In re Kingsmore, C/A 02-04789-W.

• Decision Date: 02 October 2002
• Docket Number: No. C/A 02-04789-W.,C/A 02-04789-W.
• Citation: 295 B.R. 812
• Court: U.S. Bankruptcy Court — District of South Carolina
• Parties: In re Susan KINGSMORE, Debtor.

295 B.R. 812

In re Susan KINGSMORE, Debtor.

No. C/A 02-04789-W.

United States Bankruptcy Court, D. South Carolina.

October 2, 2002.

COPYRIGHT MATERIAL OMITTED

Jane H. Downey, Columbia, SC, for creditor.

Jason T. Moss, Columbia, SC, for debtor.

ORDER

JOHN E. WAITES, Bankruptcy Judge.

THIS MATTER comes before the Court for further hearing to consider whether Susan Kingsmore ("Debtor") possessed an equitable right of redemption associated with her two installment land contracts with Joann D. Dehardt ("Creditor") when she filed her bankruptcy Petition. On August 9, 2002, the Court entered an Order that determined that South Carolina law provides purchasers under installment land contracts, in appropriate circumstances, an equitable right of redemption, which allows them an opportunity to pay the entire purchase price of the contract before a court would enforce a contract's forfeiture provision. From the facts in the record at that time, the Court could not determine whether Debtor possessed an equitable right of redemption when she filed her bankruptcy Petition. Accordingly, the Court ordered a further hearing to consider this issue as well as whether Special Referee James Spencer Verner considered Debtor's equitable right of redemption when he canceled the two installment land contracts and any other issue that might affect confirmation of Debtor's Chapter 13 Plan.

On August 27, 2002, the Court held the further hearing at which time the parties addressed several issues. Alleging several equitable factors, Debtor argues that she held an equitable right of redemption when she filed her bankruptcy Petition and that this equitable right became part of her bankruptcy estate even though the Special Referee canceled the installment land contracts prepetition. To support this position, Debtor asserts that, at the hearing when the Special Referee canceled the contracts, Debtor was not afforded a formal opportunity to exercise her equitable right of redemption. Finally, Debtor asserts that she can treat her equitable right of redemption in her Chapter 13 Plan and spread payments related to the contracts over the life of her Plan pursuant to 11 U.S.C. § 1325 because the terms of the contracts will expire within the Plan period.¹ In response, Creditor argues that, for a purchaser under an installment land contract to obtain an equitable right of redemption, a purchaser must make a proactive attempt to redeem the property, the seller must refuse to accept the redemption price, and other equitable circumstances must exist. According to Creditor, Debtor failed to formally offer to redeem the properties by paying the full purchase prices. In addition, Creditor avers that Debtor had an opportunity to exercise her right to redeem the properties when Creditor mailed Debtor notices of a right to cure and the Special Referee offered Debtor a chance to resolve Creditor's Complaint. Finally, Creditor argues that the recent decision by the Supreme Court of South Carolina upon which Debtor bases her argument that she has an equitable right of redemption, Lewis v. Premium Investment Corporation, 351 S.C. 167, 568 S.E.2d 361 (2002), does not apply to Debtor because the Lewis decision should be applied prospectively only. After considering the pleadings in the matter, the parties' arguments, and the evidence presented at the hearing, the Court makes the following Findings of Fact and Conclusions of Law pursuant to Federal Rule of Civil Procedure 52, applicable in bankruptcy proceedings by Federal Rule of Bankruptcy Procedure 7052.²

FINDINGS OF FACT

1. On October 6, 1998, Debtor and Creditor entered into two installment land contracts wherein Creditor agrees to sell Debtor real property. Each contract deals with a separate parcel of land, Lot 12 and Lot 13, and each lot measures approximately one acre and is located in Newberry County, South Carolina.

2. Under the terms of the contract for the sale of Lot 12, Debtor agrees to pay Creditor $3,800.00. Debtor finances the entire purchase price from Creditor at 12% annual interest, and Debtor agrees to pay seventy-two consecutive monthly installments of $74.29 by the fifteenth day of each month beginning November 15, 1998.

3. Under the terms of the contract for the sale of Lot 13, Debtor agrees to pay Creditor $8,500.00. Debtor paid $576.40 toward the purchase price and, in the contract, she finances $7,923.60 from Creditor at 12% annual interest. Debtor agrees to pay seventy-one consecutive monthly installments of $156.40 by the first day of each month beginning November 1, 1998.

4. Both contracts provide that, upon payment of the entire purchase price and Debtor's satisfactory performance of the contracts' terms and conditions, Creditor will convey valid warranty deeds to Debtor.

5. While residing on Lot 12 and Lot 13, Debtor improved the properties by clearing and landscaping the lots and installing a septic tank. Debtor values these improvements as worth approximately $4,300.00.

6. In February 2001, Debtor attended Piedmont Technical College and was studying to earn a degree in radiology. Debtor's husband worked to this point until he was diagnosed with congestive heart failure and informed he needed to obtain a heart transplant. Consequently, Debtor's husband could no longer work, and Debtor was unable to continue her studies because she needed to care for her ailing spouse.

7. Although Debtor's husband and Debtor's daughter received Social Security benefits as a result of Debtor's husband's heart condition, Debtor faced financial difficulties.

8. On November 7, 2001, Creditor, through her attorney, mailed correspondence to Debtor indicating that Debtor was in default of the contracts because Debtor failed to pay the 2000 property taxes and the October 2001 payments for each parcel. Creditor provided Debtor a notice of a right to cure this delinquency, which allowed Debtor an opportunity to pay $414.89 until December 7, 2001.

9. Debtor testified that she made the October 2001 payments.³

10. Debtor did not make the November 2001 payments on Lot 12 or Lot 13. Until this point. Debtor testified that she had not missed any payments since entering the contracts.⁴

11. Debtor did not make the December 2001 payments on Lot 12 or Lot 13.

12. On January 2, 2002, Creditor, through her attorney, mailed correspondence to Debtor indicating that Debtor was in default of the contracts because Debtor failed to pay the 2000 property taxes and the October, November, and December 2001 payments for each parcel.

13. On January 4, 2002, Debtor attempted to pay Creditor $260.69 for her November 2001 payment; however, Creditor gave Debtor's check to Creditor's attorney. Creditor did not negotiate the check that attempted to pay the November 2001 payment.

14. On January 7, 2002, Creditor filed a Lis Pendens, Summons, and Complaint against Debtor seeking the cancellation of the parties two installment land contracts and foreclosure of Debtor's interests in the properties.

15. On March 21, 2002, Special Referee James Spencer Verner considered Creditor's Complaint. The parties agree that, at the hearing, the Special Referee asked Debtor if she could make payment to Creditor to resolve Creditor's complaint. The transcript, however, does not reflect the Special Referee's making this offer to Debtor. In addition, the parties dispute the terms and conditions of the offer: Debtor claims the Special Referee allowed her a two week period to cure what was owed to Creditor, and Creditor claims the Special Referee provided Debtor a chance to redeem the properties at the hearing.

16. On March 21, 2002, the Special Referee entered an order (the "Special Referee's Order") resolving Creditor's Complaint.⁵ The Special Referee ordered the cancellation of the two installment land contracts and directed the Clerk of Court for Newberry County to enter these cancellations in the record of the Clerk's Deed Book. The Special Referee based his conclusion on the contracts' terms, which allow Creditor to cancel the contracts because Debtor failed to make payments.⁶

17. In the Special Referee's Order, the Special Referee concludes the total balance due and owing to Creditor on the contracts is $6,674.00 ($2,184.84 for Lot 12 and $4,489.16 for Lot 13).

18. When the contracts were canceled, Debtor had paid a total of $8,856.40 in principal and interest for the two parcels.⁷

19. On April 19, 2002, Debtor filed her Chapter 13 case.

20. In her Schedules, Debtor lists her real property as two lots located in Prosperity, South Carolina. Debtor values these lots as worth $10,000.00 and lists Creditor, her only secured creditor, with a claim totaling $6,886.32 secured by the lots.⁸

21. In her Chapter 13 Plan, Debtor proposes to pay Creditor $146.00 monthly until the balance of Creditor's lien plus 8.5% interest has been paid in full.

22. Debtor testified she believed the value of the properties is $21,000.00.

23. Creditor testified she believed the value of the properties is $22,000.00.

CONCLUSIONS OF LAW

I. Whether Lewis Applies to Debtor?

The Court begins its analysis with Creditor's argument that Lewis should not apply to Debtor because the decision should be applied prospectively only. In essence, Creditor argues that, because the Supreme Court's Lewis decision created or recognized a property right not previously existing, Lewis should not be given retroactive effect to Debtor's Petition date, and, consequently, Debtor could not have an equitable right of redemption that she could treat in her Chapter 13 Plan. See, e.g. Ex parte Hardaway v. County of Lexington, 314 S.C. 22, 443 S.E.2d 569, 571 (1994).

South Carolina law provides that, when a judicial decision creates a new liability where none formerly existed, courts should apply the judicial decision prospectively only. See id. at 570. That said, Creditor's argument fails to recognize the validity of the Court of Appeals of South Carolina's decision in Lew...