Summary
utilizing the Pioneer standard in the context of a Rule 60 motion and determining that the Trustee's conscious decision to not object to a motion for relief because of his incorrect belief there was no equity in the property is not “excusable neglect.”
Summary of this case from In re Graham Bros. Constr. Inc.Opinion
Case No. 10-55688.
March 7, 2011
The matter before the Court is Chapter 7 Trustee's Motion (1) to Revoke Abandonment and Allow Sale of Real Property Free of Any Interest; (2) to Approve Sale Procedures; and (3) for Other Relief. For the reasons set forth in this opinion, the Trustee's motion is denied.
BACKGROUND
Ricky Joe Langley and Laurie Langley ("Debtors") filed their Chapter 7 petition on May 11, 2010. Mark Shapiro was appointed as the Chapter 7 Trustee. The Debtors' schedule A listed ownership of real property located at 121 Cleveland Street, Trenton, Michigan ("Property"), stating the value of the Property as being $30,000. Debtor's schedule D indicated that Nationstar Mortgage ("Nationstar") held a secured claim on the Property in the amount of $116,336. On June 9, 2010, Mortgage Electronic Registration Systems, Inc., as nominee for Nationstar, filed a Motion for Relief from the Automatic Stay and for Trustee Abandonment of the Property (Docket No. 9). The Trustee did not object to the stay relief motion. A Certificate of Non-Response was filed (Docket No. 15) and the Court entered an Order Granting Relief from the Automatic Stay and for Trustee Abandonment of the Property (Docket No. 16) on June 15, 2010. That Order provided, in part, that: "upon entry of this Order, the estate's interest and/or any other interest in the Property located at 121 Cleveland St, Trenton, MI 48183-1204 is abandoned by the Chapter 7 Trustee." Nationstar initiated foreclosure proceedings and, on September 22, 2010, the Property was sold the sheriff's sale for $24,300 — Nationstar being the high bidder. The equity of redemption will expire March 22, 2011.
On October 7, 2010, the Trustee filed his Ex-Parte Application for Order Approving Trustee's Employment of Real-Estate Sales Agent and Broker (Docket No. 27), indicating that the sheriff's sale price was below market value and that he believed the estate may be able to sell the Property, pay the redemption amount, and keep the difference for the benefit of creditors. On October 14, 2010, the Court entered an Order Approving Trustee's Employment of Real Estate Sales Agent and Broker (Docket No. 29). The Trustee received an offer to purchase the Property, dated December 22, 2010, for $54,215. The Trustee filed his Motion (1) to Revoke Abandonment and Allow Sale of Real Property Free of Any Interest; (2) to Approve Sale Procedures; and (3) for Other Relief (Docket No. 31) on January 7, 2011. Also on that date, the Trustee filed a Stipulation to Entry of Order Regarding Exemptions (Docket No. 33) and the Court entered an Order Regarding Exemptions (Docket No. 34), which provides that the Debtors "will receive 50% of the net proceeds of any sale of the [P]roperty, up to the amount of the exemptions" in full satisfaction of their claimed exemptions under 11 U.S.C. § 522(d)(5). On January 21, 2011, Fannie Mae filed an Objection to Chapter 7 Trustee's Motion (1) to Revoke Abandonment and Allow Sale of Real Property Free of Any Interest; (2) to Approve Sale Procedures; and (3) for Other Relief (Docket No. 35). The Court held a hearing on that Trustee's Motion on February 17, 2011 and took the matter under advisement.
The Trustee argues that (1) the Court should revoke the abandonment that occurred upon entry of the Order Granting Relief from the Automatic Stay and for Trustee Abandonment of the Property and allow the Trustee to proceed with the sale of the Property; and (2) that Fannie Mae lacks standing to object to Trustee's motion. Fannie Mae argues that (1) the circumstances of this case do not warrant revocation of the abandonment under Fed.R.Civ.P. 60(b); and (2) it does have standing to object to Trustee's motion because it became the owner of the mortgage by virtue of an assignment by Nationstar.
DISCUSSION
This Court issued an opinion that dealt with the same substantive issues and similar factual issues as those in this case. In re Pioch, 2010 WL 3701593 (Bankr. E.D. Mich. Sept. 1, 2010). In Pioch, the debtor's case had been closed and the former Chapter 7 trustee filed an ex-parte motion for an order to: (1) reopen the bankruptcy case, (2) waive the filing fee, (3) withdraw the no-asset report, (4) appoint a trustee, and (5) revoke the abandonment. In that case, the abandonment occurred at the closing of the case pursuant to 11 U.S.C. 554(c), and the trustee argued that revocation of that "technical" abandonment was proper pursuant to Fed.R.Civ.P. 60(b)(5) and (6). The Court believes that the law, reasoning, and result articulated in that opinion is applicable here; however, there are some differences which will be discussed herein.
A. Abandonment of Property of the Estate
Section 554 of the Bankruptcy Code, which governs abandonment of property of the estate, states:
(a) After notice and a hearing, the trustee may abandon any property of the estate that is burdensome to the estate or that is of inconsequential value and benefit to the estate.
(b) On request of a party in interest and after notice and a hearing, the court may order the trustee to abandon any property of the estate that is burdensome to the estate or that is of inconsequential value to the estate.
(c) Unless the court orders otherwise, any property scheduled under section 521(1) of this title not otherwise administered at the time of the closing of a case is abandoned to the debtor and administered for purposes of section 350 of this title.
(d) Unless the court orders otherwise, property of the estate that is not abandoned under this section and that is not administered in the case remains property of the estate.
In this case, Mortgage Electronic Registration Systems, Inc., as nominee for Nationstar, filed a Motion for Relief from the Automatic Stay and for Trustee Abandonment of the Property. The Trustee did not object to that motion because it did not appear that the Property had any equity. The Court entered an Order Granting Relief from the Automatic Stay and for Trustee Abandonment of the Property, effectuating an abandonment pursuant to § 554(b).
The pertinent question is whether that abandonment can be revoked. To determine whether the abandonment is revocable, the Court must apply Fed.R.Civ.P. 60(b). LPP Mortgage, Ltd. v. Brinley, 547 F.3d 643, 649 (6th Cir. 2008).
B. Fed.R.Civ.P. 60(b)
Rule 60(b), incorporated by Fed.R.Bankr.P. 9024, provides that, "[o]n motion and just terms, the court may relieve a party or its legal representative from a final judgment, order, or proceeding" based on these limited reasons:
(1) mistake, inadvertence, surprise, or excusable neglect;
(2) newly discovered evidence that, with reasonable diligence, could not have been discovered in time to move for a new trial under Rule 59(b);
(3) fraud (whether previously called intrinsic or extrinsic), misrepresentation, or misconduct by an opposing party;
(4) the judgment is void;
(5) the judgment has been satisfied, released, or discharged; it was based on an earlier judgment that has been reversed or vacated; or applying it prospectively is no longer equitable; or
(6) any other reason that justifies relief.
"As a prerequisite to relief under Rule 60(b), a party must establish that the facts of its case are within one of the enumerated reasons contained in Rule 60(b) that warrant relief." Lewis v. Alexander, 987 F.2d 392, 396 (6th Cir. 1993) (citations omitted).
The Trustee argues that the abandonment is revocable pursuant to Rule 60(b)(1), (5), and/or (6) in the circumstances of this case.
Fed.R.Civ.P. 60(b)(1)The Trustee argues that the abandonment should be revocable pursuant to Rule 60(b)(1) due to "excusable neglect." The Trustee claims that he did not oppose Nationstar's Motion for Relief from the Automatic Stay and for Trustee Abandonment of the Property because "it did not appear that the [Property] had any equity."
Chapter 7 Trustee Mark H. Shapiro's Motion: (1) to Revoke Abandonment and Allow Sale of Real Property Free of Any Interest; (2) to Approve Sale Procedures; and (3) for Other Relief, Docket No. 31, p. 2.
A case frequently relied upon by courts in determining whether a party has met the standards set forth in Rule 60(b)(1) is Pioneer Inv. Servs. Co. v. Brunswick Assocs. Ltd. Partnership, 507 U.S. 380, 398, 113 S. Ct. 1489, 1499, 123 L.Ed.2d 74 (1993). In that case, the United States Supreme Court examined the standard of "excusable neglect" under Fed.R.Bankr.P. 9006(b)(1), and held that whether neglect can be considered "excusable" is an equitable determination, "taking account of all relevant circumstances surrounding the party's omission." The Pioneer Court specifically articulated the following factors to be among those relevant in this determination: 1) danger of prejudice to the debtor; 2) the length of delay and the potential impact on judicial proceedings; 3) the reason for the delay, including whether it was within the reasonable control to the movant; and 4) whether the movant acted in good faith. Pioneer, 507 U.S. at 395.
"Neglect" by Trustee is arguably present here. The question is, however, whether that neglect was "excusable." This Court reads Pioneer to require consideration of all of the relevant facts and circumstances, including, the four factors specifically above referred to in the course of coming to a conclusion that is otherwise equitable, and, in the process, giving such weight to each of the various factors considered as the Court deems appropriate.
When applying the Pioneer factors, the Court finds that the Trustee's neglect, if indeed there was neglect, is clearly not "excusable." In this case, the Trustee received proper notice of the Motion for Relief from the Automatic Stay and for Trustee Abandonment of the Property and made a conscious decision not to object to that motion because it did not appear that the Property had any equity. It can be assumed that the Trustee made an assumption when choosing not to object to the stay relief and abandonment motion about the value of, and possible equity in, the Property and that assumption turned out to be incorrect. In re Pioch, 2010 WL 3701593, *5 (Bankr. E.D. Mich. Sept. 1, 2010). If the Trustee believed that there might be some equity in the property at the time the stay relief and abandonment motion was filed, the Trustee could have, and should have, objected to that motion and asked the Court for additional time to make a determination regarding the value of the Property and any possible equity in the Property, if such additional time was necessary. The decision not to object to the motion was fully within the Trustee's control and the Trustee's failure to object, while neglectful, is not "excusable" in these circumstances.
Fed.R.Civ.P. 60(b)(5) and (6)
The Trustee also argues that the abandonment should be revocable pursuant to Rule 60(b)(5) and (6). The Court has already addressed whether an abandonment of an interest in real Property is revocable in the Pioch decision. Despite the fact that the Pioch case involved a Chapter 7 case that was closed, the Court thoroughly discussed Rule 60(b)(5) and 6) with regard to a revocation of an abandonment of real property, and it held that neither subsection (5) nor (6) of Rule 60(b) provide sufficient grounds to revoke an abandonment. In re Pioch, 2010 WL 3701593, *5 (Bankr. E.D. Mich. Sept. 1, 2010) ("The fact that there may now be some additional value in the debtor's interest in the Property, which was occasioned essentially by events or market/business driven occurrences subsequent to the abandonment, does not provide sufficient grounds under Rule 60(b)(5) or (6) to revoke the abandonment. . . ."). The Court finds that there are no distinguishing facts in this case that would provide for a different result from the one reached in the Pioch case. Therefore, Trustee's Motion (1) to Revoke Abandonment and Allow Sale of Real Property Free of Any Interest; (2) to Approve Sale Procedures; and (3) for Other Relief is denied.
C. Standing
The Trustee also argues that (1) Fannie Mae lacks standing to object to Trustee's motion because there is no proof that it is a party in interest, and (2) even if it is a party in interest, it will not be injured by the proposed sale. Fannie Mae's counsel has indicated to the Trustee's counsel that Fannie Mae has taken an assignment of Nationstar's mortgage, however, there is no evidence of that assignment on the record. This decision is contingent upon Fannie Mae filing the appropriate proof of the assignment and its interest in the Property.
As for the Trustee's second argument, that Fannie Mae will not be injured by a revocation of the abandonment and the proposed sale, the Court does wonder about Fannie Mae's motives in this case, given what it is likely to receive if the Trustee's Motion were granted. However, for whatever reason, Fannie Mae has chosen to object to the Trustee's Motion and its reasons for choosing this course of action should not affect the outcome of the legal issue.
CONCLUSION
Accordingly, the Trustee's motion is denied. This decision is contingent upon Fannie Mae filing with the Court, and serving on the Trustee, appropriate proof of the assignment to it and of its interest in the Property, within seven (7) days of entry of this opinion. If such is not done, the Trustee's Motion, without a further hearing, will be deemed to have been granted. An Order is being concurrently entered.