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Peterson v. Flagstar Bank, FSB

United States District Court, D. Maryland, Southern Division

March 15, 2017



          Paul W. Grimm United States District Judge

         This is the sixth year of Appellant Michael Leon Peterson's continuing efforts to stop Flagstar Bank, FSB (“Flagstar”) from foreclosing on his mortgaged property at 15207 Joppa Place, Bowie, Maryland 20721 (the “Property”). Most recently, Peterson appeals an Order of the United States Bankruptcy Court for the District of Maryland terminating an automatic stay of the foreclosure proceedings in the Circuit Court for Prince George's County, Maryland (“Foreclosure Action”). Having reviewed the parties' briefs (ECF Nos. 11, 11-1, 12, 14, 14-1, 14-2), [1] the record in this Court, and the docket in the Foreclosure Action, I find oral argument unnecessary. See Fed. R. Bankr. P. 8012; Loc. R. 105.6. Because collateral estoppel bars the argument underlying Peterson's appeal-that Flagstar lacked standing to foreclose on the Property-and barred the Bankruptcy Court from considering the same argument, I will affirm the Bankruptcy Court's Order Terminating Automatic Stay, ECF No. 3-10, and dismiss the appeal.


         Peterson purchased the Property (jointly with Patricia Peterson, not a party to this appeal) through a mortgage loan (the “Note”), secured by a Deed of Trust, ECF No. 11-2, in April 2008.

         Peterson Br. 1. Unhappy with how the Note was handled, he attempted to rescind it and stopped making payments on it. Id.; Notice of Rescission, ECF No. 12-1, at 20.[2] Flagstar, as the successor on the Note, initiated the Foreclosure Action on June 24, 2011. Curran v. Peterson (“Foreclosure Action”), Civil No. CAE11-15096 (Cir. Ct. Prince George's Cnty., Md.). Peterson challenged Flagstar's standing to foreclose on the Property, and the state court found that Flagstar had standing, reasoning:

[T]he Note and Deed of Trust at issue were specifically endorsed from the original lender, Universal Trust Mortgage Corporation, to Flagstar Bank, FSB (hereinafter ‘Flagstar'). Under Paragraph 20 of the Deed of Trust, Flagstar, as the successor/assign of the original lender, has the right to appoint Substitute Trustees. Considering the Substitute Trustees were properly appointed, pursuant to Md. Code Ann., Com. Law § 3-301, they are entitled to bring the current action on behalf of the noteholder.

Jan. 9, 2014 Order in Foreclosure Action, ECF No. 12-1, at 17. Flagstar purchased the Property at a foreclosure sale one year later. State Ct. Docket.[3] The state court signed a Final Order of Ratification on August 7, 2015; a Final Order on October 9, 2015; and an order awarding possession to Flagstar as the Foreclosure Purchaser on December 8, 2015. Id. Peterson appealed the Final Order of Ratification without success; the Maryland Court of Special Appeals dismissed his appeal on November 23, 2016.

         Meanwhile, on December 11, 2015, Peterson filed for Chapter 13 bankruptcy.[4] Bankr. Ct. Docket, ECF No. 1-1. He also initiated an adversary proceeding in Bankruptcy Court, Peterson v. Flagstar Bank, FSB, Adversary Proceeding No. 16-133, alleging fraudulent transfer, which the court dismissed for want of prosecution on November 21, 2016. ECF No. 14-5; Bankr. Ct. Docket. Peterson had not vacated the Property yet when he filed for bankruptcy, and his bankruptcy filing automatically stayed the Foreclosure Action pursuant to 11 U.S.C. § 362(a). Flagstar moved to lift the automatic stay pursuant to 11 U.S.C. § 362(d)-(f) because Peterson no longer had an ownership interest in the Property. ECF Nos. 3-1, 3-5. Peterson opposed the motion, arguing again that Flagstar lacked standing to foreclose on the Property. Peterson Opp'n to Mot. 3-4, ECF No. 3-4; Peterson Opp'n to Am. Mot. 4, 7, ECF No. 3-8. The Bankruptcy Court granted the motion on June 30, 2016, permitting the eviction process to proceed. ECF Nos. 3-9, 3-10. It is from that order that Peterson appeals.

         Standard of Review

          On appeal, Peterson argues that Flagstar lacked “Standing in the original foreclosure [because it] fail[ed] to produce the genuine Promissory Note, ” and he insists that, as a result, the Bankruptcy Court lacked “jurisdiction . . . to render any judgment in this matter until Standing is proven.” Peterson Br. 3, 5. He also insists that he has “newly discovered evidence” that “is core to the lack of standing.” Id. at 2, 4. Whether a party has standing is a question of law. See Frank Krasner Enters., Ltd. v. Montgomery Cnty., MD, 401 F.3d 230, 234 (4th Cir. 2005). It is well established that this Court “reviews a bankruptcy court's . . . conclusions of law de novo.” In re Rood, 448 B.R. 149, 157 (D. Md. 2011); see In re Official Comm. of Unsecured for Dornier Aviation (N. Am.), Inc., 453 F.3d 225, 231 (4th Cir. 2006).

         Bankruptcy Court's Jurisdiction

         Flagstar argues that “[s]ince Appellant had to raise his arguments challenging standing in the Circuit Court prior to the sale it is clear that the bankruptcy court lacks jurisdiction to adjudicate the issue of whether or not Flagstar had standing to foreclose for a sale that took place prior to the filing of the Bankruptcy case.” Flagstar Br. 6. Flagstar does not cite any law in support of its argument, and I will not construct its argument for it. In any event, the Bankruptcy Court has “original but not exclusive jurisdiction of all civil proceedings arising under [the Bankruptcy Code], or arising in or related to cases under [the Bankruptcy Code].” 28 U.S.C. § 1334(b) (emphasis added). § 1334(b) (emphasis added).

[A]n action is “related to” bankruptcy if “the outcome could alter the debtor's rights, liabilities, options or freedom of action (either positively or negatively) and which in any way impacts upon the handling and administration of the bankrupt estate.” A.H. Robins Co., Inc. v. Piccinin, 788 F.2d 994, 1002 n.11 (4th Cir. 1986) (quotation marks and citation omitted). Indeed, it is “difficult to imagine any instance in which a bankruptcy court would not have jurisdiction if the debtor were a party.” Id. (quotation marks and citation omitted).

In re Azalea Gardens Bd. & Care, Inc., 215 F.3d 1317, 2000 WL 688676, at *2 (4th Cir. 2000) (Table). Whether Flagstar had standing to maintain the Foreclosure Action certainly is related to Peterson's bankruptcy proceeding, as it could affect the disposition of the Property. See id.; A.H. Robins, 788 F.2d at 1002 n.11. But, the Bankruptcy Court's jurisdiction does not mean that the issue was properly before it. Rather, I must consider whether preclusion barred the Bankruptcy Court (and now bars this Court) from ...

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