Justia Real Estate & Property Law Opinion Summaries

Debtor appealed from the Order of the Bankruptcy Court appointing a trustee in its involuntary Chapter 11 case. The court held that since the record supported a finding of cause under 11 U.S.C. 1104(a)(1), and that the appointment of a trustee was in the interest of creditors and the estate under section 1104(a)(2), the appointment of the trustee was mandatory. Therefore, the Bankruptcy Court's order was affirmed.

Debtor appealed from the bankruptcy court's order confirming his modified Chapter 13 plan over his objection. At issue was whether the bankruptcy court could confirm the debtor's plan which provided for the avoidance of two junior liens on the debtor's principal residence. The court held that 11 U.S.C. 1322(b)(2) did not bar a Chapter 13 debtor from stripping off a wholly unsecured lien on his principal residence. The court also held that the strip off of a wholly unsecured lien on a debtor's principal residence was effective upon completion of the debtor's obligations under this plan and it was not contingent on his receipt of a Chapter 13 discharge. Accordingly, the court reversed the decision of the bankruptcy court and remanded for further proceedings where the debtor must amend his plan to provide for proper treatment of the junior lienholders' claims as unsecured nonpriority claims.

Plaintiff filed a voluntary Chapter 13 bankruptcy petition and successfully sought to avoid a lien on her manufactured home held by defendant. The Bankruptcy Appellate Panel and Sixth Circuit affirmed. The mortgage did not originally cover the manufactured home, which was personal property until 2007,when a state court entered an in rem judgment and order of sale converting it to an improvement to real property. After that, the home was covered by the mortgage. The conversion, unlike the mortgage, was involuntary as to the plaintiff, so she had standing under 11 U.S.C. 522(h) to avoid the lien.

The debtor's property was subject to first and second mortgages with complex histories of assignment involving the defendants. The district court dismissed the chapter 7 trustee's action for declaratory judgment to determine the validity, extent, and priority of defendants' liens and vacated a default judgment entered against one defendant, Wilmington. The Sixth Circuit vacated and remanded in part and affirmed in part. Under 11 U.S.C. 544 and Ky. Rev. Stat. 355.9-102(1)(az)(3), operating together, the trustee's interest as a hypothetical judicial lien creditor is superior to those security interests which are unperfected as of the filing of the petition, so the trustee stated a claim against GMAC. The bankruptcy court must make further factual findings regarding Litton and Bank of New York as to the first mortgage, to determine which was the secured party on the date of the filing of the petition. The record established that Wilmington was not a proper party, having assigned its interest years earlier, and the bankruptcy court acted within its discretion in setting aside the default judgment.

Appellant Matthew Kundinger received a default judgment against Louis and Linda Frazer (the Frazers) before the Frazers closed a refinance mortgage with Matrix Financial Services Corporation (Matrix).  In Matrix's foreclosure action, the master-in-equity granted Matrix equitable subrogation, giving the refinance mortgage priority over Appellant's judgment lien. Appellant counterclaimed, alleging his judgment had priority over Matrix's mortgage because it had been recorded first.  Matrix, attempting to gain the primary priority position, then sought to have the refinance mortgage equitably subrogated to the rights of its January 2001 mortgage.  The master-in-equity granted Matrix's request, and Appellant appealed that order. Upon review of the applicable legal authority, the Supreme Court found that a lender that refinances its own debt is not entitled to equitable subrogation.  The Court reversed the lower court's decision and remanded the case for further proceedings.

EB Investments, LLC and Pavilion Development, LLC filed separate appeals to challenge elements of a circuit court order holding that Pavilion was entitled to redeem certain property in Madison County in which EB Investments and other parties held legal interests. In 1997, Pavilion initiated an action to redeem 19 acres of land purchased at a foreclosure sale. In the years since, the Supreme Court has issued three opinions deciding various issues stemming from Pavilion's attempted redemption of that property. The property was subject to bankruptcy protection. In connection with a settlement agreement, three mortgages were executed on the property. Pavilion, as one of the mortgagees, sought to enforce its right of redemption to the property. In 2010, a trial court entered judgment outlining the steps Pavilion needed to take to perfect and complete its redemption. EB Investments and Pavilion took opposing sides on most legal issues in this case; however, they both argued that the trial court's judgment is not an appealable judgment because it does not address all the pending issues and resolve all the pending claims in this case. Other interested parties who filed responses in this case argued that the trial court's order was sufficient and urged the Supreme Court to end this long-running dispute. Upon review, the Supreme Court dismissed the appeals and offered guidance to the trial court to help expedite a resolution.

This case stemmed from the replevin actions filed by Klein Bank against debtors. Klein Bank appealed from the Orders of the Bankruptcy Court denying its motions to remand its replevin actions which had been removed from the state court to the bankruptcy court. In denying the motions, the Bankruptcy Court concluded that replevin actions were core proceedings. While this appeal was pending, the United States Supreme Court clarified that core proceedings were limited to those "arising under or arising in" a bankruptcy case. Based on that, the court now concluded that the matters involved in the replevin actions were not core proceedings. Accordingly, the court reversed and remanded to the Bankruptcy Court for further findings on the question of whether the court was required to abstain under 28 U.S.C. 1334(c)(2).

This case arose when elderly widow Dorothy Chase Stewart filed for bankruptcy in 2007 and Wells Fargo Bank filed a proof of claim with the bankruptcy court reciting debts owed from an outstanding mortgage on Ms. Stewart's house. The bankruptcy court subsequently found that Wells Fargo's mortgage claims exhibited systematic errors arising from its highly automated, computerized loan-administration program and issued an injunction requiring Wells Fargo to audit every proof of claim it had filed on or filed after April 13, 2007; to provide a complete loan history on every account and file that history with the appropriate court; and "to amend...proofs of claim already on file to comply with the principles established in this case and [In re] Jones." Wells Fargo appealed, challenging the claim amount and the injunction. The court vacated the injunction as exceeding the reach of the bankruptcy court. Because neither the injunction nor the calculation of Ms. Stewart's debt was properly before the court, the court dismissed as moot Wells Fargo's appeal of legal rulings underlying the bankruptcy court's interpretation of the mortgage.

Following remand for consideration of the effect of 11 U.S.C. 544(a) on the trustee's motion to sell, the bankruptcy court entered judgment denying the trustee's request to sell jointly-owned real estate free and clear of defendant co-owner's interest pursuant to 11 U.S.C. 363(b) and (h). The Chapter 7 trustee appealed. The court held that the bankruptcy court did not abuse its discretion in denying the motion to sell where, based on the record before it, the bankruptcy court concluded that the trustee had not met his burden of proving that the benefit to the bankruptcy estate of the sale outweighed the detriment to defendant and where the bankruptcy court's findings of fact regarding the benefit of the estate and detriment to defendant were not clearly erroneous. Accordingly, the judgment was affirmed.

The Chapter 7 trustee sought to avoid a mortgage with respect to wife's interest in the property because the mortgage did not name or identify her in the body of the mortgage. The wife had signed the mortgage, and a rider that contained a provision for joint and several liability, but not the note. The bankruptcy court ruled in favor of the trustee. The Sixth Circuit reversed. Relying on 11 U.S.C. 544(a) and Kentucky property law, the court concluded that the identities of both borrowers was readily ascertainable from examination of the entire mortgage, which includes the rider.