United States of America v. Staton et al

Filing 276

ORDER FINDING DEFENDANT BRENDA STATON'S CLAIM THAT THE FORECLOSURE SALE FAILS TO PROTECT HER INTEREST IN THE PROPERTY TO BE WITHOUT MERIT re 255 Notice of Lis Pendens filed by Brenda L. Staton. Signed by JUDGE ALAN C. KAY on 02/16/201 8. (eps, )CERTIFICATE OF SERVICEParticipants registered to receive electronic notifications received this document electronically at the e-mail address listed on the Notice of Electronic Filing (NEF). Participants not registered to receive electronic notifications served by first class mail on February 20, 2018 : Ronald B. Staton; Brenda Staton; 233 Kalalau St.; Honolulu, HI 96825

IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF HAWAII
___________________________________
UNITED STATES OF AMERICA,
)
)
Plaintiff,
)
)
v.
) Civ. No. 12-00319 ACK-KSC
)
RONALD B. STATON, BRENDA STATON,
)
NAVY FEDERAL CREDIT UNION,
)
CAPSTEAD MORTGAGE CORPORATION,
)
and STATE OF HAWAII,
)
)
Defendants.
)
___________________________________)
ORDER FINDING DEFENDANT BRENDA STATON’S CLAIM THAT THE
FORECLOSURE SALE FAILS TO PROTECT HER INTEREST IN THE PROPERTY
TO BE WITHOUT MERIT
For the reasons set forth below, the Court FINDS
Defendant Brenda Staton’s claim that the foreclosure sale fails
to protect her interest in the property to be without merit.
BACKGROUND
For the purposes of this Order, the Court will not
recount this case’s lengthy procedural history beginning in
2012.

The Court only discusses those facts of specific

relevance to Defendant Brenda Staton’s (“Mrs. Staton”) claim.
On August 31, 2015, the Court granted Plaintiff’s
Motion for Summary Judgment on the Third Claim in the Complaint
and issued an Order of Foreclosure and Judicial Sale
(“Foreclosure Order”) of the Staton’s home (the “Property”).
ECF Nos. 157, 158.

On September 1, 2015, Defendant Ronald

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Staton (“Mr. Staton”) filed a petition for relief under 11
U.S.C. § 301 in the United States Bankruptcy Court for the
District of Hawaii.

ECF No. 160-1.

In view of Mr. Staton’s

bankruptcy petition, the Court stayed the instant case.
161.

ECF No.

On December 7, 2015, the court reinstated the Foreclosure

Order in response to the Bankruptcy Court’s Order Granting
United States’ Motion for Relief from Automatic Stay.

ECF No.

168.
On November 16, 2016, Mr. Staton filed a second
petition for relief under 11 U.S.C. § 301 in the United States
Bankruptcy Court for the District of Hawaii.

ECF No. 208.

In

view of Mr. Staton’s bankruptcy petition, the Court again stayed
the instant case.

ECF No. 209.

After Mr. Staton’s second

petition for relief under 11 U.S.C. § 301 was dismissed, the
Court, on April 24, 2017, reinstated its Foreclosure Order and
directed the parties to proceed in accordance therewith.

ECF

No. 212.
On June 20, 2017, the day before the scheduled
foreclosure sale auction, Defendant Mrs. Staton filed a petition
for relief under 11 U.S.C. § 301 in the United States Bankruptcy
Court for the District of Hawaii.

ECF No. 214.

In light of

Mrs. Staton’s bankruptcy petition, the Court, again, stayed the
case.

ECF No. 215.
On August 7, 2017, Plaintiff filed a Motion for Relief
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from Automatic Stay in the Bankruptcy Court.

On October 6,

2017, the Bankruptcy Court entered an order granting Plaintiff’s
Motion for Relief from Automatic Stay.

In light of the

Bankruptcy Court’s ruling, the Court again unstayed the case and
reinstated its Foreclosure Order and directed the parties to
proceed in accordance therewith.

ECF No. 219.

On December 8, 2017, Defendant Ronald B. Staton filed
an Emergency Motion to Strike Notice of Lis Pendens (NOPA), ECF.
No. 226, together with a Supplement to the Emergency Motion, ECF
No. 227.

Defendant Staton represented that he obtained

financing in the amount of $1,032,000 to pay off all liens on
the property with a closing date set for December 8, 2017.

The

foreclosure sale of the Property was set for December 20, 2017.
ECF No. 230.

On December 11, 2017, the Court held a hearing on

this matter and ordered the parties to have a settlement
conference with Magistrate Judge Chang.

ECF No. 234.

On December 18, 2017, a settlement conference was held
and was ended by Magistrate Judge Chang because the Statons
could not produce a loan commitment letter from the lender for
the previously described financing.

ECF No. 244.

Later that

day, the Statons filed an Emergency Motion Regarding Foreclosure
and Request for a Hearing and Stay Pending Hearing.
241.

ECF No.

The Court held a hearing that same day and concluded that

the foreclosure of the property will proceed on December 20,
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2017.

ECF No. 243.
On December 19, 2017, the Statons filed a Notice Re:

Conditional Loan Approval Letter and requested a stay of the
foreclosure sale.

ECF No. 245.

The Court held a hearing the

morning of December 20, 2017 regarding the Notice.

ECF No. 251.

The Court denied the request for a stay and ordered the
foreclosure sale to proceed.

Id.

The foreclosure sale

proceeded on December 20, 2017 around 12:00pm on the steps of
the U.S. District Court for the District of Hawaii.
On December 21, 2017, the Commissioner filed a Notice
of Sale, informing the Court that the subject property was sold
at foreclosure sale on December 20, 2017 to a third-party bidder
for $1,135,000.00 subject to confirmation by the Court.

ECF No.

254.
On December 21, 2017, the United States filed Notice
of Defendant Ronald Staton’s Bankruptcy Case, stating that on
December 20, 2017, Defendant Ronald Staton filed a new
bankruptcy case, and that the United States seeks to intend a
lifting of the stay on that bankruptcy case so that the
Commissioner’s sale can be confirmed.

ECF No. 253.

On December 22, 2017, Defendant Brenda Staton filed a
Notice of Pendency of Action, asserting that she is contesting
the validity of the foreclosure sale as having been filed in
violation of Mr. Staton’s bankruptcy, which she asserts was
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filed at 11:54am, and that the aforementioned sale fails “to
protect defendant interests in the property.”

ECF No. 255.

The Bankruptcy Court held a hearing on January 30,
2018 to consider the United States’s Motion for Relief from
Stay, which was filed on December 22, 2017, to allow the
Commissioner’s auction of the residence nunc pro tunc and to
allow this Court to proceed with the Confirmation.
In view of Mrs. Staton having filed Notice of Pendency
of Action, the Court directed the parties to file briefs on Mrs.
Staton’s claim.

ECF No. 258.

On January 17, 2018, the Statons filed a Brief in
Support of Claim of Failure to Protect Defendant Interests in
Real Property.

ECF No. 260.

On January 23, 2018, the United

States filed a Memorandum in Response to the Statons’ December
22, 2017 and January 17, 2018 briefs.

ECF No. 261.

On January

24, 2018, Defendants Navy Federal Credit Union and Capstead
Mortgage Corporation also filed Response to Brenda Staton’s
Brief in Support of Claim of Failure to Protect Defendant
Interests in Real Property.

ECF No. 262.

On January 31, 2018, the Bankruptcy Court entered an
Order Granting Motion for Relief from Automatic Stay
(“Bankruptcy Court’s Order”) and applied the lifting of the stay
retroactively to December 20, 2017.

This Court originally had a

hearing scheduled for January 31, 2018 to hear Mrs. Staton’s
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claim but continued the hearing until February 16, 2018 because
(1) Plaintiff did not seek a waiver of the 14-day stay provided
under Fed. R. Bankr. P. 4001(a)(3) in Mr. Staton’s current
bankrupty case (17-01316); and (2) Plaintiff seemingly failed to
record the Bankruptcy Court’s Order in Mrs. Staton’s prior
bankruptcy case (17-00604) granting relief from the stay, which
provided for “‘in rem’ relief, i.e. this order is binding with
respect to the subject property for 240 days after the date of
the entry of this order in any other bankruptcy case that has
been or may be filed.”

ECF No. 268.

On February 12, 2018, Mr. Staton filed a Motion to
Vacate, Alter, or Amend Order Granting Relief from Automatic
Stay Retroactive to December 20, 2017 in the Bankruptcy Court.
On February 15, 2018, the Bankruptcy Court denied this Motion.
On that same date, Mr. Staton filed a Notice of Appeal of the
Bankruptcy Court’s Order and its subsequent denial of his Motion
to Vacate, Alter, or Amend.

However, Mr. Staton has not yet

filed a motion to stay pending appeal.
The Court held a hearing on February 16, 2018 (after
the 14-day stay provided under Fed. R. Bankr. P. 4001(a)(3)
expired) to consider Defendant Brenda Staton’s assertion that
there has been a failure “to protect defendant interests in the
property.”

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DISCUSSION
Herein, the Court considers and rejects the Statons’
various arguments in turn.
First, the Statons contend that this Court was not
free to entertain or order the filing of briefs by the parties
until the Bankruptcy Court grants relief from the automatic
stay.

Given that the Bankruptcy Court has granted the United

States’s Motion for Relief from the Automatic Stay, this issue
is now moot.

The Court determined the schedule for its hearing

on Mrs. Staton’s claim in relation to the Bankruptcy Court’s
schedule.

Moreover, the Court was not then aware that the order

precluding a bankruptcy stay for 240 days had not been recorded.
The Court further finds that the Statons did not suffer any
prejudice by the Court’s direction to file briefing on this
issue.
Second, the Statons argue that the Property was
illegally auctioned after the automatic stay under 11 U.S.C. §
362(a) had taken effect.

Because the Bankruptcy Court’s Order

granted relief nunc pro tunc to December 20, 2017, the
Bankruptcy Court has already addressed the Statons’ argument and
the foreclosure sale was not illegal.
Third, the Statons contend that the bid accepted by
the Commissioner falls short of an alleged recent appraisal of
the Property of $1,650,000.00 and that the Commissioner failed
7

to conduct an aggressive bidding process which should have
resulted in a higher sales price.
argument convincing.

The Court does not find this

The Statons have provided no proof

regarding this recent appraised value.

The successful bid of

$1,135,000 was relatively close to the real property tax
appraisal value of $1,366,900.

Furthermore, in a forced sale

scenario, such as an auction, the auction sales price may not
match the fair market value of the property, and it is not
uncommon for properties to sell below their fair market value.
In addition, as the United States notes, “in the past, the
Statons did not always cooperate with the Commissioner regarding
pre-sale open houses held at the residence and their lack of
cooperation may be a reason that the auction price was not
higher.”1

ECF No. 261 at 4.

The Statons have also failed to

substantiate their claim that the Commissioner failed to conduct
an aggressive bidding process with any factual evidence.

In

fact, the Commissioner reported at the hearing that the bidding
was very active, with some 50 bids.

1

See, e.g., ECF No. 176 (“Commissioner Lyle Hosoda filed a
Second Motion for Instructions on January 22, 2016 . . . He
reported Defendant Ronald Station refuses to cooperate with an
inspection of the property and holding open houses . . .”); ECF
No. 181 (“The Order and Writ of Assistance (Writ of Assistance)
was issued as a result of Commissioner Lyle Hosoda . . .
reporting that Defendants Statons continued to refuse to
cooperate with the Commissioners efforts to inspect the subject
property and to hold open houses in conjunction with proceeding
with the foreclosure sale . . .”).
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Fourth, the Statons argue that Mrs. Staton will only
receive about $50,000 from the Commissioner’s auction.
assertion is without merit.

This

In the Court’s August 31, 2015

Order Granting Plaintiff’s Motion for Summary Judgment on the
Third Claim in the Complaint, the Court, in determining that
Mrs. Staton’s half interest in the Property held as tenants by
the entirety should be included in the foreclosure sale, held
the following:
In order to enforce its tax liens, the
Government is empowered, under 26 U.S.C. §
7403, to join all parties with an interest
in the subject property and request a
judicial sale of the property. United
States v. Rodgers, 461, 677, 691-92 (1983)
(citing 26 U.S.C. § 7403). The Government
may seek the sale not only of the debtor’s
interest in the property, but the entire
property held by the debtor and his spouse
in a tenancy by the entirety. Id. at 69394; see also In re Pletz, 221 F.3d 1114,
1118 (9th Cir. 2000). In such instances,
the Court may order the sale of the entire
property and compensate the nondebtor spouse
for her ownership interest. Pletz, 221 F.3d
at 1117 (citations omitted). Each spouse
owns a fifty percent interest in property
held as tenants by the entirety under Hawaii
law. Lindsey, 2013 WL 3947757 at *6 n.3
(citations omitted); United States v. Webb,
Civ. No. 07-00564 JMS-KSC, 2008 WL 4761745 *
6 n.12 (D. Haw. Oct. 23, 2008) (citations
omitted) . . . The evidence shows that
Ronald Staton and Brenda Staton purchased
and own the Residence as tenants by the
entirety, as reflected in the Agreement of
Sale and Deed. Duffy Decl. ¶¶ 8-9, Exs. G,
H, ECF Nos. 109-2, 109-4, 109-5.
. . .
9

Brenda Staton has an interest in the
Residence that must be taken into account.
According to the Title Report for the
Residence, she and Ronald Staton own the
Residence as tenants by the entirety. Title
Report at 1, ECF No. 138-2. In this
jurisdiction, a court may order the sale of
the entire property under 26 U.S.C. § 7403
and compensate a nondebtor spouse for her
fifty percent interest from the sale
proceeds. See Pletz, 221 F.3d at 1117;
Lindsey, 2013 WL 3947757 at * 6 n.3
(citations omitted); Webb, 2008 WL 4761745 *
6 n.12 (citations omitted).
However, the Title Report also shows that
Brenda and Ronald Staton are jointly liable
on the Capstead mortgage for the Residence.
See Title Report at 3, ECF No. 138-2. The
uncontested amount owed under the Statons’
mortgage is $294,708.82 as of July 31, 2015.
See Capstead’s Supp. Rpt. at 2, ECF No. 151;
Sieber Affd. ¶ 5, ECF No. 156; Tr. 15:11-18.
Accordingly, since the Court has determined
that the Statons’ Residence should be
foreclosed and sold free and clear of all
liens, including Capstead’s senior mortgage,
without objection from any party, the
foreclosure of Capstead’s mortgage
necessarily includes Brenda Staton’s onehalf interest in the Residence.
ECF No. 157 at 17-18, 22-23.
Because the Statons own the residence as tenants by
the entirety and the federal tax debts are only owed by Ronald
Staton, Brenda Staton will share equally with the United States,
after the Commissioner’s fees and costs, any amount owing to the
City and County of Honolulu, and the first mortgage holder has
been paid for its principal, interest, fees, and costs.
10

ECF No.

158 at 11.

The Court notes that, given the amount the property

sold for at the auction and the aforementioned priority of the
parties’ claims, the United States has estimated that Mrs.
Staton would receive around over $300,000 from the sale—a number
which is significantly higher than her claimed $50,000.
261 at 3-4.

ECF No.

As the Court has stated previously, however, the

disbursement and value of entitlements will be decided after the
foreclosure sale of the Property is confirmed.

ECF No. 158 at

11.
Fifth, the Statons claim that they were in the
process of obtaining a loan to pay off the creditors and would
have closed on two proposed loans if the United States had not
frustrated the process by refusing to lift its Notice of
Pendency of Action to facilitate the closing.

ECF No. 260 at 3.

In regard to the first alleged loan, the Court addressed this
issue at a hearing on December 11, 2017 in response to the
Statons’ Emergency Motion to Strike Notice of Lis Pendens.
No. 226.

ECF

At the hearing, the Court denied the motion and

allowed the foreclosure sale set for December 20, 2017 to
proceed.

ECF No. 234.

In regard to the second alleged loan, at

a hearing about it on December 20, 2017, other factual
circumstances were brought to the attention of the Staton’s
lender—who was in attendance at the hearing by phone—which
caused the lender to confirm that it could not provide a loan to
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the Statons.

ECF No. 262-1 at 3-4.

At the December 20, 2017

hearing, the Court then allowed the foreclosure to proceed.
No. 251.

ECF

The Statons have never come forward with a loan

commitment that would pay off all the liens.
CONCLUSION
For the foregoing reasons, the Court FINDS Defendant
Brenda Staton’s claim that the foreclosure sale fails to protect
her interests in the property to be without merit.
IT IS SO ORDERED.
Date: Honolulu, Hawaii, February 16, 2018

________________________________
Alan C. Kay
Sr. United States District Judge

United States v. Staton, et al., Civ. No. 12-00319 ACK-KSC, Order Finding
Defendant Brenda Staton’s Claim that the Foreclosure Fails to Protect Her
Interest in the Property to be Without Merit.

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