Court Opinion

ID: 4192863
Source: CourtListenerOpinion
Date Created: 2017-08-03 17:03:02.511386+00
Date Added: 2024-06-11T14:40:22.692562
License: Public Domain

FILED
 1                         ORDERED PUBLISHED                 JUL 10 2015
 2                                                      SUSAN M. SPRAUL, CLERK
                                                          U.S. BKCY. APP. PANEL
                                                          OF THE NINTH CIRCUIT
 3                  UNITED STATES BANKRUPTCY APPELLATE PANEL
 4                            OF THE NINTH CIRCUIT
 5
 6   In re:                        )      BAP No.    AZ-14-1496-JuKiPa
                                   )
 7   CARRIE MARGARET NEIDORF,      )      Bk. No.    2:08-bk-08600-MCW
                                   )
 8                  Debtor.        )
     ______________________________)
 9                                 )
     ROBERT A. MacKENZIE, Chapter )
10   7 Trustee,                    )
                                   )
11                  Appellant,     )
                                   )
12   v.                            )      O P I N I O N
                                   )
13   CARRIE MARGARET NEIDORF,      )
                                   )
14                  Appellee.      )
     ______________________________)
15
16                   Argued and Submitted on June 19, 2015
                              at Phoenix, Arizona
17
                             Filed - July 10, 2015
18
               Appeal from the United States Bankruptcy Court
19                       for the District of Arizona
20     Honorable Madeleine C. Wanslee, Bankruptcy Judge, Presiding
                        _________________________
21
     Appearances:     Michael Paul Lane, Lane & Nash, P.C. argued for
22                    appellant Robert A. MacKenzie; Kenneth L. Neeley,
                      Neeley Law Firm, PLC, argued for appellee Carrie
23                    Margaret Neidorf.
                           _________________________
24
25   Before:   JURY, KIRSCHER, and PAPPAS, Bankruptcy Judges.
26
27
28
 1   JURY, Bankruptcy Judge:
 2
 3        Chapter 71 debtor Carrie Margaret Neidorf (Debtor)
 4   scheduled her real property (Residence) as an asset of her
 5   estate.   There was no equity in the property.       Postpetition, the
 6   lender obtained an unopposed relief from stay order and
 7   foreclosed on the property.    Years after the foreclosure, but
 8   while her bankruptcy case was still open, Debtor received a
 9   postpetition payment in the amount of $31,250 (Foreclosure
10   Payment).   The payment was made to Debtor pursuant to a national
11   settlement between banking regulators and certain financial
12   institutions, including Bank of America (B of A).        Debtor
13   disclosed her receipt of the Foreclosure Payment to Robert A.
14   MacKenzie, the chapter 7 trustee (Trustee).        Trustee then filed
15   a Motion to Compel Debtor to Turnover Estate Property (Turnover
16   Motion), asserting that the Foreclosure Payment was property of
17   the estate under § 541(a)(7).      The bankruptcy court denied his
18   motion, and this appeal followed.        For the reasons discussed
19   below, we AFFIRM.
20                                 I.   FACTS
21        The underlying facts are undisputed.        Debtor filed her
22   chapter 7 petition on July 12, 2008.        In Schedule A, Debtor
23   listed her Residence located in Phoenix with a value of
24   $350,000, subject to liens totaling $454,200.        In Schedule C,
25
26
          1
            Unless otherwise indicated, all chapter and section
27   references are to the Bankruptcy Code, 11 U.S.C. §§ 101-1532 and
     “Rule” references are to the Federal Rules of Bankruptcy
28   Procedure.

                                        -2-
 1   Debtor claimed an exemption in the property for $150,000 under
 2   Ariz. Rev. Stat. § 33-1101(A).    In Schedule D, Debtor showed the
 3   property was encumbered by three liens, including a first
 4   position deed of trust in favor of Countrywide Home Loans, Inc.
 5   (Countrywide).
 6        Countrywide obtained an unopposed order granting relief
 7   from the automatic stay with respect to the Residence on
 8   September 29, 2008.   Countrywide’s interest in the deed of trust
 9   was assigned to B of A sometime in 2008 as part of a
10   merger/acquisition.
11        Debtor received a § 727 discharge on October 21, 2008.
12        Debtor’s Residence was sold at a foreclosure sale on
13   July 14, 2009.
14        Trustee filed a Notice of Trustee’s Final Report and
15   Application for Compensation on November 14, 2013.   The
16   bankruptcy court entered an order approving payment for
17   administrative fees and expenses on December 19, 2013, but the
18   case was never closed.2
19        Almost six years after her case was filed, Debtor disclosed
20   to Trustee that she had received the Foreclosure Payment.   On
21   April 15, 2014, Trustee filed the Turnover Motion contending
22   that the payment was property of the estate under § 541(a)(7).
23        At the May 13, 2014 hearing, the bankruptcy court took the
24   matter under submission.   On September 30, 2014, the bankruptcy
25   court issued its findings of fact and conclusions of law and
26   entered the order denying Trustee’s Turnover Motion.   Trustee
27
          2
            Trustee kept the estate open while he was collecting on
28   an unsecured note.

                                      -3-
 1   timely appealed from that order.
 2                              II.    JURISDICTION
 3        The bankruptcy court had jurisdiction pursuant to 28 U.S.C.
 4   §§ 1334 and 157(b)(2)(E).        We have jurisdiction under 28 U.S.C.
 5   § 158.
 6                                 III.    ISSUE
 7        Did the bankruptcy court err by determining that the
 8   Foreclosure Payment was not property of Debtor’s estate?
 9                        IV.    STANDARDS OF REVIEW
10        Whether property is included in a bankruptcy estate is a
11   question of law subject to de novo review.       Cisneros v. Kim
12   (In re Kim), 257 B.R. 680, 684 (9th Cir. BAP 2000).
13        We may affirm the bankruptcy court’s decision on any ground
14   supported by the record.     Olsen v. Zerbetz (In re Olsen), 36
15   F.3d 71, 73 (9th Cir. 1994).
16                               V.     DISCUSSION
17        Section 541(a)(7) makes property of the estate any interest
18   in property that the estate (not the debtor) acquires after the
19   petition date.   “Congress enacted § 541(a)(7) to clarify its
20   intention that § 541 be an all-embracing definition and to
21   ensure that property interests created with or by property of
22   the estate are themselves property of the estate.”       TMT
23   Procurement Corp. v. Vantage Drilling Co. (In re TMT Procurement
24   Corp.), 764 F.3d 512, 524-25 (5th Cir. 2014); H.R. REP. 95-595,
25   549, reprinted in 1978 U.S.C.C.A.N. 5963, 6455 & 6523-24.
26   Stated differently, for the after-acquired interest to be
27   considered property of the estate under § 541(a)(7), the
28   interest (1) must be created with or by property of the estate;

                                          -4-
 1   (2) acquired in the estate’s normal course of business; or (3)
 2   otherwise be traceable to or arise out of any prepetition
 3   interest included in the bankruptcy estate.   See Id. at 525.
 4   The party seeking to include property in the estate bears the
 5   burden of showing that the item is property of the estate.
 6   Seaver v. Klein–Swanson (In re Klein–Swanson), 488 B.R. 628, 633
 7   (8th Cir. BAP 2013).
 8        Here, Trustee has not shown how the bankruptcy estate
 9   acquired an interest in the postpetition Foreclosure Payment.
10   The payment was neither created with or by property of the
11   estate nor can it be said that the payment is traceable to or
12   arose out of any prepetition interest included in the bankruptcy
13   estate.   The fact that Debtor’s Residence became property of the
14   estate, in and of itself, does not support the inclusion of the
15   Foreclosure Payment as after-acquired property under
16   § 541(a)(7).   Rather, Debtor became entitled to the payment only
17   as a result of qualifying events occurring after her bankruptcy
18   filing.
19        Debtor’s legal right to, or interest in, the Foreclosure
20   Payment was as a “borrower,” and did not arise until April 13,
21   2011, when B of A, acting through its Board of Directors, and
22   the Comptroller of the Currency (Comptroller) entered into a
23   consent order (2011 Consent Order).3   The Comptroller and B of A
24
          3
25          Attached to Debtor’s response to Trustee’s Turnover
     Motion was a letter which included her payment check. That
26   letter said that B of A had entered into the agreement described
     above and gave a website address where additional information
27   about the agreement could be found. The bankruptcy court
     apparently went to the website identified in the letter to
28                                                      (continued...)

                                    -5-
 1   entered into an Amendment to the Consent Order dated
 2   February 28, 2013 (2013 ACO), which required B of A to make a
 3   $1,127,453.261 cash payment to a Qualified Settlement Fund
 4   (QSF).    Under the 2013 ACO, only borrowers who had a pending or
 5   completed foreclosure on their primary residence any time from
 6   January 1, 2009, to December 31, 2010, were eligible to receive
 7   distributions from the QSF.       In other words, it was the
 8   postpetition 2011 Consent Order and 2013 ACO which created the
 9   rights and remedies for the specified class of borrowers.
10        Seen in this light, that the estate had an interest in
11   Debtor’s Residence is not enough.        Nowhere has Trustee shown how
12   the estate obtained an interest in the Foreclosure Payment
13   itself when the qualifying events giving rise to Debtor’s legal
14   rights to the payment all occurred postpetition and were held
15   solely by the borrowers.    See Drewes v. Vote (In re Vote), 276
16   F.3d 1024 (8th Cir. 2002).       The payment is thus not an after-
17   acquired interest of the estate.         Therefore, we agree with the
18   bankruptcy court’s legal conclusion that the postpetition
19   Foreclosure Payment received by Debtor was not property of her
20   estate.
21                              VI.    CONCLUSION
22        Having found no error, we AFFIRM.
23
24        3
           (...continued)
25   obtain additional information about the national settlement and
     the terms of the Consent Order. Although the Consent Order was
26   not part of the record in the bankruptcy court, the parties
     verified at oral argument that they had no objection to the
27   bankruptcy court’s sua sponte examination of the Consent Order
     or its amendment. Like the bankruptcy court, we have also
28   reviewed them.

                                        -6-