John E. Sullivan (“Debtor”) seeks review of a judgment of the United States Bankruptcy Court for the District of Massachusetts denying his motion for summary judgment, granting the Chapter 7 Trustee’s motion for summary judgment, and further ordering: (1) that an unrecorded mortgage on the Debtor’s house (the “property”) is avoided; (2) the avoided mortgage is preserved for the benefit of the bankruptcy estate; and (3) the Debt- or’s homestead exemption claim is subordinated to the estate’s interest in the property. For the reasons discussed below, we affirm.
BACKGROUND
The Debtor purchased the property in October 2000, and in March 2004 refinanced with Ameriquest Mortgage Company (“Ameriquest”) in the amount of $426,000. Ameriquest failed to record, and the mortgage remained unrecorded as of the date the bankruptcy petition was filed.
On October 14, 2005, the Debtor filed a declaration of homestead, and two days later he filed a petition under Chapter 7 of the Bankruptcy Code. Lynne F. Riley, Esq., was appointed Chapter 7 Trustee (“Trustee”).
The Trustee filed adversary proceedings against both the Debtor and Ameriquest for a determination of the priority and extent of the parties’ respective interests in the property. Count I of the Complaint requested avoidance of Ameriquest’s mortgage pursuant to § 544(a)(3), and Count II sought to preserve that mortgage for the benefit of the bankruptcy estate pursuant to § 551. In Count III, the Trustee asked
In June 2007, the Trustee moved for summary judgment as to Counts II and III of the Complaint, and later moved to include Count I. The Debtor filed an opposition to the Trustee’s motion and requested summary judgment in his favor. The matter was scheduled for hearing in August 2007.
Prior to the scheduled hearing on cross motions for summary judgment, the Trustee and Ameriquest’s assignee, American Guaranty and Liability Insurance Company (“American”), entered into a stipulation whereby the parties agreed, among other things: (1) that judgment be entered in favor of the Trustee against American and Ameriquest on all counts of the Complaint; and (2) American would amend its proof of claim from secured to unsecured status. Notice of the proposed stipulation was properly given, no objections were filed, and on July 18, 2007, the bankruptcy judge approved the agreement.
On August 28, 2007, the bankruptcy court heard the parties’ cross motions for summary judgment. The Trustee argued that, on the undisputed facts and based on the relevant statutes and case law, she was entitled to judgment as a matter of law, while the Debtor contended that the Trustee’s pleadings amounted to an attempt to make an untimely objection to his claimed homestead exemption. He also argued that because of the reference in the stipulation to American having an unsecured claim in the bankruptcy case, the Trustee could preserve for the estate only an unsecured claim, which would be subordinate to the Debtor’s homestead claim. At the conclusion of the hearing, the bankruptcy court entered orders (1) denying the Debt- or’s motion for summary judgment (Docket # 66), and (2) granting the Trustee’s amended motion for summary judgment (Docket # 67). In the order granting summary judgment for the Trustee, the bankruptcy court noted its approval of the stipulation between the Trustee and American which provided, inter alia: (1) the unrecorded mortgage on the property is avoided; (2) the avoided mortgage is preserved for the benefit of the bankruptcy estate; and (3) the Debtor’s homestead exemption is subordinated to the estate’s interest in the property. The bankruptcy judge also stated that the Debtor had notice and opportunity to object to the proposed stipulation and, having failed to do so, “may not now seek to undo its terms and provisions.” The bankruptcy court also ruled that even if the Debtor had timely objected to the stipulation, the result would be the same, given the undisputed material facts and relevant case law. Finally, the bankruptcy court noted that the Trustee was not objecting to the Debt- or’s homestead claim, but was merely seeking to enforce the same rights against the Debtor that the mortgagee had, including the priority provisions of the Massachusetts homestead exemption statute with respect to a lien that predates the homestead declaration. That statute says that the estate of homestead is not effective as against the mortgagee, when property is subject to a mortgage that was executed prior to a declaration of homestead. See Mass. Gen. Laws ch. 188, §§ 1(2), 5, and 6.
The bankruptcy court also entered a separate judgment (Docket # 68) stating: (1) the unrecorded mortgage on the property is avoided; (2) the avoided mortgage is preserved for the benefit of the bankruptcy estate; and (3) the Debtor’s homestead exemption is subordinated to the estate’s interest in the property. On Sep
JURISDICTION
A bankruptcy appellate panel is duty-bound to determine that it has jurisdiction before proceeding to the merits, even if the issue is not raised by the litigants,
see In re George E. Bumpus, Jr. Constr. Co.,
An order granting a motion for summary judgment is a final order that ends the litigation on the merits of the complaint.
See Burrell v. Town of Marion (In re Burrell),
STANDARD OF REVIEW
Appellate courts generally apply the clearly erroneous standard to findings of fact, and
de novo
review to conclusions of law.
See TI Fed. Credit Union v. DelBonis,
DISCUSSION
Section 544(a)(3)
1
vests the trustee with the powers of a bona fide purchaser of real property for value, and allows the trustee to invalidate unperfected security interests.
See
11 U.S.C. § 544(a)(3);
In re Garrido Jimenez,
Further, and importantly in this appeal, under § 101(37) of the Code, a lien is “a charge against or interest in property to secure payment of a debt or performance of an obligation,” 11 U.S.C. § 101(37), and while the classification of a lien is a matter of federal law, “the issue of whether a particular mortgage is a ‘charge against or interest in property to secure payment of a debt’... is one of state law.”
In re Smith,
The facts in
In re Guido
are virtually identical to those in the instant case, where the debtor executed a mortgage, but the mortgage was not recorded until after she filed a declaration of homestead.
The court in
In re Guido
also stated that the only way for the debtor to assert his exemption rights after the trustee avoided the transfer for the benefit of the estate would be through § 522(g) of the Bankruptcy Code.
Id.
at 197. Under § 522(g), “[notwithstanding ... § 551, the debtor may exempt ... property that the trustee recovers ... (1)(A) if such transfer was not a voluntary transfer of such property by the debtor.” 11 U.S.C. § 522(g). Since the conveyance by the debtor was voluntary, he acquired no exemption rights under § 522(g).
See In re Guido,
The Debtor also argues here that the result of the stipulation between the Trustee, American, and Ameriquest was to transform American’s status to that of an unsecured creditor, and that the Trustee was able to preserve for the estate only American’s unsecured claim, which is subordinate to the Massachusetts homestead exemption. This argument fails for several reasons: First, the Trustee’s successful avoidance of the mortgage does not render her an unsecured creditor.
See id.
American’s amended proof of claim as an unsecured creditor is irrelevant for these purposes, and by avoiding the transfer and preserving the mortgage for the benefit of the estate under § 551, the Trustee clearly assumed American’s former position as a secured creditor.
See id.
Second, “the only way for a debtor to claim an exemption in property that has been preserved for the benefit of the estate is through § 522(g) of the Code.”
Id.
As previously noted, under § 522(g), the debtor does not have an exemption right as to property preserved for the estate under § 551, when the transfer was voluntary. 11 U.S.C. § 522(g);
see In re Guido,
Additionally, the Massachusetts homestead statute provides that when property is subject to a mortgage that was executed
before
a declaration of homestead was filed, the claim of homestead is not effective as against the mortgagee. Mass. Gen. Laws. ch. 188, § 6 (1986);
In re Guido,
For all of the foregoing reasons, we agree with the bankruptcy court’s conclusions and rulings herein. Accordingly, the
Notes
. The trustee shall have, as of the commencement of the case, and without regard to any knowledge of the trustee or to any creditor, the rights and powers of ... or may avoid any transfer of property of the debtor or any obligation incurred by the debtor that is voidable by-
(3) a bona fide purchaser of real property ... from the debtor, against whom applicable law permits such transfer to be perfected, that obtains the status of a bona fide purchaser at the time of the commencement of the case, whether or not such a purchaser exists [and has perfected such transfer],
11 U.S.C. § 544(a)(3).