MEMORANDUM OPINION SUSTAINING DEBTOR'S OBJECTION TO AMENDED CLAIM 4 OF BANK OF AMERICA, N.A.
LORI V. VAUGHAN, Bankruptcy Judge.
In 2007, the Debtor sought to refinance the mortgage on her home, but at closing discovered errors in the loan documents. Assured by the closing agent that revised loan documents were forthcoming and her right to cancel the loan would be extended, the Debtor proceeded with the loan closing. The Debtor never received the revised loan documents and canceled the loan. But the bank funded the loan anyway. Bank of America, N.A. ("BOA")
After considering the evidence and argument of counsel at trial,
In 2005, the Debtor acquired real property located at 16719 Corner Lake Dr. Orlando, FL 32820 (the "Home"). She obtained a $90,000 loan for home improvements and to purchase a vehicle. The $90,000 loan, secured by a mortgage on the Home, would be paid over 30 years with 6% interest ("Initial Loan"). For the next two years, the Debtor, who then worked as a truck driver, believed she paid down the Initial Loan to approximately $40,000.
In 2007, the Debtor sought to refinance the Initial Loan. The Debtor believed she would receive a $150,000 loan with a fixed lower (3 to 4%) interest rate. Debtor intended to use the loan to pay the balance of the Initial Loan, some other creditors, and have funds available for her personal use. On March 7, 2007, the loan closing occurred at the Home, with the Debtor and a notary present. Upon reviewing the loan documents, the Debtor discovered that the Truth in Lending disclosure statement provided that the loan had a variable 8.5% interest rate and 40-year term. The Notice of Right to Cancel provided the Debtor had through March 10, 2007 to cancel the loan ("Cancelation Notice").
The Debtor immediately called the closing agent, who told her that she would receive corrected loan documents tomorrow, but that she should sign the loan documents provided so funding would not be delayed. The closing agent also told the Debtor she would have an additional day to cancel the loan. Based on the closing agent's statements, the Debtor signed some loan documents, including the note and mortgage ("Loan").
The Debtor never received the revised loan documents. The Debtor signed the Cancelation Notice and on March 11, 2007, the Debtor's friend, Stephen Weaver, faxed the Cancelation Notice with a cover page to BOA.
A few days later, the closing agent sent the Debtor documentation regarding the Loan, including checks payable to some of her creditors.
In 2008, BOA filed a complaint against the Debtor in the Circuit Court for Orange County, Florida seeking to foreclose on the Home ("Foreclosure Action").
Ch. 13 Bankruptcy
On January 24, 2014, the Debtor filed a chapter 13 bankruptcy case.
Ch 7 Bankruptcy
On December 27, 2015, the Debtor filed a chapter 7 bankruptcy case.
Four years after the Debtor received her discharge, BOA requested that the state court strike the Debtor's affirmative defenses in the Foreclosure Action.
Current Chapter 13 Case
On November 6, 2020, the Debtor filed this chapter 13 bankruptcy case.
On April 4, 2021, the Debtor objected to the POC ("Objection").
On July 29, 2021, the Court held a trial on the Objection. The parties examined witnesses, including the Debtor, Mr. Stephen Weaver and BOA's representative, Louise Plasse and presented evidence. Although the parties had ample opportunity to present evidence on the Objection, the evidence before the Court consisted primarily of the Debtor's testimony. After hearing argument of counsel, the Court took the Objection under advisement.
Section 502 of the Bankruptcy Code
Thornburg, 596 B.R. at 770 (quoting In re Armstrong, 320 B.R. 97, 103 (Bankr. N.D. Tex. 2005) (internal quotations omitted) (citations omitted)).
Here, the Debtor has met her initial burden. The Debtor objected to the POC and demonstrated with credible evidence that she canceled the Loan and she could not have owed the full $150,000 because neither she nor her creditors endorsed the checks issued and the House only had a $40,000 mortgage. The burden now shifts to BOA to demonstrate by a preponderance of the evidence the validity and amount of the POC. To demonstrate the legal validity of the claim, BOA relies on the Rooker-Feldman doctrine, collateral estoppel, judicial estoppel and Debtor's failure to timely cancel the Loan under the Truth in Lending Act.
The Court first addresses BOA's argument that the Rooker-Feldman doctrine bars the Debtor alleging she timely canceled the Loan because the state court struck the Debtor's affirmative defenses and held she could not contest the Foreclosure Action. But here, the state court never entered a judgment in the Foreclosure Action.
Rooker-Feldman only applies when a litigant asks the federal court to modify or overturn a state court judgment.
Under Rooker-Feldman, the District Court, and here the Bankruptcy Court, have no jurisdiction to consider appeals from state court judgments. Id. at *2-3. "Only when a losing state court litigant calls on a district court to modify or overturn an injurious state-court judgment should a claim be dismissed under Rooker-Feldman; district courts do not lose subject matter jurisdiction over a claim simply because a party attempts to litigate in federal court a matter previously litigated in state court." Id. at *3 (quoting Exxon Mobil Corp. v. Saudi Basic Industries Corp., 544 U.S. 280, 292-93 (2005) (internal quotations omitted)). Rooker-Feldman does not bar all attempts to litigate a matter that was previously litigated in state court—only those matters reduced to a final judgment are barred since federal courts do not have appellate jurisdiction. Here, because there is no final judgment, Rooker-Feldman does not apply.
Although not raised in its pleadings, BOA countered at trial that collateral estoppel applies to preclude litigation of the cancelation issue. Because the Florida state court entered the Order Striking, collateral estoppel under Florida law is applied. In re St. Laurent, 991 F.2d 672, 675-76 (11th Cir. 1993) ("If the prior judgment was rendered by a state court, then the collateral estoppel law of that state must be applied to determine the judgment's preclusive effect."). Under Florida law, collateral estoppel "bars relitigation of issues that were actually adjudicated in the prior suit." In re Bhairo, Case No. 8:19-bk-08804-MGW, 2021 WL 2981066 at * 3 (Bankr. M.D. Fla. July 15, 2021). But, collateral estoppel likewise requires a final order or judgment. Id. Here, the Order Striking is not a final order or judgment. See HZJ, Inc. v. Wysocki, 511 So.2d 1088, 1088-89 (Fla. 3d DCA 1987) (treating order striking answer and affirmative defenses as interlocutory order). Until the state court has entered a final judgment, it may alter preliminary rulings in the case. Abdullatif Jameel Hospital v. Integrity Life Sciences, LLC, Case No: 8:15-cv-2160-MSS-JSS, 2016 WL 9526457 (M.D. Fla. Sept. 23, 2016). Accordingly, the Debtor is not barred from litigating the issues raised in her Objection.
The Court further finds that the Debtor's arguments are not barred by judicial estoppel. "The equitable doctrine of judicial estoppel is intended to prevent the perversion of the judicial process and protect its integrity by prohibiting parties from deliberately changing positions according to the exigencies of the moment." Slater v. U.S. Steel Corp., 871 F.3d 1174, 1181 (11th Cir. 2017) (quoting New Hampshire v. Maine, 532 U.S. 742, 749-50 (2001)(internal quotations omitted)). Courts in this circuit may apply judicial estoppel when a party took an inconsistent position under oath in a separate proceeding and these inconsistent positions were "calculated to make a mockery of the judicial system." Slater 871 F.3d at 1181. In determining whether the party's inconsistent statements make a mockery of the judicial system, courts consider all the facts and circumstances of the case. Id. at 1185.
Here, the Debtor has consistently taken the position that the Loan was void and canceled. She disputed BOA's debt in this case and her prior chapter 13 bankruptcy case. She intended to "avoid the lien" in her prior chapter 7 case. And even if the Debtor made an inconsistent statement in her prior bankruptcy cases, the inconsistent statement does not make a mockery of the judicial system under these facts and circumstances. For thirteen years, the Debtor and BOA have been in dispute during which the Debtor made clear to this Court that she disputed the amounts owed to BOA or an issue existed between the parties. The Court finds, after considering the evidence and all the facts and circumstances, the Debtor has not made a mockery of the judicial system.
Cancelation of the Loan
The Debtor argues that she timely canceled the Loan. The Loan closed on March 7, 2007. The Notice of Cancelation provided to the Debtor required on its face, submission by midnight, March 10, 2007—three days after closing.
The Debtor testified that she was presented with incorrect loan documents at closing and that the closing agent told her she would receive corrected documents the following day and would have an additional day to cancel as a result. The Debtor presented unrebutted evidence that she sent the cancelation to the proper fax number on March 11, 2007 at 7:38 p.m.—within the extended deadline.
BOA presented no evidence to rebut the submission of the cancelation on March 11, 2007 or that the closing agent told the Debtor she would have one additional day to cancel. Although BOA objected to the closing agent's statement as hearsay, the Court rules that the closing agent's statements are not hearsay as the admission of a party opponent. See Fed. R. Evid. 801(d) (statement by opposing party is not hearsay); Pappas v. Middle Earth Condominium Ass'n, 963 F.2d 534, 537-38 (2d Cir. 1992)(admissibility under Rule 801(d) should be given freely and the authority granted in an agency relationship need not include the authority to make the damaging statements, but simply authority to take action about which the statements relate); United American Bank of Cent. Florida, Inc. v. Seligman, 599 So.2d 1014, 1016 (Fla. 5th DCA 1992) (an escrow agent is an agent of all the principal parties to the transaction). Further, the Court finds the closing agent's statement is not being admitted for its truth, but for the impact on the Debtor's belief. Weaver v. Tech Data Corp., 66 F.Supp.2d 1258, 1264-65 (M.D. Fla. 1999)(verbal or non-verbal conduct offered for inferring something other than the matter asserted is excluded from the hearsay rule).
The Court finds that the Debtor timely submitted the Notice of Cancelation and canceled the Loan. The Court finds the Debtor's testimony on this issue credible and BOA, despite having the burden, presented no evidence to rebut Debtor's testimony. It is further likely that the Debtor's right to cancel did not even expire on March 11, 2007 because, according to Debtor's unrebutted testimony, BOA never provided a corrected Truth in Lending Disclosure. 15 U.S.C. § 1635, 12 C.F.R. § 1026.23 (2021) (consumer may exercise right to rescind up to three days after delivery of "all material disclosures.").
What then is the impact of Debtor's rescission of the Loan? According to 12 C.F.R. § 1026.23(d)(1), "[w]hen a consumer rescinds a transaction, the security interest giving rise to the right of recission becomes void and the consumer shall not be liable for any amount, including any finance charge." Accordingly, BOA's mortgage is void and of no force and effect, and the Debtor is not obligated on the Loan. Federal regulations further provide that the consumer may retain possession of any money or property received until such time the creditor has met its obligation to return any money or property given and to take action to reflect termination of the security interest. 12 C.F.R. § 1026.23(d)(2),(3). BOA has to date taken none of these actions. Not only has it not terminated the security interest, but it never sought return of any funds advanced.
This result may seem like a windfall. BOA could have advanced other legal theories to establish the Debtor's liability for funds advanced to pay the Initial Loan or other obligations. But, BOA never made the argument at trial or in its pleadings. BOA's argument would have been unsuccessful for other reasons. First, BOA produced absolutely zero evidence—neither testimony nor documents—of the amounts it funded to pay the Initial Loan mortgage or any other debt. The only evidence submitted was a payment history simply showing a $150,000 balance as of May 2007 with no indication of how this amount was determined. BOA also submitted satisfactions of mortgage listing the face amount of loans to the Debtor that were satisfied, but these documents do not demonstrate the balance owed or who satisfied them. BOA likewise solicited no testimony to address this issue. BOA has the burden to establish its claim and failed to do so. Debtor also testified that the balance of her first mortgage was less than $90,000, further questioning how BOA arrived at $150,000 opening balance. Second, under the regulations cited above, Debtor has no obligation to return such funds. Finally, to the extent that the Debtor has any type of obligation to BOA, as of 2007, the claim would have been unsecured as result of 12 C.F.R. § 1026.23(d). BOA has filed no unsecured claim, nor can it file one now as the unsecured obligation was discharged in the Debtor's prior chapter 7 bankruptcy case.
As the prevailing party, the Debtor's request for attorney's fees and costs under the note and mortgage will also be granted. Fla. Stat. § 57.105(7) ("If a contract contains a provision allowing attorney's fees to a party when he or she is required to take any action to enforce the contract, the court may also allow reasonable attorney's fees to the other party when that party prevails in any action, whether as plaintiff or defendant, with respect to the contract.")
The Court finds the Loan was rescinded, BOA's security interest in the Home is void and BOA has not met its burden to establish that the Debtor is liable for payment of any amounts advanced. As a result, BOA's claim will be disallowed in its entirety. As the prevailing party, the Debtor is entitled to her reasonable attorney's fees and costs under the note and mortgage. The Court recognizes this ruling will result in a windfall to the Debtor, but BOA failed to meet its burden and provide this Court with credible evidence to rule otherwise. The Court will enter a separate order consistent with this memorandum opinion.
Attorney Michael Faro is directed to serve a copy of this order on all interested parties who are non-CM/ECF users and file a proof of service within 3 days of entry of the order.