Opinion

Brown

Court: United States Bankruptcy Court, N.D. Alabama
Filed: Dec 18, 2025
Cited by: 0 cases
Authority: More cited than 37.7%

The opinion

IN THE UNITED STATES BANKRUPTCY COURT

FOR THE NORTHERN DISTRICT OF ALABAMA

SOUTHERN DIVISION

In Re: )

)

BRAZIE JAMES BROWN, ) Case No. 24-02062-TOM-7

)

Debtor. )

______________________________________________________________________________

PENNYMAC LOAN SERVICES, LLC, )

)

Plaintiff, ) A.P. No. 24-00045-TOM

vs. )

)

BRAZIE JAMES BROWN, )

)

Defendant. )

______________________________________________________________________________

MEMORANDUM OPINION

This adversary proceeding came before the Court for trial on December 9, 2025. Appearing

before the Court were Andrew Saag, counsel for Plaintiff PennyMac Loan Services, LLC, and

Stephanie Cejas, witness for PennyMac Loan Services, LLC. The Defendant/Debtor, Brazie James

Brown, did not appear and no appearances were made on his behalf. This Court has jurisdiction

pursuant to 28 U.S.C. §§ 1334(b), 151, and 157(a) and the District Court's General Order Of

Reference Dated July 16, 1984, As Amended July 17, 1984.1 This is a core proceeding arising

under Title 11 of the United States Code as defined in 28 U.S.C. § 157(b)(2)(I).2 This Court has

1 The General Order of Reference Dated July 16, 1984, As Amended July 17, 1984 issued by the United States

District Court for the Northern District of Alabama provides:

The general order of reference entered July 16, 1984 is hereby amended to add that there be hereby referred

to the Bankruptcy Judges for this district all cases, and matters and proceedings in cases, under the

Bankruptcy Act.

2 28 U.S.C. §157(b)(2)(I) provides as follows:

(b)(2) Core proceedings include, but are not limited to–

(I) determinations as to the dischargeability of particular debts[.]

28 U.S.C. § 157(b)(2)(I).

considered the pleadings, arguments, the testimony of the Plaintiff’s witness, and the law, and

finds and concludes as follows.3

FINDINGS OF FACT4

PennyMac Loan Services, LLC (“PennyMac”) filed this adversary proceeding against

Brazie James Brown (the “Debtor”) asserting that a debt owed by the Debtor should be excepted

from discharge pursuant to Bankruptcy Code § 523(a)(2)(A). PennyMac is the servicer for a loan

obtained by the Debtor that is secured by a mortgage on real property located at 9321 Brake Circle,

Kimberly, Alabama. The Debtor executed the mortgage along with Allene Gaines (“Ms. Gaines”),

apparently his wife at the time,5 on November 29, 2016. Ex. 1. On the same day the Debtor

executed the mortgage he also signed the note in the amount of $212,711.00 secured by the

mortgage; however, the note was not signed by Ms. Gaines. Ex. 2. According to the mortgage and

note, the original lender was Mortgage Research Center, LLC d/b/a Veterans United Home Loans.

Ms. Stephanie Cejas (“Ms. Cejas”), a supervisor in PennyMac’s litigation service department,

testified at the trial that the loan was assigned to PennyMac in November 2018. See Exs. 4, 5.

Thereafter all communications with the Debtor were made by PennyMac and its representatives.

Ms. Cejas testified that on November 17, 2019, the Debtor’s home suffered significant fire

damage. The Debtor had a homeowner’s insurance policy with Progressive that named PennyMac

as loss payee, and a claim was made on that policy. At trial Ms. Cejas referred to provisions in the

mortgage clearly reflecting that any insurance proceeds resulting from a loss or damage to the

3 This Memorandum Opinion constitutes findings of fact and conclusions of law pursuant to Federal Rule of Civil

Procedure 52, applicable to adversary proceedings in bankruptcy pursuant to Federal Rule of Bankruptcy Procedure

7052.

4 Pursuant to Rule 201 of the Federal Rules of Evidence, the Court may take judicial notice of the contents of its

own files. See ITT Rayonier, Inc. v. U.S., 651 F.2d 343 (5th Cir. Unit B July 1981); Florida v. Charley Toppino &

Sons, Inc., 514 F.2d 700, 704 (5th Cir. 1975).

5 The Mortgage identifies the “borrower” as Brazie J. Brown and Allene K. Gaines, Husband and Wife. Ex. 1. A

printout dated November 24, 2025 from the Jefferson County Tax Assessor’s website identifies the Debtor and Ms.

Gaines as the owners of the property. Ex. 17.

home are due to be remitted to PennyMac; at that point PennyMac could hold the funds until any

restoration or repairs to the property are completed to its satisfaction or, if the property will not be

restored or repaired, PennyMac would apply the funds to the debt.

On July 23, 2020, Progressive issued a check in the amount of $267,285.30 payable to

“Brazie Brown AND PennyMac Loan Services, LLC, ISAOA.” Ex. 9. Progressive apparently sent

the check to Debtor who endorsed it and presented it to USAA Federal Savings Bank for deposit

on July 27, 2020, even though the check had not been endorsed by PennyMac. See id. USAA

honored the check and thus the Debtor received the entire amount of insurance proceeds despite

PennyMac being a joint payee on the check.

At the time the Debtor deposited the check, he was aware that it should have been sent to

PennyMac. Ms. Cejas testified that in December of 2019, after the loss and before the check was

issued, PennyMac informed the Debtor that upon receipt of proceeds he should endorse the check

and mail it to PennyMac. In addition, Ms. Cejas testified that a letter dated August 13, 2020 was

sent to the Debtor providing instructions for remitting the funds to PennyMac. See Ex. 8. Despite

this, the Debtor never disclosed to PennyMac that he had deposited the check. In fact, according

to Ms. Cejas’s testimony, at some point the Debtor informed PennyMac that he did not want to

rebuild his home on the same location, and on numerous occasions the Debtor represented that he

would send the check to PennyMac. Despite these representations, the Debtor never sent the funds

to PennyMac.

According to Ms. Cejas’s testimony, the Debtor continued to make payments on the loan

apparently until June 2023, which was not only after the fire but also after he received and kept

the insurance proceeds. PennyMac has not received any additional funds from the Debtor since

that time. Ms. Cejas testified that the Debtor is contractually due for the July 2023 monthly

mortgage payment.

In May 2024 PennyMac filed a lawsuit in the United Sates District Court for the Northern

District of Alabama against Debtor, Synovus Bank and USAA Federal Savings Bank.6 Although

that case is now stayed because of the Debtor’s Chapter 7 bankruptcy case, PennyMac allowed the

dismissal of both banks as a result of a pro tanto settlement with each. According to Ms. Cejas’s

testimony, PennyMac received a total of $60,000.00 from the settlements with Synovus Bank and

USAA Federal Savings Bank that was applied to the balance due on the Debtor’s loan.

The Debtor filed this Chapter 7 bankruptcy case on July 9, 2024, after PennyMac filed the

suit against him and the two banks in the District Court. Based on the Debtor’s schedules and other

documents in the main bankruptcy case, it appears that in January 2022 the Debtor acquired

another home, where he currently resides, that secures another mortgage to PennyMac for

approximately $280,867.00.7 See BK Doc. 1, at 19. On October 4, 2024, PennyMac filed the

Complaint in this adversary proceeding against the Debtor alleging that the debt owed pursuant to

the note and mortgage on the Kimberly, Alabama property is nondischargeable under Bankruptcy

Code § 523(a)(2)(A) based on false representations and actual fraud by the Debtor.

Ms. Cejas testified that PennyMac relied on the Debtor’s statements that he would remit

the insurance proceeds to PennyMac. As a result, Penny Mac suffered damages including the

balance due on the loan plus attorney fees and expenses incurred from pursuing this adversary

proceeding. According to her testimony the current payoff of the loan is $203,000, comprised of

$181,947.96 principal; $16,741.88 interest; $830.29 escrow; $455.00 property inspections; $3,035

6 Case No. 2:24-cv-00635-RDP

7 The Debtor signed a note and mortgage dated January 6, 2022, in the original amount of $285,240.00 secured by

real property in Bessemer, Alabama. BK Doc. 19.

preservations costs; and $16.00 recording costs. The current payoff is the amount due after the

application of the $60,000 recovered in the District Court case. Counsel for PennyMac represented

to the Court that, as provided for in the mortgage, PennyMac further seeks recovery of reasonable

attorney fees for 40 hours at $350.00 per hour.

CONCLUSIONS OF LAW

In this adversary proceeding, PennyMac has asserted that the debt is nondischargeable

pursuant to Bankruptcy Code § 523(a)(2)(A) due to a false representation made by the Debtor, as

well as the Debtor’s actual fraud. Section 523(a)(2)(A) provides:

(a) A discharge under section 727, 1141, 1228(a), 1228(b), or 1328(b) of this title

does not discharge an individual debtor from any debt -

...

(2) for money . . . to the extent obtained by –

(A) false pretenses, a false representation, or actual fraud . . . [.]

11 U.S.C. § 523(a)(2)(A). According to the Eleventh Circuit Court of Appeals, in order to have a

debt declared nondischargeable under § 523(a)(2)(A) a creditor must prove by a preponderance of

the evidence “(1) that [the debtor] used false pretenses, or made a false representation, or

committed actual fraud; (2) that [the creditor] relied on [the debtor’s] conduct; (3) that [the

creditor’s] reliance was justified; and (4) that [the debtor] conduct caused [the creditor’s] loss.”

Harris v. Jayo (In re Harris), 3 F.4th 1339, 1344 (11th Cir. 2021) (citing SEC v. Bilzerian (In re

Bilzerian), 153 F.3d 1278, 1281 (11th Cir. 1998); HSSM # 7 Limited Partnership v. Bilzerian (In

re Bilzerian), 100 F.3d 886, 892 (11th Cir. 1996); Field v. Mans, 516 U.S. 59, 74-75, 116 S.Ct.

437, 133 L.Ed.2d 351 (1995)). In addition, each element must be proven for a plaintiff to

successfully have a debt excepted from discharge under § 523(a)(2). Bank of Fayette County v.

Hampton (In re Hampton), 550 B.R. 773, 792 (Bankr. E.D. Ark. 2016). While all of the elements

apply whether a plaintiff asserts false pretenses, false representations, or actual fraud, “the analysis

of the first element varies depending on the cause of action asserted.” Id. Therefore, the Court will

examine whether the Debtor made false representations or committed actual fraud before

addressing the remaining elements common to each of those allegations.

Did the debtor use false pretenses, make a false representation, or commit actual fraud?

A. False representation

PennyMac argues that the debt owed to it should be excepted from discharge because the

Debtor made a false representation. The Eleventh Circuit has noted that “a leading bankruptcy

treatise explains that the false pretense and false representation prongs of § 523(a)(2)(A) each

require an ‘intentional wrong’ – the false pretense or the false representation ‘must have been

knowingly and fraudulently made.’” Harris, 3 F.4th at 1345 (quoting 4 Collier on Bankruptcy ¶

523.08[1][d] (16th ed. 2018)). Another court has explained “[w]hen the cause of action asserted is

false representation, the first element is met by an express representation that is false at the time

made.” Hampton, 550 B.R. at 792 (citing CNA Fin. Corp. v. Flood (In re Flood), 498 B.R. 806,

811 (Bankr.S.D.Ohio 2013); Galvin v. Cole (In re Cole), 164 B.R. 947, 949 (Bankr.N.D.Ohio

1993)).

In In re Dietrich, before having surgery, the debtor knew that the hospital was not a

participating provider with his insurance company; he signed an agreement that he would be

responsible for paying for the hospital services and further assigned to the hospital his interest in

insurance benefits. Lehigh Valley Hosp. v. Dietrich (In re Dietrich), 595 B.R. 59, 62-63 (Bankr.

E.D. Pa. 2018). Despite this, when he received payments from the insurance company the debtor

deposited the insurance proceeds into his own account and spent them. Id. Among other things,

the hospital sought to have the debt declared nondischargeable under § 523(a)(2)(A). Id. at 71. In

analyzing whether the debt should be excepted from discharge, the court noted “[b]ecause a debtor

will rarely, if ever, admit that he intended deception, his knowledge and intent to deceive may be

inferred from the totality of the surrounding facts and circumstances.” Id. (citing Martin v.

Melendez (In re Melendez), 589 B.R. 260, 265-66 (Bankr. E.D. Pa. 2018); Strominger v. Giquinto

(In re Giquinto), 388 B.R. 152, 166 (Bankr. E.D. Pa. 2008)). The court ultimately determined that

the debt was non-dischargeable under § 523(a)(2)(A), finding the debtor intended to deceive the

hospital because he spent the proceeds knowing that the insurance company would not pay the

hospital directly, the explanations of benefits he received with the checks indicated they were in

payment for the hospital services rendered, and he received hospital invoices matching the

explanations of benefits and checks. Dietrich, 595 B.R. at 71-72.

In the case before this Court, the Debtor was told, and therefore knew, that the insurance

money should have been sent to PennyMac. The Progressive policy listed PennyMac as loss payee.

According to the testimony of Ms. Cejas, the Debtor had been informed by PennyMac that once

he received the insurance proceeds he should endorse the check and forward it to PennyMac. The

Debtor represented on “numerous occasions” that he would send the check to PennyMac. The

Debtor could see that the check was payable to both him and to PennyMac. The Debtor was aware

that the check and proceeds were not his to keep but, as in Dietrich, the Debtor kept the proceeds

for his own use. The Debtor’s intent to deceive PennyMac is evidenced by his actions. Moreover,

any representation to PennyMac that he would send the check after he deposited it was

unquestionably false as he no longer had the check to send. Therefore, PennyMac has established

the Debtor made a false representation for purposes of § 523(a)(2)(A).

B. Actual fraud

As one court has explained, “‘[a]ctual fraud “consists of any deceit, artifice, trick, or design

involving direct and active operation of the mind, used to circumvent or cheat another.”’” Cinq

Music Grp. v. Kabara (In re Kabara), Case No. 19-66374-JWC, Adversary Proceeding No. 20-

06009-JWC, 2021 WL 4267980, at *7 (Bankr. N.D. Ga. Sept. 2, 2021) (quoting Veazey v. Sutton

(In re Sutton), 550 B.R. 917, 922 (Bankr. N.D. Ga. 2016)). According to the United States Supreme

Court:

[T]he historical meaning of “actual fraud” provides even stronger evidence that the

phrase has long encompassed the kind of conduct alleged to have occurred here: a

transfer scheme designed to hinder the collection of debt. . . . “Actual fraud” has

two parts: actual and fraud. The word “actual” has a simple meaning in the context

of common-law fraud: It denotes any fraud that “involv[es] moral turpitude or

intentional wrong.” Neal v. Clark, 95 U.S. 704, 709, 24 L.Ed. 586 (1878). “Actual”

fraud stands in contrast to “implied” fraud or fraud “in law,” which describe acts of

deception that “may exist without the imputation of bad faith or immorality.” Ibid.

Thus, anything that counts as “fraud” and is done with wrongful intent is “actual

fraud.”

Husky Int’l Elec., Inc. v. Ritz, 578 U.S. 355, 360, 136 S. Ct. 1581, 1586, 194 L. Ed. 2d 655 (2016).