In Re: Wilfredo Valdes-Morales

Filing 10

OPINION AND ORDER re 8 Appellant's Brief. The bankruptcy court's decision granting summary judgment is REMANDED for proceedings consistent with this Opinion and Order. EMI Equity's appeal is DISMISSED WITHOUT PREJUDICE. Signed by Judge Francisco A. Besosa on 07/13/2018. (brc)

UNITED STATES ISTRICT COURT
DISTRICT OF PUERTO RICO

EMI EQUITY MORTGAGE, INC.,
Appellant,
v.

Civil No. 17-2283 (FAB)

WILFREDO VALDÉS-MORALES,
Appellee.

OPINION AND ORDER
BESOSA, District Judge.
Appellant EMI Equity Mortgage, Inc. (“EMI Equity”) appeals
the United States Bankruptcy Court for the District of Puerto Rico
(“bankruptcy court”)’s order granting appellee Wilfredo ValdésMorales

(“Valdés”)’s

motion

for

summary

judgment

Federal Rule of Civil Procedure 56 (“Rule 56”).

pursuant

to

(Docket No. 8.)

For the reasons set forth below, EMI Equity’s appeal is DISMISSED
WITHOUT PREJUDICE, and this case is REMANDED for proceedings
consistent with this Opinion and Order.
I.

Background
This appeal concerns the nature of EMI Equity’s interest in

a property belonging to Valdés’ bankruptcy estate.

According to

Valdés, in 2009 he signed a mortgage note for $117,082.00 “in favor
of (then) lender AAA Concordia Mortgage Corporation.”

(Docket

Civil No. 17-2283 (FAB)
No. 55 at p. 3.) 1

2

Two years later, Valdés filed a bankruptcy

petition pursuant to Chapter 13 of the Bankruptcy Code.
§ 1301 et seq.

(Docket No. 1 at p. 3.)
Id. 2

as his mortgage lender.

11 U.S.C.

Valdés named EMI Equity

Subsequently, EMI Equity submitted

a secured claim against Valdés for $111,678.93.

Id.

For fifty-

three months, Valdés paid $719.02 to EMI Equity “in the guise of
mortgage installments.”

Id. at p. 4.

In sum, EMI Equity collected

$38,108.06 in post-petition payments from Valdés.
Valdés

accumulated

three

post-petition

Id.

arrears

on

the

mortgage note, prompting EMI Equity to seek dismissal of the
Chapter 13 proceeding.

Id. at p. 3.

In the course of discovery,

Valdés learned that “the presentation of [EMI Equity’s] mortgage
note was not notified and that the same had expired, whereby [EMI
Equity’s] debenture should be treated as a general unsecured
claim.”

Id.

Valdés commenced an adversary proceeding against EMI

Equity, requesting that the bankruptcy court:
Equity’s

interest

in

Valdés’

property,

(2)

(1) invalidate EMI
declare

that

EMI

Equity’s interests are “completely unsecured,” (3) award Valdés
$100,000.00 in damages for emotional pain and suffering, (4) award

1

Citations to pleadings filed in the bankruptcy court refer to Case No. 114694.

2

The record transmitted from the bankruptcy court contains no evidence that
AAA Concordia Corporation assigned the mortgage note to EMI Equity. Indeed,
the promissory note pertaining to the property is absent from the record.

Civil No. 17-2283 (FAB)

3

Valdés $20,000.00 for legal costs and fees, (5) award Valdés
$100,000.00 in punitive damages, and (6) grant Valdés “any other
remedy which is just and equitable.”

Id. at pp. 4—5.

Valdés moved for summary judgment, requesting that EMI Equity
return the $38,108.06 in past mortgage payments in addition to the
remedies requested in the complaint.

(Docket No. 55 at pp. 12—

13.) 3 Valdés argued that because EMI Equity possessed an unsecured
interest in the mortgaged property, “EMI’s acceptance of direct
post-petition payments from [Valdés] constitutes a violation of
the automatic stay of section 362.”

Id. at p. 8.

The bankruptcy

court granted summary judgment, holding that:
Plaintiff’s deed of sale and Defendant’s mortgage was
never recorded. As such, amended claim number 8-3 filed
by Defendant in the related legal case 11-04694, is
unsecured and the court declares Defendant’s lien over
the Debtor’s residence is null and void. Defendant shall
further deliver the mortgage note subscribed by
Plaintiff to him forthwith.
(Docket No. 77 at p. 3.) 4

The bankruptcy court also set an

evidentiary hearing to “consider the monetary damages requested by
Plaintiff
stay.”

for

Defendant’s

Id. at p. 4.

willful

violation

of

the

automatic

Before the bankruptcy court held the

evidentiary hearing, however, EMI Equity filed a notice of appeal.

3

Because EMI Equity filed an untimely response, the bankruptcy court considered
Valdés’ motion for summary judgment unopposed. (Docket No. 68.)

4

A lien is a “charge against or interest in property to secure payment of a
debt or performance of an obligation.” 11 U.S.C. § 101(37).

Civil No. 17-2283 (FAB)
(Docket No. 83.)

4

EMI Equity contends that the bankruptcy court’s

holding is erroneous because “there is no showing of willfulness,
an essential element of [an automatic stay violation].”
No. 8 at p. 24.)

(Docket

The Court reserves judgment regarding EMI’s

purported violation of the automatic stay because the bankruptcy
court granted summary judgment on an incomplete record and issued
an ambiguous order.
II.

Jurisdiction
This Court has jurisdiction over EMI Equity’s appeal pursuant

to 28 U.S.C. § 158(a).
or

reverse

a

On appeal, this Court may affirm, modify,

bankruptcy

court’s

judgment,

instructions for further proceedings.

or

remand

with

Fed. R. Bankr. P. 8013;

see, e.g., HSBC Bank USA v. Bank of N.Y. Mellon Tr. Co., 646 F.3d
90, 94 (1st Cir. 2011) (“Finding the phrase ambiguous, we remanded
to the bankruptcy court to conduct a ‘contextual examination of
the parties’ intent, taking full account of the surrounding facts
and circumstances’.”)

(citation omitted).

III. Discussion
The Court remands this appeal for two reasons.

First, the

factual basis underlying the bankruptcy court’s disposition is
incomplete.
Further

Second, the summary judgment order is ambiguous.

analysis

pursuant

to

Puerto

Rico

law

is

required

to

determine whether EMI Equity possesses a secured interest in the

Civil No. 17-2283 (FAB)

5

mortgaged property, and whether EMI Equity violated the automatic
stay pursuant to 11 U.S.C. § 362 (“section 362”).
A.

Summary Judgment is Inappropriate Because Valdés Failed
to Submit a Statement of Uncontested Material Facts
Valdés moved for summary judgment without submitting a

statement of uncontested material facts. (Docket No. 55.) Federal
Rule of Bankruptcy Procedure 7056 states that Federal Rule of Civil
Procedure 56 (“Rule 56”) “applies in adversary proceedings.”
R. Bankr. P. 7056.

Fed.

Pursuant to Rule 56, the “Court shall grant

summary judgment if the movant shows that there is no genuine issue
of material fact and the movant is entitled to judgment as a matter
of law.”

Fed. R. Civ. P. 56(a).

Local Rule 56 governs the factual

assertions made by both parties in the context of summary judgment.
Loc. R. 56; Hernández v. Philip Morris USA, Inc., 486 F.3d 1, 7
(1st Cir. 2007).

This Court need not “ferret through the record

to discern whether any material fact is genuinely in dispute.”
CMI Capital Market Inv. v. González-Toro, 520 F.3d 58, 62 (1st
Cir. 2008).

The movant must submit factual assertions in “a

separate, short, and concise statement of material facts, set forth
in numbered paragraphs.”

Loc. R. 56(b).

Courts “disregard any statement of fact not supported by
a specific citation to record material properly considered on
summary judgment.”

Loc. Rule 56(e).

Facts that are properly

Civil No. 17-2283 (FAB)

6

supported “shall be deemed admitted unless properly controverted,”
Loc. R. 56(e); P.R. Am. Ins. Co. v. Rivera-Vázquez, 603 F.3d 125,
130 (1st Cir. 2010).

The First Circuit Court of Appeals has

repeatedly “emphasized the importance of local rules similar to
Local Rule 56 [of the District of Puerto Rico],” which “are
designed to function as a means of ‘focusing a district court’s
attention on what is—and what is not—genuinely controverted’.”
Hernández, 486 F.3d at 7 (internal citation omitted).
In his motion for summary judgment, Valdés relies on
facts set forth in “the record of debtor’s chapter 13 case no. 1104694B and/or are admitted by [EMI Equity] in its answer to the
Complaint

and/or

its

response

to

plaintiff’s

request

for

discovery.” (Docket No. 55 at pp. 2—3.) Valdés’ cursory reference
to facts asserted throughout the record is insufficient pursuant
to Local Rule 56 and inhibits this Court from adjudicating EMI
Equity’s appeal.

See RG Primer Bank v. Alvarado, 463 B.R. 200,

212 (D.P.R. 2011) (Domínguez, J.) (remanding bankruptcy appeal
because

“the

record

is

incomplete

and

appellate review of the appealed order”).

restricts

the

Court’s

As the proponent of

summary judgment, Valdés must present a statement of uncontested
material facts with citations to supporting exhibits.

Loc. R. 56;

see Mercado-Reyes v. City of Angels, 295 F. Supp. 3d 74, 77 (D.P.R.
2018) (Besosa, J.) (denying summary judgment motion because “both

Civil No. 17-2283 (FAB)

7

parties fail[ed] to follow Local Rule 56” regarding the requisite
statement of uncontested material facts).

Accordingly, Valdés

must attach a statement of uncontested material facts before the
bankruptcy court may address the merits of his summary judgment
motion.
B.

The Summary Judgment Opinion and Order is Ambiguous
EMI Equity challenges the bankruptcy court’s conclusion
(Docket No. 8.) 5

that it violated the automatic stay.

This

conclusion cannot stand, however, without first establishing that
the automatic stay is indeed applicable.

Because Valdés filed a

bankruptcy petition, the automatic stay is applicable subject to
enumerated exceptions in section 362.

See Montalvo v. Autoridad

de Acueductos y Alcantarillados, 537 B.R. 128, 140 (Bankr. D.P.R.
2015) (Lamoutte, J.) (holding that the automatic stay becomes
operative

upon

the

filing

of

a

bankruptcy

petition,

and

“is

extremely broad in scope,” applying “to almost any type of formal
or informal action taken against the debtor”) (citation omitted).
Section 362 stays the “the commencement or continuation . . . of
a judicial, administrative, or other action against the debtor
that was or could have been commenced before” the bankruptcy

5

Pursuant to section 362(k), “an individual injured by any willful violation
of a stay provided by this section shall recover actual damages including costs
and attorneys’ fees and, in appropriate circumstances, may recover punitive
damages.” 11 U.S.C. § 362(k).

Civil No. 17-2283 (FAB)
petition.

8

11 U.S.C. § 362(a).

The “automatic stay provision is

one of the fundamental debtor protections in the Bankruptcy Code.
It gives the debtor a ‘breathing spell’ from creditors and stops
all

collection

actions.”

efforts,

all

harassment,

and

all

foreclosure

González v. P.R. Treasury Dep’t, 532 B.R. 1, 5 (Bankr.

D.P.R. 2015) (Lamoutte, J.) (citation omitted).

Exceptions to the

automatic stay, however, permit the continuation of litigation
despite the filing of a bankruptcy petition.
1.

“Acts to Perfect” Pursuant to Section 362(b)(3)
The dispositive inquiry for purposes of Valdés’

summary judgment is whether EMI Equity’s unrecorded mortgage deed
constitutes an interest in property within the meaning of section
362(b)(3).

Section 362(b)(3) sets forth an exception to the

automatic stay pertaining to “any act to perfect.” 11 U.S.C.
§ 362(b)(3). 6

EMI Equity must

satisfy three requirements to

qualify for the section 362(b)(3) exception:

“there must be (1)

an ‘act to perfect’ (2) an ‘interest in property’ (3) under

6
Following a Chapter 13 petition, the United States assigns the debtor a trustee
to perform several duties, such as “advis[ing], other than on legal matters,
and assit[ing] the debtor in performance under the plan.” 11 U.S.C. § 1302.
The Bankruptcy Code instills in trustees “avoidance powers,” allowing trustees
“to recover property for the estate, set aside certain liens, avoid certain
transfers, and reject or assume executory contracts and unexpired leases.”
Carrión v. USDA Rural Hous. Serv., No. 10-10792, 2012 Bankr. LEXIS 2720, *16
(Bankr. D.P.R. Jun. 13, 2012) (Lamoutte, J.) (citation omitted).
Trustees
possess “the powers of a bona fide purchaser of real property for value,” and
may “invalidate unperfected security interests.” DeGiancomo v. Traverse, 753
F.3d 19, 26 (1st Cir. 2014) (citing 11 U.S.C. § 544).

Civil No. 17-2283 (FAB)

9

circumstances in which the perfection-authorizing statute fits
within the contours of section 546(b)(1)(A).”

229 Main St. Ltd.

v. Mass. EPA, 262 F.3d 1, 4 (1st Cir. 2001).

Section 546(b) of

the Bankruptcy Code provides that the:
rights and powers of the trustee are subject to any
generally applicable law that—
(A) permits perfection of an interest in property to be
effective against an entity that acquires rights in such
property before the date of perfection; or
(B) provides for the maintenance or continuation of
perfection of an interest in property to be effective
against an entity that acquires rights in such property
before the date on which action is taken to effect such
maintenance or continuation.
11 U.S.C. § 546(b)(1)(A).

Congress intended to “protect, in spite

of the surprise intervention of a bankruptcy petition, those whom
State law protects by allowing them to perfect their liens as of
an effective date that is earlier than the date of perfection.”
Tosado v. Banco Popular de P.R., 420 B.R. 57, 68 (Bankr. D.P.R.
2009) (Lamoutte, J.) (citation omitted).
The

relevant

property

interest

“must

arise

and

exist pre-petition” to qualify for the automatic stay exception
set forth in section 362(b)(3).

Hernández v. Banco Popular de

P.R. Popular Mortg., Inc., No. 15-2109, 2016 Bankr. LEXIS 873,
at *7 (Bankr. D.P.R. Mar. 18, 2016) (Tester, J.).

A property

interest is subject to the automatic stay pursuant to “generally

Civil No. 17-2283 (FAB)
applicable law.”

10

11 U.S.C. § 546(b)(1)(A).

Rico law governs the Court’s analysis.

Accordingly, Puerto

See Hernández, 2016 Bankr.

LEXIS 873, at *13 (applying Puerto Rico law in analyzing “whether
a filed but unrecorded mortgage deed can be treated as a secured
claim in a bankruptcy proceeding”).
A creditor in possession of a perfected interest in
property, or an interest capable of perfection, may circumvent the
automatic

stay.

indispensable,

Puerto
in

order

Rico
that

law

establishes

[a]

mortgage

may

that
be

“it

is

validly

constituted, that the instrument in which it is created be entered
in the registry of property.”

P.R. Laws Ann. tit. 31, § 5042.

Pursuant to Puerto Rico law, an unrecorded mortgage is a “nullity.”
Carrión, 2012 Bankr. LEXIS 2720, at *8 (quoting In re Las Colinas,
Inc., 426 F.2d 1005, 1016 (1st Cir. 1970)).

The First Circuit

Court of Appeals, however, has held that “the term ‘interest in
property’ as used in section 362(b) is broader than the term
‘lien’.”

229 Main St. Ltd., 262 F.3d at 6 (holding that that

“statutory lien that the Commonwealth wishes to record meets the
combined requirements of section 362(b)(3) and 546(b)(1)(A) and
therefore falls within the exception to the automatic stay”); see
Ramos v. Banco Popular de P.R., 493 B.R. 355, 364 (Bankr. D.P.R.
2013) (Cabán, J.) (holding that “a party may have an interest in
the property that is not necessarily tantamount to a lien” pursuant

Civil No. 17-2283 (FAB)
to section 362(b)(3)).

11
An unrecorded mortgage deed arising from

a prepetition transfer may constitute an “interest in property”
pursuant to section 362(b)(3).

See Hernández, 2016 Bankr. LEXIS

873, at *18 (applying the section 362(b)(3) exception and rejecting
plaintiff’s contention that “due to the lack of recordation of the
Deeds,

Defendant

does

not

hold

a

perfected

lien

against

its

Property”).
The First Circuit Court of Appeals decision in
Soto-Ríos v. Banco Popular de P.R. is illustrative.
(1st Cir. 2011).

662 F.3d 112

The debtors in Soto-Ríos executed mortgage deeds

in favor of Banco Popular de Puerto Rico (“Banco Popular”).
at 114.

Subsequently, Banco Popular presented the mortgage deeds

to the Puerto Rico Property Registrar (“registrar”).
of

“an

Id.

administrative

backlog,

however,

the

Id.

three

Because

presented

mortgage deeds were still pending to be recorded when the debtors

Civil No. 17-2283 (FAB)

12

filed for bankruptcy nearly three years later.”

Id. 7

The debtors

requested application of the automatic stay, arguing that Banco
Popular possessed “no more than unsecured personal obligations.”
Id. at 118.
debtors’

The First Circuit Court of Appeals rejected the

arguments,

citing

the

“relation

back

provision

establishing the moment of presentation as the priority marker.”
Id. at 121 (citing P.R. Laws Ann. tit. 30, § 2256; Gasolinas de
P.R. v. Keeler-Vázquez, 155 D.P.R. 652, 675 (2001) (“Presentment’s
purpose is to acknowledge, in a precise manner, the exact point or
time of such filing, inasmuch as same guarantees the filing party
his turn, according to order of arrival”) (internal punctuation
omitted)).

Because Banco Popular presented the mortgage deeds to

the registrar before the debtors filed their bankruptcy petition,
Banco

7

Popular

possessed

a

pre-petition

interest

pursuant

to

In Puerto Rico, “the process of inscription begins when the mortgage deed is
presented and recorded in the daily book of presentations kept by the
Registrar.” Tosado, 420 B.R. at 70. Puerto Rico law mandates that mortgage
deeds “shall be registered within sixty (60) days following their presentation,
or after correcting any errors that may have been indicated, or after filing
the requalification writ, except for just cause that is duly justified and
admitted by the Director.” P.R. Laws Ann. tit. 30, § 2255. Delays attributed
to “just cause” are the norm, however, resulting in a “three to five year[]
elapse between the date of presentation and the date the Property Registrar
qualifies the pertinent documentation.” Tosado, 420 B.R. at 70. Indeed, in
2010 the Puerto Rico legislature promulgated the “Act to Streamline the Property
Registry,” proclaiming that “[a]ny document presented in the Property Registry
by April 30, 2010, shall be deemed to be recorded” subject to nine exceptions
i.e. documents concerning eminent domain. Laws P.R. Ann. tit. 30, § 1821. EMI
Equity acquired the mortgage note from Valdés in 2009. (Docket No. 55 at p. 3.)
The bankruptcy court does not address whether the Act to Streamline the Property
Registry is applicable in this matter. (Docket No. 77.)

Civil No. 17-2283 (FAB)
section

362(b)(3).

Id.

13
at

123.

circumvented the automatic stay.

Accordingly,

Banco

Popular

Id. 8

The summary judgment order granting Valdés’ Rule 56
motion is ambiguous.
deed

of

sale

and

The bankruptcy court held that “Plaintiff’s
Defendant’s

(Docket No. 77 at p. 3.)

mortgage

was

never

recorded.”

The pertinent date, however, is the date

of presentment, not the date of recordation.

See Soto-Ríos, 662

F.3d at 122 (emphasizing that “[p]resentment, as the decisive act
for securing rank, provided notice to the public, including any
bona fide purchaser, of the parties’ mortgage transaction and the
acts to preserve priority”).

Moreover, the bankruptcy court

concluded that EMI Equity possesses an unsecured property interest
without addressing the $38,108.06 in post-petition payments.

Id.

This Court cannot evaluate the propriety of summary judgment
without a more thorough analysis of EMI Equity’s property interest
pursuant to the Bankruptcy Code and Puerto Rico law.
IV.

Conclusion
For the reasons set forth above, the bankruptcy court’s

decision granting summary judgment is REMANDED for proceedings

8

In Ramos, the mortgagee faxed the deed to the registrar but failed to
“physically deliver the documents” in contravention of Puerto Rico mortgage
law. 493 B.R. at 366 (citing P.R. Laws Ann. tit. 30, § 2154). Consequently,
the mortgagee held an unsecured property interest. Id. The bankruptcy court
held that the section 362(b)(3) exception to the automatic stay was
inapplicable. Id. at 368.

Civil No. 17-2283 (FAB)

14

consistent with this Opinion and Order.
DISMISSED WITHOUT PREJUDICE.

EMI Equity’s appeal is

(Docket No. 8.)

IT IS SO ORDERED.
San Juan, Puerto Rico, July 13, 2018.

s/ Francisco A. Besosa
FRANCISCO A. BESOSA
UNITED STATES DISTRICT JUDGE