Most of the mortgage-avoidance cases written about here by Vincent Howard and our team of Chino foreclosure defense attorneys are fairly simple, in that the identity and rights of the borrowers are not in doubt. (Though the identity of the entity authorized to foreclose often is.) In In re Szerwinski, the Bankruptcy Appellate Panel of the Sixth U.S. Circuit Court of Appeals confronted a rather more complicated ownership situation. Debtors Michael and Donna Szerwinski leased land from the Muskingum Watershed Conservancy District, an agency of the State of Ohio. On that land was a cottage, which the Szerwinskis bought separately and gave the Conservancy an ownership interest in. After they filed for bankruptcy, their trustee sought to avoid the mortgage because the cottage is a chattel, not a fixture. The BAP agreed with the bankruptcy court that the cottage is fixed and there's no evidence it was intended to be treated like chattel.
The Szerwinskis were assigned the lease from the previous lessees in September of 2006 and bought the cottage from the same people, requiring them to take out a bank mortgage of $240,750 with the approval of the Conservancy. Their lease with the Conservancy provided that they owned the cottage, but gave the Conservancy the right to possess the land if they failed to make lease payments or follow the law. In October of 2009, they filed for Chapter 7 bankruptcy, listing the cottage as real estate. Their trustee filed a complaint to determine liens, and ultimately asked the court for summary judgment finding that the mortgage was not secured by the cottage, because the cottage was chattel and thus the bank had not perfected its interest properly. The bankruptcy court denied this, scheduling a trial instead on genuine issues of material fact. After that trial, it denied the attempt to classify the cottage as chattel, finding no evidence that the Szerwinskis intended to move it but lots of evidence that it would be difficult to move. The trustee appealed.
The Sixth Circuit's BAP upheld the bankruptcy court, finding the cottage was not a chattel and thus that the loan could not be avoided. Under Ohio law, a chattel is any movable good, including goods that can be fixed to land temporarily. A fixture is a former chattel that became permanently affixed to the land; it is treated as real property whose security interest is perfected by the conventional mortgage process. To determine whether something is a fixture, the test is whether the property is actually annexed to the land; appropriated to the purpose of the land; and intended to be permanently attached. The trustee challenged the bankruptcy court's ruling on the third prong of the test, whether the parties intended the cottage to remain permanently. The BAP dismissed as unsupported the assertion that it doesn't matter whether they intended to move the cottage. The transfer by bill of sale rather than deed also is not material, the panel ruled; it may be the better legal structure for these unusual circumstances. Thus, it affirmed the ruling that the cottage is a fixture and denied the attempt to avoid the mortgage.
Vincent Howard and our Stanton consumer bankruptcy lawyers don't often handle bankruptcy cases involving land that belongs to one party and a structure on that land that belongs to another. But when this happens, it's likely to be a complicated case that requires effort to work out everyone's legal rights and obligations. If you're facing foreclosure, this may work to your advantage. If the court had decided this cottage was a chattel, the mortgage lender would likely not have had the same rights to collect on the debt. However, it's worth keeping in mind that the bankruptcy trustee works in the interests of the creditors, not the debtors -- so that the money saved by the Szerwnskis may have simply been diverted to other creditors. At Howard Law, P.C., our Pomona personal bankruptcy attorneys plan legal strategies like this as early as possible in the bankruptcy.
If you're considering bankruptcy to deal with a mortgage debt or any other debt you don't think you can realistically pay off, Vincent Howard and the experienced attorneys at Howard Law can help. To tell us about your situation and learn more about us, call us today at 1-800-872-5925 or send us a message online.