Serap v. Idnani (In re Serap)

Case Type:
Consumer
Case Status:
Reversed
Citation:
BAP No. NV-18-1077-BKuTa (9th Circuit, May 02,2019) Not Published
Tag(s):
Ruling:
BAP for 9th Circuit affirmed ruling of bankruptcy (D. Nev.) in 2-1 split, concluding Nevada's "one-action rule" renders a creditor's deed of trust void if, prior to the completion of the creditor's foreclosure sale, the creditor obtained a personal judgment against a guarantor who is unable to waive the protections of the one action rule under state law. The BAP agreed with bankruptcy court that under Nevada law, creditor's lien was released and discharged once she obtained a personal judgment against the guarantor for full amount of the debt. Dissent disagreed with ruling on Nevada law.
Procedural context:
Chapter 7 debtor moved to expunge creditor's lien on real property. Bankruptcy court .(D. Nev.) granted motion. Creditor appealed to BAP for 9th Cir.
Facts:
Debtor and her husband Earl were successor co-trustees of a revocable living trust — the Mazel Trust. Their residence (the "Property") was an asset of the Mazel Trust. In May 2016, an individual loaned $155,000 to the Mazel Trust secured by a note and third deed of trust against the Property. Earl signed an unsecured Personal Guaranty for the loan. The loan was never repaid. The Creditor commenced a Guarantor Action against Earl in the Nevada state court and then initiated a nonjudicial foreclosure on the deed of trust. A foreclosure sale was set for July 13, 2017. On May 23, 2017, the Nevada state court entered Judgment in the Guarantor Action in favor of Creditor and against Earl for $199,688.54 (the "Judgment"). The Judgment expressly found that Earl had "waived all equitable defenses in the Personal Guaranty." Prior to entry of the Judgment, Deborah, as co-trustee of the Mazel Trust, executed a quitclaim deed transferring the Property to herself as her sole and separate property without consideration. Debtor filed bankruptcy and then moved to expunge lien, arguing that creditor had forfeited her security interest in the property due to her violation of Nevada's one-action rule. Debtor argued one action rule required creditor to foreclose on the collateral first before seeking to recover on the note, and she violated that rule by failing to exhaust her security before pursuing the Guarantor Action. Debtor argued violation triggered the sanctions aspect of the one-action rule, causing creditor to forfeit her security interest in the Property.
Judge(s):
Brand, Kurtz, Taylor

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