Richard Shen

FOR PUBLICATION
UNITED STATES BANKRUPTCY COURT
SOUTHERN DISTRICT OF NEW YORK
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In re:
RICHARD SHEN,
Debtor
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Chapter 13
Case No. 12-37161 (CGM)
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MEMORANDUM DECISION DENYING MOTION TO VACATE
A P P E A R A N C E S :
Michael A. Fakhoury, Esq.
MICHAEL A. FAKHOURY, P.C.
804 Route 9
Suite 4
Fishkill, NY 12524
Attorneys for the Debtor
Charles A. Higgs, Esq.
Lance Portman, Esq.
McCABE WEISBERG & CONWAY, P.C.
145 Huguenot Street
Suite 210
New Rochelle, NY 10801
Attorneys for Bank of America, N.A.
Pranali Datta, Esq.
STEIN WIENER & ROTH, L.L.P.
1 Old Country Road
Suite 113
Carle Place, NY 11514
-and-
Lori J. Gilmore-Morris, Esq.
6 Daisy Lane
Wappingers Falls, NY 12590
Attorneys for EverBank
CECELIA G. MORRIS
CHIEF U.S. BANKRUPTCY JUDGE
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Shortly after filing for chapter 13 protection, the debtor in this case moved to avoid the
wholly unsecured junior mortgage lien on his homestead and objected to the proof of claim filed
by the junior mortgage holder. The motion and claim objection were properly served on the
mortgage holder and its attorneys. No opposition was filed, and the motion and claim objection
were subsequently granted. Now, several months after the orders on those motions were entered,
the junior mortgage holder requests that the Court exercise its powers under Rule 60(b) of the
Federal Rules of Civil Procedure to vacate the orders. The junior mortgage holder contends that
it was, in fact, the first mortgage holder all along; that the senior mortgage holder’s lien had been
extinguished prior to the bankruptcy filing; and that its lien is protected by the anti-modification
provision of Section 1322(b)(2) of the Bankruptcy Code.
For the reasons set forth below, the Court holds that the junior mortgage holder’s request
is untimely and, in any event, it has failed to meet the standard for relief under Rule 60(b). For
those reasons, the motion to vacate is denied.
JURISDICTION
The Court has subject-matter jurisdiction pursuant to 28 U.S.C. § 1334(a), § 157(a), and
the Amended Standing Order of Reference signed by Chief District Judge Loretta A. Preska
dated January 31, 2012. This is a “core” proceeding pursuant to 28 U.S.C. § 157(b)(2)(B)
(allowance or disallowance of claims against the estate), (K) (determinations of the validity,
extent, or priority of liens); and (O) (other proceedings affecting the adjustment of the debtor-
creditor relationship).
FACTS
On August 18, 2012, Richard Shen (the “Debtor”) filed this chapter 13 case. See Vol.
Pet., ECF No. 1. Along with his petition, the Debtor filed his Schedules and Statement of
Financial Affairs. See id. In his Schedule A, the Debtor claimed ownership of a single-family
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residence located at 57 Saint George Road in Wingdale, New York (the “Property”). Id.
According to Schedule A, the fair market value of the Property as of the petition date was
$190,000. Id. In his Schedule D, the Debtor asserted that the Property was encumbered by two
secured claims: (i) a partially-secured first mortgage in favor of BAC Home Loan Servicing
(“Bank of America”) in the amount of $220,000; and (ii) a wholly-unsecured second mortgage in
favor of EverHome Mortgage Company (“EverBank”)1 in the amount of $237,800. Id.
On September 21, 2012, the law firm of Stein, Weiner & Roth (“SWR”) filed a notice of
appearance on behalf of EverBank. See Notice, ECF No. 9. Three days later, on September 24,
2012, the Debtor filed a motion (the “Pond Motion”) to avoid EverBank’s wholly-unsecured
junior mortgage lien on the Property pursuant to the Second Circuit’s decision in In re Pond, 252
F.3d 122 (2d Cir. 2001). See Mot., ECF No. 10. The Pond Motion alleged, as in the Debtor’s
Schedules, that there were two mortgages on the Property—the first held by Bank of America
and the second by EverBank—and that the value of the Property was less than the amount of
Bank of America’s first mortgage lien. Id. at 3–4. The Pond Motion was served on SWR at the
address set forth in its notice of appearance and on EverBank to an address in Jacksonville,
Florida. Id. at 7. At a hearing held on October 2, 2013, EverBank conceded that this service was
proper. See Hr’g Tr. 9:12–14, ECF No. 55.
EverBank did not oppose the Pond Motion. EverBank also did not appear at a hearing on
the Pond Motion held on November 16, 2012. The Court granted the Pond Motion and entered
an order (the “Pond Order”) avoiding EverBank’s mortgage lien on November 20, 2012. See
Order, ECF No. 21. The Pond Order provides that “[t]he wholly unsecured lien of [EverBank’s]
mortgage on the Property is declared void.” Id. at 2. The order further directs the county clerk of
1 The parties use the names “EverHome” and “EverBank” interchangeably to refer to the junior
mortgage holder. Mot. 2 n.2, ECF No. 51.
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Dutchess County, New York to “mark on its records that [EverBank’s] mortgage on the Property
(appearing at Document No. 2457, Date Recorded 3/7/2010) is void pursuant to Bankruptcy
Court Order.” Id. No party timely appealed the Pond Order, and it became a final order on
December 4, 2012. See Fed. R. Bankr. P. 8002(a) (providing a fourteen-day time limit to appeal
from orders of the Bankruptcy Court). At the time the Pond Order was entered, EverBank had
not filed a proof of claim.
On December 7, 2012—seventeen days after the Pond Order was entered—EverBank
filed a proof of claim in the amount of $234,779.22. See Cl. 4. The proof of claim asserted that
EverBank’s claim was fully secured by the value of the Property. See id. EverBank attached
three documents to its proof of claim: (i) a note between the Debtor and Flagstar Bank dated
October 8, 2009; (ii) a mortgage in favor of Flagstar Bank dated October 8, 2009; and (iii) an
assignment of mortgage from Flagstar to EverBank dated December 6, 2012. See id. The proof
of claim requested that any notices regarding the claim be sent to an address on West Bay Street
in Jacksonville, Florida (the “West Bay Street Address”), which is a different address than was
used for service of the Pond Motion. Id.
On December 13, 2012, Bank of America filed a proof of claim in the amount of
$204,448.02. See Cl. 5. Like EverBank, Bank of America contended that its claim was fully
secured by the value of the Property. See id. Bank of America attached four documents to the
proof of claim, including: (i) a consolidation, extension, and modification agreement between the
Debtor and Countrywide Home Loans dated December 23, 2006; (ii) a consolidated note
between the Debtor and Countrywide dated December 23, 2006; (iii) a consolidated mortgage
dated December 23, 2006 in favor of Countrywide; and (iv) an assignment of mortgage from
Countrywide to Bank of America dated August 3, 2010. See id. These documents show that
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SurePoint Lending originally made a loan to the Debtor on May 4, 2006 in the amount of
$155,000. See id. That loan was then combined with a subsequent loan of $21,440.97, made
from Countrywide to the Debtor on December 23, 2006, into a single consolidated lien on the
Property in favor of Countrywide in the amount of $176,000. See id.
On December 20, 2012, the Debtor filed a motion objecting to EverBank’s proof of
claim. See Mot., ECF No. 25. The motion argued that EverBank’s claim should be expunged in
light of the Pond Order. Id. at 2. A copy of the claim objection was served on EverBank care of
SWR at the address set forth in its notice of appearance and on EverBank to the West Bay Street
Address. Id. at 8. EverBank does not dispute the propriety of this service. See Hr’g Tr. 9:12–14.
No opposition to the claim objection was filed. A hearing was held on January 29, 2013 at which
EverBank did not appear. As a result, the Court entered an order on February 7, 2013
reclassifying EverBank’s claim from a secured claim to an unsecured claim. See Order, ECF No.
28.
On April 16, 2013, nearly five months after it was entered, EverBank filed a motion to
vacate the Pond Order (the “Motion to Vacate”). See Mot., ECF No. 33. According to EverBank,
Bank of America was the holder of a “prior mortgage[ ]” on the property. Id. at 4. EverBank
alleges that Flagstar’s loan to the Debtor in 2009 was actually a refinance of Bank of America’s
prior mortgage, and that “the Bank of America mortgage was intended to be satisfied from the
proceeds of the refinance.” Id. at 4–5. EverBank alleges that this is evidenced by a satisfaction of
mortgage prepared by Mortgage Electronic Registration Systems, Inc. (“MERS”), as nominee for
Bank of America, on January 4, 2010 “discharging [Bank of America’s] consolidated
mortgages.” Id. at 5.
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A copy of the satisfaction of mortgage is attached to the Motion to Vacate. See id. at Ex.
F. By its terms, it purports to discharge: (i) the $155,000 note and mortgage in favor of SurePoint
Lending dated May 4, 2006, (ii) the $21,440.97 note and mortgage in favor of Countrywide
dated December 23, 2006; and (iii) the consolidation, extension, and modification agreement
combining those two loans into a single lien in favor of Countrywide in the amount of $176,000.
Id. Pursuant to the satisfaction of mortgage, MERS certified that those mortgages were paid and
“consent[ed] that the same be discharged of record.” Id. The satisfaction of mortgage is dated
December 23, 2009—the same date of the loan from Flagstar to the Debtor—and was recorded
in the real property records of Dutchess County on January 4, 2010. Id. Based on the satisfaction
of mortgage, EverBank contends that it—not Bank of America—held the first-priority mortgage
lien on the Property and was protected by the anti-modification provision of Section 1322(b)(2)
of the Bankruptcy Code. Id. at 4–5. As a result, EverBank asserts that the Second Circuit’s
holding in Pond does not apply and this Court should not have entered the Pond Order avoiding
EverBank’s mortgage lien. Id. at 5. The Motion to Vacate requests that the Court enter an order
“vacating the order voiding EverBank’s lien, reinstating EverBank’s lien in full, allowing
EverBank’s lien, [and] deeming EverBank’s lien to be in first priority position.” Id. The Motion
to Vacate does not offer any explanation as to why EverBank failed to raise these issues and
oppose the Pond Motion when it was originally filed.
A hearing on the Motion to Vacate was held on May 21, 2013. At the parties’ request, the
Court adjourned the hearing to allow the parties to engage in settlement negotiations. The
hearing was adjourned several more times on consent of the parties. See Ltr., ECF No. 37; Ltr.,
ECF No. 40; Ltr., ECF No. 41; Ltr., ECF No. 47. On September 6, 2013, EverBank filed an
amended motion to vacate the Pond Order and a memorandum of law in support. See Am. Mot.,
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ECF No. 44; Mem., ECF No. 45. EverBank then filed a second amended motion to vacate on
September 12, 2013 requesting that the Court also vacate the order reclassifying EverBank’s
claim to an unsecured claim. See Am. Mot., ECF No. 51. The memorandum of law asserts that
EverBank is entitled to relief pursuant to Federal Rule of Civil Procedure 60(b)(1) and (b)(3),
made applicable in bankruptcy by Federal Rule of Bankruptcy Procedure 9024. Mem. at 3–4.
Nothing in either of EverBank’s amended motions and memorandum of law explains why
EverBank did not timely file opposition to the Debtor’s Pond Motion or the motion to reclassify
EverBank’s secured claim.
On September 7, 2013, the Debtor filed opposition to the Motion to Vacate. See Opp’n,
ECF No. 46. In the opposition, the Debtor alleges that he was the victim of a fraudulent
mortgage brokerage scheme. Id. at 1. The mortgage broker, Hawthorne Capital, and title
company, Hawthorne Abstract, allegedly stole the proceeds of the refinancing loan that should
have been used to pay Bank of America’s first mortgage. Id. at 2. According to the Debtor,
Hawthorne and seven of its principals were implicated and charged in a multi-million mortgage
brokerage scheme in 2011. Id. at 1; Ex. A. The details of that scheme appear to be substantially
similar to what allegedly happened in this case. See id. at Ex. A.
The Court held the continued hearing on the Motion to Vacate on October 2, 2013. At the
conclusion of the hearing, the Court orally denied the Motion to Vacate and stated that it would
issue a written decision. This decision constitutes the Court’s findings of fact and conclusions of
law pursuant to Federal Rule of Bankruptcy Procedure 7052.
DISCUSSION
A. 	Federal Rule of Civil Procedure 60(b)(1)
Federal Rule of Civil Procedure 60(b)(1), applicable in this bankruptcy case pursuant to
Federal Rule of Bankruptcy Procedure 9024, provides that the Court may grant relief on the basis
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of “mistake, inadvertence, surprise, or excusable neglect.” Fed. R. Civ. P. 60(b)(1). “The purpose
of Rule 60(b)(1) is to afford relief to a party from a material mistake that would have changed
the outcome of the court’s judgment.” In re CIS Corp., 2007 WL 1592968, at *4 (Bankr.
S.D.N.Y. May 31, 2007) (citing Fetik v. New York Law School, 1999 WL 459805, at *4
(S.D.N.Y. June 29, 1999)). “Rule 60(b) should be broadly construed to do ‘substantial justice,’
yet final judgments should not ‘be lightly reopened.’” CIS, 2007 WL 1592968, at *4 (quoting
Nemaizer v. Baker, 793 F.2d 58, 61 (2d Cir. 1986)). “Rule 60(b)(1) motions ‘must be made
within a reasonable time—and . . . no more than a year after the entry of the judgment or order or
the date of the proceeding.’” In re Old Carco LLC, 423 B.R. 40, 46 (Bankr. S.D.N.Y. 2010)
(quoting Fed. R. Civ. P. 60(c)(1) (omission in original)).
“Rule 60(b) was not intended as a substitute for a direct appeal from an erroneous
judgment.” Schidhaus v. Moe, 335 F.2d 529, 531 (2d Cir. 1964) (citations omitted). Thus, “[t]o
prevent Rule 60(b)(1) from being used to circumvent the time limitations for an appeal, the
Second Circuit has determined that when a 60(b)(1) motion concerns a court’s own substantive
error, such motion ‘may not be made after the time for appeal has elapsed.’” Old Carco, 423
B.R. at 46 (quoting Int’l Controls Corp. v. Vesco, 556 F.2d 665, 670 (2d Cir. 1977)); see also
Old Carco, 423 B.R. at 47 (“A ‘reasonable time’ for a motion under Rule 60(b) for judicial error
should be no greater than the time allowed to file an appeal.” (citing 11 C. Wright, A. Miller &
M. Kane, Federal Practice & Procedure § 2858 (2d ed. 2009))).
The Pond Order was entered on November 20, 2012. The order reclassifying EverBank’s
claim to an unsecured claim was entered on February 7, 2013. The deadline to appeal both of
those orders was fourteen days after they were entered. Fed. R. Bankr. P. 8002(a); see also In re
Siemon, 421 F.3d 167, 169 (2d Cir. 2005) (holding that 14-day time limit in Rule 8002(a) is
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jurisdictional). EverBank did not move to vacate the Pond Order until April 16, 2013, five
months after the order was entered. EverBank did not request that the order reclassifying its
claim be vacated until September 12, 2013, seven months after that order was entered. These
requests were made well beyond the fourteen day appeal period within which a Rule 60(b)(1)
motion may properly be brought. See Old Carco, 423 B.R. at 47. The Court holds that
EverBank’s request for relief under Rule 60(b)(1) was not made within a “reasonable time” as
required by Rule 60(c)(1). The Motion to Vacate is denied with respect to Rule 60(b)(1).
B. 	Federal Rule of Civil Procedure 60(b)(3)
Rule 60(b)(3) allows the Court to relieve a party from a prior order on the basis of “fraud
(whether previously called intrinsic or extrinsic), misrepresentation, or misconduct by an
opposing party.” Fed. R. Civ. P. 60(b)(3). In this Circuit, “a Rule 60(b)(3) motion cannot be
granted absent clear and convincing evidence of material misrepresentations.” Fleming v. New
York University, 865 F.2d 478, 484 (2d Cir. 1989). The burden of showing such material
misrepresentations “cannot be met by mere conclusory allegations of fraud without specificity as
to time, dates, places and persons.” In re St. Stephen’s 350 East 116th Street, 313 B.R. 161, 174
(Bankr. S.D.N.Y. 2004). Mere allegations of legal error, without more, cannot form the basis of
Rule 60(b)(3) relief. See Green v. Phillips, 374 Fed. Appx. 86, 88 (2d Cir. 2010) (holding that
allegations of error by a district court are “insufficient to justify relief under Rule 60(b)(3)”);
accord Fleming, 865 F.2d at 484 (holding that a Rule 60(b)(3) motion “cannot serve as an
attempt to relitigate the merits” of the underlying order).
In this case, EverBank states that it “is seeking to correct an error that was caused when
certain facts previously submitted were inadvertently overlooked.” Mem. at 6. According to
EverBank, these facts are: (i) the Debtor was present at the closing of the refinancing transaction
and “clearly knew that the funds he was to receive from EverBank were to pay off any
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mortgages held by [Bank of America],” (ii) MERS certified that Bank of America’s mortgage
had been paid when it issued and recorded the satisfaction of mortgage, and (iii) the Debtor
received a copy of the satisfaction of mortgage by mail after it was entered. Id. at 5. If those facts
had been considered at the hearing on the original Pond Motion, EverBank contends that the
Court would have denied that motion. Id. at 6.
It is unnecessary for the Court to consider how it would have ruled had those facts been
presented to the Court, since a Rule 60(b)(3) motion may not be used to relitigate the merits of
the underlying Pond Motion. See Fleming, 865 F.2d at 484. As such, EverBank’s allegation that
the Court failed to consider those facts when ruling on the motion is legally insufficient to justify
relief under Rule 60(b)(3). See Green, 374 Fed. Appx. at 88 (“[The movant] points only to
alleged error by the district court in dismissing his complaint and failing to consider certain
documents. These allegations are insufficient to justify relief under Rule 60(b)(3).”).
In addition, “[t]o prevail on a Rule 60(b)(3) motion, a movant ‘must show that the
conduct complained of prevented the moving party from fully and fairly presenting his case.’”
State Street Bank & Trust Co. v. Inversiones Errazuriz Limitada, 374 F.3d 158, 176 (2d Cir.
2004) (quoting Taylor v. Texgas Corp., 831 F.2d 255, 259 (11th Cir. 1987)); see also In re
Salander, 450 B.R. 37, 55 (Bankr. S.D.N.Y. 2011) (“Rule 60(b)(3) . . . requires proof that the
fraud prevented the moving party from fully and fairly presenting her case.”); Rickel & Assocs.,
Inc. v. Smith (In re Rickel & Assocs., Inc., 272 B.R. 74, 87 (Bankr. S.D.N.Y. 2002) (“To prevail
[under Rule 60(b)(3)], the movant must demonstrate by clear and convincing evidence that the
opposing party engaged in a fraud or misrepresentation that prevented the movant from fully
litigating the issue.”). In Salander, for example, this Court denied a motion under Rule 60(b)(3)
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where “[t]here [wa]s no evidence that any party fraudulently prevented the [movant] from
objecting . . . or otherwise litigating her case.” 450 B.R. at 55.
In this case, EverBank has failed to allege how any alleged fraud prevented it from fully
and fairly presenting its case. Even assuming that the Debtor knew that Bank of America’s
mortgage should have been satisfied by the refinancing and knew that MERS had issued a
satisfaction of the mortgage, and even if the Debtor failed to disclose those facts to the Court,
there still would not be grounds for Rule 60(b)(3) relief since EverBank has not alleged how the
Debtor prevented EverBank from presenting those facts to the Court in opposition to the Pond
Motion. When the Court questioned EverBank about why it did not file opposition and appear at
the hearing on the Pond Motion, EverBank’s counsel did not contend that it was the result of the
Debtor’s alleged fraud. Rather, counsel stated that EverBank:
ha[d] been researching the file, Your Honor, because as you stated the title
company did take off with the money and it did take a while to research what
happened. And it’s still not totally clear what happened.
Hr’g Tr., 9:18–22. EverBank thus admitted that it was not prevented from fully presenting its
case by the Debtor’s alleged fraud. Id. Since EverBank has failed to meet its burden under Rule
60(b)(3), relief on that basis is denied.
CONCLUSION
For the foregoing reasons, the Motion to Vacate is denied. Counsel for the Debtor is
directed to submit an order consistent with this memorandum decision.
Dated: 	Poughkeepsie, New York
November 15, 2013
/s/ Cecelia G. Morris
CECELIA G. MORRIS
CHIEF U.S. BANKRUPTCY JUDGE
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