Court: District Court, D. Puerto Rico; April 9, 2013; Federal District Court
An appeal by FirstBank Puerto Rico challenges the bankruptcy court's denial of its secured claim status against debtor Nivea A. Pérez Mujica, stemming from a prior Opinion and Order dated September 13, 2011, and a Judgment by Judge Enrique S. Lamoutte. The bankruptcy court had previously denied FirstBank's request for reconsideration on May 9, 2012. The current appeal is dismissed, with the court asserting its jurisdiction under 28 U.S.C. 158(a)(1).
The standard of review for bankruptcy appeals involves de novo review of legal rulings and clear error review for factual findings. The district court cannot reverse the bankruptcy court's decisions unless there is a clear error of judgment. Additionally, evidentiary rulings are reviewed under an abuse of discretion standard, and findings of fact are respected unless clearly erroneous. The court emphasizes the importance of deference to the bankruptcy court’s factual determinations, especially regarding credibility and intent, as those are primarily assessed through witness demeanor. Since the parties do not contest the bankruptcy court's findings of fact, those findings remain undisturbed on appeal.
The Court is tasked with resolving two main issues: (a) whether the bankruptcy court correctly determined that FirstBank did not satisfy the requirements of 11 U.S.C. § 362(b)(3), thereby rendering the exceptions to the trustee's avoiding powers under 11 U.S.C. §§ 544(a) and 546(b)(1)(A) inapplicable; and (b) whether the bankruptcy court erred in concluding that FirstBank must address the deficiency in the title for parcel 1714 by correcting errors with the Property Registrar and presenting an amended or new deed, which will subsequently be registered under the principle of prior tempore potior iure, meaning that the first in time holds priority.
The factual background indicates that Nivea V. Pérez Mujica filed for Chapter 13 bankruptcy on September 12, 2009, listing her 50% interest in a residential property in Rio Grande, PR, purchased in 2004 for $130,000, with an appraised value of $90,000. The property has title registration issues due to previous owners' failure to register their title, which affects Ms. Pérez's ability to secure her ownership claim. FirstBank filed a secured proof of claim for $145,192.83, including arrears. Ms. Pérez initiated an adversary proceeding on February 10, 2010, contesting FirstBank's secured status, arguing that the property was not registered under her ownership, and thus the mortgage deed could not be recorded, leaving FirstBank without a secured lien under Puerto Rico Mortgage Law.
On November 1, 2010, Ms. Pérez filed a motion for summary judgment in an adversary proceeding, which she supplemented on November 5, 2010, to include a title study for parcel 1714, relevant to the Debtor’s property (lot 13). FirstBank opposed this motion and filed a cross-motion for summary judgment on December 1, 2010, asserting that: (a) the Bankruptcy Code's Sections 362(b)(3) and 546(b)(1)(A) permit actions to perfect or maintain property interests post-petition; (b) FirstBank's mortgage was timely filed prior to the bankruptcy petition, securing its status; (c) under Puerto Rico Mortgage Law, a mortgage lien is effective against third parties from the date of presentation to the Property Registry; (d) a precedent case affirmed that a secured creditor can perfect its interest after a bankruptcy filing; (e) FirstBank can take corrective actions under the Bankruptcy Code; and (f) the state court has reserved judgment on FirstBank's foreclosure rights pending proof of proper mortgage recording. The bankruptcy court recognized FirstBank's secured claim and noted that a judgment does not affect this status. The court also referenced uncontested material facts from its September 13, 2011, Opinion and Order, confirming that Ms. Pérez co-owns a residential property in Puerto Rico and detailing the history of a 1993 deed that aimed to adjudicate property interests but was deemed defective and expired in 2006.
On March 20, 1999, deed #9 was executed before Notary Public Sonia Ríos Rosario, transferring 25% pro indiviso interests in lot 13 from four heirs (Milagros, Mildred, Eliezer, and Edwin Feliciano Pinto) to Miguel Antonio Santiago Soto and Yadel Marie Aquino Santiago. This deed was registered on March 25, 1999, and notified on November 30, 2005. Subsequently, on November 24, 2004, deed #196 was executed before Notary Public Pedro Rivera Pérez, wherein Miguel Santiago Soto and Yadel Marie Aquino Santiago sold lot 13 to Debtor Nivea V. Pérez Mujica and Francisco Núñez Muñoz, but this deed was not notified upon its registration on August 23, 2006. On the same date, a mortgage note for $126,100.00 was executed by Debtor and Núñez Muñoz in favor of Pan American Financial Corporation, accompanied by mortgage deed #197, which was also not notified and presented for registration on August 23, 2006.
FirstBank later acquired this mortgage note and became the creditor. A complaint was filed against Debtor, resulting in a judgment on May 13, 2009. At the time of the Debtor's bankruptcy petition, the mortgage deed had not been recorded. The bankruptcy court granted a summary judgment for Ms. Pérez based on several grounds: (a) the property parcel 1714 had an interrupted tract history preventing the registration of FirstBank’s mortgage, (b) the Debtor's property had not been segregated from parcel 1714 nor adjudicated among the heirs due to the expiration of deed #21, and (c) the lack of successive tract history would lead to the denial of FirstBank’s mortgage registration according to relevant Puerto Rico Mortgage Law provisions.
FirstBank must address the lack of successive tract for parcel 1714 by correcting errors noted by the Property Registrar for deed #21 and submitting an amended or new deed as stipulated in Article 72 of the Puerto Rico Mortgage Law, 30 L.P.R.A. 2275. This deed will take effect upon its entry in the Property Registry. Due to the principle of prior tempore potior iure, FirstBank’s amended deed will be recorded after the mortgage deed, as it was submitted later, in accordance with Article 53 of the Puerto Rico Mortgage Law, 30 L.P.R.A. 2256. Additionally, FirstBank must file its mortgage deed after the new deed, as a mortgage requires a recorded real estate title. The lapsed deed #21 is crucial because it facilitated the segregation of lot 13 from parcel 1714, meaning lot 13 cannot be recognized as a separate parcel until the new deed is processed. The bankruptcy court determined that FirstBank did not meet the requirements of 11 U.S.C. 362(b)(3), thus the exception to the automatic stay and trustee’s powers under Section 544(a) of the Bankruptcy Code are invalid. Consequently, FirstBank lacks a validly perfected secured lien due to a "falta de tracto," indicating a missing link in the title chain per the Property Registry records. A judgment was rendered on October 26, 2011, which FirstBank sought to reconsider on November 9, 2011, but this was denied on May 9, 2012. The bankruptcy court highlighted that if defects in registration documents are not corrected within 60 days, as per Article 69 of the Puerto Rico Mortgage Law, the presentation entry expires, nullifying any legal effects and allowing interested parties to retrieve unregistered documents. Article 69.1 of the Mortgage Regulation does not apply to entries that have expired or been extinguished.
The Court conducts de novo review of legal conclusions made by the bankruptcy court, relying on uncontested material facts. Under 11 U.S.C. § 362(b)(3), the filing of a bankruptcy petition does not impose an automatic stay on acts to perfect or maintain an interest in property, provided the trustee's rights under § 546(b) are respected. For this exception to apply, three conditions must be satisfied: (1) there must be an 'act to perfect,' (2) an interest in property, and (3) circumstances fitting within the authority of § 546(b). Creditors seeking to perfect their interest must comply with general applicable law that allows perfection and ensures effectiveness against prior rights in the property. The essence of this provision is that bankruptcy filings do not hinder a creditor's ability to perfect its interest, assuming such perfection could have occurred before the bankruptcy. However, § 362(b)(3) is not a means to create a lien post-filing; it aligns with applicable state law, specifically Puerto Rico Mortgage Law in this instance, which governs lien perfection. While local law determines the extent of property interests, the definitions of "interest in property" under § 362(b)(3) and § 546(b)(1)(A) are governed by federal law.
The court in RG Premier Bank of P.R. v. Feliciano Alvarado clarified the distinction between "interest in property" and "lien," emphasizing that the former is broader and not synonymous with the latter, as established by the First Circuit in 229 Main St. The court noted that section 362(b)(3) specifically uses "interest in property," which supports a plain meaning interpretation. The court concluded that FirstBank demonstrated an "interest in property" but failed to establish a perfected lien due to two reasons: (1) it did not cure a defect within the 60-day period mandated by Puerto Rico Mortgage Law, rendering the presentation entry extinct; and (2) it could not prove it was the successor in interest to Pan American Financial Corporation. The court highlighted that an "interest in property" does not equate to a lien. Additionally, the court faced issues with an incomplete record on appeal, noting that several critical documents were in Spanish, which violates local rules regarding documentary evidence submission.
The Court addresses FirstBank's request for perfection of a lien, noting a lack of clarity regarding the timeline of FirstBank's acquisition of the mortgage note from Pan American Financial Corporation. It highlights that FirstBank has not provided evidence to establish its status as the successor in interest to Pan American, failing to produce necessary documentation such as a designation of successor or an affidavit regarding the mortgage note transfer. The Court concurs with the bankruptcy court's finding of a "missing link" in the chain of title, hindering FirstBank's ability to perfect its lien. The Court also examines the applicability of the automatic stay exception under 11 U.S.C. 362(b)(3), emphasizing that FirstBank must demonstrate it meets three criteria: (1) an 'act to perfect,' (2) an interest in property, and (3) compliance with the relevant perfection-authorizing statute. FirstBank has not demonstrated an enforceable lien prior to Ms. Pérez's bankruptcy filing, as emphasized by Puerto Rico case law which dictates the importance of document registration timing for establishing priority. The Court reinforces that while registered titles are effective from the date of registration, the actual date of presentation is pivotal for determining their effectiveness and priority.
FirstBank possesses an "interest in property" through an endorsed mortgage note but lacks a perfected lien under Puerto Rico law. The court emphasizes that an "interest in property" is distinct from a lien and that FirstBank's claims do not meet the criteria for an exception under Section 362(b)(3) of the Bankruptcy Code. The court concludes that only the first two requirements of Section 362(b)(3) apply, as the relevant documentation was submitted well before Ms. Pérez's bankruptcy filing, rendering the avoidance provisions of the Bankruptcy Code inapplicable due to expired statutory periods.
The court affirms the bankruptcy court's decision, noting FirstBank's failure to demonstrate a secured claim or perfected lien. Additionally, FirstBank could not prove its status as a successor in interest to Pan American Financial Corporation and did not complete the necessary titleholder documentation in the Property Registry, which is vital for perfecting a lien under Puerto Rico Mortgage Law. The court also highlights that the supporting evidence provided was in Spanish, limiting the district court's ability to evaluate it. Consequently, the appeal is dismissed, and the bankruptcy court's ruling is upheld. FirstBank's alleged errors of law have been condensed into two broader issues regarding federal bankruptcy law and Puerto Rico Mortgage Law. The court references the "Property Registry Facilitation Act," which may affect the case but has not been fully litigated.
