GMAC Mortgage, LLC v. Countrywide Home Loans, Inc. et al

UNITED STATES BANKRUPTCY COURT
FOR THE DISTRICT OF COLUMBIA
In re
FRANCK M. DeROSE,
Debtor.
____________________________
GMAC MORTGAGE, LLC,
Plaintiff,
v.
FRANCK DeROSE, et al.,
Defendants.
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Case No. 08-00461
(Chapter 13)
Adversary Proceeding No.
08-10031
Not for Publication in
West’s Bankruptcy Reporter
MEMORANDUM DECISION AND ORDER RE MOTION FOR DEFAULT JUDGMENT
The plaintiff, GMAC Mortgage, LLC, has filed a motion for
default judgment against the defendants Franck DeRose,
Countrywide Home Loans, Inc., and Cynthia A. Niklas, the Chapter
13 trustee. 	The defendants have not responded to the complaint
and the clerk has entered a default against the defendants.
Although the court will assume that all well-pleaded facts are
true in light of the clerk’s entry of default, Nishimatsu Const.
Co. v. Houston Nat’l Bank, 515 F.2d 1200, 1206 (5th Cir. 1975);
The document below is hereby signed.
Signed: December 28, 2009.
_____________________________
S. Martin Teel, Jr.
United States Bankruptcy Judge
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Fanning v. Permanent Solution Indus., Inc., 257 F.R.D. 4, 7
(D.D.C. 2009) (“Upon entry of default by the clerk of the court,
the defaulting defendant is deemed to admit every well-pleaded
allegation in the complaint”) (internal quotations and citations
omitted), the defendants are not “held to admit facts that are
not well-pleaded or to admit conclusions of law. . . . [and] a
defendant’s default does not in itself warrant the court in
entering a default judgment.” Nishimatsu, 515 F.2d at 1206.
Instead, “[t]here must be a sufficient basis in the pleadings for
the judgment entered.” Id. 	See also Ohio Cent. R. Co. v. Central
Trust Co., 133 U.S. 83, 91 (1890) (“If the allegations are
distinct and positive, they may be taken as true without proof;
but if they are indefinite, or the demand of the complaint is in
its nature uncertain, the requisite certainty must be afforded by
proof. 	But in either event, although the defendant may not be
allowed, on appeal, to question the want of testimony or the
insufficiency or amount of the evidence, he is not precluded from
contesting the sufficiency of the bill, or from insisting that
the averments contained in it do not justify the decree.”);
Danning v. Lavine, 572 F.2d 1386, 1388 (9th Cir. 1978) (“facts
which are not established by the pleadings of the prevailing
party, or claims which are not well-pleaded, are not binding and
cannot support the judgment.”). 	As explained in more detail
below, the allegations of the complaint fail to state a claim for
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1 	The instant adversary proceeding was filed on October 22,
2008. 	The court, however, takes note that in July 2008, several
news outlets reported that Bank of America had purchased
Countrywide Financial Corp. 	Such a transfer in ownership may
have affected the ownership of defendant Countrywide Home Loans,
Inc., and likewise the status of Countrywide as the real party in
interest in this proceeding. 	If the plaintiff chooses to file an
amended complaint, it should consider whether Countrywide is the
real party in interest, and whether service on Countrywide’s
registered agent constitutes valid service.
2 	The recording stamp on the deed of trust states that the
deed was recorded on February 4, 2004, although the subsequent
release of that deed of trust indicates that the deed was
recorded on January 23, 2004.
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equitable subrogation or a basis for declaring GMAC’s lien
superior to that of Countrywide. 1 	Accordingly, the court will
deny the motion for default judgment and dismiss the complaint
without prejudice to the filing of an amended complaint.
I
The clerk having entered a default against the defendants,
the court will assume that the following well-pled allegations of
the complaint are true. 	On January 16, 2004, the debtor-
defendant, Franck DeRose, executed a deed of trust conveying a
security interest in the debtor’s residential real property
located at 1919 16 th Street, N.W., District of Columbia (the
“Property”) in favor of IndyMac to secure a debt in the amount of
$185,000 (“First IndyMac Deed of Trust”). 	The First IndyMac Deed
of Trust was recorded among the Land Records of the District of
Columbia on February 4, 2004. 2 	On October 23, 2004, the debtor
executed a second deed of trust conveying a security interest in
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3 	According to the plaintiff’s motion for default judgment,
GMAC reported its loan to the three national credit bureaus,
Equifax, Experian, and Transunion in July 2005, before the debtor
executed the Countrywide Deed of Trust and before that deed of
trust was recorded. 	The plaintiff did not allege this in its
complaint, and it is thus not a fact deemed to be true by virtue
of the clerk’s entry of default.
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the Property in favor of IndyMac to secure an additional debt in
the amount of $50,000 (“Second IndyMac Deed of Trust”). 	The
Second IndyMac Deed of Trust was recorded among the Land Records
of the District of Columbia on November 5, 2004. 	On June 16,
2005, the debtor executed a deed of trust conveying a security
interest in the Property in favor of GMAC to secure a debt in the
amount of $266,000 (“GMAC Deed of Trust”). 	The GMAC Deed of
Trust was executed on June 16, 2005. 	GMAC did not record the
GMAC Deed of Trust until November 16, 2006. 3
On September 26, 2005, before GMAC recorded its deed of
trust, the debtor executed a deed of trust for the benefit of
Mortgage Electronic Registration Systems, Inc., as nominee for
Countrywide Bank, N.A., to secure a debt in the amount of $42,000
(“Countrywide Deed of Trust”). 	The Countrywide Deed of Trust was
recorded on October 24, 2005, more than one year prior to the
recording of the GMAC Deed of Trust.
One hundred eighty-four thousand four hundred forty-four
dollars and eleven cents ($184,444.11) of the proceeds of the
GMAC loan were used to satisfy the indebtedness of the debtor
that was secured by the First IndyMac Deed of Trust, and
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4 	Certificates of satisfaction reflect that the release of
the first IndyMac Deed of Trust was recorded on August 8, 2005,
and the release of the Second IndyMac Deed of Trust was recorded
on August 22, 2005.
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$50,265.11 of the proceeds of the GMAC loan were used to satisfy
the debtor’s indebtedness that was secured by the Second IndyMac
Deed of Trust. 4
GMAC issued the GMAC loan with the intention of obtaining a
first priority lien against the property, and but for GMAC’s
satisfaction of the First and Second IndyMac loans, the
Countrywide Deed of Trust would be subject to the First and
Second IndyMac Deeds of Trust. 	As part of the ordinary course in
applying for the Countrywide loan, the debtor would have been
asked to disclose, and should have disclosed, his assets and
liabilities, including the existence of the GMAC loan and deed of
trust.
II
A.
The Complaint Fails to State a Basis for Declaring
GMAC’s Lien Superior to Countrywide’s Lien.
By its complaint, GMAC seeks a declaration that it holds a
first priority lien on the Property, superior in priority to
Countrywide’s lien. 	The allegations of the complaint, however,
do not support a claim for such relief. 	In its motion for
default judgment, GMAC correctly notes that under District of
Columbia law, “a bona fide purchaser or judgment creditor is
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subject to actual, constructive or inquiry notice.” 	In re
Aumiller, 168 B.R. 811, 818 (Bankr. D.D.C. 1984). 	The complaint
fails, however, to allege facts to support a finding that
Countrywide had constructive, actual, or inquiry notice of GMAC’s
lien.
First, the complaint fails to allege facts to support a
finding that Countrywide had constructive notice of GMAC’s lien.
GMAC concedes that its lien was not recorded at the time the
Countrywide Deed of Trust was executed and recorded, and GMAC has
thus not alleged facts to support a finding that Countrywide had
constructive notice of GMAC’s lien. 	See In re Hope, 231 B.R.
403, 424 (Bankr. D.D.C. 1999) (constructive notice generally
means record notice and does not exist where lien was not
recorded).
Likewise, GMAC has not alleged facts to support a finding
that Countrywide had actual notice. 	GMAC alleges that the
“Defendant DeRose would have been asked to disclose, and should
have disclosed, his assets and liabilities, including the
existence of the GMAC Loan and Deed of Trust.” 	Compl. ¶ 16.
Although GMAC alleges what the debtor should have done, GMAC does
not allege that the debtor actually disclosed GMAC’s interest to
Countrywide or its agents, and as such, GMAC has not alleged
facts to support a claim that Countrywide had actual notice.
Finally, GMAC has not alleged facts to support a finding
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that Countrywide was on inquiry notice of GMAC’s lien. 	In its
motion for default judgment, however, GMAC states that
[a]s part of the ordinary course of evaluating Mr.
DeRose’s application for the Countrywide Loan, the
originator of that loan would have reviewed Mr.
DeRose’s credit report by consulting with the three
national credit bureaus, Equifax, Experian and
Transunion. 	In July 2005, GMAC reported the DeRose
Loan to those credit bureaus. 	See copy [of] a print-
out from GMAC’s computer system attached hereto as
Exhibit 18; Ex. 5 (Kerr Affidavit). 	Thus, any person
consulting Mr. DeRose’s credit report after July 2005
would have discovered the existence of the GMAC Loan.
GMAC’s complaint does not include any allegations regarding
GMAC’s having reported its transaction with the debtor to the
three major credit bureaus. 	When evaluating the adequacy of the
claims asserted in the complaint, the court considers only those
allegations that were actually pled in the complaint. 	Similarly,
allegations raised only in the plaintiff’s motion for default
judgment and not in the complaint are not deemed admitted by
virtue of the clerk’s entry of a default against the defendants.
Moreover, it is doubtful that the reporting of a loan to the
three major credit bureaus is sufficient to put a subsequent
lender who reviews that report on inquiry notice of an unrecorded
pre-existing lien on the debtor’s property. 	GMAC does not
contend that the credit report would have reflected the basis for
the extension of the loan, and what, if any, collateral was
offered to secure that loan. 	Although the issue has not been
briefed, and the court will not decide the issue in dismissing
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the complaint, it seems unlikely that an entry on the debtor’s
credit report reflecting a loan from GMAC to the debtor, without
substantially more, would be adequate to support a claim that
Countrywide was on inquiry notice of GMAC’s lien. 	Thus, even if
GMAC had included this allegation in its complaint, it would
likely be insufficient to prevent dismissal of this count of the
complaint.
B.
The Complaint Fails to State a Claim for Equitable
Subrogation.
GMAC, by its complaint, asks the court to equitably
subrogate GMAC to the rights enjoyed by the beneficiaries of the
First and Second IndyMac Deeds of Trust. 	In the District of
Columbia, Equitable subrogation has been described as:
the substitution of one person to the position of
another, an obligee, whose claim he has satisfied
. . . . 	The basic principles underlying subrogation
are the same as those in constructive trusts,
prevention of merger, and equitable liens, i.e.,
restitution to prevent forfeiture and unjust
enrichment.
Eastern Savings Bank v. Pappas, 829 A.2d 953, 957 (D.C. 2003)
(quoting G.E. Capital Mortgage Servs., Inc. v. Levenson, 657 A.2d
1170 (Md. 1995) & Handbook on the Law of Mortgages § 277, at 561
(2d ed. 1979)(Osborne)). 	The complaint alleges that the proceeds
of the GMAC loan were used to satisfy the indebtedness of the
debtor that was secured by the First and Second IndyMac Deeds of
Trust, and “[t]he great majority of case law holds that one who
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pays the mortgage of another and takes a new mortgage as security
will be subrogated to the rights of the first mortgagee as
against any intervening lienholder.” 	Eastern Sav. Bank, 829 A.2d
at 957 (quoting G.E. Capital Mortgage Servs., Inc., 657 A.2d at
1175). 	The court in Eastern Savings Bank set forth the following
elements necessary to state a claim for equitable subrogation:
(1) Payment [was] made by the subrogee to protect his
own interest. (2) The subrogee [has] not . . . acted as
a volunteer. 	(3) The debt paid [was] one for which the
subrogee was not primarily liable. 	(4) The entire debt
[has] been paid. 	(5) Subrogation [would] not work any
injustice to the rights of others.
Eastern Sav. Bank, 829 A.2d at 961 (quoting Caito v. United Cal.
Bank, 576 P.2d 466 (Cal. 1978)).
Although the complaint adequately alleges facts to support
the first four elements of an equitable subrogation claim, GMAC
has failed to allege facts to support a finding that subrogation
would not work an injustice on Countrywide. 	According to the
complaint, Countrywide recorded its deed of trust after the
IndyMac Deeds of Trust had been released and before GMAC recorded
its deed of trust, and unless equitable subrogation intervenes,
the general rule is that “priority of liens or security interests
is determined according to the well-known principle of ‘first in
time, first in right.’” Eastern Sav. Bank, 829 A.2d at 956
(quoting Malakoff v. Washington, 434 A.2d 432, 434 (D.C. 1981).
The complaint offers no factual basis upon which the court could
find that displacing Countrywide from its legally obtained
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priority lien position would not work an injustice on
Countrywide, which obtained its lien when the property was no
longer encumbered by the IndyMac Deeds of Trust.
Another way of looking at it is this: if GMAC were decreed
subrogated to the IndyMac Deeds of Trust, GMAC would gain nothing
as against Countrywide because Countrywide’s deed of trust is
superior to the released IndyMac Deeds of Trust. 	When IndyMac
released its Deeds of Trust, any later-recorded deed of trust
(including Countrywide’s) became superior to IndyMac’s released
Deeds of Trust.
Accordingly, the complaint fails to state a claim for
equitable subrogation and default judgment on the plaintiff’s
equitable subrogation claim is not warranted.
III
For all of these reasons, it is
ORDERED that GMAC’s motion for default judgment is DENIED.
It is further
ORDERED that the complaint is dismissed without prejudice.
It is further
ORDERED that this adversary proceeding will be dismissed
without prejudice unless within 28 days after entry of this
order, the plaintiff files an amended complaint that sets forth a
claim upon which relief may be granted. 	It is further
ORDERED that if GMAC elects to file an amended complaint, it
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11	O:\TEEL\Laura\OPINIONS\GMAC v Franck DeRose_deny motion for default_v2.wpd
shall take the appropriate steps to verify that the defendant
Countrywide remains a real party in interest to this dispute.
[Signed and dated above.]
Copies to: All counsel and parties of record; Office of United
States Trustee.
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