Edwards et al v. Citifinancial Services, Inc.

UNITED STATES BANKRUPTCY COURT
EASTERN DISTRICT OF NORTH CAROLINA
WILSON DIVISION
IN RE:
LYNETTE W. EDWARDS & GEORGE
ALLEN EDWARDS,
DEBTORS
CHAPTER 13
CASE NUMBER: 10-10113-8-RDD
LYNETTE W. EDWARD & GEORGE
ALLEN EDWARDS,
Plaintiff
v.
CITIFINANCIAL SERVICES, INC.,
Defendant
ADVERSARY PROCEEDING
NUMBER: 11-00025-8-RDD
ORDER DENYING MOTION FOR JUDGMENT ON THE PLEADINGS
Pending before the Court is the Motion for Judgment on the Pleadings filed by Citifinancial
Services, Inc., (the “Defendant”) on August 4, 2011 (the “Motion”). After a review of the pleadings,
the Motion for Judgment on the Pleadings is DENIED.
SO ORDERED.
SIGNED this 12 day of September, 2011.
________________________________________
Randy D. Doub
United States Bankruptcy Judge
____________________________________________________________
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BACKGROUND
Lynette W. Edwards & George Allen Edwards (the “Plaintiffs”) filed a petition for relief
under Chapter 13 of the Bankruptcy Code on December 9, 2010. The Plaintiffs are individuals
residing in Edgecombe County, North Carolina. In their petition, the Plaintiffs listed under Schedule
A-Real Property, a primary residence located at 4045 Bulluck School Road, Rocky Mount,
Edgecombe County, North Carolina (the “Property”) as an unsecured debt owed to the Defendant
in the amount of $109,224.00. The Plaintiffs purchased the Property on February 20, 2008 evidenced
by a warranty deed recorded in the Register of Deeds for Edgecombe County in Book 1510, Page
661. Subsequently, on September 20, 2008, the Plaintiffs recorded a Deed of Trust in the Register
of Deeds for Edgecombe County, Book 1524, Page 400 purporting to convey a security interest in
the Property to the Defendant in consideration of a loan in the amount of $126,276.93. The Deed
of Trust asserts a security interest in “property located in Edgecombe County, North Carolina”
belonging to Lynette Edwards and George A. Edwards and containing a description of the property
attached as “Exhibit A.” The recorded Deed of Trust contains no “Exhibit A.”
The Plaintiffs brought this adversary proceeding seeking to avoid the security interest in
favor of the Defendants pursuant to the Trustee’s rights and powers under 11 U.S.C. § 544(a)(3)
as available to a debtor pursuant to 11 U.S.C. § 522(h).
STATEMENT OF THE CASE
In support of its Motion, the Defendant argues that it is entitled to a judgment as a matter
of law in this matter because the Plaintiffs have no standing to bring claims under § 544(a)(3) and
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§ 522(h) as the execution and delivery of the Deed of Trust constituted a voluntary transfer
thereby extinguishing the Plaintiffs right to utilize the trustee’s § 544(a)(3) avoidance powers.
Defendant cites Baldwin v. Fid. Nat’l Title Ins. Co. of New York, No. 09-09854-8-JRL, 2011
Bankr. LEXIS 1723 (Bankr. E.D.N.C. May 11, 2011), to assert the proposition that where a
transfer by a debtor constitutes a voluntary transfer a Chapter 13 debtor lacks standing to exercise
the trustee’s avoidance powers. Furthermore, Defendant asserts that execution of a Deed of Trust
constitutes a voluntary transfer. As such, Defendant argues that because it is admitted that the
Plaintiffs are: 1) Chapter 13 debtors; 2) who voluntarily entered into a Deed of Trust in favor of
the Defendant; and 3) are attempting to avoid the Deed of Trust under § 544(a)(3) in conjunction
with § 522(h), that the adversary proceeding should be dismissed on the pleadings. The Plaintiffs
filed no response to the Motion.
DISCUSSION
The issue of the Chapter 13 debtor’s right to assert the trustee’s avoidance powers is
clearly established in this District. In a similar adversary proceeding involving a Chapter 13
debtor’s attempt to employ the trustee’s § 544(a)(3) powers by means of § 522(h), the court found
that § 522(h) limits the debtor’s ability to avoid a lien to situations where the transfer was
involuntary. Baldwin v. Fid. Nat’l Title Ins. Co. of New York, No. 09-09854-8-JRL, 2011 Bankr.
LEXIS 1723, at *3 (Bankr. E.D.N.C. May 11, 2011). Furthermore, where the issue of standing
was not raised, the bankruptcy court deferred ruling on a motion to dismiss an adversary
proceeding brought by a Chapter 13 debtor to avoid an unperfected security interest for 60 days
to allow the trustee to determine if such an action was warranted. Robinson v. World Omni Fin.
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Corp., No. 10-01996-8-SWH, 2011 Bankr. LEXIS 437 (Bankr. E.D.N.C. Feb. 1, 2011). As the
facts indicate that the Plaintiffs are Chapter 13 debtors attempting to avoid a Deed of Trust under
the trustee’s avoidance powers of § 544(a)(3) and the debtor’s right to claim exemptions under
§ 522(h), the Court finds that the Plaintiffs lack standing to avoid the Deed of Trust. However,
pursuant to Federal Rule of Bankruptcy 7015, leave of court should be freely granted to amend
pleadings “when justice so requires.” FED . R. BANKR . P. 7015(a)(2). Therefore, the Motion for
Judgment on the Pleadings is DENIED and the Court grants Plaintiffs 60 days leave of court to
amend their complaint in order to add the Chapter 13 trustee as a party to the adversary
proceeding.
SO ORDERED.
END OF DOCUMENT
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