In re Garcia
| Decision Date | 07 March 2022 |
| Docket Number | 22 B 130 |
| Parties | In re: JULIO A. GARCIA and BONNIE L. GARCIA, Debtors. |
| Court | U.S. Bankruptcy Court — Northern District of Illinois |
Julio and Bonnie Garcia have been trying to sell their business property on Chicago's north side since at least early 2019. The Garcias have been in a hurry to sell it because Albany Bank and Trust is foreclosing on the mortgage - a mortgage securing a $1.1 million loan that the Garcias stopped paying four years ago - and is on the brink of a sale. The Garcias prefer to sell the property themselves believing they can do better at a private sale than the Bank can at a sheriff's sale. To buy time for a sale, they filed three bankruptcy cases between 2019 and 2022.
In this, the third bankruptcy case, the Bank has moved to lift the automatic stay so it can resume its foreclosure action in the state court. The Garcias have countered with a motion to compel the court-appointed receiver to turn over the property. The receiver has asked to be excused from his turnover obligations.
For the reasons below, the Bank's motion will be granted and the stay lifted. With the stay lifted, it would be pointless to make the receiver return the property to the Garcias. His motion will also be granted. The Garcias' motion to compel turnover will be denied.
The court has subject matter jurisdiction under 28 U.S.C. § 1334(a) and the district court's Internal Operating Procedure 15(a). This is a core proceeding. 28 U.S.C. §§ 157(b)(2)(E), (G); see In re D/C Distribution, LLC, 617 B.R. 600, 605 (Bankr. N.D.Ill. 2020) (stay modification); In re Montemurro, 581 B.R. 565, 568 (Bankr. N.D.Ill. 2018) (turnover).
The facts come from the parties' papers, the dockets and papers filed in the bankruptcy cases ; the docket in the foreclosure action (Albany Bank & Trust Co. v. Lincoln Auto. Grp., et al., No. 18 CH 4114 (Cir. Ct. Cook Ct.)); and the docket and papers filed in a related district court action (Biggers Holdings LLC v. Julio Garcia Trust, No. 21 C 4680 (N.D. Ill.)).[1] No facts are in dispute.
a. The Property, the Mortgage, and the Foreclosure Action
The Garcias are beneficiaries of a land trust that holds title to property on Lincoln Avenue in Chicago. The property consists of six contiguous parcels on which the Garcias and their son run an automotive repair business called Lincoln Automotive Group. In 2004, Albany Bank & Trust made a $1.125 million loan to Albany Bank as trustee of the Garcias' land trust. The Garcias personally guaranteed the loan. The loan had a 2004 maturity date, a date later extended to 2019, and was secured by a mortgage on the Lincoln Avenue property.
In February 2018, the Garcias defaulted on their payments. The next month the Bank sued in Illinois state court to foreclose on the mortgage. According to the Bank's complaint, the unpaid loan balance (which included unpaid property taxes) came to $783, 300.46. In April 2019, the Bank moved to have a receiver appointed. b. The First Bankruptcy Case
Roughly two weeks before the Bank was to present the receiver motion, the Garcias filed a chapter 13 bankruptcy case in this district, staying the foreclosure action. The Garcias' schedules listed a single secured creditor, the Bank. They also listed five general unsecured creditors owed $26, 731 in all. The Garcias disclosed monthly gross income of $15, 375, two-thirds of it rental income from the Lincoln Avenue property, and monthly net income of $5, 281.
The chapter 13 case lasted eleven months. During that time, the Garcias proposed three plans, none of them confirmed. The first proposed to sell part of the Lincoln Avenue property, reducing the Bank's claim; the Garcias would then pay the reduced claim over time. When the Bank objected to confirmation, the Garcias proposed a second plan under which they would surrender part of the property to the Bank and pay the reduced claim over time. When the Bank objected to the second plan, the Garcias proposed a third. Under the third plan, they would make periodic payments to the Bank and then make a $720, 000 balloon payment either by selling the entire property or obtaining new financing within four years. Again the Bank objected. This time, the Garcias stood their ground and briefed the objection.
In April 2020, the court sustained the Bank's objection and denied confirmation. Confirmation was denied for two reasons. First, the plan's proposal to pay the Bank over time with a $720, 000 balloon down the road violated the Bankruptcy Code's equal-monthly-payment requirement. See 11 U.S.C. § 1325(a)(5)(B)(iii)(I). Second, assuming a $720, 000 balloon payment could meet that requirement, the plan was not feasible. See 11 U.S.C. § 1325(a)(6). The Garcias's sale proposal gave no listing price, described no marketing plan, and offered the Bank no remedy if a sale did not occur. The Garcias' refinancing alternative had no details at all.
With confirmation denied, the court turned to the chapter 13 trustee's pending motion to dismiss. Because the Garcias had spent nearly a year proposing three plans each of which was aimed mainly at the Bank and none of which could be confirmed, it was fair to conclude that the Garcias were guilty of "unreasonable delay . . . prejudicial to creditors." 11 U.S.C. § 1307(c)(1). "The Bank can't be put off forever," the court said. The court granted the motion and dismissed the case.
c. The Second Bankruptcy Case
The dismissal of the bankruptcy case allowed the Bank to resume its foreclosure action, and the Bank rescheduled its motion to appoint a receiver. The Bank was unable to present the motion, though, because the Covid-19 pandemic forced the state court to close from April until July 2020. On September 9, 2020, the Bank was at last able to present its motion, and the state court granted it, appointing Richard Wanland, Jr. as receiver.
Five days later, the Garcias filed a chapter 11 bankruptcy case in the Middle District of Florida. In their schedules, the Garcias again listed a single secured creditor, the Bank. This time they listed ten general unsecured creditors owed $54, 009. The Garcias disclosed gross monthly income of $13, 623, nearly all of it rentals related to the Lincoln Avenue property, and monthly net income of $10, 578. The Garcias also filed a "Chapter 11 Case Management Summary" (required under the Florida court's local rules) announcing this strategic objective: a plan that "restructures the Debtors' secured debt and allows a long[ ]term solution for the Debtors to deal with the claim of Albany Bank and Trust."
Because the Illinois chapter 13 case had been dismissed within a year, the Garcias moved under section 362(c)(3)(B) to extend the automatic stay beyond the statutory thirty days. The Bank opposed the Garcias' motion and moved under section 1112(b) to dismiss the case as having been filed in bad faith.
In October 2020, the Florida bankruptcy court declined to extend the stay and granted the Bank's motion, dismissing the case. The Garcias argued that a chapter 11 case would allow them to do what they could not do in chapter 13: pay the Bank over time and then either sell the Lincoln Avenue property with a balloon payment or refinance the debt "five years down the road." The Garcias theorized that they could pay the Bank $6, 500 monthly for 60 months with a $390, 000 balloon. But the Bank pointed out that the $6, 500 monthly payment did not include the $2, 500 due each month for taxes, and the court said it appeared the Garcias lacked the income to make the payments they were proposing. The court found that the Garcias could not confirm a plan over the Bank's objection, concluded the Garcias had filed the chapter 11 case in bad faith, and barred them from filing another bankruptcy case for one year.
d. The Third Bankruptcy Case
The dismissal of the Florida bankruptcy case allowed the Bank to resume its foreclosure action once more. In March 2021, the Bank moved for a judgment of foreclosure and sale. Three months later, in June 2021, the state court granted the Bank's motion and entered judgment for the Bank, finding the Garcias owed the Bank $1, 137, 134. Between April 2018 and March 2020, the Garcias had made only $6, 000 in payments toward the mortgage debt. The payments stopped altogether in March. During the same period, the Garcias also paid no taxes on the property. The Bank paid the taxes, $115, 719.
While the Bank's motion for judgment was pending, Julio Garcia had signed a contract to sell the Lincoln Avenue property to Biggers Holdings LLC, an Indiana concern with subsidiaries that buy and run automotive repair shops. The contract price was $1.55 million. Biggers paid Garcia $300, 000 as earnest money. But Biggers became concerned that Garcia had misrepresented the property's environmental condition, and in July the parties agreed to terminate the contract. Despite the termination, Garcia refused to sign a release of the earnest money from escrow, and Biggers sued Garcia and others in the district court alleging breach of contract and fraud. The Biggers action is pending.[2]
In early October 2021, the state court ended the moratorium on judicial foreclosure sales that had been declared during the pandemic. The next month, the Bank had Intercounty Judicial Sales Corporation issue a notice setting January 12, 2022 as the date for the foreclosure sale of the Lincoln Avenue property.
On January 6...
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