Wells Fargo Home Mortgage v. Van Wagner et al

IN THE UNITED STATES BANKRUPTCY COURT
FOR THE NORTHERN DISTRICT OF WEST VIRGINIA
IN RE:
GEORGE VAN WAGNER,
Debtor.
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WELLS FARGO HOME MORTGAGE,
Plaintiff,
v.
GEORGE VAN WAGNER, VAC, LLC,
CINTIUX, LLC, JOHN W. SMALL, in his
official capacity as Clerk of the Berkeley
County Commission, and THE WEST
VIRGINIA STATE TAX DEPARTMENT,
Defendants.
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Case No. 08-435
Chapter 7
Adv. Proc. No. 11-3
MEMORANDUM OPINION
Wells Fargo Home Mortgage filed this adversary complaint to set aside a tax sale of real
property commonly known as 2887 Middleway Pike, Bunker Hill, West Virginia on the grounds that
the Clerk of the County Commission of Berkeley County conducted the tax sale in violation of the
automatic stay of the Bankruptcy Code. Wells Fargo also seeks to obtain a declaration that debts
owed to it by George Van Wagner (the “Debtor”) are excepted from the Debtor’s discharge under
11 U.S.C. § 523(a)(2)(A).
The Debtor and Cintiux, LLC (the tax sale purchaser) filed separate motions to dismiss the
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adversary complaint filed by Wells Fargo. Cintiux states that 2887 Middleway Pike was not part1
of the Debtor’s bankruptcy estate, and even if it was, the Debtor’s Chapter 7 trustee abandoned the
property well before the tax sale occurred; thus, no automatic stay existed for the Clerk of the County
Commission to violate. The Debtor argues that Wells Fargo has failed to state a claim under §
523(a)(2)(A) because his discharge was entered about six months before Wells Fargo filed its
complaint against him.
According to Wells Fargo’s complaint, the Debtor had an ownership interest in 2887
Middleway Pike, which the Debtor used to secure a monetary obligation to Wells Fargo’s
predecessors in interest pursuant to a January 1, 2006 deed of trust. Under the terms of the deed of2
trust, the Debtor is forbidden from transferring any interest in the property without the approval of
the lender.
Notwithstanding the prohibition on unapproved transfers, on June 11, 2007, the Debtor
transferred 2887 Middleway Pike to David A. Pill, as the purported trustee. Neither the lender nor
its trustee were apprised of, or consented to, the transfer. Shortly thereafter, Mr. Pill transferred 2887
Middleway Pike to VAC, LLC. At the time, the Debtor was one of two members of VAC, LLC.
When the Debtor filed his March 28, 2008 bankruptcy petition, he listed 2887 Middleway
Pike as real property owned by him despite the fact that it had earlier been conveyed by him to Mr.
Pill, who had conveyed it to VAC, LLC. No party made any payments on the note secured by the
property, or paid taxes owed to Berkeley County, West Virginia. Consequently, the Clerk of the
In adjudicating a motion to dismiss for failure to state a claim under Fed. R. Civ. P.1
12(b)(6), a court must accept as true all of the factual allegations in the complaint as well as the
reasonable inferences that can be drawn from them, and a court may dismiss the complaint “only
if it is clear that no relief could be granted under any set of facts that could be proved consistent
with the allegations.” Hishon v. King & Spalding, 467 U.S. 69, 73 (1984).
Wells Fargo does not designate in its complaint how, or when, it came to hold the note2
secured by the deed of trust on 2887 Middleway Pike. The lender under the deed of trust is
Decision One Mortgage Company, LLC. The proof of claim in the Debtor’s case was filed by
America’s Servicing Company as servicer for Deustche Bank National Trust Company, as
Trustee for Morgan Stanley ABS Capital I Inc., Trust 2006-HE3. For the purposes of
adjudicating the motions to dismiss filed by the Debtor and Cintiux, the court will assume,
without deciding, that Wells Fargo is the successor in interest to the above parties and holds the
note secured by the deed of trust.
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Berkeley County Commission conducted a tax sale of 2887 Middleway Pike on November 18, 2008,
where Cintiux purchased the tax lien for $4,059.97.
In the Debtor’s bankruptcy case, the Debtor’s Chapter 7 trustee filed his February 8, 2010
“Notice of Trustee’s Intent to Abandon Property,” listing the property at 2887 Middleway Pike, and
detailing the liens against the property as being owed to America Servicing Company ($389,653,75)
and HSBC ($79,000). (Document No. 691). No party timely objected to the Trustee’s Notice of
Intent to Abandon Property, and the court entered an order on March 5, 2010, approving the
abandonment of 2887 Middleway Pike nunc pro tunc to the date of the filing of the Debtor’s
bankruptcy case – March 28, 2008. (Document No. 704). Under state law tax sale procedures,
Cintiux received the deed to 2887 Middleway Pike on April 6, 2010, after alleging that no party
acted to timely redeem the tax lien.
Meanwhile, American Servicing Company filed a motion for relief from the automatic stay
in the Debtor’s bankruptcy case on December 29, 2009. (Document No. 669). At a hearing on the
stay relief motion on February 8, 2010, the Debtor’s Chapter 7 trustee indicated that he would be
abandoning the property, and the court informed counsel to American Servicing Company that its
stay relief motion would become moot after the Trustee had abandoned the property. On May 13,
2010, after entry of the order approving the Trustee’s notice of abandonment nunc pro tunc to the
petition date, the court entered an order granting American Servicing Company stay relief.
(Document No. 766).
The Debtor received his Chapter 7 discharge on June 25, 2010.
When property is abandoned by a Chapter 7 trustee, the automatic stay that protects property
of the estate terminates. 11 U.S.C. § 362(c)(1). Because 2887 Middleway Pike was abandoned as
property of the bankruptcy estate by the Debtor’s Chapter 7 trustee, as reflected by a court order3
entered on March 5, 2010, and because this abandonment of property of the estate was effective as
of March 28, 2008, which was about 8 months before the scheduled tax sale, any alleged violation
of the automatic stay by the Clerk of the Berkeley County Commission in selling the tax lien on the
The court makes no finding in this Memorandum Opinion regarding whether 28873
Middleway Pike was property of the Debtor’s bankruptcy estate. To the extent that it might have
been property of the bankruptcy estate, it was expressly abandoned by the Chapter 7 trustee.
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property is inconsequential because the court has deemed the property to be abandoned before the
tax lien sale occurred. See, e.g., Schwartz v. United States (In re Schwartz), 954 F.2d 569, 573 (9th
Cir. 1992) (“If a creditor obtains retroactive relief under section 362(d), there is no violation of the
automatic stay . . . .”); Sweeney v. Great W. Bank, No. 94-55421, 1994 U.S. App. LEXIS 33016 at
*3 (9 Cir. Nov. 1, 1994) (“[T]he defendants did not violate the automatic stay in his bankruptcyth
case because on December 30, 1992 the bankruptcy court entered an order, nunc pro tunc, annulling
the automatic stay. Thus, the defendants' foreclosure sale held on October 20, 1992 was valid
because there was no stay in place at the time due to the bankruptcy court's grant of retroactive
relief.”); Khozai v. Resolution Trust Corp. for Centrust Mortgage Corp., 177 B.R. 524 (E.D. Va.
1995) (affirming an bankruptcy court order granting retroactive stay relief to validate a foreclosure
sale that would otherwise have violated the automatic stay).
Counsel for American Servicing Center, the apparent predecessor in interest to Wells Fargo,
was served with a copy of the Trustee’s Notice of Intent to Abandon, and the proposed order,
abandoning the property nunc pro tunc to the petition date, but never filed any objection to the
abandonment or the terms of the proposed order. The Order of abandonment was entered over a
year ago and is final. Consequently, Wells Fargo has failed to state a cause of action to set aside the
November 18, 2010 tax sale as a violation of the automatic stay.
Because a cause of action to except a debt from discharge under § 523(a)(2)(A) must be
brought within 60 days of the date first set for the Debtor’s meeting of creditors, Fed. R. Bankr. P.
4007(c), and because Wells Fargo did not seek an extension of this deadline, its cause of action
against the Debtor under 11 U.S.C. § 523(a)(2)(A) is time-barred.
The court will enter a separate order pursuant to Fed. R. Bankr. P. 7058, that dismisses Wells
Fargo’s complaint.
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