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Eastern Savings Bank v. Bucci

December 4, 2008

EASTERN SAVINGS BANK, PLAINTIFF-APPELLEE,
v.
DONALD F. BUCCI, ET AL., DEFENDANTS-APPELLANTS.



CHARACTER OF PROCEEDINGS: Civil Appeal from Common Pleas Court, Case No. 01CV1443.

The opinion of the court was delivered by: Vukovich, J.

OPINION

JUDGMENT: Affirmed.

JUDGES: Hon. Joseph J. Vukovich, Hon. Gene Donofrio, Hon. Mary DeGenaro.

¶{1} Defendants-appellants ABN AMRO Mortgage Group, Inc., Donald F. Bucci and Rosemarie Bucci appeal the decision of the Mahoning County Common Pleas Court finding in favor of plaintiff-appellee Eastern Savings Bank. Appellants urge that the court erred by subordinating ABN's mortgage to appellee's claim under the doctrine of lis pendens. Appellants also argue that the court erred in finding a fraudulent transfer to and a lack of good faith by Rosemarie and Donald F. Bucci. Lastly, appellants claim that the court erred in admitting hearsay in the form of an appraisal ordered by ESB. For the following reasons, the judgment of the trial court is affirmed.

STATEMENT OF THE CASE

¶{2} Donald B. Bucci and his wife, Diane, (who have not filed an appeal in this case) owned realty at 424 and 455 S. Main Street in Poland, Ohio. They lived at 424 and rented out 455. On October 30, 2000, in order to avoid a threatened foreclosure by National City Bank, they successfully obtained a $390,000 loan from Eastern Savings Bank secured by a mortgage on both properties. They made their first two monthly payments late and then stopped making payments altogether.

¶{3} On February 28, 2001, Attorney Beck prepared deeds for them to quitclaim the properties to Donald F. Bucci, who is Donald B.'s father. Donald F. testified that he paid nothing for the deeds and was unaware that the properties had even been transferred to him at that time. ESB was also unaware of this transfer.

¶{4} On June 4, 2001, ESB filed a foreclosure action with regards to both 424 and 455 against Donald B. and Diane, who immediately filed for bankruptcy. This stayed the foreclosure action until the bankruptcy was dismissed in December 2002. At such time, a sheriff's sale was ordered for February 18, 2003.

¶{5} On February 13, 2003, Donald F., through Attorney Kish, filed a motion to intervene in the foreclosure action and to stay the sheriff's sale based upon his ownership of the properties. Upon ESB's argument that the transfers must be set aside, Attorney Kish then negotiated with ESB for permission to enter a private sale of the 424 property. This sale took place in June 2003, and ESB was paid all net proceeds totaling $433,000. ESB considered this sufficient to release the mortgage on the 424 property. There was a further expectation that the 455 property would sell in July from which ESB would receive the remaining balance totaling over $115,000.

¶{6} The anticipated sale of 455 did not occur, and after a status hearing with the court, Donald F. and Rosemarie transferred 455 back to Donald B. and Diane through a July 22, 2003 deed prepared by Attorney Beck. Although no money had ever been transferred regarding the property and although Donald B. admitted that the transfer to his father was performed in order to avoid creditors, Donald B. and Diane recorded a $46,000 mortgage on the property in favor of (but unbeknownst to) Donald F. and Rosemarie.

¶{7} On August 8, 2003, Donald F. was dismissed as an unnecessary party due to the consensual sale of 424 and his transfer of 455 back to Donald B. The court then ordered foreclosure on 455, and a sheriff's sale was scheduled for January 5, 2004.

¶{8} In response to the complaints of the new owners of 424 about a clouded title, ESB intended to release the mortgage on 424. However, in a release of mortgage recorded on November 7, 2003, ESB mistakenly released 455 instead of 424.

¶{9} Just prior to the scheduled sheriff's sale of 455 in January 2004, Donald B. and Diane filed bankruptcy again with the assistance of Attorney Beck. ESB filed an objection in the action. During this time, Attorney Beck negotiated with ESB for a private sale of 455 to be completed prior to May 26, 2004 and to net $75,000 for ESB. During these negotiations, ESB voiced that the buyer could not be an insider, a term with which Attorney Beck took issue in a February 2004 letter.

¶{10} Within a week of their April 2004 bankruptcy dismissal, Donald B. and Diane executed a May 3, 2004 memorandum of trust with Attorney Beck as trustee for the purpose of the trustee taking title to 455 until sale. At the same time, they quitclaimed 455 to this trustee. On May 27, 2007, the trustee transferred 455 through a general warranty deed to Donald F. and Rosemarie. The purchase price was said to be $75,000. Donald F. took out a $38,000 mortgage from ABN in order to fund the purchase ($8,000 went to costs and the like). Donald B. and Diane received a check for $30,000, and the remaining $45,000 was said to be forgiveness for past loans. At trial, Donald F. identified checks from 1988 through 1993, said to represent $60,000 in loans to his son. The mortgage from July 22, 2003 (which Donald F. never even knew about) was released apparently as proof of the claimed loan forgiveness.

¶{11} Notably, ESB received nothing from the sale. Attorney Beck and Donald B. testified that since ESB had recorded the release of 455 in November 2003, they were unaware that ESB was still claiming it was owed money regarding 455, notwithstanding the negotiations that had occurred thereafter. When preparations for another scheduled sheriff's sale were interrupted by a telephone call claiming new owners, ESB realized that Donald B. and Diane had transferred the property to Donald F. (again) and Rosemarie and that a release of 455 had been mistakenly recorded in November 2003.

¶{12} On January 18, 2005, ESB filed and recorded an Affidavit of Facts Relating to Title, asserting that the 455 release was a mistake and claiming a continued lien on 455. ESB then amended its complaint in the foreclosure action to add Donald F., Rosemarie and ABN as defendants. They added claims for fraudulent conveyance and superior title through the doctrine of lis pendens (translated "pending litigation"). Another two bankruptcy filings then further disrupted the proceedings.

¶{13} Finally, a bench trial proceeded before a magistrate on April 9, 2007. The trial revolved around the application of the Uniform Fraudulent Transfer Act. Thereafter, the parties filed proposed findings of fact and conclusions of law.

¶{14} On August 24, 2007, the magistrate found in favor of ESB. The magistrate stated that ESB's burden was to establish the fraudulent intent of the debtor, not of the transferee. The magistrate found eight of the eleven badges of fraud set forth in R.C. 1336.04(B) applicable. Specifically, in determining that the debtor (Donald B.) had actual intent under R.C. 1336.04(A), the magistrate held:

¶{15} "(1) the transfer was to an insider, first to Beck then to the father of the debtor;

¶{16} "(2) the debtor retained possession and control after the transfer and is currently still residing in the property;

¶{17} "(3) the transaction was not disclosed to ESB, and Beck and Donald B. knew ESB was still claiming a lien and the foreclosure action was still pending;

¶{18} "(4) the transaction occurred while the foreclosure action was pending;

¶{19} "(5) the 455 property was the only remaining asset of Donald B., and he filed for Chapter 7 bankruptcy in October 2005;

¶{20} "(6) the $30,000 received by the debtor was less than reasonable equivalent value as all appraisals set the actual value considerably above this amount;

¶{21} "(7) bankruptcy shows Donald B. was insolvent shortly after the transfer; and

¶{22} "(8) transfer of property to Beck then to insider."

¶{23} The magistrate opined that Donald F. could not use the bona fide purchaser defense as the sale was not a good faith transaction. Regarding a lack of good faith in the purchase, the court noted how Donald F. let his son perform all of the details including applying for the ABN loan and how he signed whatever documents his son asked him to sign. The magistrate noted that Donald F. claimed no knowledge of the foreclosure action and concluded that Donald F. had both actual knowledge and was also charged with knowledge through Attorney Kish who negotiated on his behalf, pointing out that a principal is charged with the knowledge of his agent.

¶{24} The magistrate additionally found a fraudulent transfer under R.C. 1336.05, which contains special considerations for those creditors with pre-existing claims like ESB. Specifically, the magistrate found that the transfer was to an insider for an alleged antecedent debt while Donald B. was insolvent and that Donald F. had knowledge of the debt to ESB and of the pending foreclosure. Besides the entitlement to have the transfers avoided under the UFTA, the magistrate found common law remedies applicable here such as fraud.

¶{25} As to ABN, the magistrate opined that ABN was not a bona fide purchaser because it had actual knowledge of ESB's claim, pointing to Donald F.'s mortgage application listing a first mortgage on the property through "Eastern" for $30,000. The magistrate also stated that ABN's mortgage is subject to ESB's claim under the doctrine of lis pendens codified in R.C. 2703.26, which states that a pending action provides third parties notice of the interest claimed therein and that no interest can be acquired by third persons in the subject of the action as against the plaintiff's title. The magistrate held that lis pendens is a doctrine independent of the recording statutes and that the mistaken release of 455 does not affect lis pendens notice.

¶{26} The magistrate concluded that ESB is entitled to avoid the transfer of the 455 property, to an order of foreclosure and to have the property sold to satisfy the amount currently owed on the note. The magistrate further concluded that ABN has a mortgage on 455 but that the mortgage is subordinate to ESB's mortgage.

¶{27} Timely objections were filed by Donald F., Rosemarie and ABN. On January 7, 2008, the trial court adopted the magistrate's decision, repeated the findings of fact and conclusions of law set forth therein and issued judgment for ESB. Donald F., Rosemarie and ABN (hereinafter appellants) filed the within appeal.

STANDARD OF REVIEW

¶{28} Appellants set forth some pure legal issues, an evidentiary issue, and various factual issues. The legal issues shall be reviewed de novo. See Ohio Bell Tel. Co. v. Pub. Util. Comm. (1992), 64 Ohio St.3d 145, 147.

¶{29} Since decisions regarding the admissibility of evidence are within the broad discretion of the trial court, the evidentiary issue shall be reviewed for an abuse of discretion. Beard v. Meridia Huron Hosp., 106 Ohio St.3d 237, 2005-Ohio-4787, ¶20. An abuse of discretion results when a decision is unreasonable, arbitrary or unconscionable. Blakemore v. Blakemore (1983), 5 Ohio St.3d 217, 219. Even in the face of an abuse of discretion, however, such evidentiary ruling is not reversible unless it affected appellant's substantial rights or was inconsistent with substantial justice. Beard, 106 Ohio St.3d 237 at ¶20.

¶{30} Finally, the factual issues shall be reviewed to determine whether the trial court's decision is contrary to the manifest weight of the evidence. Judgments supported by some competent, credible evidence will not be reversed on appeal as being against the manifest weight of the evidence. State v. Wilson, 113 Ohio St.3d 382, 2007-Ohio-2202, ¶24. When addressing a trial court's decision on weight and credibility, this reviewing court is guided by the presumption that the findings of the trial court are correct. Id. One rationale for this presumption is that the trial court is in the best position to view witnesses and observe their demeanor, voice inflection, and gestures. Id. We do not second guess credibility decisions or rational inferences drawn. As the Supreme Court recently explained, the standard for evaluating the weight of the evidence in a civil case is even more deferential to the fact-finder than in a criminal case. Id. at ¶26. Thus, criminal appeals allow reweighing by the appellate court, but civil appeals require affirmance of judgments supported by some competent, credible evidence with no appellate reweighing of the evidence permitted. Id.

ΒΆ{31} We now turn to appellants' five assignments of error. As we are addressing the first assignment of error with the related third and fourth assignments, we shall begin with assignment of error ...


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