United States District Court, D. New Jersey
In re VICTOR ALBANES & YOLANDA ALBANES, Debtors.
WELLS FARGO BANK, N.A., as trustee for WATERFALL VICTORIA MORTGAGE TRUST 2011-SCB1, Appellees. VICTOR ALBANES & YOLANDA ALBANES, Appellants,
Michael Vazquez, U.S.D.J.
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.
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.
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.
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.
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.
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.
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.
Recession under the Truth in Lending Act
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