In re: ANDREA GROVES

Case Type:
Consumer
Case Status:
Affirmed
Citation:
22-1002 (9th Circuit, Jul 13,2022) Not Published
Tag(s):
Ruling:
The U.S. Bankruptcy Appellate Panel of the Ninth Circuit (BAP) affirmed the declaratory judgment of the U.S. Bankruptcy Court for the District of Arizona (BC), issued at the conclusion of a two-day trial, finding no mutual mistake warranting reformation of the deed of trust (DOT) held by A&S Lending LLC (A&S), a creditor, to encumber, as A&S contended, the entirety of two properties jointly owned by Andrea Groves (DR) and her business, A&D Property Consultants, LLC (A&D), rather than an undivided 1/2 interest in each parcel of real property, as the DOT read.
Procedural context:
Upon defaulting on a loan, the DR filed a chapter 13 petition in December 2018. After A&S had acquired this loan, one between the DR and A&D, her wholly owned LLC, on one side, and Merchants Funding AZ, LLC (Merchants), A&S had discovered what it described as errors in the loan documentation. Specifically, it took the position that the parties had intended Merchants to acquire a security interest in all of the two relevant properties, but that the DOT had "erroneously" provided for the grant of only one-half interest in each. In response to this bubbling argument, the DR filed an adversary proceeding seeking a declaratory judgment, and A&S filed a counterclaim against the DR and a cross-claim against A & D for declaratory relief and reformation. The parties only agreed as to one point: that the signature block on the DOT erroneously referred only to the real property located on Rancho Drive in Phoenix (Rancho Property) and not the DR's private home (Residence), and they hence ultimately agreed that reformation of the signature block was appropriate. The parties eventually traded arguments during a two-day trial. After hearing closing arguments, and with the exception of this agreed-upon error in the signature block, the BC orally denied A&S' request to reform the DOT, Having issued this ruling on the record, this same tribunal thereafter entered judgment declaring that A&S’s lien attached to A&D's undivided interest in the Rancho Property and the DR's undivided interest in the Residence, reforming the signature block on the DOT as agreed by the parties, dismissing with prejudice A&S' counterclaims, and that the DR and A&D, as the prevailing parties, were entitled to request attorneys' fees. A&S timely appealed, but the BAP decision would focus solely on the substantive issues and express no opinion on the fee requests due to a lack of briefing and time sheets from "any party."
Facts:
The past had been good, or at least profitable. For years, the DR, a licensed real estate broker, and A&D, her wholly owned LLC, were in the property-flipping business. Previously, they had successfully completed seven projects using financing from Merchants, A&S' predecessor. For the seventh transaction, as the parties had done previously in some of these transactions, title to the investment property was taken by A & D only, and the deed of trust indicated that the grantors were A & D as to parcel A-1, the investment property, and the DR as to parcel A-2, the Residence. In 2017, the DR contacted Merchants about financing an eighth project, the purchase and remodel of real property located on Rancho Drive in Phoenix (Rancho Property). Of the amount loaned, $109,244 was designated to be deposited into an account from which the DR could make draws to pay for improvements. As part of the transaction, the DR executed an agreement granting Merchants a security interest in this improvement account. The documentation required for the Rancho Property transaction, however, differed from DR's previous transactions with Merchants in that the deed granting title to the Rancho Property granted it to the DR and A & D jointly, and the DR was presented at closing with a warranty deed that transferred the Residence from the DR individually to the DR and A & D as joint tenants. Despite this difference, the DOT contained virtually identical recital language as that shown on the deed of trust for a prior loan. Nonetheless, shortly after closing, the DOT was assigned to A&S, and Merchants became the servicer on the loan.
Judge(s):
William J. Lafferty III; Julia W. Brand; and Laura S. Taylor

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