467 B.R. 433
Bankr. W.D. Mich.2012Background
- Apostle and Kathryn purchased North Pier Condos with boat slip; later conveyed it to Bergemans on a land contract.
- In 2003 Apostle/Spouse refinanced with Fifth Third Bank, obtaining a mortgage that was intended to be paid from sale proceeds.
- In 2004 Bergemans sold the property to the Aumaughers for 180,000; closing involved title insurance and two escrowed transactions.
- Closing statement for the Bergeman-to-Aumaugher sale omitted any payment of the Fifth Third lien, while Apostle knew of the lien.
- After the sale, the Fifth Third loan continued to be paid from Apostle’s accounts for years; the lien remained unpaid.
- In 2011, after discovering the unpaid lien, Apostle filed Chapter 7; the Aumaughers later transferred title to Stanley Aumaugher.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether Apostle’s closing statement omission was a material misrepresentation. | Apostle failed to disclose Fifth Third lien on closing. | Omission was inadvertent; not a misrepresentation to the actual buyers. | Not proven to reach plaintiffs; misrepresentation not established for 523(a)(2)(A). |
| Whether Apostle acted with intent to deceive regarding the lien. | Deliberate concealment to preserve sale proceeds. | No intent to defraud; oversight and complexity of finances. | No intent shown; deception element not satisfied. |
| Whether plaintiffs justifiably relied on the misrepresentation and causation of damages. | Reliance on closing statement and title assurances. | Plaintiffs did not rely on Apostle’s statement; title was insured and conveyed by Bergemans. | No justifiable reliance; causation not established. |
| Whether any nondischargeable debt under § 523(a)(2)(A) exists given the above results. | Debt arose from fraud in obtaining lien information; should be nondischargeable. | Fraud elements not proven; debt dischargeable. | Plaintiffs failed to prove all elements; claim dismissed. |
Key Cases Cited
- Rembert v. AT&T Universal Card Servs., Inc. (In re Rembert), 141 F.3d 277 (6th Cir. 1998) (elements for § 523(a)(2)(A) fraud)
- Flagstar Bank, FSB v. Stricker (In re Stricker), 414 B.R. 175 (Bankr. W.D.Mich. 2009) (reliance and misrepresentation standards)
- In re Sullivan, 305 B.R. 809 (Bankr. W.D.Mich. 2004) (material omissions as misrepresentation)
- In re McLaren, 3 F.3d 958 (6th Cir. 1993) (elements of fraud under § 523(a)(2)(A))
- Grogan v. Garner, 498 U.S. 279 (1991) (preponderance standard for dischargeability)
- Field v. Mans, 516 U.S. 59 (1995) (justifiable reliance requirement)