Sutter v. U.S. National Bank (In re Sutter)
- Citation:
- Case No. 09-11816 (6th Cir., Jan. 3, 2012)
- Tag(s):
-
- Ruling:
- In affirming the district courts’ rulings in favor of debtors Daniel and Sheryl Sutter (the "Debtors"), the Sixth Circuit held that (i) an equitable mortgage does not exist on the Debtors property, (ii) whether the Debtors were harmed by a forged signature on the mortgage instrument is irrelevant to whether an equitable mortgage can be imposed on the property, and cases saying otherwise are not applicable, (iii) World Wide Financial Services, Inc. and Saxon Mortgage Services, Inc., (collectively "the Appellants") mortgage was void under Michigan Law "unclean hands" doctrine, and (iv) Appellants forfeited any objections to consideration of whether the mortgage is void by failing to appeal the first order of the district court.
- Procedural context:
- Appellants appealed the order from the United States District Court for the Eastern District of Michigan overturning a judgment in the bankruptcy court granting them an equitable mortgage on property owned by the Debtors. The Sixth Circuit affirmed the judgment of the district court.
- Facts:
- After receiving a Chapter 7 discharge, the Debtors attempted to refinance their existing home mortgages with sub-prime home mortgage lender World Wide in 2004. At the closing date, Debtors signed a note payable to World Wide in the amount of $78,000, however they did not sign a mortgage instrument. World Wide assigned the mortgage instrument to U.S National Bank, with Saxon Mortgage Services, Inc. ("Saxon") as the mortgage servicer (collectively "the Appellants"). Appellants initiated a foreclosure proceeding after the Debtors defaulted on their mortgage payments. Consequently, the Debtors filed for Chapter 13. Appellants filed a proof of claim in the Debtors Chapter 13 case asserting a secured claim in the amount of $83,498. The Debtors filed an objection to the proof of claim, alleging that it should be disallowed because their signatures on the mortgage instrument were forged. The Debtors also brought an adversary proceeding against the Appellants, asserting that (i) the claim should be disallowed pursuant to 11 U.S.C. § 502(b)(1) (unenforceable claim) and, in the alternative, (ii) the transfer of the secured interest represented by the World Wide mortgage should be avoided and the property interest should return to the bankruptcy estate pursuant to 11 U.S.C. § 544(a)(3) (the "strong-arm" provision). The bankruptcy court concluded that the signatures were forged and those who acquire interest under an unknowingly forged instrument are in no better position as to title than had they had notice of the forgery. The bankruptcy court raised the issue of whether an equitable mortgage should be imposed. Although the court did not render a decision on the issue, it did note that the court “reserves the right if need be to address the equitable mortgage issue.” The Debtors filed an Amended Chapter 13 plan listing the Appellant's claim as unsecured. Thereafter, the bankruptcy court granted the Chapter 13 trustee's motion to sell the World Wide mortgage to Appellants for $30,000 and to abandon the property so as to allow Appellants to complete the foreclosure proceeding. Moreover, the Appellants agreed to waive any additional claims against the estate. On appeal by the Debtors the district court reversed the bankruptcy court's decision on the basis that the bankruptcy court merely made an inference that the signatures had been forged and remanded the case for clarification. On remand, the bankruptcy court imposed an equitable mortgage on the Debtor's property. The Debtors appealed again and the district court once again reversed the bankruptcy court, ruling that, because "no transfer ever occurred" as a result of the World Wide mortgage, the mortgage was void ab initio and there could be no equitable transfer of the interest to the trustee.
- Judge(s):
- Cole, Batchelder, Siler, Circuit Judges.
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