GIANNASCA v. DEUTSCHE BANK NATIONAL TRUST COMPANY (2020)

MEMORANDUM AND ORDER PURSUANT TO RULE 23.0

This matter is before us pursuant to the February 21, 2020, order of the Supreme Judicial Court, denying without prejudice the plaintiff, mortgagor Anthony Giannasca's, petition for further appellate review in Giannasca v. Deutsche Bank Nat'l Trust Co., 95 Mass. App. Ct. 775 (2019) (Giannasca I), and remanding the case to us “for consideration of the issue of the plaintiff's standing, in light of the Superior Court's findings and conclusions regarding the effect of the plaintiff's bankruptcy.” Upon consideration of this issue, and the parties' supplemental briefing, our disposition of the case in Giannasca I remains unchanged.

Much of the procedural history of this case appears in Giannasca I. On April 13, 2016, Giannasca “brought the underlying complaint seeking, among other things, a declaratory judgment that defendant Deutsche Bank National Trust Company (Deutsche Bank) had no enforceable mortgage interest in Giannasca's property at 9 Joseph Street in Medford (property). Specifically, Giannasca claimed that the assignment of his mortgage from the original mortgagee, Mortgage Electronic Registration Systems, Inc. (MERS), to Deutsche Bank was invalid and that, as a consequence, Deutsche Bank had no mortgage interest to foreclose upon.” Giannasca I, 95 Mass. App. Ct. at 775-776.

On January 17, 2017, Giannasca filed a motion for summary judgment based on that argument. On June 26, 2017, a Superior Court judge denied the motion. In the same memorandum of decision and order, the judge allowed Deutsche Bank's cross motion for summary judgment on two grounds. First, the judge concluded that Giannasca was precluded from contesting the foreclosure because he had noticed his intent to surrender the property in a bankruptcy proceeding. Second, the judge concluded that “[e]ven assuming Mr. Giannasca has standing to contest the assignment, the assignment to Deutsche Bank was procedurally valid.” On appeal, Giannasca challenged only the validity of the assignment. We affirmed the judgment in favor of Deutsche Bank in a split decision (Rubin, J., dissenting), addressing only the validity of the assignment. See Giannasca I, supra.

As noted above, on February 21, 2020, the Supreme Judicial Court denied Giannasca's application for further appellate review without prejudice and remanded the case to us. After consideration of supplemental briefs from the parties and the facts related to the bankruptcy proceeding, we disagree with the motion judge regarding the preclusive effect of Giannasca's notice of intent to surrender the property in bankruptcy.

Background. The facts relevant to the validity of Deutsche Bank's mortgage interest were set forth in our prior decision and we need not repeat them. We summarize the facts related to Giannasca's bankruptcy proceeding.

On October 5, 2011, prior to the initiation of the foreclosure action on the property, Giannasca filed a petition for personal bankruptcy pursuant to Chapter 13 of the United States Bankruptcy Code. The petition identified the property as one of Giannasca's assets and stated that there was a claim secured by the mortgage on the property in the amount of $332,500. On November 29, 2011, Giannasca's bankruptcy was converted to a Chapter 11 proceeding. On January 7, 2013, Giannasca filed a notice of intent to surrender the property to the mortgagee. On February 26, 2013, the Chapter 11 proceeding was converted to a Chapter 7 proceeding. The next day, Giannasca filed a statement of intention to retain the property and to reaffirm the debt.⁴

“On November 18, 2013, the bankruptcy trustee filed a notice of intent to abandon the property because it had no equity. The property had a fair market value of $244,700, but the outstanding mortgage debt was $415,686.48. On December 3, 2013, Giannasca's personal liability on the debt was discharged in the bankruptcy proceeding.”⁵ Giannasca I, supra at 776-777.

On June 29, 2014, Ocwen Loan Servicing (Ocwen), Deutsche Bank's loan servicer, proposed a loan modification agreement to Giannasca.⁶ Pursuant to that agreement, Giannasca agreed to make monthly payments of $2,309.09 on the mortgage loan. Giannasca made payments on July 1, 2014, and July 16, 2014, but made none thereafter. On January 30, 2015, Ocwen “notified [Giannasca] of his right to cure the past due amount within 150 days. Giannasca failed to do so, and Deutsche Bank commenced foreclosure proceedings in September 2015.” Giannasca I, supra at 777.

In its summary judgment motion, Deutsche Bank argued that by surrendering the property in the bankruptcy proceeding, Giannasca “voluntarily waived entirely his ability to contest any foreclosure.” The judge agreed, reasoning that “Giannasca's notice of intent to surrender the [p]roperty was never superseded or withdrawn.”

Discussion. Under 11 U.S.C. § 521(a)(1), a bankruptcy debtor must file a schedule of assets and liabilities with the bankruptcy court. If, as in Giannasca's case, the schedule includes debts secured by property in the bankruptcy estate, the debtor must file a statement of his intention to retain or surrender the property, redeem it, or reaffirm the debts secured by the property within thirty days of the petition. 11 U.S.C. § 521(a)(2)(A). The debtor must then “perform his intention” within thirty days. 11 U.S.C. § 521(a)(2)(B).

There is a conflict in the case law regarding the effect of a notice of intent to surrender on the debtor's right to contest a subsequent foreclosure action. The Eleventh Circuit Court of Appeals has held that debtors who surrender their property in bankruptcy may not oppose foreclosure on that property in State court. See In re Failla, 838 F.3d 1170, 1174-1178 (11th Cir. 2016). The Failla court reasoned that “[o]therwise, debtors could obtain a discharge in bankruptcy based, in part, on their sworn statement to surrender and enjoy possession of the collateral indefinitely while hindering and prolonging the state court process” (quotation and citations omitted). Id. at 1177. See Ibanez v. U.S. Bank Nat'l Ass'n, 856 F. Supp. 2d 273, 276 (D. Mass. 2012) (debtor judicially estopped from contesting foreclosure after surrendering property in bankruptcy action).

In a case decided after Failla, the bankruptcy court in Hawaii held that the requirement under § 521(a)(2) that the debtor file a statement of intent to surrender the property, redeem it, or reaffirm the debt, “is a notice provision that does not affect the respective rights of the debtor and the secured creditor.” In re Ryan, 560 B.R. 339, 350 (Bankr. D. Haw. 2016), vacated on other grounds, In re Ryan, No. HI-16-1391-TaLB (Bankr. 9th Cir. Jan. 4, 2018).⁷ The Ryan court explicitly rejected the holding of Failla and concluded that a declaration of an intent to surrender does not, as a matter of law, preclude a debtor from challenging a postdischarge foreclosure. Ryan, supra at 348-350. In Everbank v. Chacon, 92 Mass. App. Ct. 1101 (2017), another panel of this court found the Ryan court's analysis persuasive. While the panel did not reach a definitive conclusion regarding the meaning of a bankruptcy surrender in this context, the panel concluded (in an unpublished decision) that the debtor did not, by stating his intention to surrender his property in bankruptcy, waive his right to challenge a subsequent foreclosure action.

We agree with our colleagues in Everbank that we need not resolve the conflict in these cases regarding the effect of a notice of intent to surrender property in bankruptcy. To determine whether Giannasca's statement of his intention to surrender the property constituted a waiver of his right to challenge the foreclosure, we ask whether he intentionally relinquished a known right. See Normandin v. Eastland Partners, Inc., 68 Mass. App. Ct. 377, 388 (2007). Here, after Giannasca filed a form providing notice of his intent to surrender the property in bankruptcy, he took no action to follow through with the surrender. On the contrary, his actions were inconsistent with an intent to surrender the property. He continued living there. He filed a notice of intention to retain the property and to reaffirm the debt,⁸ and he entered into a loan modification agreement and made two payments pursuant to that agreement. Viewing these facts in the light most favorable to Giannasca, see Augat, Inc. v. Liberty Mut. Ins. Co., 410 Mass. 117, 120 (1991), and bearing in mind the disagreement among courts regarding the meaning of “surrender” in the United States Bankruptcy Code, we conclude that the summary judgment record does not support a conclusion that Giannasca intentionally relinquished a known right to contest foreclosure on the property.⁹

This conclusion does not affect our decision on the merits of the cross motions for summary judgment. Because we have already concluded that the assignment of the mortgage to Deutsche Bank was valid, see Giannasca I, supra, our decision affirming the judgment in favor of Deutsche Bank remains unchanged; with respect to that decision, Justice Rubin adheres to the view expressed in his previous dissent.

Conclusion. The disposition of this case is stated in Giannasca I, 95 Mass. App. Ct. at 778.

So ordered.

FOOTNOTES

4.   Giannasca did not file a reaffirmation agreement with the bankruptcy court as required by 11 U.S.C. § 524(c) (2012). Giannasca I, supra at 776 n.3.

5.   The discharge cancelled Giannasca's personal liability on the promissory note, but did not impair Deutsche Bank's ability to proceed in rem by foreclosing on the mortgage. See Johnson v. Home State Bank, 501 U.S. 78, 83 (1991) (creditor's right to foreclose survives bankruptcy, and is unaffected by discharge of personal liability).

6.   It is not clear from the summary judgment record why a loan modification agreement was proposed to Giannasca by Ocwen after the discharge was ordered. A discharge in bankruptcy enjoins a creditor from continuing efforts to collect or recover a debt as a personal liability of a debtor. 11 U.S.C. § 524(a)(2).

7.   In Ryan, the United States Bankruptcy Appellate Panel for the Ninth Circuit dismissed the appeal as moot and vacated the bankruptcy court's order. The appellate panel did not consider whether a notice of intent to surrender in bankruptcy precludes a postdischarge challenge to foreclosure.

8.   We agree with the judge that in order for Giannasca to reaffirm the debt he was required to enter into a reaffirmation agreement with the creditor prior to discharge. See 11 U.S.C. § 524(c). There is no dispute that Giannasca did not do so. We consider his statement of intent to reaffirm the debt only insofar it bears on the question whether he voluntarily relinquished a known right.

9.   In light of our conclusion, we need not determine the significance of a creditor entering into a post-discharge loan modification agreement and accepting payments from the debtor pursuant to that agreement, where the debtor's action in the bankruptcy court would otherwise have waived his right to contest foreclosure.