In re Carter

• Decision Date: 04 May 2004
• Docket Number: No. 04 B 00114.,04 B 00114.
• Citation: 312 B.R. 356
• Parties: In re Lillie CARTER, Debtor.
• Court: U.S. Bankruptcy Court — Northern District of Illinois

Page 356

312 B.R. 356

In re Lillie CARTER, Debtor.

No. 04 B 00114.

United States Bankruptcy Court, N.D. Illinois, Eastern Division.

May 4, 2004.

Greg Elsnic, Chicago, IL, Attorney for Movant.

Kelvin C. Bulger, Chicago, IL, Attorney for Respondent.

MEMORANDUM OPINION

JACQUELINE P. COX, Bankruptcy Judge.

The Movant Cronus Projects, LLC ("Cronus") requests relief from the automatic stay pursuant to 11 U.S.C. § 362(d)(1) or for dismissal with a 180-day bar against refiling pursuant to 11 U.S.C. § 1307(c) and § 349(a) so that it may seek dispossession of Chapter 13 debtor Lillie Carter ("Carter") from real property at 856 North Trumbull, Chicago, Illinois.

First mortgagee Ocwen Federal Bank sued Carter in 2002 to foreclosure its lien on her home. (Case No. 02 CH 208) After Carter reached a settlement agreement in this foreclosure suit with Ocwen, she still faced a foreclosure suit by the second mortgagee PB Investment Corporation, which had filed an April 2002 cross claim against her in the first mortgagee's original foreclosure suit. The state court entered a judgment of foreclosure on December 9, 2002, setting a March 10, 2003 statutory deadline for Carter to redeem her home from PB Investment Corporation's secured claim. On April 18, 2003, Cronus successfully bid $30,000 at the mortgage foreclosure sale initiated by the second mortgagee, and the Circuit Court of Cook County confirmed the same on August 26, 2003. The confirmation order rejected Carter's defense based on lack of personal jurisdiction and separately directed the sale officer to execute and deliver a deed for the property to Cronus.

At the conclusion of the confirmation hearing, the president of Cronus informed Carter that she could retain her primary residence if she reimbursed the company for the $30,000 it paid at the sale, and Carter consented to this arrangement. Accordingly, Cronus and Carter agreed to extend the state-court order for possession, which normally accompanies a sale-confirmation order, several times between August and December of 2003. The relationship and negotiations broke down definitively in a December 19, 2003 letter to Carter's attorney in which Cronus notified her that it would not sell the property to her and indicated it would not continue to agree to extensions of the order for possession. The breakdown precipitated Carter's instant Chapter 13 bankruptcy filing on January 2, 2004, twenty-one days before the final postponement of the order for possession was set to expire.

Since September, Carter had been seeking funds to "refinance" her second mortgage debt (even though it had been paid off at the foreclosure sale) from Challenge Mortgage. Challenge ultimately informed her that it could not process her loan due to the confusion surrounding her apparent lack of ownership on the title chain, which revealed that the property had been placed in a trust by the movant Cronus. Carter attributes her inability to obtain refinancing to this transfer to a trust as well as to the fact that Cronus advertised her home in a real-estate listing beginning on May 6, 2003, and continuing until it obliged her request to remove it from the listings on October 9, 2003.

Discussion and Analysis

Cronus argues that the automatic stay should be modified to permit the state-court order for possession to issue under 735 Ill. Comp. Stat. 5/15-1508(g) (2002), alleging that "cause" for relief has been established because Carter no longer holds any property interest in her home other than a mere possessory interest. It relies on Colon v. Option One Mortgage Corporation, 319 F.3d 912 (7th Cir.2003), for its assertion that Carter's Chapter 13 case has been filed too late to save her home under the Bankruptcy Code.

In Colon, the Seventh Circuit held that when a Chapter 13 case is filed in between a foreclosure sale and an Illinois court's confirmation of that sale, the "sale" described in 11 U.S.C. § 1322(c)(1)¹ has already occurred, and the debtor-mortgagor may no longer cure the default resulting in foreclosure by means of a plan utilizing the permissive cure provisions of § 1322(b), at least not if an Illinois circuit court ultimately confirms the sale after the bankruptcy court grants relief from the automatic stay to permit the confirmation hearing. See id. at 916, 920-21. Thus, the debtor herein is clearly out of time with respect to the most common method of using Chapter 13 of the Bankruptcy Code to prevent dispossession of a private residence, § 1322, as the sale and the confirmation hearing have both already occurred. The provision in her modified Chapter 13 plan allowing her to pay her mortgage arrears throughout the course of her five-year plan would require denial of confirmation under Colon.

A. Does the Debtor Still Have a Lingering Equitable Right of Redemption Under Illinois Law?

The debtor in this case nevertheless argues that she had a lingering state-law equitable right of redemption that existed both after sale confirmation and on the bankruptcy-petition filing date; the right supposedly stems from Cronus's inequitable conduct impeding her from "refinancing" her home after Cronus agreed that she could do so. If the legal argument is correct, the right became property of her bankruptcy estate pursuant to 11 U.S.C. § 541(a), and the time to exercise this right would have been extended for 60 days after the petition date pursuant to § 108(b) if it would have otherwise expired during the 60 days. See, e.g., Matter of Tynan, 773 F.2d 177, 179 (7th Cir.1985) (noting under the superceded foreclosure statute that "[w]hen the Chapter 13 petition was filed, the statutory right of redemption was an asset that passed to the trustee ... [but that] [t]he real property sold at the sheriff's sale did not become part of the estate."); Johnson v. First Nat. Bank of Montevideo, 719 F.2d 270, 276-78 (8th Cir.1983) (same). If correct, the argument would also mean that rather than curing a default on the second mortgage by paying the arrears throughout the course of a payment plan under § 1322(b)(5), the debtor would have to come up with a lump-sum redemption amount² within the applicable time frame.

Carter's belief that she still had a redemption right in spite of Cronus's refusal to further acknowledge one is based on three Illinois decisions, Woodworth v. Sandin, 371 Ill. 302, 20 N.E.2d 603 (1939), Henderson v. Harness, 184 Ill. 520, 56 N.E. 786 (1900), and Skach v. Sykora, 6 Ill.2d 215, 127 N.E.2d 453 (1955). She asserts that these decisions stand for the proposition that a debtor can utilize an extended equitable period of redemption beyond the statutory period if the foreclosure-sale purchaser engages in fraud or other inequitable conduct. In Henderson v. Harness, 184 Ill. 520, 56 N.E. 786 (1900), the purchaser induced the prior owner to refrain from redeeming the land within the statutory period so that the purchaser, who was purportedly not interested in obtaining the property in lieu of purchase-price repayment, could obtain a precedent-setting ruling in the underlying judgment-execution action. Henderson, 56 N.E. at 787-88, 790. When the prior owner later procured and offered the purchase price plus interest after the redemption period expired, the sale purchaser refused it. See id. An Illinois court of equity granted a bill in chancery vacating the purchaser's certificate of sale and deed so that the redemption could be accomplished, relying in part on the broken promise and in part on the gross disparity between the value of the land and the sale price; the Supreme Court of Illinois affirmed. See id. at 789-91.³ Skach v. Sykora, 6 Ill.2d 215, 127 N.E.2d 453 (1955), is similar in holding that "fraud or improper acts of the purchaser" can extend the statutory redemption period when those acts cause the delinquency. See id., 127 N.E.2d at 455. In that case, the mortgagors borrowed money to pay the redemption amount and tendered what the master reported as the redemption amount within the statutory time frame, which at that time was twelve months from the sale date. See id. at 454-55. When they later discovered that the master calculated the interest incorrectly after the deadline had passed, they tendered the difference, causing the master to eventually deny the sale purchaser a deed in return for the certificate of sale. See id. at 454. The Supreme Court of Illinois held that three considerations required affirmance of the lower court's equitable extension of the redemption period: the honest attempt to redeem within the applicable time frame, the mistake of the master in computing the original redemption amount, and the disparity between the sale price and the fair market value of the mortgaged property. See id. at 456-57. Under the modern Illinois Mortgage Foreclosure Law, an equitable right of redemption can extend the time for redemption beyond the statutory period delineated in 735 Ill. Comp. Stat. 5/15-1603(b)(1). See 735 Ill. Comp. Stat. 5/15-1605; Colon v. Option One Mortg. Corp., 319 F.3d 912, 919-20 & n. 7 (7th Cir.2003). In this general respect, Henderson and Skach are consistent with modern Illinois law.

1. The Equitable Right of Redemption Under Modern Illinois Foreclosure Law

To determine whether a state-law right of redemption became part of Carter's bankruptcy estate, these cases must be examined in light of the current version of the mortgage-foreclosure statute in the Illinois Code of Civil Procedure, which became effective during July 1987. Under the former law, the statutory redemption period expired after the foreclosure sale; therefore, any equitable extension thereof resulting from the purchaser's inequitable conduct necessarily had to occur after the sale as well. See Skach v. Sykora, 6 Ill.2d 215, 127 N.E.2d 453, 454-55 (1955); Henderson v. Harness, 184 Ill. 520, 56 N.E. 786, 787, 789-90 (1900). The modern statute, though, is inconsistent with the underlying foreclosure law in Henderson and Skach in...