MEREDITH S. GRABILL, Bankruptcy Judge.
Real Time Resolutions, Inc. as Agent for RRA CP Opportunity Trust 1 ("
This Court has jurisdiction over this adversary proceeding pursuant to 28 U.S.C. § 1334(b) and the Order of Reference of the District Court dated April 11, 1990. The matters presently before the Court constitute core proceedings that this Court may hear and determine on a final basis under 28 U.S.C. § 157(b)(2)(A), (K), and (O). Venue is proper in this District. See 28 U.S.C. §§ 1408 and 1409(a).
The parties agree on the material facts.
On September 28, 2017 (the "
Based on the Debtor's representations, as of the Petition Date, Regions Bank held a first mortgage against the Coronet Property in the amount of $12,071.63. [No. 17-12596, ECF Doc. 9, at 13; Proof of Claim No. 14 (filed by the Debtor on behalf of Regions Bank)].
By the Petition Date, RTR had acquired a debt originally owed by the Debtor to Hibernia National Bank on a Home Equity Line of Credit in the principal amount of $35,000 which originated on July 22, 2005 (the "
Also as of the Petition Date, the SBA held a Promissory Note in the principal amount of $132,300, secured by a Multiple Indebtedness Mortgage on the Odin Property (the "
On February 7, 2018, the Debtor filed its First Amended Motion for Authority To Sell Property, requesting leave of the Court to sell the Coronet Property for $25,000 (the "
On June 4, 2019, the Debtor filed Debtor's Motion for Authority To Sell Property, requesting the Court's permission to sell the Odin Property for $105,000 (the "
On June 14, 2019, RTR filed a Response to the Odin Sale Motion. [No. 17-12596, ECF Doc. 75]. In its Response, RTR stated that, based on an "internal mistake," it "inadvertently" amended its Proof of Claim on March 5, 2019, reducing its claim against the estate to zero. It also stated that it mistakenly released its conventional mortgage on the Odin Property, instead of the Coronet Property. [No. 17-12596, ECF Doc. 75, ¶ 5 & n.1].
The Court held a hearing on the Odin Sale Motion on June 25, 2019. Counsel for the Debtor, RTR, and the Chapter 13 Trustee appeared at the hearing. [Memo to Record No. 76]. The SBA did not appear. The Court granted the Odin Sale Motion and issued an Order on July 8, 2019 (the "
Meanwhile, the SBA sought and received from the Court on August 6, 2019, an extension of time to file an Answer in the Adversary Proceeding. [ECF Docs. 4 & 5]. The SBA filed an Answer in the Adversary Proceeding on August 20, 2019. [ECF Doc. 7]. On August 22, 2019, the SBA filed in the Debtor's main case a motion to reconsider the Odin Sale Order pursuant to Bankruptcy Rule 3008 and, alternatively, Rule 60 of the Federal Rules of Civil Procedure, made applicable to this case by Bankruptcy Rule 9024. [No. 17-12596, ECF Doc. 79]. The SBA's motion asserted that, not only did the SBA lack notice of the Odin Sale Motion and, therefore, lacked an opportunity to be heard before the Court reinscribed RTR's mortgage on the Odin Property, but the "sua sponte bench ruling that was incorporated into the [Odin Sale Order] resolved RTR's adversary proceeding completely in [RTR's] favor even before it had effected service of the adversary complaint upon the United States." Id. at 3.
On October 23, 2019, the Court granted the SBA's motion to reconsider the Odin Sale Order to the extent that it (i) reinscribed RTR's lien on the Odin Property, reduced the value of SBA's lien on the Odin Property, (ii) directed the Debtor to pay proceeds from the sale of the Odin Property to any lienholder, (iii) directed any lienholder to file a proof of claim or an amended proof of claim for any deficiency, and (iv) directed the Clerk of Court of Orleans Parish, Lands Records Division, to cancel and erase from the records the inscription of any and all mortgages, liens, and encumbrances against the Odin Property.
The adversary proceeding initiated by RTR proceeded and on December 31, 2019, the parties filed cross-motions for summary judgment. [ECF Docs. 12 & 14]. RTR asserts that its first-position lien on the Odin Property should be reinstated under the exception to the Louisiana Public Records Doctrine, which allows reinstatement of a mortgage cancelled due to fraud, error, or mistake. [ECF Doc. 14, at 6-10]. The SBA asserts that the exception to the Louisiana Public Records Doctrine does not apply here to reinstate RTR's lien, as the error cancelling its lien was of its own making. [ECF Doc. 12, at 6-9]. For the reasons stated below, the Court finds in favor of RTR.
Summary judgment under Federal Rule of Civil Procedure 56(a), made applicable to this proceeding by Bankruptcy Rule 7056, is appropriate when the movant shows that there is no genuine dispute as to any material fact and that she is entitled to judgment as a matter of law. In deciding a motion for summary judgment, "the judge's function is not [herself] to weigh the evidence and determine the truth of the matter but to determine whether there is a genuine issue for trial." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 249 (1986). In so doing, the Court views the facts and evidence in the light most favorable to the non-moving party at all times. See Campo v. Allstate Ins. Co., 562 F.3d 751, 754 (5th Cir. 2009). The Fifth Circuit has stated that "[t]he standard of review is not merely whether there is a sufficient factual dispute to permit the case to go forward, but whether a rational trier of fact could find for the non-moving party based upon evidence before the court." James v. Sadler, 909 F.2d 834, 837 (5th Cir. 1990) (citing Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 586 (1986)).
The parties here have filed cross-motions for summary judgment with respect to whether the exception to the Louisiana Public Records Doctrine applies to allow RTR to reinscribe its first-position mortgage on the Odin Property. When both parties move for summary judgment in cross motions, a court must rule on each party's motion on an individual and separate basis. See White Buffalo Ventures, LLC v. Univ. of Tex. at Austin, 420 F.3d 366, 370 (5th Cir. 2005). "If there is no genuine issue of material fact and one or the other party is entitled to prevail as a matter of law, a court will render judgment." Standard Ins. Co. v. Corgill, No. 3:13-CV-00997, 2013 WL 12101080, at *2 (N.D. Tex. July 23, 2013).
Codified at article 3338 of the Louisiana Civil Code, "[t]he Louisiana public records doctrine generally expresses a public policy that an interest in real estate must be recorded in order to affect third persons." McClain v. NMP, LLC, 262 So.3d 409, 419 (La. App. 5 Cir. 2018). "Simply put, an instrument in writing affecting immovable property that is not recorded is null and void except between the parties." Id. (citing Cimarex Energy Co. v. Mauboules, 40 So.3d 931, 943 (La. 2010)). "The primary focus of the public records doctrine is the protection of third persons against unrecorded instruments by denying the effects of the unrecorded interests, except as between the parties." Id. (citing LA. CIV. CODE arts. 3338 & 3343; Cimarex Energy Co., 40 So.3d at 944).
"A longstanding exception to the public records doctrine exists, however, where a mortgage is cancelled from the public records through fraud, error, or mistake." Deutsche Bank Nat'l Tr. Co. for Morgan Stanley ABS Capital I Inc., Tr. 2004-WMC2 v. McNamara, No. 2017-CA-0173, 2017 WL 4700650, at *3 (La. App. 4 Cir. Oct. 18, 2017). "The rule seems arbitrary, but it is now well settled by the decisions of this court, that a cancellation of a mortgage by the recorder without the knowledge or consent of the holder of the negotiable mortgage note does not deprive him of his security,
Lacour v. Ford Inv. Corp., 183 So.2d 463, 465-66 (La. App. 4 Cir. 1966).
Generally, a mortgage holder who knows of the cancellation of his mortgage cannot benefit by the exception to the Louisiana Public Records Doctrine. See, e.g., Schudmak v. Prince Phillip P'ship, 573 So.2d 547, 551 (La. Ct. App. 1991) ("In this case, however, Schudmak knew of the cancellation of his mortgage; in fact, it was he who filed to have the vendor's lien cancelled. The fact that he may have bene fraudulently induced to cancel his vendor's lien is of no moment to and cannot affect the rights of innocent third parties."). Here, inadvertent or not, RTR canceled its own lien; therefore, the exception to the Louisiana Public Records Doctrine does not apply.
That said, all of the cases cited by the SBA involve allegedly mistaken or fraudulent mortgage cancellations that have come to light
Under these facts, the SBA is not the intended beneficiary of the Louisiana Public Records Doctrine. Therefore, allowing it to benefit from RTR's mistake would reach an inequitable result. Allowing RTR to reinscribe its mortgage and lien would not place the SBA in a worse position than it was in prior to RTR's erroneous cancellation, and it would prevent the SBA from obtaining a windfall due to RTR's mistake. This Court is loath to reward RTR for its negligence; however, a finding in RTR's favor is in line with cases interpreting the Louisiana Public Records Doctrine and equitable given that neither the SBA nor any third party will be actually harmed by the reinscription of RTR's first-position conventional mortgage.
Based on the foregoing findings of fact and conclusions of law, this Court (1) GRANTS RTR's Motion for Summary Judgment, finding that RTR is permitted to reinscribe its first-position conventional mortgage on the Odin Property and (2) DENIES the SBA's Motion for Summary Judgment. A separate judgment on the Complaint consistent with this Memorandum Opinion will be entered contemporaneously and in accordance with Bankruptcy Rules 7054 and 9021. New Orleans, Louisiana, March 12, 2020.
