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In re Krumm

United States District Court, W.D. North Carolina, Statesville Division

June 30, 2015

IN RE: DANIEL NEAL KRUMM VELMA JEANNETTE KRUMM, Debtors,
v.
BARRETT CRAWFORD, CHAPTER 7 TRUSTEE FOR DANIEL NEAL KRUMM AND VELMA JEANETTE KRUMM, Defendants IN RE: LIFESTORE BANK, Plaintiff,

For Barrett Crawford, Chapter 7 Trustee for Daniel Neal Krumm and Velma Jeanette Krumm, Appellant: Jessica Virginia Shaddock, John W. Taylor, LEAD ATTORNEYS, John W. Taylor, P.C., Charlotte, NC.

For LifeStore Bank, LifeStore Bank, Appellants: Daniel C. Bruton, LEAD ATTORNEY, Bell, Davis & Pitt, P.A., Winston-Salem, NC.

For Barrett L. Crawford, Chapter 7 Trustee for Daniel Neal Krumm and Vlema Jeanette Krumm, Appellee: John W. Taylor, LEAD ATTORNEY, John W. Taylor, P.C., Charlotte, NC.

Page 143

ORDER

Richard Voorhees, United States District Judge.

BEFORE THE COURT are cross-appeals filed by Barrett L. Crawford, Chapter 7 Trustee for the Debtors Daniel Neal Krumm and Velma Krumm (hereinafter " Trustee" ), and LifeStore Bank (" LifeStore" ) in a bankruptcy adversary proceeding for declaratory judgment. (Docs. 5, 6).

I. FACTUAL AND PROCEDURAL HISTORY

On November 9, 2012, Daniel Neal Krumm and Velma Jeanette Krum (the " Debtors" ) filed a petition for relief under

Page 144

Chapter 7 of the Bankruptcy Code of the Bankruptcy Court in the Western District of North Carolina, Case No. 12-51092.

The facts are not in dispute. The parties agree that, on or about April 15, 2011, LifeStore loaned Debtors the principal sum of $396,025.00 for the purchase of Debtor's home (the " Loan" ). To memorialize the agreement, Debtors executed and delivered to LifeStore a Promissory Note (the " Note" ) wherein the Debtors promised to pay LifeStore Bank the principal plus interest. On the same day, to secure said Loan, Debtors executed and delivered to LifeStore a Deed of Trust wherein Debtors granted LifeStore a first-priority lien on five condominium units (Unit # 2, 4, 6, 7, 8) located at 218 Elk Hills Drive in Avery County, North Carolina (the " Real Property" ). The Deed of Trust was duly recorded.

In their bankruptcy schedules, the Debtors valued the Real Property at $359,500 and indicated that LifeStore held a secured claim exceeding in amount the value of the Real Property. (Case No. 12-51092, Doc. 1, at 18). The Debtors indicated that they intended to retain the Real Property and continue to make payments. ( Id. at 43).

The Debtors received their Chapter 7 discharge on February 20, 2013, (Case No. 12-51092, Doc. 7). They made payment on the Note for a period of time, but within a few months Debtors stopped making payments and were in default.

On October 23, 2013, the Debtors executed a Deed in Lieu of Foreclosure in favor of LifeStore. Said Deed was recorded. Neither party disputes the fact that LifeStore and the Debtors did not seek or obtain relief from the automatic stay in order to effectuate such a transfer.

After the recordation of the Deed in Lieu of Foreclosure, the Trustee learned of said transfer and filed a Lis Pendens on the Real Property, asserting an interest in the Real Property on behalf of the bankruptcy estate.

On March 3, 2014, Trustee, with the consent of LifeStore, filed a motion for authority to sell the Real Property to an independent third party for $316,500. (Case 12-51092, Doc. 24). The Motion indicated that the Trustee believed the transfer of the Real Property is avoidable under Section 549 of the Bankruptcy Code but that LifeStore disputes that assertion. ( Id. at ¶ ¶ 8-9). Paragraph 11 of the Motion reads as follows:

Pending the resolution of the Parties' dispute over the Real Property, LifeStore Bank and the Trustee have agreed to proceed with the consummation of the sale subject to the preservation of each Parties' rights and claims, which shall attach to the net sale proceeds.

( Id. at ¶ 11). The parties agreed to escrow the proceeds of the sale pending further order of the Bankruptcy Court. ( Id. at ¶ 12). The Trustee brought the motion to " allow the sale to be consummated and to clear any title issues that may arise from the transfer from the Debtors to LifeStore Bank without the authorization of the [Bankruptcy] Court." ( Id. at ¶ 13). The Trustee stated that " [i]n the opinion of the Trustee, the sale of the Real Property as set forth herein is in the best interest of the bankruptcy estate and its creditors." ( Id. at ¶ 17). The Trustee indicated that it " reserve[d] all rights, claims, and defenses with respect to all claims asserted against the Debtors, and all liens, security interests, and other interests." ( Id. at ¶ 19).

On March 21, 2014, LifeStore initiated an adversary proceeding by filing a Complaint requesting the entry of a declaratory judgment determining that either (i) the execution, delivery, and ...


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