(Appeal related to Bankruptcy Case No. 09-21594).
The opinion of the court was delivered by: Conti, District Judge.
Pending before the court is an appeal by appellant Wells Fargo Home Mortgage ("Wells Fargo" or "creditor") from an order of the bankruptcy court dated February 23, 2010. (Bankr. W.D. Pa. No. 09-21594) (Docket No. 75). The bankruptcy court denied a motion to reform a mortgage and for relief from an automatic stay filed by Wells Fargo (Id.) (Docket No. 36). After considering the submissions of the parties, the February 23, 2010 order of the bankruptcy court is reversed because as a matter of law the mortgage in issue should be reformed to include certain residential real property owned by appellee Mark J. Leach ("Leach" or "debtor"). The matter must be remanded for the bankruptcy court to determine whether the adjacent property is included in the mortgage and to reconsider whether relief from the automatic stay should be granted.
Debtor and his wife, Doretta Leach (collectively, the "mortgagors"), own as tenants by the entirety a parcel of real property on which their residence is located (the "residential property"). (Appellant's App. (Civil Action No. 10-449, Docket No. 2) at 316.) The mortgagors also own a separate parcel of real property adjacent to the residential property (the "adjacent property") on which a tennis court was constructed and which has been extensively landscaped. (Appellant's App. at 316.) The mailing address of the residential property is 688 Maple Drive, Monongahela, Pennsylvania 15063. (Id.) The adjacent property does not have a separate mailing address. (Id.) Debtor considered the mailing address of the residential property to be the de facto address of the adjacent property and frequently referred to it in that manner. (Id. at 327.)
The mortgagors applied in early August 1999 for a loan in the amount of $240,000. (Appellant's App. at 316.) "The primary purpose of the loan was to pay off a previous mortgage lien on the properties." (Id.) An appraisal was conducted in connection with the loan application and contained references to the residential property. (Id. at 324.) The loan application was approved and closed on August 31, 1999. (Id.) At the closing the mortgagors granted Crossland Mortgage ("Crossland") (subsequently acquired by Wells Fargo) a first-priority mortgage in the amount of $240,000 that Crossland duly recorded. (Id.) The metes and bounds description of the property attached to the mortgage was of the adjacent property and not the residential property. (Id.)
The loan application listed the residential property mailing address as the "Subject Property" and indicated that the property would be the "Primary Residence". (Id. at 325.) The HUD-1 Settlement Statement additionally specified that the "Property Location" was to be the residential property mailing address. (Id. at 326.) The Truth-In-Lending Disclosure document stated that the "Property Address" was the residential mailing address and that "debtor was granting Crossland a security interest in 688 Maple Drive." (Id.) "The Occupancy Declaration listed 688 Maple Drive as the property address and stated that debtor would occupy the 'Subject Property' as his principle residence." (Id.) The mortgage stated the encumbered property address was 688 Maple Drive and noted the property was a "Single Family" residence. (Id. at 200; Hr'g Tr. at 57.) All the documents listed above (excluding the Appraisal Report) were signed or initialed by debtor at the closing of the August 1999 real estate transaction. (Id. at 325.) Debtor does not dispute the statements and declarations listed above. (Id. at 326.)
Debtor stated that he "'assumed' the mortgage encumbered the residential property as well [sic] the adjacent property because he 'would have thought that would have been the better decision' for Crossland based on the values of the residential property and the adjacent property" at closing. (Id. at 328.) Debtor further stated that "he 'thought' the residence was consideration for the loan" at closing. (Id.)
Debtor subsequently defaulted on the loan and Wells Fargo commenced a mortgage foreclosure action in state court in 2004 with respect to the residential and adjacent properties. (Id. at 317.) After debtor informed Wells Fargo that the property description in the mortgage only referred to the adjacent property, Wells Fargo moved to dismiss the action in mortgage foreclosure. (Id.)
"On January 28, 2005, debtor granted a mortgage in the residential property to . . . the Mark J. Leach Irrevocable Trust to secure payment of an alleged debt in the amount of $140,000 arising from a promissory note debtor purportedly executed on March 14, 2004." (Id.) "The description of the property subject to the mortgage was of the residential property." (Id.) Debtor filed a voluntary chapter 7 bankruptcy petition on March 9, 2009. (Id.) Debtor's bankruptcy petition schedules identified the residential property with a declared value of $200,000 and the adjacent property with a declared value of $50,000. (Id. at 318.)
Debtor filed a motion "seeking a determination that the mortgage lien of Wells Fargo attached to the adjacent property but not to the residential property." (Id.) Wells Fargo filed a cross-motion to reform the mortgage and for relief from the automatic stay. The bankruptcy court determined that an evidentiary hearing was required to resolve the dispute. (Id. at 319.) The bankruptcy court issued an order and memorandum opinion dated February 23, 2010 denying Wells Fargo's motion. (Id. at 314, 335.) On March 3, 2010, Wells Fargo filed a notice of appeal with this court. (Id. at 338.)
This court has jurisdiction over the appeal from the bankruptcy court's order dated February 23, 2010 pursuant to 28 U.S.C. § 158(a). A district court, "in reviewing the decision of a bankruptcy court, must apply a clearly erroneous standard to findings of fact and exercise plenary review over conclusions of law." Rosen v. Bezner, 996 F.2d 1527, 1530 n.2 (3d Cir. 1993); see In re Sharon Steel Corp., 871 F.2d 1217, 1222 (3d Cir. 1989) (where the parties disputed the proper standard of review to be applied, the court held that "it is settled law that this court applies a clearly erroneous standard to findings of fact, conducts plenary review of conclusions of law, and must break down mixed questions of law and fact, applying the appropriate standard to each component"); Brown v. Pa. State Employees ...