Bankruptcy – Mortgage – Collateral estoppel

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Where a mortgage lender has moved to dismiss a debtor’s adversary complaint, the doctrine of collateral estoppel precludes the debtor from relitigating her claims related to a mortgage and the validity of a foreclosure, but the lender’s dismissal motion must be denied as to a count alleging a violation of the automatic stay.

“Defendants Wells Fargo Bank, N.A., as trustee for Option One Mortgage Loan Trust 2007-FXD1 Asset-Backed Certificates, Series 2007-FXD1 (‘Wells Fargo’), Specialized Loan Servicing LLC (‘SLS’) and Specialized Asset Management, LLC (‘SAM’) … argue that [debtor Leslie A.] Acevedo’s complaint should be dismissed because the doctrine of collateral estoppel precludes her from litigating certain issues decided in an earlier adversary proceeding, namely, the extent of Wells Fargo’s security interest in Ms. Acevedo’s real property and the validity of its foreclosure sale of that property. …

“I agree with the defendants that collateral estoppel prevents Ms. Acevedo from attempting to re-litigate the extent of Wells Fargo’s mortgage on the Thenius Street property and whether its foreclosure of the mortgage was valid. All four of the elements of the doctrine of collateral estoppel are present here. First, these issues are the same issues already disposed of in the first adversary proceeding. In that proceeding, Ms. Acevedo challenged both the validity of Wells Fargo’s mortgage on the Thenius Street property and, by consolidation of count III of her complaint here with her complaint in the first adversary proceeding, the validity of the foreclosure sale. Those issues were determined by a final and binding judgment, thus satisfying the third element of the doctrine of collateral estoppel.

“As for the doctrine’s actual litigation requirement, the record shows that Ms. Acevedo had a full and fair opportunity to litigate her claims in the first adversary proceeding. …

“The record in the first adversary proceeding reflects that its dismissal was not the result of a run-of-the-mill no-show default judgment process. Instead, it was the culmination of a three-and-a-half year proceeding in which Ms. Acevedo, as plaintiff, actively and substantially participated. … That no trial occurred and judgment entered in favor of the defendants as a sanction does not alter the fact that Ms. Acevedo substantially participated in the first adversary proceeding. Indeed, the sanction only provides further support for satisfaction of the actually litigated requirement. …

“Finally, the defendants have satisfied the fourth element of the doctrine of collateral estoppel because issues as to the extent of Wells Fargo’s mortgage on the Thenius Street property and the validity of its foreclosure of that mortgage were the essence of Ms. Acevedo’s claims in the first adversary proceeding. … The four prerequisites for invoking collateral estoppel having been established, Ms. Acevedo is precluded from re-litigating her claims related to Wells Fargo’s mortgage on the Thenius Street property and the validity of its foreclosure of that mortgage. …

“[J]udgment should enter in favor of the defendants on counts II and IV of Ms. Acevedo’s complaint. Ms. Acevedo alleges in count IV that SLS interfered with her advantageous contractual relationship with her tenants by sending them notices stating that they should pay rent to SLS. She then asserts in count II that SAM interfered with her property rights and those of her tenants by entering the Thenius Street property, seeking to enter individual units, notifying the tenants of SAM’s role as property manager, and seeking to collect rent. These claims exist, if at all, only insofar as Ms. Acevedo can establish the invalidity of the foreclosure sale which resulted in SLS’s and SAM’s coming on the scene. But as has been previously determined, Ms. Acevedo is estopped from challenging the validity of the foreclosure sale. Counts II and IV, therefore, do not state plausible claims for relief. …

“In count I of her complaint, Ms. Acevedo alleges that SLS violated the automatic stay in effect as a result of her bankruptcy by sending a post-foreclosure letter to her insurance carrier. The letter, a copy of which is attached as Exhibit 8 to her complaint, asks the insurer to cancel coverage and ‘return any unearned premium to [SLS].’ Ms. Acevedo claims that by sending this letter, SLS sought to obtain the premium refund, which constituted property of her bankruptcy estate. This Ms. Acevedo contends violated the automatic stay provisions of Bankruptcy Code section362. Because she paid the insurance premiums with her own post-petition assets, Ms. Acevedo claims SLS’s conduct was not protected by the stay relief granted to Wells Fargo in the main case. She also claims that such action violated Mass. Gen. Laws ch. 93A. Viewing the facts in a light most favorable to Ms. Acevedo, it is plausible that SLS may have violated the automatic stay and thus count I of her complaint will not be dismissed.”

In Re: Acevedo, Leslie A. (Lawyers Weekly No. 04-031-15) (14 pages) (Hoffman, J.) (USDC) Laird J. Heal for the debtor; Hale Yazicioglu, of Hinshaw & Culbertson, for the defendants (Chapter 11 Case No. 10-43723-MSH; Adversary Proceeding No. 11-04129) (April 21, 2015).

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