In re Jacobs
| Docket Number | 19-12591-j11 |
| Decision Date | 14 October 2022 |
| Parties | IN RE: Michael Jacques JACOBS, Debtor. |
| Court | U.S. Bankruptcy Court — District of New Mexico |
Jaime A. Pena, Office of the U.S. Trustee, Albuquerque, NM, for U.S. Trustee.
On March 16, 2022, the United States Trustee ("UST") filed a motion to convert this chapter 11 to a case under chapter 7 or alternatively to dismiss the case ("Motion to Convert or Dismiss").1 The UST requests the Court to convert Debtor's bankruptcy case to chapter 7 or dismiss the case under 11 U.S.C. § 1112(b)2 for cause, including Debtor's alleged bad faith and Debtor's failure to file an acceptable plan within a reasonable time after commencement of this chapter 11 bankruptcy case. The UST contends that Debtor's chapter 11 plan violates the anti-modification prohibition in § 1123(b)(5). The Court held a final, evidentiary hearing over four non-consecutive days and took the matter under advisement.3 Debtor and his non-filing spouse, Ruby Jacobs, represented themselves in the hearing without counsel. Jaime Pena appeared on behalf of the UST. Elizabeth Dranttel, counsel for DLJ Mortgage Capital, Inc. ("DLJ"), attended the final hearing but DLJ did not join in the Motion to Convert or Dismiss and did not participate in the hearing.
Having considered the evidence and the relevant case law, the Court finds and concludes that cause exists to either convert Debtor's chapter 11 bankruptcy case to chapter 7 or dismiss the case because Debtor's plan, filed more than two and a half years after Debtor commenced this bankruptcy case, does not comply with the Code's requirements for treatment of a claim secured only by Debtor's principal residence. Under the circumstances, dismissal is in the best interests of creditors and the estate.
Debtor commenced this voluntary case under chapter 11 of the Code on November 13, 2019. At that time Debtor was represented by counsel. Prior to the bankruptcy filing, on June 5, 2018, the Second Judicial District Court, State of New Mexico (the "State Court") entered a judgment in Case No. D-202-CV-2012-09237 (the "State Court Action") granting DLJ an in rem foreclosure judgment (the "Foreclosure Judgment") against Debtor's property located at 800 Calle Divina, Albuquerque, New Mexico, 87113 (the "Property"). Debtor filed an appeal of the Foreclosure Judgment. That appeal remains stayed by this bankruptcy case. Debtor has also filed a Rule 60(b) motion before the State Court seeking an indicative ruling.4
DLJ filed proof of claim No. 6-1 in Debtor's bankruptcy case on May 6, 2020 and a motion for relief from stay ("Stay Relief Motion")5 on April 2, 2020. The Stay Relief Motion included a request for in rem relief under § 362(d)(4). Debtor filed an objection to DLJ's claim on November 15, 2020.6 The Court held a joint final, evidentiary hearing on the Debtor's objection to DLJ's claim and on the Stay Relief Motion.
On May 24, 2021, the Court entered an Order Granting In Rem Stay Relief under 11 U.S.C. § 362(d)(4) ("Stay Relief Order") in favor of DLJ with respect to the Property7 and issued a supporting Memorandum Opinion.8 Prior to the final hearing on the Stay Relief Motion, the Court previously had determined that the Foreclosure Judgment has preclusive effect and established DLJ's standing to file the Stay Relief Motion.9 In granting DLJ in rem stay relief, the Court found that Debtor and Mrs. Jacobs’ multiple prior bankruptcy filings10 affected the Property and were "part of a scheme to delay, hinder, or defraud creditors" under § 362(d)(4).11
On May 24, 2021, the Court entered an order allowing DLJ's claim and overruling Debtor's objection to DLJ's claim (the "Order Allowing DLJ's Claim")12 based in part on the Court's prior determination that the Foreclosure Judgment is entitled to preclusive effect.13 The Court allowed DLJ's claim as a secured claim in the amount of $497,457.45, the amount claimed in DLJ's proof of claim No. 6-1.14
Debtor and DLJ participated in mediation in November of 2021.15 The mediation did not result in settlement.16 Debtor filed five motions seeking to alter or amend or for relief from the Court's Order Allowing DLJ's Claim and/or the Stay Relief Order and supporting Memorandum Opinion.17 All of these efforts were unsuccessful.18 The Court determined that it is bound by the Foreclosure Judgment and cannot look behind it.19
Debtor filed a Notice of Appeal20 of the Court's Memorandum Opinion Regarding Debtor's Motion for Relief from a Judgment or Order21 and a Notice of Appeal22 of the Court's denial of Debtor's request for Rule 60(b) relief.23 Both appeals remain pending with the Tenth Circuit Bankruptcy Appellate Panel.
Debtor has filed four plans over the course of this case: 1) Debtor's Reorganization Plan, dated June 21, 2021 (Doc. 168);24 2) Debtor's Reorganization Plan attached as Exhibit A to Disclosure Statement for Small Business Under chapter 11 filed September 30, 2021 (Doc. 206); 3) an Amended Proposed Plan of Reorganization attached as Exhibit A to Amended Disclosure Statement for Small Business under chapter 11 filed March 5, 2022 (Doc. 227); and 4) Second Amended Reorganization chapter 11 Plan dated July 11, 2022 (the "Second Amended Plan" - Doc. 284). The UST filed the Motion to Convert or Dismiss shortly after Debtor filed the Amended Proposed Plan of Reorganization. Following the preliminary hearing on the UST's Motion to Convert or Dismiss, the Court fixed a deadline of June 20, 2022 for Debtor to file the Second Amended Plan.25 On Debtor's request, the Court extended that deadline to July 11, 2022.26 Debtor timely filed the Second Amended Plan. The Amended Chapter 11 Small Business Disclosure Statement (Doc. 283) filed in conjunction with the Second Amended Plan has not yet been approved, and no confirmation hearing has yet been set on the Second Amended Plan. The Court deferred setting a hearing on approval of the disclosure statement pending a ruling on the UST's Motion to Convert or Dismiss.
A significant portion of the UST's Motion to Convert or Dismiss is based on its assertion that Debtor did not file this bankruptcy case in good faith. After the UST filed the Motion to Convert or Dismiss, the Court fixed an optional briefing deadline regarding the effect of § 1123(b)(5) on the confirmability of Debtor's plan in relation to Debtor's treatment of DLJ's claim.27 The UST and Debtor each filed a brief on that issue.28 Much of the UST's brief nevertheless addressed good faith considerations.
At the final hearing on the Motion to Convert or Dismiss, the UST put on evidence about Debtor and Mrs. Jacobs’ prior bankruptcy filings. Debtor and Mrs. Jacobs put on substantial evidence regarding each of their prior bankruptcy filings, including the reasons each case was filed, the circumstances surrounding each filing, and why several of those cases resulted in dismissal. Debtor and Mrs. Jacobs also presented extensive character evidence in the form of testimony from Dr. Robert Cloutier, and letters obtained in connection with a criminal action filed by the United States against Debtor, Ruby Jacobs, and others in the United States District Court, Southern District of New York.
To decide the Motion to Convert or Dismiss, the Court need not consider evidence of Debtor's good faith or bad faith in filing and prosecuting this bankruptcy case and prior bankruptcy cases because, as explained below, cause to dismiss or convert exists based on the Code's requirement under § 1123(b)(5) that a plan may not modify the rights of a holder of a claim secured only by the debtor's principal residence.
Debtor and Mrs. Jacobs executed a Mortgage dated November 9, 2005 (the "Mortgage") against Debtor's principal residence securing the indebtedness under an Adjustable Rate Note of the same date (the "Note"). DLJ holds an allowed secured claim in this bankruptcy case secured only by the Mortgage in the amount of $497,457.45 as of the petition date. This figure is based on the amount of the in rem Foreclosure Judgment entered against Debtor and Mrs. Jacobs on June 5, 2018 in the State Court Action, plus interest accrued to the petition date, and the preclusive effect of the Foreclosure Judgment. The Foreclosure Judgment includes interest accrued through May 6, 2016 and provides that interest accrues thereafter at the fixed rate of 3.5% per annum.29 DLJ holds an allowed claim secured solely by Debtor's principal residence in the amount stated above.
The regular monthly mortgage payment as stated in an attachment to DLJ's proof of claim is $1,655.04 plus monthly escrow of $525.69.30 The loan payment history attached to DLJ's proof of claim No. 6-1 begins as of March 31, 2011, and shows no payments received.31
Debtor and Mrs. Jacobs entered into negotiations with EMC Mortgage Corp., a predecessor in interest to DLJ with respect to the Note and Mortgage, for a modification to the loan under the Home Affordable Modification Program ("HAMP"). Under the proposed HAMP loan modification, Debtor's mortgage payments on the Property would be approximately $1,500, including taxes and insurance. Debtor and Mrs. Jacobs testified that Nationstar Mortgage, LLC ("Nationstar"), a successor in interest to EMC Mortgage Corp. with respect to the Note and Mortgage, refused to honor the HAMP loan modification. No evidence of a fully executed HAMP loan modification was presented to the Court.
As a 100% disabled veteran, Debtor is currently exempt from paying property taxes on the Property.32 Debtor also pays his own property insurance for the Property.33 The amount of the Foreclosure Judgment includes $26,692.10 for "Escrow Advances [for property taxes and insurance] through May 6, 2016."34
The Foreclosure Judgment contains a breakdown of the $442,555.93...
To continue reading
Request your trial
-
Hamilton v. Curiel (In re Curiel)
... ... remedy or rectify the default and restore matters to the ... status quo ante. Curing a default commonly means taking care ... of the triggering event and returning to pre-default ... conditions. The consequences [of default] are thus nullified ... In re Jacobs , 644 B.R. 883, 900 (Bankr. D. N.M ... 2022) (cleaned up) (emphasis added). Further emphasizing the ... distinction between the two actions, cure of defaults is ... subject to different provisions of the Code than ... modifications. Compare § 1123(a)(5)(E) and ... ...