In re Kildow, Bankruptcy No. 94-51378

• Decision Date: 19 March 1999
• Docket Number: 98-113,Bankruptcy No. 94-51378,Adversary No. 98-112,98-114.
• Citation: In re Kildow, 232 B.R. 686 (Bankr. S.D. Ohio 1999)
• Parties: In re Kevin D. KILDOW, Debtor. Kevin D. Kildow, Plaintiff, v. EMC Mortgage Corporation, Defendant. Kevin D. Kildow, Plaintiff, v. Midwest Savings Bank, Defendant. Kevin D. Kildow, Plaintiff, v. City Loan Financial Services, et al., Defendants.
• Court: U.S. Bankruptcy Court — Southern District of Ohio

232 B.R. 686 (1999)

In re Kevin D. KILDOW, Debtor.

Kevin D. Kildow, Plaintiff, v. EMC Mortgage Corporation, Defendant.

Kevin D. Kildow, Plaintiff, v. Midwest Savings Bank, Defendant.

Kevin D. Kildow, Plaintiff, v. City Loan Financial Services, et al., Defendants.

Bankruptcy No. 94-51378, Adversary Nos. 98-112, 98-113, 98-114.

United States Bankruptcy Court, S.D. Ohio, Eastern Division.

March 19, 1999.

David A. Skrobot/Myriam Waksman Gluck, Skrobot Pope Levy & Fisher LLP, Columbus, Ohio, for plaintiff.

Frank M. Pees, Worthington, Ohio, Chapter 13 Trustee.

Kenneth C. Johnson, Bricker & Eckler, Columbus, Ohio, for Midwest Savings Bank.

D.L. Mains, Jr., Weltman Weinberg & Reis Co., LPA, Columbus, Ohio, for City Loan Financial Services, Inc.

Kathleen E. Hayes, Lerner Sampson & Rothfuss, Cincinnati, Ohio, for EMC Mortgage Corporation.

ORDER GRANTING DEFENDANTS' MOTIONS FOR SUMMARY JUDGMENT

CHARLES M. CALDWELL, Bankruptcy Judge.

The adversary proceedings captioned above have arisen from the chapter 13 case of a single debtor, Kevin Kildow. The adversaries are before the Court on the motions for summary judgment filed by each of the Defendants. Because they raise identical legal issues, the Court will dispose of all three adversaries in a single order. In view of the voluminous history of this case and the long-standing dispute between the parties, the Court will very briefly set forth some of the facts of Mr. Kildow's chapter 13 case, and will focus on those facts directly relevant to each of the adversary proceedings and the respective property interests.

The legal issues may be summarized as follows:

(1) Whether a chapter 13 debtor has the power to seek the avoidance of a voluntary security interest;

(2) Whether it is appropriate to order the reformation of a mortgage deed containing an inaccurate property description;

(3) Whether it is appropriate to order the reinstatement of a mortgage that was released by mistake and without consideration; and

(4) Whether laches precludes reinstatement or reformation.

The Court holds that Mr. Kildow does not have standing to avoid the Defendants' liens, as they are consensual in nature, that the Defendants are entitled to reformation or reinstatement, and that laches does not preclude reformation or reinstatement.

While the law does not permit Mr. Kildow to prevail today, the Court hopes that his counsel and counsel for the Defendants will engage in a deliberate, thorough, and objective analysis of those options which may be available to this debtor. The Court urges the parties to endeavor to choose the path that will result in the least expense, delay, and additional conflict, and which will finally bring this case, with its long and troubled history, to a close.

Mr. Kildow filed his petition for relief under chapter 13 of the Bankruptcy Code on March 15, 1994. His plan, which provided a twenty percent dividend to unsecured, nonpriority creditors, was confirmed on May 18, 1994. On or about September 20, 1997, Mr. Kildow paid off his chapter 13 plan.

Before he could be granted a discharge, however, Midwest Savings Bank ("Midwest") and City Loan Financial Services ("City Loan") filed motions for relief from stay, requesting this Court's permission to seek the reformation or reinstatement of their mortgages in state court. These motions were withdrawn on November 4, 1997, and Mr. Kildow received a discharge on November 7, 1997.

On January 14, 1998, after a hearing set pursuant to correspondence received from Mr. Kildow, in which he raised serious issues concerning the adequacy of the assistance he had received from his counsel, this Court vacated Mr. Kildow's discharge. This action was taken to give Mr. Kildow and his new counsel an opportunity to initiate adversary proceedings against Midwest, City Loan and EMC Mortgage Corporation ("EMC"). All of these mortgagees hold promissory notes secured by mortgages on one or both of two pieces of real property owned by Mr. Kildow or in which he has an interest. Separate adversary proceedings were commenced against each of the mortgagees on May 1, 1998. Mr. Kildow seeks an order declaring each of the mortgagees to be unsecured, and requiring the mortgagees to disgorge all of the funds they have received in excess of the amounts to which they would have been entitled as unsecured, nonpriority creditors under his chapter 13 plan.

Kildow v. EMC Mortgage Corporation (In re Kildow), Adv. Proc. No. 98-0112

On October 9, 1987, Mr. Kildow and his mother, Mrs. Waldtraut Kildow ("Mrs. Kildow"), executed a promissory note in favor of Home Savings of America in the principal amount of $70,000.00. The note was secured by a mortgage on real property located at 3141 Asbury Drive (the "Asbury Property"). The mortgage was recorded on October 19, 1987. The note and mortgage were assigned to EMC on December 14, 1993. The legal description contained in the mortgage deed provides as follows:

Situated in the County of Franklin, in the State of Ohio, and in the City of Columbus: being a parcel of land eighty (80) feet in length off the entire southerly end of lot number three hundred sixty-six (366) of the subdivision or allotment known as East Cleft on the Scioto, as the same is numbered and delineated upon the recorded plat of said subdivision, of record in plat book no. 11, page 1, recorder\'s office, Franklin County, Ohio.

The mortgage deed goes on to provide that the parcel legally described above is "commonly known as 3141 Asbury Drive, Columbus, OH 43221." The parties do not dispute that the legal description is deficient in that it fails to provide that the parcel of real estate is eighty (80) feet in length off the entire southerly end of lot number three hundred sixty-seven (367) as well as lot number three hundred sixty-six (366).

Mr. Kildow has admitted that he intended to grant a mortgage on the entire parcel commonly known as 3141 Asbury Drive, and that he did not intend to exclude eighty feet off the southerly end of lot number three hundred sixty-seven. EMC has admitted that its intent was to take a mortgage on the entire parcel commonly known as 3141 Asbury Drive, including eighty feet off the southerly end of lot number three hundred sixty-seven.

The parties do not dispute that EMC filed a Motion for Relief from Stay on March 4, 1996, after Mr. Kildow became delinquent in his payments to the chapter 13 trustee, which resulted in the accumulation of a postpetition arrearage on the payments due to EMC, whose claim was to be paid via conduit. An Agreed Order was entered on April 3, 1996, in an attempt to cure the arrearage and avoid foreclosure. The Agreed Order provided that Mr. Kildow was to make certain payments to the office of the chapter 13 trustee prior to a specified date. The Agreed Order also provided that, in the event Mr. Kildow failed to fulfill these payments obligations, EMC would be permitted to file and serve a Notice of Default. The Notice of Default was subject to a ten-day period within which limited objections could be filed. If no objections were filed, EMC would be granted relief from stay, and could proceed to foreclose upon the Asbury Property.

The parties agree that EMC filed a Notice of Default on June 7, 1996. EMC states that once the period during which the parties could have opposed the Notice of Default had expired without objection, its counsel prepared to proceed with foreclosure. It was then, EMC asserts, that its counsel became aware of a stayed foreclosure action that had been commenced in 1994, as well as of the deficiency in the legal description contained in the mortgage deed. On October 7, 1996, EMC filed an entry reactivating the foreclosure action, informing the Franklin County Court of Common Pleas that the stay imposed by Section 362 had been lifted, and that the foreclosure could continue.¹

Also on October 7, 1996, EMC filed an Amended Complaint in the foreclosure action, amending its prayer to include reformation of the mortgage deed so that it would conform to the intent of EMC and Mr. Kildow and include in the mortgaged parcel eighty feet off the southerly end of lot number three hundred sixty-seven (367). The entry reactivating the foreclosure was served upon Mr. Kildow, but his name does not appear in the Certificate of Service attached to the Amended Complaint. EMC states that Mr. Kildow was served with the Amended Complaint by personal service on November 13, 1996, and Mr. Kildow has not contested this assertion.

The parties do not dispute that Mr. Kildow did not file an answer in response to the Amended Complaint, nor to the Motion for Default Judgment that EMC asserts it later filed. On February 26, 1997, a judgment and decree in foreclosure in favor of EMC was entered by the Franklin County Common Pleas Court. The entry specifically found that all necessary parties had been properly served, and that defendant Kevin Kildow was in default. The court went on to award judgment in favor of EMC on the principal balance of the note ($65,272.20), with interest at the contract rate from June 15, 1995. The court further found that "by virtue of a mutual mistake of fact, the legal description in the mortgage herein fails to include 80 feet in length off the entire Southerly end of Lot 367 and the mortgage is hereby reformed to include 80 feet in length off the entire Southerly end of Lot 367." The court granted EMC the right to proceed to sell the Asbury Property at a sheriff's sale.

The parties do not dispute that on May 16, 1997, the Asbury Property was sold at a sheriff's sale for $118,000.00. Prior to the confirmation of the sheriff's sale, Mr. Kildow was able to redeem his property, paying off the amounts owed to EMC. The sheriff's sale was set aside and the foreclosure complaint dismissed.

Kevin Kildow v. Midwest Savings Bank (In re Kildow), Adv. Proc. No. 98-0113

On December 11, 1990, Mr. Kildow executed a promissory note in favor of Midwest in the principal...