Pfenning v. Brewer et al
Filing
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ORDER- For the reasons provided, the Bankruptcy Court's order granting judgment for the defendants is affirmed. So Ordered by Judge Paul J. Barbadoro.(js)
UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF NEW HAMPSHIRE
Bette Jane Pfenning, et al.
v.
Civil No. 15-cv-422-PB
Opinion No. 2016 DNH 078
Jon Brewer, et al.
MEMORANDUM AND ORDER
Bette Jane Pfenning and Lawrence Sumski, the Chapter 13
trustee of Pfenning’s estate, brought an adversary action
against Jon Brewer and the Lord Family Trust in the United
States Bankruptcy Court for the District of New Hampshire.
There, plaintiffs alleged that Brewer breached the warranty of
title and violated the New Hampshire Consumer Protection Act
(“CPA”) by selling real property to Pfenning without first
obtaining the mortgagee’s consent to convey the property subject
to an outstanding mortgage.
The Bankruptcy Court determined
that plaintiffs’ CPA claim was barred by the applicable threeyear statute of limitations, and that their warranty of title
claim failed on the merits.
Here, plaintiffs appeal the
Bankruptcy Court’s ruling on their warranty of title claim.
I. BACKGROUND
A. Facts
In 2006, Brewer purchased property located at 2 Highland
View Road in Claremont, New Hampshire (“the Property”).
Brewer,
who acquired the Property as Trustee of the Lord Family Trust,
took title subject to an outstanding first mortgage held by
National City Mortgage Company, now known as PNC Mortgage.
That
mortgage contained a due-on-sale clause, which provided in
relevant part,
If all or any part of the Property or any Interest in the
Property is sold or transferred . . . without Lender’s
prior written consent, Lender may require immediate payment
in full of all sums secured by [the National City
Mortgage].
Doc. No. 6-2 at 2 (the due-on-sale clause).
In June 2009, Brewer, in his capacity as Trustee, and
Pfenning, as buyer, executed a purchase and sale agreement for
the Property.
Although the parties agreed that Brewer would
finance Pfenning’s purchase, the purchase and sale agreement did
not indicate that the sale would be subject to the existing
National City Mortgage.
At the July 2009 closing, however,
before signing the closing documents, Pfenning learned that her
financing consisted of a “wrap around” note and mortgage, and
that the sale would be subject to the National City Mortgage in
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addition to the mortgage she would grant Brewer.
9.
Doc. No. 1 at
Pfenning was upset with that arrangement, but nonetheless
executed the “All Inclusive (Wrap Around) Promissory Note
Secured by Deed of Trust” (the “Note”) and mortgage (the “Brewer
Mortgage”) that same day.
Id.
The Note reflected a loan of $144,600.00, accruing interest
at an annual rate of 4%, payable in $1,100 monthly installments
for three years, with a balloon payment for the entire
outstanding balance due on July 20, 2012.
Id. at 3.
The Note
provided that “the balance . . . includes the unpaid balance of
an underlying note and mortgage,” and identified the National
City Mortgage and the note it secured.
(the Note).
See Doc. No. 5-8 at 3
In addition, both the Warranty Deed and the Brewer
Mortgage provided: “[t]he within conveyance is made subject to
an outstanding mortgage from Jeffrey A. Lord to National City
Mortgage Co. by mortgage deed dated September 24, 2004, recorded
in Volume 1475, Page 833 of the Sullivan County Registry of
Deeds.”
Doc. Nos. 5-9 at 4 (Warranty Deed); 5-10 at 13 (Brewer
Mortgage).
Despite the National City Mortgage’s due-on-sale
provision, however, Brewer did not inform PNC Mortgage of his
sale to Pfenning, or ask the company to waive the clause.
After the closing, Pfenning contacted a mortgage broker,
her bank, the New Hampshire Banking Commission, and an attorney,
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but was unable to change the terms of her financing.
Then, for
three years, she made all monthly payments due under the Note to
Brewer (totaling about $39,000), but did not pay the balloon
payment due in July 2012, or seek to refinance the obligation.
And, when Pfenning stopped paying Brewer, Brewer stopped making
payments on the National City Mortgage to PNC Mortgage.
In
October 2012, PNC Mortgage instituted foreclosure proceedings.
Pfenning filed a Chapter 13 petition on October 26, 2012.1
B.
Bankruptcy Proceedings and Appeal
On October 15, 2014, Pfenning brought an adversary action
in the Bankruptcy Court against Brewer and the Lord Family
Trust.
Pfenning alleged that Brewer had breached the warranty
of title by failing to obtain PNC Mortgage’s consent to sell the
Property to Pfenning, as contemplated by the National City
Mortgage’s due-on-sale provision.
Pfenning further alleged that
Brewer’s actions violated the New Hampshire Consumer Protection
Pfenning claims that she first learned of Brewer’s alleged
breach of the warranty of title in 2012, when she was unable to
deal directly with PNC Mortgage regarding the pending
foreclosure. See Doc. No. 5 at 10. As a result of the Chapter
13 proceedings, Pfenning has reinstated the National City
Mortgage with a catch-up payment, required PNC Mortgage to
accept monthly mortgage payments from Pfenning directly, and
brought the mortgage current. See Doc. No. 6 at 8. In
addition, because the balance of the National City Mortgage (the
first mortgage) greatly exceeded the value of the Property, the
Brewer Mortgage (the second mortgage) was avoided as being
wholly unsecured. See Doc. No. 1 at 4 n.9.
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Act (“CPA”).
Pfenning sought, among other relief, reimbursement
for her previous payments to Brewer, and an order directing the
defendants to “pay the balance of the National City Mortgage”
note.
See Doc. No. 2 at 14-15.
The Bankruptcy Court conducted a trial in September 2015.
At the close of Pfenning’s case, defendants moved for judgment
on both Pfenning’s warranty of title and CPA claims pursuant to
Federal Rule of Civil Procedure 52(c).
In a subsequent written
order, the Bankruptcy Court granted the defendants’ motion,
concluding that (1) Pfenning’s CPA claim was barred by the
applicable three-year statute of limitations, and (2) Pfenning’s
warranty of title claim failed on the merits.
13.
Doc. No. 1 at 11-
Accordingly, the court dismissed both of Pfenning’s claims.
Id. at 14.
Pfenning then filed this appeal, appealing the
Bankruptcy Court’s decision only as it relates to her warranty
of title claim.
See Doc. No. 5 at 5 (waiving her appeal with
respect to the CPA claim).
II. STANDARD OF REVIEW
This court has jurisdiction pursuant to 28 U.S.C. §
158(a)(1) to hear appeals from the Bankruptcy Court’s final
judgments, orders, and decrees.
In conducting my review, I
“scrutinize that court's findings of fact for clear error, and
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afford de novo review to its conclusions of law.”
Brandt v.
Repco Printers & Lithographics, Inc. (In re Healthco Int'l), 132
F.3d 104, 107 (1st Cir. 1997).
I may “affirm the bankruptcy
court order on any ground apparent from the record on appeal.”
Cromwell v. Countrywide Home Loans, Inc., 483 B.R. 36, 40 (D.
Mass. 2012) (quoting Spenlinhauer v. O'Donnell, 261 F.3d 113,
117 (1st Cir. 2001)).
III. ANALYSIS
On appeal, Pfenning argues that the Bankruptcy Court erred
in granting defendants’ motion with respect to her warranty of
title claim.
Under New Hampshire law, a duly executed and
delivered warranty deed includes four covenants by the grantor:
(1) that, at the time of the delivery of such deed, the
grantor was lawfully seized in fee simple of the granted
premises; (2) that the said premises were free from all
incumbrances, except as stated; (3) that the grantor had
good right to sell and convey the same to the grantee,
heirs, successors and assigns; and (4) that the grantor
will . . . warrant and defend the same to the grantee and
heirs, successors and assigns, against the lawful claims
and demands of all persons.
Coco v. Jaskunas, 159 N.H. 515, 537-38 (2009) (citing N.H. Rev.
Stat. § 477:27).
Here, Pfenning focuses exclusively on the
third covenant, and argues that Brewer did not have “good right
to sell and convey” the Property, because he did not get PNC
Mortgage to waive its due-on-sale clause before the sale.
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I
disagree.
The covenant of the right to convey represents that the
grantor has legal authority to convey the property described in
the warranty deed.
Lloyd v. Estate of Robbins, 997 A.2d 733,
740 (Me. 2010); 4 Herbert Thorndike Tiffany, Real Prop. § 1001
(3d ed. 1975) (“The covenant of a right to convey generally only
represents that the individual has the authority and legal
capacity to sell the property upon the same terms and conditions
as the owner and does not imply any other warranties.”); 17-5
New Hampshire Practice: Real Estate § 5.06 (2015).
In most
cases, the covenant of the right to convey is equivalent to the
covenant of seisin.
Lloyd, 997 A.2d at 740; see Peters v.
Bowman, 98 U.S. 56, *3 (1878); Willard v. Twitchell, 1 N.H. 177
(1818) (“The covenants in our deeds, ‘that the grantor is the
lawful owner, that he is seized in fee, and that he has good
right to sell and convey,’ have always received a construction
that makes them merely synonimous.”).
Consequently, the grantor
breaches these covenants when he purports to transfer real
property by warranty deed that he does not own, or otherwise
have the authority to convey.
Under the facts of this case, I reject Pfenning’s
contention that the National City Mortgage’s due-on-sale clause,
or Brewer’s failure to get PNC Mortgage to waive that clause,
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affected Brewer’s right to convey the Property.
The due-on-sale
clause here provided that “[i]f all or any part of the Property
or any Interest in the Property is sold or transferred . . .
without Lender’s prior written consent, Lender may require
immediate payment in full of all sums secured by [the National
City Mortgage].”
Doc. No. 6-2 at 2.
The due-on-sale provision
thus allowed PNC Mortgage to accelerate the loan if Brewer
transferred the Property without the company’s consent.
Yet, by
its terms, the clause did not limit Brewer’s right to convey the
property; it merely provided for certain consequences if he did
so without first obtaining PNC Mortgage’s permission.
Indeed,
as the New Hampshire Supreme Court has explained, due-on-sale
clauses do not themselves “result in the forfeiture of the
owner's title and [do] not preclude the mortgagor from conveying
the property.”
Mills v. Nashua Fed. Sav. & Loan Ass’n, 121 N.H.
722, 725 (1981) (holding that due-on-sale clauses are not per se
unreasonable restraints on alienation).
More to the point,
these provisions do not themselves constitute “any impingement
on the owner's freedom to convey the property.”
Id.
Pfenning does not explain why, in light of this precedent,
the due-on-sale clause here affected Brewer’s right to convey
the Property.
See Doc. No. 5 at 10-15.
Nor does she cite any
authority that substantiates such an argument, and I am aware of
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none.
See id.
Instead, Pfenning apparently claims that Brewer
did not have the right to convey because Pfenning “does not have
good and marketable title.”
Id. at 13; see also Doc. No. 7 at 9
(“Pfenning did not receive good and marketable title because
Brewer lacked good right to sell and convey when he failed to
obtain permission from PNC to sell without paying its mortgage
off.”).
Yet, Pfenning does not offer any precedent to support
this supposed connection between the right to convey and “good
and marketable title.”
Likewise, she does not explain why the
marketability of her title affects whether Brewer had the right
to convey the Property in 2009.
Absent some reasoned argument
on this point, I decline to go further.
Accordingly, I reject Pfenning’s claim that Brewer breached
the covenant of the right to convey by failing to get PNC
Mortgage to waive its due-on-sale clause.2
I instead conclude
that Brewer did not breach the warranty of title, and therefore
affirm the Bankruptcy Court’s decision.
Nor did defendants violate the covenant that the Property was
“free from all incumberances, except as stated.” The Warranty
Deed here provided that “[t]he within conveyance is made subject
to an outstanding mortgage from Jeffrey A. Lord to National City
Mortgage Co.” Doc. No. 5-9 at 4. The Warranty Deed thus
explicitly “stated” that it was subject to the National City
Mortgage. Pfenning did not challenge this conclusion on appeal.
See Doc. No. 5 at 9.
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III.
CONCLUSION
For the reasons provided above, the Bankruptcy Court’s
order granting judgment for the defendants is affirmed.
SO ORDERED.
/s/ Paul Barbadoro
Paul Barbadoro
United States District Judge
April 6, 2016
cc:
Peter S. wright, Jr., Esq.
Eleanor Wm. Dahar, Esq.
Geraldine Karonis, Esq.
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