In re Losada

• Decision Date: 15 September 2016
• Docket Number: Case No. 10-32254-BKC-LMI
• Parties: In re: Jose Losada, Caridad Losada Debtors.
• Court: United States Bankruptcy Courts. Eleventh Circuit. U.S. Bankruptcy Court — Southern District of Florida

557 B.R. 244

In re: Jose Losada, Caridad Losada Debtors.

Case No. 10-32254-BKC-LMI

United States Bankruptcy Court, S.D. Florida.

Signed September 15, 2016

Robert Sanchez, Esq., Hialeah, FL, for Debtors.

ORDER GRANTING IN PART AND DENYING IN PART MOTION TO REOPEN CASE

Laurel M. Isicoff, Judge United States Bankruptcy Court

This matter came before me on June 7, 2016, on Motion of Jose Losada and Caridad Losada (the "Debtors") to Reopen to Value and Determine Secured Status of Lien on Real Property¹ (ECF # 152) (the "Motion to Reopen")² . The Debtors seek to reopen their chapter 13 case, which the Debtors successfully completed³ , in order to prosecute a Motion to Value with respect to their residence located in Miami, Florida (the "Residence") and strip the lien of the third mortgage holder⁴ , Space Coast Credit Union, formerly known as Eastern Financial Florida Credit Union ("Space Coast"). I have reviewed the Motion to Reopen, Space Coast's Response in Opposition to the Motion to Reopen⁵ (the "Response"), and the Debtors' Reply⁶ . For the reasons outlined herein, the Motion is Granted in Part and Denied in Part and the parties are directed to prepare a scheduling order with respect to the trial on the value of the Residence.

FACTS AND PROCEDURAL HISTORY

The Debtors filed a chapter 13 bankruptcy case on July 30, 2010 (the "Petition Date"). The Debtors filed their initial chapter 13 plan on August 12, 2010. The Debtors amended the initial plan at least twice. Finally, the Debtors' Second Amended Plan (ECF #71) (the "Plan") was confirmed on June 2, 2011 (ECF #87) (the Confirmation Order").

The confirmed Plan provided that Space Coast would be treated as follows:

IF YOU ARE A SECURED CREDITOR LISTED BELOW, THE PLAN SEEKS TO VALUE THE COLLATERAL SECURING YOUR CLAIM IN THE AMOUNT INDICATED. A SEPARATE MOTION (UTILIZING LOCAL FORM MOTION TO VALUE COLLATERAL IN PLAN) WILL ALSO BE SERVED ON YOU PURSUANT TO BR 7004 and LR 3015-3.

Secured Creditor

Description of Collateral and Value of Collateral

Interest Rate

Plan Payments

Months of Payment

Total Plan Payments

Bank of America (2nd mortgage on homestead) Loan No. xxxx5699 Prop Add: 15482 SW 11^th Terr Miami, FL 33194

Homestead

Property

$279,395.00

0%

N/A

N/A

N/A

Eastern Financial (3rd mortgage on homestead) Loan No. xxxx1703 Prop Add: 15482 SW 11^thTerr Mami, FL 33194

Homestead

Property

$279,395.00

0%

N/A

N/A

N/A

The Confirmation Order provides in its final paragraph—

To the extent the Plan sought a determination of valuation pursuant to Bankruptcy Rule 3012, and no objections were filed or any objections were resolved, the terms of the Plan will be binding upon the affected secured creditors, and any allowed proof of claim will be secured only to the extend [sic] of the value as provided for in the Plan and unsecured as to the balance of the claim.

Under the Local Rules of the Bankruptcy Court, in order to value collateral, a debtor must file a motion to value served in accordance with Federal Rule of Bankruptcy Procedure 7004⁷ . The Debtors never filed a motion to value Space Coast's collateral with respect to Space Coast's lien. The Debtors apparently attempted to file a motion to value in order to strip Space Coast's lien, but the motion named Bank of America as the lender both in the title of the motion and in the body of the motion (ECF #36) (the "Invalid MTV"). The Order granting the Invalid MTV also identified Bank of America as the lender (ECF #63). Space Coast was never served with either the Invalid MTV or with the order granting the Invalid MTV. There is no evidence that Space Coast was served with a copy of the Plan, although the docket reflects that Space Coast was served with a copy of the Confirmation Order at POB 829514, South Florida, Fl. 33082-9514 (ECF #88). Space Coast denies that it ever received notice of the Plan or of the Confirmation Order.⁸

The Debtors received their discharge in December of 2015 and shortly thereafter reached out to Space Coast for a release of its mortgage.⁹ Space Coast declined. The Debtors filed their original Motion to Reopen arguing that the Invalid MTV and the order granting the Invalid MTV that improperly named Bank of America as the lender and which were never served on Space Coast, should nonetheless be binding on Space Coast. I never ruled on that argument because the original Motion to Reopen was withdrawn.

In the Motion to Reopen at issue the Debtors argue that the bankruptcy case should be reopened so that I may consider the Motion to Value (ECF #153) filed simultaneous with the Motion to Reopen, which Motion to Value seeks nunc pro tunc valuation (to the Petition Date) of the Residence. The Debtors argue that, since the Plan sought to value the Residence, the Confirmation Order should bind Space Coast, and the lien can be stripped based on the Plan and Confirmation Order. The Debtors further argue that case law supports their request to reopen the case and seek valuation after discharge.¹⁰

Space Coast counters that the Debtors' Motion to Reopen is barred by laches—Space Coast would be prejudiced if required to value the Residence as of the Petition Date six years after the fact. Moreover, Space Coast argues that case law does not recognize the Debtor's right to rely on a confirmed plan that neither actually valued the Residence, nor that provided actual notice to Space Coast of the intent to value the Residence.

ANALYSIS

11 U.S.C. § 350(b)allows a court to reopen a closed bankruptcy case "to administer assets, to accord relief to the debtor, or for other cause." "A decision to reopen a case under section 350(b)is based on 'the particular circumstances and equities of each case'. ... When deciding whether to reopen a closed case, courts generally consider the benefit to creditors, the benefit to the debtor, the prejudice to the affected party and other equitable factors." In re Rodriguez , 2015 WL 4872343, at *2 (Bankr.S.D.Fla. Aug. 12, 2015).

The Debtors seek to reopen the case for three purposes—first, to determine whether and to what extent Space Coast is bound by the valuation of the Residence in the Plan; second, to determine the Motion to Value; and third, to modify the original Order Granting Motion to Value. As I have already discarded the third argument as being meritless, I will turn first to the Plan and its provisions, and then to the requested Motion to Value.

The Plan does not strip Space Coast's Lien even if it valued the Residence

Space Coast argues that the provisions of the Plan are not binding on it because (a) the Plan specifically provided that a separate motion to value would be filed; (b) nothing in the Plan or the Confirmation Order states anything with respect to the status of Space Coast's lien or the lien being stripped; and (c) neither the Plan nor the Confirmation Order were served on Space Coast in accordance with Fed.R.Bankr.P. 7004and, besides, Space Coast has no record of having received the Plan or the Confirmation Order. In support of its argument Space Coast relies on the Eleventh Circuit's decision Green Tree Acceptance, Inc. v. Calvert (In re Calvert), 907 F.2d 1069 (11th Cir.1990).

In Calvert , the secured lender received notice that the Court might value its collateral at the debtors' first confirmation hearing; however, the secured creditor failed to send a representative. At the first hearing, the bankruptcy court made a finding that the secured creditor's interest had never been perfected. Subsequently the debtors filed an amended proof of claim, to which the secured creditor did not object. After filing the amended proof of claim, the debtors filed an amended plan. The bankruptcy court held a second confirmation hearing, however the notice that was sent to the parties indicated that the hearing was a motion to reconsider the first bankruptcy plan; the notice made no mention of the valuation issue. The secured lender attended the second hearing and the bankruptcy court held that the security interest had been perfected. Since the security interest was perfected, the bankruptcy court again considered the original plan and valued the property at issue. The Eleventh Circuit held that the valuation process did not satisfy the requirements of Rule 3012 because the bankruptcy court's notice did not include "notice specifically directed at the security valuation process."

The Debtors counter, citing United Student Aid Funds, Inc., v. Espinosa , 559 U.S. 260, 130 S.Ct. 1367, 176 L.Ed.2d 158 (2010), that notwithstanding that the Debtors did not, successfully, file a motion to value as contemplated by the Plan, Space Coast is nonetheless bound by the Plan and Confirmation Order. The Debtors point out that the Supreme Court in Espinosa held that United Student Aid Funds Inc. ("United") was bound by the terms of a chapter 13 plan that would allow Espinosa to discharge the interest on his student loan without a determination of undue hardship, even though (a) a student loan debt can only be discharged through an adversary proceeding and (b) United was not served in accordance with Rule 7004. The Supreme Court held that United's due process rights were not deprived because United had actual notice of the chapter 13 plan, and because the plan specifically stated "WARNING IF YOU ARE A CREDITOR YOUR RIGHTS MAY BE IMPAIRED BY THIS PLAN". United was bound by the provisions of the plan notwithstanding that the procedural requirements were not met. "Due process requires notice 'reasonably calculated, under all the circumstances, to apprise interested parties of the pendency of the action and afford them an opportunity to present their objections." Id. at 1378. According to the Supreme Court, "actual notice of the filing and contents of Espinosa's plan... more than satisfied United's due process rights." Id.

In order to resolve this particular issue I do not need to decide whether Espinosa overruled Calvert in some way. Nor do I need to decide whether Space Coast was properly served with the Debtors' original plan or the...