Padilla v. PNC Bank

Filing 34

MEMORANDUM AND ORDER denying 18 Motion for Summary Judgment - So Ordered by District Judge Mary S. McElroy on 1/28/2020. (Urizandi, Nisshy)

UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF RHODE ISLAND

)

YOVANYPADILLA,

)

Plaintiff,

)

)

) C.A. No. 1:18-CV-00131-MSM-PAS

v.

)
)

PNC BANK, NATIONAL
ASSOCIATION,

)

Defendant

)

MEMORANDUM AND ORDER

MaryS. McElroy, United States District Judge.
This matter comes before the Court on the defendant, PNC Bank, National
Association's ("PNC"), Motion for Summary Judgment and the Objection of the
plaintiff, Yovany Padilla. (ECF Nos. 18 & 25.) The matter turns upon whether a
district court can hold that the plaintiff mortgagor, who failed to file a mandatory
Statement of Intention to indicate his intent with respect to secured property in a
now-closed Chapter 7 bankruptcy case, indeed surrendered the property to the
creditor as a matter of law.
The Court heard oral argument on the Motion on January 7, 2020. For the
reasons that follow, PNC's Motion for Summary Judgment is DENIED.
1

I.

BACKGROUND

The plaintiff, Yovany Padilla, purchased a home at 132-134 Hendricks Street,
Central Falls, Rhode Island ("the Property"), in 2003. (ECF No. 25.) To finance the
Property, Mr. Padilla granted a mortgage to National City Mortgage Co. 1 and
executed a promissory note payable to that entity in the amount of $246,137.00.
Because it was a Federal Housing Administration mortgage, Mr. Padilla's mortgage
incorporated the Department of Housing and Urban Development ("HUD")
regulations. (ECF No. 1 ~~ 10, 18.)
On July 10, 2010, after having fallen behind on his mortgage payments, Mr.
Padilla filed a voluntary petition for Chapter 13 Bankruptcy in the United States
Bankruptcy Court.

(ECF Nos. 20 & 25-2.)

Mr. Padilla filed a plan seeking a

modification of the mortgage debt with the Bankruptcy Court during the pendency of
his Chapter 13 petition. (ECF No. 20.) On April 12, 2012, he voluntarily converted
his petition to a Chapter 7 bankruptcy case. Id. On July 20, 2012, the Bankruptcy
Court issued an order discharging the Chapter 7 Trustee and closing that case due to
Mr. Padilla's lack of assets.

Id. Mr. Padilla did not have any net equity in the

Property or own any other assets of value. I d.
During the pendency of the Chapter 7 Bankruptcy matter, Mr. Padilla did not
file a Statement of Intention under 11 U.S.C. § 521(a)(2), setting forth whether he

The defendant, PNC, asserts it is a successor in interest to National City Mortgage
Co.

1

2

intended to surrender the Property, reaffirm his mortgage, or redeem the Property. 2
There is no indication that the trustee or any creditor moved in the Bankruptcy Court
to compel Mr. Padilla to file such a Statement. Id. Mr. Padilla states, by way of
affidavit, that during his bankruptcy matter no creditor provided him with a
reaffirmation agreement. (ECF No. 25·2 ~ 28.)

A Statement of Intention manifests a Chapter 7 debtor's intent with respect to
property that is collateral for a secured debt. The language of 11 U.S.C. § 521(a)(2)
demonstrates the filing of a Statement of Intention is mandatory:
2

(a) The debtor shall ...
(2) if an individual debtor's schedule of assets and liabilities includes debts
which are secured by property of the estate(A) ... file with the clerk a statement of his intention with respect to the
retention or surrender of such property and, if applicable, specifying
that such property is claimed as exempt, that the debtor intends to
redeem such property, or that the debtor intends to reaffirm debts
secured by such property; and
(B) within 30 days after the first date set for the meeting of creditors
under section 341 (a), or within such additional time as the court, for
cause, within such 30-day period fixes, perform his intention with
respect to such property, as specified by subparagraph (A) of this
paragraph;
except that nothing in subparagraphs (A) and (B) ofthis paragraph shall
alter the debtor's or the trustee's rights with regard to such property
under this title, except as provided in section 362(h) ....
(Emphasis added.)

See also Fed. R. Bankr. P. 1007(b)(2) ("An individual debtor in a chapter 7 case shall
file a statement of intention as required by§ 521(a) of the Code [11 USCS § 521(a)],
prepared as prescribed by the appropriate Official Form. A copy of the statement of
intention shall be served on the trustee and the creditors named in the statement on
or before the filing of the statement.") (emphasis added).
3

Several months after the Bankruptcy Court's discharge order, on or about
November 1, 2012, PNC sent, by way of foreclosure counsel, two letters via certified
mail to Mr. Padilla, advising him that, due to his default, the promissory note had
been accelerated. (ECF No. 20 at 15·18.)
On or about January 19, 2016, PNC conducted a foreclosure sale and
purchased the Property. (ECF No. 1 ~~ 30·32.) PNC subsequently sought to evict
Mr. Padilla through an action in Rhode Island state district court. (ECF No. 25·2 ~
48.)
On March 21, 2018, Mr. Padilla filed the instant suit against PNC in this
Court. Count I alleges breach of contract for PNC's alleged failure to comply with
HUD regulations prior to their acceleration of the mortgage loan. Most notably, Mr.
Padilla cites PNC's failure to have a face·to·face meeting with him as is required by
24 C.F.R. § 203.604. Mr. Padilla further seeks injunctive relief (Count II), to enjoin
PNC from taking any action to evict him from the Property and to require PNC to
comply with HUD regulations and the terms of the mortgage. Finally, Mr. Padilla
seeks a declaratory judgment (Count III). He seeks this Court's declaration that the
foreclosure deeds are null and void as a result ofPNC's alleged failure to comply with
HUD regulations and the terms of the mortgage.

Jurisdiction is based on diversity

of citizenship pursuant to 28 U.S.C. § 1332.
PNC has filed a Motion for Summary Judgment under Fed R. Civ. P. 56
asserting that Mr. Padilla's claim for breach of contract and failure to comply with
the terms of the mortgage (specifically, the failure to attempt a face·to·face meeting)

4

fails as a matter of law because Mr. Padilla "effectively surrendered" the Property to
PNC as a result of the bankruptcy proceedings and, as such, cannot contest a
foreclosure action of the Property. (ECF Nos. 18, 19.)

II.

SUMMARY JUDGMENT STANDARD

Summary judgment's role in civil litigation is "to pierce the pleadings and to
assess the proof in order to see whether there is a genuine need for trial." Garside v.

Osco Drug. Inc., 895 F.2d 46, 50 (1st Cir. 1990). Summary judgment can be granted
only when "the pleadings, depositions, answers to interrogatories, and admissions on
file, together with the affidavits, if any, show there is no genuine issue as to any
material fact and the moving party is entitled to judgment as a matter of law." Fed.
R. Civ. P. 56. "A dispute is genuine if the evidence about the fact is such that a

reasonable jury could resolve the point in the favor of the non-moving party. A fact is
material if it carries with it the potential to affect the outcome of the suit under the
applicable law." Santiago-Ramos v. Centennial P.R. Wireless C01p., 217 F.3d 46, 52
(1st Cir. 2000).
In ruling on a motion for summary judgment, the court must examine the
record evidence "in the light most favorable to, and drawing all reasonable inferences
in favor of, the nonmoving party." Feliciano de la C1·uz v. El Conquistador Resort &

Count1y Club, 218 F.3d 1, 5 (1st Cir. 2000) (citing Mulero-Rod1.Zguez v. Ponte,
Inc., 98 F.3d 670, 672 (1st Cir. 1996)). "[W]hen the facts support plausible but
conflicting inferences on a pivotal issue in the case, the judge may not choose between
those inferences at the summary judgment stage." Coyne v. Taber Partne1·s L 53 F.3d

5

454, 460 (1st Cir. 1995).

Furthermore, "[s]ummary judgment is not appropriate

merely because the facts offered by the moving party seem more plausible, or because
the opponent is unlikely to prevail at trial. If the evidence presented is subject to
conflicting interpretations, or reasonable [people] might differ as to its significance,
summary judgment is improper." Gannon v. Na1Tagansett Elec. Co., 777 F. Supp.
167, 169 (D.R.I. 1991).
III.

DISCUSSION

The Court first considers an issue that counsel for PNC raised at oral
argument: that PNC was not required to attempt a face-to-face meeting with Mr.
Padilla because he did not reside at the Property.

See 24 C.F.R. § 203.604(c)(l)

(providing that a face-to-face meeting is not required if the "mortgagor does not reside
in the mortgaged property"). Counsel for Mr. Padilla countered that Mr. Padilla did
in fact reside in the Property. Because there is a genuine issue as to this material
fact, and no admissible evidence presented to the Court establishing the whereabouts
of Mr. Padilla's residency during the relevant time, the Court cannot grant summary
judgment on this basis. See Fed. R. Civ. P. 56.
Turning to the remainder of PNC's Motion, PNC argues that Mr. Padilla's
claim for breach of contract and failure to comply with the terms of the mortgage fails
as a matter of law because Mr. Padilla "effectively surrendered" the Property when
he did not reaffirm the debt or redeem the Property during the bankruptcy
proceedings.

PNC asserts that, by surrendering the Property to the bankruptcy

trustee, who PNC asserts then abandoned it, Mr. Padilla ultimately surrendered the

6

Property to the creditor. Therefore, PNC argues, Mr. Padilla lost his right to contest
the foreclosure action because the meaning of "surrender" (a term used but not
expressly defined in the Bankruptcy Code) has been interpreted as the
relinquishment of all rights in a property. See, e.g., In 1'e White, 487 F.3d 199, 204
(4th Cir. 2007) ("Surrender means the relinquishment of all rights in property,
including the possessory right."); In 1·e Pl'att, 462 F.3d 14, 18-19 (1st Cir. 2006) ("[T]he
most sensible connotation of 'surrender' ... is that the debtor agreed ... to cede his
possessory rights in the collateral.").
PNC is correct that a debtor in Chapter 7 bankruptcy is required under the
Bankruptcy Code, 11 U.S.C. § 521(a)(2), to file a Statement of Intention with the
bankruptcy court and affirmatively declare what the debtor intends to do with
property that secures a debt and is further required to comply with that stated
intention. Section 521(a)(2) provides three debtor options: (1) reaffirm the debt by
reaching an agreement to repay the debt under renegotiated terms; (2) redeem the
collateral by paying the creditor the amount of the secured claim or the fair market
value of the collateral, whichever is less; or (3) surrender the collateral. In 1·e Pl'att,
462 F.3d at 17-18 (holding that § 521(a)(2) "contemplates three distinct debtor
prerogatives: reaffirmation, redemption, or surrender").
It is undisputed that Mr. Padilla did not file the required Statement of

Intention during the pendency of his Chapter 7 bankruptcy case and no other
evidence of his intent has been presented to this Court. But PNC asks that this Court
infer a surrender from which a conclusion would follow that Mr. Padilla has

7

"relinquished his rights and claims to the [P]roperty, including claims as to the legal
sufficiency of the foreclosure." (ECF No. 19 at 7.) Most of the cases PNC has relied
upon to support this argument are readily distinguishable, however, because in those
cases the debtor filed a Statement of Intention. See In 1·e Failla, 838 F.3d 1170, 1173
(11th Cir. 2016) (debtors filed a Statement of Intention to indicate they would
surrender the collateral); In 1·e Pl'att, 462 F.3d at 16 (same); In 1·e Elowitz, 550 B.R.
603, 604 (Bankr. S.D. Fla. 2016) (same); In 1·e Newkil-k, 297 B.R. 457, 461 (Bankr.
W.D.N.C. 2002) (debtors elected to reaffirm debt); In 1·e Lail', 235 B.R. 1, 5 (Bankr.
M.D. La. 1999) (same).
PNC does cite one case in which the debtor did not file a Statement of
Intention: In 1·e Waide, 730 Fed. App'x 731 (11th Cir. 2018). But there, because the
debtors had not filed a Statement of Intention after they converted their Chapter 13
case into a Chapter 7, the creditor moved to have the bankruptcy court reopen the
debtors' bankruptcy case and to compel surrender of the property. This was not an
example of a district court inferring that a surrender occurred in a closed bankruptcy
case. See id. at 735. Furthermore, when the Waide debtors were in Chapter 13
bankruptcy they had filed a schedule indicating their intent to surrender their home. 3

Id. at 735-36.
In contrast, Mr. Padilla filed a plan intending to retain the property and modify

3

"In chapter 13, a debtor owning encumbered property need not file a statement of
intention, but instead must file a chapter 13 plan which accomplishes much the same
thing. Bankruptcy Code § 1325(a)(5) is the practical equivalent of§ 521(a)(2)." In 1·e
Thompson, 581 B.R. 1, 2-3 (Bankr. D. Mass. 2018).
8

the mortgage loan while his case was a Chapter 13 bankruptcy. Thus, an inference
is not merely unwarranted because of Mr. Padilla's failure to file a Statement of
Intention, it may be inaccurate as it is contrary to his Chapter 13 filing.
The preliminary question for this Court is whether, under the facts of this case,
the Property was surrendered.

That is, whether "effectiveD surrenderO" of the

Property is the result of Mr. Padilla's failure to file a Statement of Intention clearly
indicating his intent with the Property or to carry out one of the three options under

§ 521(a)(2). PNC makes that leap, seeking from this Court an inference of surrender,
but does so without authority.

A review of the relevant statutory framework

demonstrates that this Court should not make such an inference.
Prior to the 2005 Bankruptcy Abuse Prevention and Consumer Protection Act
("BAPCA"), the Bankruptcy Code provided no explicit sanction for failure to comply
with the requirement of filing a Statement oflntention and therefore courts fashioned
their own remedies. See In Te Clafin, 249 B.R. 840, 848 (B.A.P. 1st Cir. 2000); In Te

Rathbun, 275 B.R. 434, 438, 441-42 (Bankr. D.R.I. 2001). Such sanctions could be an
order in the bankruptcy court compelling the filing of the Statement of Intention, In

1·e Bw'l', 160 F. 3d 843, 849 (1st Cir. 1998), a dismissal of the bankruptcy case, In 1·e
Donnell, 234 B.R. 567, 570 n.3 (Bankr. D.N.H. 1999), or relief from the automatic stay
for the relevant creditor, In l'e Clafin, 249 B.R. at 848.
The passage of BAPCA did provide specific statutory sanctions for failure to
comply, but they only pertain to debts secured by personal property. See§ 521(a)(6)
(providing for self-activating stay relief for personal property when an individual

9

Chapter 7 debtor fails to reaffirm or redeem within 45 days of the first meeting of
creditors); § 362(h) (providing, with respect to personal property collateral, that a
debtor's failure to reaffirm, redeem, or surrender within the time required by §
521(a)(2)(A) and (B) automatically terminates the stay and takes the property out of
the bankruptcy estate).
Because the post-BAPCA Bankruptcy Code remains silent on the sanction for
failure to file a Statement of Intention when the debt is secured by real property, the
appropriate remedy would be those judicially created pre· BAPCA remedies described
above. Here, neither the trustee nor PNC took any action to seek a possible remedy
in Bankruptcy Court for Mr. Padilla's failure to declare his intentions pursuant to §
521(a)(2). Neither filed a motion to compel the filing of a Statement of Intention.
(ECF No. 20.) See In re Silvestri, 2004 WL 2610032, *1 (Bankr. D.R.I. June 14, 2004)
(granting creditor's motion to compel debtor to file Statement of Intention).
Now, more than seven years after the closure of the bankruptcy action, PNC
seeks to have a district court rule that a surrender occurred in a case devoid of a
Statement of Intention.

But PNC has not identified, and nor has the Court

discovered, any authorities which provide that a failure to file a Statement of
Intention operates to "effectively surrenderO" collateral.
The factual record before the Court at this summary judgment stage also does
not support the conclusion, as a matter of law, that Mr. Padilla intended to surrender
the Property. Section 521(a)(2)(A) is primarily a notice statute and the Statement of
Intention is the vehicle to provide notice of the debtor's intent. See 4 Collier on

10

Bank1·uptcy, ~ 521.14 (16th ed. 2019). PNC asks that this Court divine Mr. Padilla's
intent among the options available under§ 521(a)(2) and select surrender. Generally,
"where the debtor decides not to reaffirm, or the parties cannot negotiate a
reaffirmation, or redemption is not economically feasible, the debtor has but one
option: 'surrender' the collateral." In

l'e

Pl'att, 462 F.3d at 18. In that event, the

inference is a fair one that the debtor has at least implicitly chosen the only remaining
option. Here, however, the record does not contain any evidence suggesting that Mr.
Padilla decided against reaffirmation or that he ever attempted to negotiate a
reaffirmation agreement. In fact, Mr. Padilla stated in his affidavit that PNC did not
discuss a reaffirmation agreement with him. (ECF No. 25-2 ~ 28.)
Without undisputed evidence as to his intent, this Court cannot find that, by
default, Mr. Padilla surrendered the Property. The issue of surrender is a factual one
that is in dispute and is material to the determination of this case.
Because it cannot be held as a matter oflaw that Mr. Padilla surrendered the
Property, the Court need not proceed further to determine whether a debtor who
surrenders property can later contest a foreclosure.

IV.

CONCLUSION

For the foregoing reasons, PNC's Motion for Summary Judgment (ECF No. 18)
is DENIED.

11