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Hinson v. Bank of America, N.A.

United States District Court, E.D. North Carolina, Western Division

December 13, 2017

WALTER L. HINSON, Trustee for CELESTE G. BROUGHTON Plaintiff,
v.
BANK OF AMERICA, N.A., Defendant. ASSOCIATED IN RE CELESTE GOLD BROUGHTON, Debtor.

          ORDER APPROVING COMPROMISE OF BANK OF AMERICA LITIGATION PURSUANT TO BANKRUPTCY RULE 9019(A)

          MARTIN REIDINGER, UNITED STATES DISTRICT JUDGE

         THIS MATTER is before the Court on the Chapter 7 Bankruptcy Trustee's Motion to Approve Compromise Pursuant To Bankruptcy Rule 9019(a). [DE-20].

         I. FACTUAL AND PROCEDURAL BACKGROUND

         A. The Bankruptcy Proceeding

         On December 15, 2014, Celeste G. Broughton (the "Debtor") filed a voluntary petition for bankruptcy under Chapter 13 of Title 11 of the United States Bankruptcy Code. [Bankr. Case No. 14-07268-5-JNC (E.D. N.C. ) ("the Bankruptcy Proceeding")]. The Bankruptcy Court subsequently converted this case to one under Chapter 7 on July 14, 2015. On July 15, 2015, Walter L. Hinson (the "Trustee") was appointed as the Chapter 7 Trustee by order of the Bankruptcy Court.

         On May 19, 2016, the Honorable Terrence W. Boyle, United States District Court Judge for the Eastern District of North Carolina, entered an Order sua sponte withdrawing the reference to the Bankruptcy Court pursuant to 28 U.S.C. § 157(d). With the withdrawal of the reference, Civil Case No. 5:16-cv-00302-RE was opened, and all matters relevant to the Bankruptcy Proceeding became subject to the exclusive jurisdiction of the United States District Court for the Eastern District of North Carolina. That action and the present adversary proceeding were reassigned to the undersigned for all further proceedings on July 21, 2017. [See DE-25].

         B. The Present Adversary Proceeding

         The primary asset of the Debtor's estate is a parcel of real property, consisting often (10) lots, located at 2529 White Oak Road, Raleigh, North Carolina 27609 ("the Real Property"). Several claimants have filed proofs of claim alleging that they hold secured claims as to the Real Property, including the Defendant in the present action, Bank of America ("BOA"). BOA filed its Proof of Claim on February 5, 2015, alleging that it holds a secured claim in the amount of $248, 028.25 with an interest rate of 2.74%, with respect to two (2) of the ten (10) parcels of land that comprise the Real Property.

         To support its Proof of Claim, BOA attached a copy of a document entitled "Equity Maximizer Agreement and Disclosure Statement" dated April 18, 2006, which provides that Justin J. Broughton, son of the Debtor, and the Debtor Celeste G. Broughton borrowed $250, 000.00 from BOA ("the BOA Note").[1] In an attempt to collateralize the BOA Note, a Deed of Trust was executed on April 18, 2006, and notarized on May 27, 2006 ("the BOA Deed of Trust"). The BOA Deed of Trust describes the Borrower as "CELESTE GOLD BROUGHTON, TRUSTEE UNTER [sic] THE TRUST AGREEMENT DATED THE 19TH DAY OF SEPTEMBER, 1997 [sic]" and refers to the BOA Note as the "Home Equity Line of Credit signed by the Borrower."[2] The BOA Deed of Trust was executed by Celeste Gold Broughton, individually and as trustee under a trust agreement dated the 19th day of September 1977 and which was recorded in Wake County on June 19, 2006 in Book 012016 at Page 01429 of the Wake County Registry.

         Thereafter, BOA executed a Subordination Agreement[3] whereby it agreed to subordinate any lien it may hold in favor of the purported lien of Capital Bank (now held by Bank of New York Mellon). The Subordination Agreement was recorded on November 20, 2006.

         In investigating the claims, the Trustee began to question whether BOA holds a valid security interest against the Real Property. The Trustee and BOA entered into negotiations but were unable to obtain an executed settlement agreement or tolling agreement before the statute of limitations would have expired. Accordingly, on December 29, 2016, the Trustee initiated the present action by filing a complaint seeking to avoid any security interest that BOA purports to hold against him and the Real Property.

         Subsequent to the filing of the complaint in this proceeding, the Trustee and counsel for BOA continued their efforts to resolve the claims asserted by the Trustee. On May 4, 2017, before BOA had even filed an answer to the Trustee's complaint, the Trustee filed the present motion, seeking approval of the parties' settlement agreement. [DE-20].

         C. The Terms of the Proposed Settlement Agreement

         The proposed settlement agreement purports to fully resolve all claims that the Trustee may have against BOA in this proceeding or any other claims that the Trustee may have in the bankruptcy proceeding captioned as In re: Celeste G. Broughton, Civil Case No. 5:16-cv-00302-RE (E.D. N.C. ). Furthermore, the agreement purports to resolve any claims that BOA may have against Walter L. Hinson, the duly appointed Chapter 7 Trustee in this proceeding.

         Pursuant to the terms of proposed agreement, the Trustee will liquidate the Real Property as quickly as he is able to do so. The Real Property may be sold as one single parcel; sold in different parcel groupings; or, sold as individual lots among the 10 lots. The Trustee agrees to sell the lots in a fashion so as to generate the largest return for the estate. The manner in which the ...


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