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In re Albanes

United States District Court, D. New Jersey

July 18, 2017


         Not for Publication


          John Michael Vazquez, U.S.D.J.

         This matter comes before the Court by Debtor Appellants Victor M. and Yolanda D. Albanes' appeal of a final Order of the United States Bankruptcy Court, District of New Jersey dated July 5, 2016 by the Honorable Vincent F. Papalia, U.S.B.J. D.E. 1. Appellants filed a brief in support of their appeal and Appellees Waterfall Victoria Mortgage Trust 2011-SBC 1 ("Waterfall"), Jemcap LLC, Peter Marsh, and Saul Ewing LLP ("Saul Ewing") filed a brief in opposition. D.E. 7. Appellee Wells Fargo Bank, N.A. ("Wells Fargo") joined and adopted the other Appellees' brief in opposition. D.E. 8. The Court reviewed all submissions made in support of the appeal and considered the appeal without oral argument pursuant to L. Civ. R. 78.1(b). For the reasons that follow, the Order of the Bankruptcy Court is AFFIRMED.

         I. BACKGROUND

         Because Judge Papalia provided a detailed statement of facts in his thorough opinion, of which the parties are clearly familiar with, the Court will only provide a brief summary of this case. See Motion to Dismiss Opinion ("Opinion"), D.E. 1-1. On August 8, 2003, Greenpoint Mortgage Funding, Inc. ("Greenpoint") made a $227, 500 loan to Appellant Yolanda Albanes, which is evidenced by an adjustable rate note. To secure the indebtedness incurred under the note, Appellants executed and delivered a mortgage to Greenpoint the same day. The mortgage was recorded in the Office of the Union County Clerk on August 20, 2003. Appellants' Appendix at 143-84. On August 8, 2011, the mortgage was assigned to Wells Fargo as Trustee for Waterfall. Id. at 64-66.

         On or about October 1, 2009, Appellants defaulted on their mortgage payments. Wells Fargo began foreclosure proceedings in New Jersey state court in 2011 but its original case was dismissed without prejudice. Wells Fargo filed a second foreclosure proceeding in February 2014. Appellants filed an answer on June 16, 2014, which asserted numerous affirmative defenses, and a six-count counterclaim. Id. at 191-260. After a hearing on January 9, 2015, the judge struck Debtors' answer with prejudice, severed and dismissed the counterclaims, and granted summary judgment for Wells Fargo. Id. at 284-85. On May 22, 2015, the State court entered final judgment of foreclosure against Appellants. Id. at 287-89.

         On November 14, 2015, almost six months after final judgment was entered, Appellants sent a letter entitled "Notice of Recission/Cancellation" to numerous parties, including Wells Fargo and Waterfall. In the letter, Appellants stated that they were exercising their rights, pursuant to the Federal Truth in Lending Act ("TILA"), to rescind the entire loan transaction. Id. at 126-29. Three days later, on November 17, 2015, Appellants filed a voluntary Chapter 7 bankruptcy case, B.P. 15-31598.

         At a March 8, 2016 hearing and through a March 14, 2016 Order, Judge Papalia granted stay relief to Wells Fargo under 11 U.S.C. § 362(d)(1) and (2). B.P. No. 15-31598, D.E. 44, 45. Appellants opposed the request, arguing, among other things, that (1) the note and mortgage were rescinded through the Notice of Recission; and (2) Wells Fargo is not the real party-in-interest. Judge Papalia overruled Appellants' objections. Id. On March 8, 2016, Appellants filed a three-count adversary complaint against Appellees, B.P. No. 16-1187. See Id. at 11-52. The complaint addressed many of the same issues and arguments that Appellants raised in opposition to the motion to stay. Appellants' main allegations were that (1) the mortgage was effectively rescinded because the underlying loan transaction was never consummated; and (2) they are entitled to damages for fraud by omission because Appellants were never told that the loan could be assigned, sold, or pooled. Appendix at 11-35. Appellees moved to dismiss the complaint on May 10, 2016. Id. at 79-98.

         Judge Papalia granted the motion to dismiss in its entirety and denied Appellants leave to amend. See Opinion, D.E. 1-1. First, Judge Papalia concluded that TILA, 28 U.S.C. § 1635 et al, the basis upon which Appellants allegedly rescinded the mortgage, did not apply because the case pertained to a residential mortgage transaction. Opinion at 13-15. Judge Papalia also concluded that even if Appellants had the right to rescind under Section 1635, the rescission letter was not timely because the loan at issue was consummated in 2003. Id. at 15-17. Next, Judge Papalia concluded that Appellants' adversary complaint was barred under the doctrines of collateral estoppel, res judicata, and the Rooker-Feldman abstention doctrine due to the New Jersey state court foreclosure proceeding. Id. at 18-22. In addition, Judge Papalia determined that Appellants' claims against Saul Ewing were barred by the litigation privilege. Id. at 22-23. Finally, Judge Papalia dismissed the entire complaint with prejudice after he determined that any attempt to amend would be futile. Judge Papalia concluded that permitting leave to amend would subject Wells Fargo and the Court to needless and duplicative litigation. Id. Appellants filed this appeal on July 14, 2016.


         A district court has appellate jurisdiction over the final judgments, orders, and decrees of a bankruptcy court. 28U.S.C. § 158(a)(1). When sitting as an appellate court reviewing a decision of the bankruptcy court, the district court "review[s] the bankruptcy court's legal determinations de novo, its factual findings for clear error and its exercise of discretion for abuse thereof." In re United Healthcare Sys., Inc., 396 F.3d 247, 249 (3d Cir. 2005) (quoting/n re Trans World Airlines, Inc., 145 F.3d 124, 130-31 (3d Cir. 1998)).


         A. Recession under the Truth in Lending Act

         Appellants contend that Judge Papalia improperly dismissed their complaint on numerous grounds. Appellants' main argument appears to be that they rescinded their mortgage pursuant to TILA, 15 U.S.C. § 1635, et al, and Federal Reserve Board Regulation Z, 12 C.F.R. § 226.23. In terms of the apparent rescission, Appellants make virtually the same arguments in this appeal as in their opposition to the motion to dismiss. See App. Br. at 5-13. Judge Papalia considered this issue at length, concluding that Section ...

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