Opinion
CASE NO. 91-08704, ADV. PROC. 02-0135.
September 28, 2006
OPINION AND ORDER
Before the Court is Plaintiffs' request for entry of judgment by default, and the assessment of damages caused by Defendant's violation of the discharge order, which we grant for reasons that follow.
BACKGROUND
Plaintiff purchased her residence located in Guaynabo, Puerto Rico and guaranteed the deferred purchase price by executing a mortgage encumbering the residence in favor of Banco Santander PR. The mortgage deed ("the deed") was presented for its registration in the Registry of the Property.
After entry of discharged the mortgage note was negotiated and transferred to different institutions including Housing and Urban Development, Berkeley Federal Bank Trust, Ocwen Federal Bank, Litton Loan Servicing LP and finally to the defendant, Salomon Brothers Realty, Corp.
Afterwards, Plaintiff filed this bankruptcy petition, scheduling Banco Santander PR as a secured creditor, due to the aforementioned mortgage. Plaintiff was discharged as per order docketed on June 19, 1992.
Meanwhile, the Registrar notified a defect which prevented the deed from being registered. On March 1, 1993, the Registrar returned the deed to the Creditor without registering the mortgage because the defect preventing its registration was not corrected in time.
After entry of the discharge order, and once the defect was corrected, the Creditor presented the deed before the Registry for a second time on April 8, 1993. This time the mortgage was registered.
In 2001, Salomon Brothers Realty Corp. ("Salomon") filed a suit for collection of money and foreclosure of this mortgage against Plaintiff in the Insular Court. The Insular Court entered a judgment by default in favor of Salomon on May 9, 2002. On July 3, 2002, Plaintiff filed a motion to vacate the judgment claiming it was null and void. While that motion was pending, Plaintiff filed the present adversary proceeding against Salomon. Our Clerk entered the default. Plaintiff then filed this motion for entry of judgment by default. After the hearing to consider the request for damages, we took the matter under advisement.
DISCUSSION
When entering a judgment by default, "a court may examine a plaintiff's complaint to determine whether it alleges a cause of action. In making that determination it must assume that all well pleaded factual allegations are true. (Cit. omitted)" Ouirindongo v. Rolón, 953 F.2d 15 (1st Cir. 1992). Furthermore, under F.R.C.P. 54 and F.R.B.P. 7054, the court may award relief that "`shall not be different in kind . . . or exceed the amount' . . . demanded in the pleadings. When the judgment entered is a default judgment, the pleadings control the relief that may be awarded, both as to the kind of relief and its scope." 10-54 Moore's Federal Practice — Civil § 54.71 [3d ed.].
Here, the complaint alleges the debt was not secured by a mortgage lien because the mortgage was not registered pre-bankruptcy. Thus, the debt was unsecured, and it was discharged before the mortgage lien securing its payment was registered. Hence, Salomon's efforts to procure the registration of the lien and the suit it filed for collection of the discharged debt in the Insular Court violated the discharge injunction. Under this scenario, the court should order the Registrar to cancel the void mortgage and award punitive and actual damages caused by Salomon's illegal collection efforts.
A. Validity of the mortgage lien and its cancellation
This issue is governed by applicable non bankruptcy law of Puerto Rico which states, a mortgage creditor acquires a lien on real property when the mortgage deed is registered. Furthermore, mortgage liens are accessory to obligations, meaning that they exist to guarantee payment of underlying debts. If the underlying debt cannot be collected, the mortgage lien cannot be enforced through a collection action in rem.
Article 188 of the Mortgage Law of Puerto Rico states:
In order for voluntary mortgages to be validly constituted, it is required:
First. That they be stipulated in a deed.
Second. That the document be recorded in the Property Registry.
30 L.P.R.A. § 2607
Liechty v. Descartes Sauri, 109 D.P.R. 196 (1980); Carreras v. A.M. Colonial Bank, 35 D.P.R. 90 (1926).
Here, the mortgage deed was first presented for registration before Plaintiff filed the petition for bankruptcy. However, it was not registered until its second presentation before the Registry and after entry of the order of discharge. When the Registrar returned the deed without registering it, the lien was not perfected and the underlying debt was considered unsecured and discharged in bankruptcy by the time mortgage was perfected by being recorded after the second presentation. Under applicable non-bankruptcy law, this second intent to perfect the lien is null and void because the underlying debt was discharged and its payment could no longer be guaranteed by the mortgage. Under applicable bankruptcy law the order of discharge prevented the Creditor from taking any action to collect a discharged debt. Thus, under the pleadings and pursuant to evidence received during hearings, Plaintiff is entitled to the remedy calling for the Registrar of the Property of Puerto Rico to cancel the mortgage registered post bankruptcy. We shall enter a separate order accordingly.
B. Monetary award for damages
The First Circuit in Bessette v. Avco, 230 F.3d 439 (1st Cir. 2000), held that the Courts have the power to enforce the discharge injunction of § 524 through § 105 of the Code, and to impose monetary relief such as actual damages, attorney fees and punitive damages.
Plaintiff requests that we award punitive and actual damages, including attorney's fees and costs based on four counts of the complaint and her testimony in open court.
The first count claims a monetary award for mental anguish cause caused by Salomon procuring the registration of the mortgage deed after entry of discharge. We deny this request for two reasons. First, Plaintiff did not allege or provide evidence showing Salmon presented the deed for registration for the second time. Second, it is doubtful that Plaintiff was even aware the mortgage deed was presented for the second time. Hence, there is no causal link between Salomon's action and the mental anguish claimed by the Plaintiff.
The second cause of action is based on loss of income, loss of loans and effect on Plaintiff's credit generated by the illegal mortgage lien in favor of Salomon and the foreclosure suit. The only evidence we have of these occurrences was Plaintiff's vague testimony, which we disregard based on the Best Evidence Rule.
The third cause of action concerns mental anguish caused by Salomon's collection efforts. These consisted of her anxiety and emotional disturbance resulting from being served at the workplace in front of her co-workers and boss. These feelings were acute because she was a loan officer at a lending institution. Plaintiff offered no medical evidence to corroborate her testimony. We believe she was embarrassed and became anxious due to Solomon's actions meriting an award of $1,000.00.
The fifth cause of action concerns punitive damages caused by Solomon's egregious behavior. According to the allegations, Plaintiff's Counsel informed Solomon of her position concerning this matter. Solomon ignored this information and proceeded with the suit in clear violation of the discharge order. Under these circumstances, we find Solomon knowingly violated the discharge injunction, and award punitive damages in the sum of $20,000.00, costs of $250.00 for the filing fee, and attorney's fees of $5,250.00.
Plaintiff voluntarily withdrew the fourth cause of action.
SO ORDERED, in San Juan, Puerto Rico.