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In Re Giudice

2011 WL 9046 (Bkrtcy. D. N.J. 2011) (Unpublished)

BANKRUPTCY; MORTGAGES; DISCHARGE — Where a bankrupt debtor has forged a mortgage discharge, such an action constitutes fraud and the Bankruptcy Court may decline to discharge the underlying debt.

A former business partner, an asserted creditor of a bankrupt debtor, argued in the Bankruptcy Court that a $260,000 debt owed to him should not be discharged in a pending Chapter 7 case. Prior to the bankruptcy filing, the two men had granted $586,000 in mortgages covering three properties held by limited liability companies in which each former partner was a member or business affiliate. According to a settlement agreement between them, the creditor was to release a mortgage lien on one property and be paid $260,000 six months later. When the payment was not made, the creditor demanded that the default be cured. Apparently in pursuing its remedies, the creditor discovered that the mortgage on the second of the three properties had been discharged the day after the settlement agreement.

In the adversary proceeding in the Bankruptcy Court, the bankrupt debtor claimed that he had an oral authorization from the creditor to sign the creditor’s name on a discharge of mortgage. The creditor firmly denied this. After the mortgage was discharged, the debtor twice refinanced the property and, using the proceeds, could have satisfied the $260,000 debt.

The Bankruptcy Court concluded that the mortgage discharge was a forgery, made with a business motive to refinance the properties, and exhibited willfulness and malice toward the former partner. It could not believe that the creditor would undercut its collateral by releasing the mortgage on one of the three properties the day after executing a settlement agreement. The Court’s conclusion of fraud resulted it in refusing to allow the debtor to have the debt discharged because the creditor had every belief that the mortgage would remain on record as to that property until the debt was satisfied. The forgery denied the creditor two opportunities for payment, once upon each of the two refinancings.

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