. The case was dismissed by the Court.

Three weeks after the dismissal, new counsel entered an appearance for the Debtor and filed a motion to reinstate the case for the purpose of converting it to a chapter 7. The motion to convert alleged that the Debtor had decided to surrender her “home” since the payments were higher than she could afford. The court granted the motion to reinstate ex parte pursuant to local rule14 and ordered conversion of the case to a chapter 7. The court also set a new deadline for parties to object to Wells Fargo’s motion for relief.

The Debtor then filed an amended petition and conversion schedules. The amended petition lists a street address of “3526 Highway 169 South, Stanberry, Missouri.” Schedule A describes “3526 Highway 169 S.” as one acre worth $20,000 secured by a lien of $9,900, owned one-half with daughter Rita. 317 N. Willow and 313 N. Willow are scheduled together with the description as “Lot with Abandoned Structure,” valued in aggregate at $30,000, and secured by a lien of approximately $100,000. She claimed “3526 Highway 169 S.” as her homestead; no party objected. The Debtor’s interest in the N. Willow properties was not disclosed.

It is the Debtor’s statement of intention, however, that has become important in the context of this dispute. With respect to 317 N. Willow and 313 N. Willow (“Lot with Abandoned Structure”), she checked the box that said “Property will be . . . Surrendered.” The separate verification form states: “I declare under penalty of perjury that the above indicates my intention as to any property of my estate securing a debt and/or personal property subject to an unexpired lease.”

In the meantime, the court entered an order granting Wells Fargo’s motion for relief after no party objected. Wells Fargo’s counsel filed a certificate of service stating he served the order on First National Bank of Omaha and a mortgage servicer in Florida (neither of whom appear to have any connection with the case); the Debtor and her daughter were not served. The chapter 7 trustee filed a no-asset report, and the Debtor received her discharge order in due course. In late September 2012, the case was closed.

In March 2016, the Debtor filed a four-count petition against Wells Fargo and its agent in Gentry County Circuit Court  (the “State Court Action”). The petition alleges generally that Wells Fargo, through its agent, broke into the Debtor’s home at 317 N. Willow, changed the locks, and damaged the property. She seeks actual and punitive damages, attorney fees, and pre- and post-judgment interest for alleged trespass to land, trespass against chattels, and violations of the Missouri Merchandising Practices Act. The Debtor also requested a declaratory judgment that she owns 317 N. Willow (and all personal property inside) free and clear of Wells Fargo’s interest.

Wells Fargo’s answer generally denied the Debtor’s allegations, and asserted thirty-one separately-enumerated affirmative defenses. Wells Fargo also counterclaimed against Ruby and third-party “defendant” daughter. Wells Fargo’s counterclaim sought reformation of the legal description in the deeds of trust and deed of release or in the alternative an equitable lien. Notably, Wells Fargo did not request foreclosure of its interest.

It is unclear what transpired in the State Court Action after the counterclaim was filed, but some six months later and more than four years after the bankruptcy case was closed, Wells Fargo moved to reopen the bankruptcy case for the purpose of filing a motion to compel (the “Motion to Compel”).  The Motion to Compel requests various forms of relief. It requests orders (1) requiring Ruby to dismiss the State Court Action; (2) ordering Ruby to refrain from filing any further claims against Wells Fargo relating to the N. Willow properties; (3) ordering the Debtor to refrain from taking any other action to interfere with Wells Fargo’s rights to foreclose the N. Willow properties; (4) enforcing the Debtor’s “sworn promise” to surrender 317 N. Willow to Wells Fargo; and (5) in the alternative, ordering Ruby to reaffirm Wells Fargo’s debt or to redeem the property. The Debtor responded with an objection and a cross-motion to enjoin Wells Fargo from filing pleadings in the State Court Action pending the chapter 7 trustee’s determination of whether the State Court Action is an asset of the bankruptcyestate. The parties agreed to submit both motions to the court based on stipulated facts and briefs.

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