458 B.R. 8
Bankr. D. Mass.2011Background
- Debtor William H. Swift owns real property in North Attleboro, MA and granted a mortgage to MERS as nominee for FNBA to secure a $360,000 note; MERS erroneously discharged the mortgage in 2006 before full payment, while the Debtor continued payments; OneWest acquired the mortgage from MERS in 2009; the Debtor and OneWest entered a Modification Agreement in 2010 reaffirming the debt; the Debtor recorded a Declaration of Homestead in 2010; the Debtor filed a Chapter 7 petition in 2010; the Trustee sought to avoid the mortgage under §544(a)(3), preserve it under §551, and establish priority over the Homestead; the Debtor opposed, leading to cross-motions for summary judgment.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether the mistaken discharge can be avoided under §544(a)(3). | Lassman contends the discharge rendered the mortgage an unperfected security interest. | Swift argues §544(a)(3) does not apply because the mortgage was discharged. | Yes; the Court finds the discharge made the mortgage an unperfected interest that §544(a)(3) can avoid. |
| Whether the avoided mortgage can be preserved for the estate under §551. | Lassman seeks preservation to prevent windfall to junior lienors and equalize treatment for creditors. | Swift contends §551 preservation is inappropriate or unnecessary. | Yes; the avoided mortgage is preserved for the estate under §551. |
| Whether preservation affects the mortgage's priority over the Debtor’s Homestead. | Trustee asserts the estate stands in the shoes of the lienor, giving priority over the Homestead. | Debtor argues homestead priority should defeat the lien. | Yes; the Trustee’s preserved lien has priority over the Homestead. |
| Whether the Trustee’s action impermissibly enlarges the estate’s exemption or violates §522(g). | Avoiding and preserving the mortgage limits the Debtor’s exemption rights; the Trustee is permitted to enforce the lien. | Exemption rights could be improperly affected by avoidance. | No; avoidance/preservation does not convert the property into exempted proceeds for the Debtor; the Trustee is entitled to the equity. |
Key Cases Cited
- In re Daylight Dairy Products, Inc., 125 B.R. 1 (Bankr.D.Mass. 1991) (trustee avoids mistakenly discharged mortgage and preserves for estate)
- North Easton Co-op. Bank v. MacLean, 300 Mass. 285, 15 N.E.2d 241 (1938) (discharge of mortgage misrecorded; equity to reinstate mortgage if rights of intervening lienholders unaffected)
- NationsBanc Mortg. Corp. v. Eisenhauer, 49 Mass.App.Ct. 727, 733 N.E.2d 557 (Mass. App. Ct. 2000) (discharge of mortgage will be set aside when recorded in error)
- In re Sullivan, 387 B.R. 353 (1st Cir. BAP 2008) (distinguishes between objections to homestead exemptions and enforcing prior liens; trustee may preserve avoided lien)