In re Miller

• Decision Date: 13 January 2011
• Docket Number: No. GM 09–90569.,GM 09–90569.
• Citation: 442 B.R. 621
• Parties: In re Richard K. MILLER, Debtor.
• Court: U.S. Bankruptcy Court — Western District of Michigan

442 B.R. 621

In re Richard K. MILLER, Debtor.

No. GM 09–90569.

United States Bankruptcy Court, W.D. Michigan, Northern Division.

Jan. 13, 2011.

Robert D. Heikkinen, Esq., Marquette, MI, for Richard K. Miller.Gregory Siebold, Esq., Iron Mountain, MI, and Frederick C. Wieting, Esq., Green Bay, WI, for State Bank of Florence.

OPINION REGARDING MOTION FOR RELIEF FROM STAY AND OBJECTION TO CONFIRMATION OF DEBTOR'S CHAPTER 13 PLAN

JAMES D. GREGG, Chief Judge.

I. PROCEDURAL BACKGROUND AND ISSUE.

Richard K. Miller (the “Debtor”) filed his chapter 13 bankruptcy case on August 3, 2009. At the time the case was filed, the Debtor also filed his original Chapter 13 Plan. He treated the State Bank of Florence (the “Bank”) as a secured creditor holding a claim secured by a mortgage on certain real property owned by the Debtor in Wisconsin (the “Spread Eagle Property”). Subsequently, the Debtor filed a Preconfirmation Amended Chapter 13 Plan on August 11, 2009, a Second Chapter 13 Plan Amendment dated September 18, 2009, and a Third Chapter 13 Plan Amendment dated August 25, 2010 (collectively the “Debtor's Plan”). In each of the amendments, the Debtor proposes to pay the Bank nothing, contending the Bank has been “paid in full” as a result of the Bank's prepetition sale by advertisement foreclosure of a real property mortgage in Michigan (sometimes referred to as the “Michigan Foreclosure Sale”). At that foreclosure sale, the Bank bid $413,560.27, an amount equal to the entire indebtedness owed by the Debtor to the Bank.

The Bank filed an Amended Objection to Confirmation of Chapter 13 Plan as Amended (the “Objection”). The Bank asserts that the Debtor's Plan is not confirmable because (1) it “fails to provide that the State Bank of Florence retains its lien interest” in the Spread Eagle Property, and (2) the Debtor's Plan does not “adequately protect” the Bank's mortgage interest in that property. In addition, the Bank has filed a Renewed Motion for Relief from Automatic Stay (the “Motion”) “for the purpose of filing an action to undo and reverse a foreclosure by advertisement on certain Michigan real estate securing the Bank's claim and also to proceed with a foreclosure sale of [the Spread Eagle Property].” In his response to the Motion, the Debtor argues that the Bank has not shown “cause” for relief from the stay because it has no remaining claim against him.

The court combined the hearings on the Objection and the Motion because both present the same issue. In its August 23, 2010 Scheduling Order, the court advised the parties “that the major issue to be determined is the amount of the debt, if any, owed by the Debtor to the Bank.”

The court held evidentiary hearings on August 18 and September 7, 2010 during which twenty-seven exhibits were admitted into evidence. (Exhs. A–C, E–K, M–Y, and AA–CC; Exh. 1.) The court heard testimony from one witness, Clyde Nelson, Vice President of the Bank. Each of the parties have made legal argument in the form of various motions, replies, and briefs/memoranda. In addition, the parties had previously briefed this major issue in connection with the Bank's earlier motion to dismiss the case for alleged improper venue. That motion was denied by this court. When the venue issue was determined, the court declined to rule on the validity or amount of the Bank's claim noting it would likely be considered in connection with confirmation. In re Miller, 433 B.R. 205, 207 (Bankr.W.D.Mich.2010).

II. JURISDICTION.

The court has jurisdiction over this bankruptcy case. 28 U.S.C. § 1334(a). This contested matter is a core proceeding. 28 U.S.C. § 157(b)(2)(A) (estate administration); 28 U.S.C. § 157(b)(2)(B) (allowance or disallowance of claims); 28 U.S.C. § 157(b)(2)(G) (relief from the automatic stay); and 28 U.S.C. § 157(b)(2)(L) (confirmation of plan). This court is authorized to hear and decide the Objection and the Motion. 28 U.S.C. § 157(a); L.R. 83.2(a) (W.D. Mich.). This opinion states the court's findings of fact and conclusions of law. Fed. R. Bankr.P. 7052.

III. FACTS.

The Motion and Objection are but the latest of a series of disputes between the parties. Many of the background facts are set forth in the court's prior venue opinion. Miller, 433 B.R. at 207–11.

A. General Background.

The Debtor was born on November 13, 1955 in Iron Mountain, Michigan, a small Michigan city located on the Michigan/Wisconsin border. The Debtor has always lived within a few miles of Iron Mountain. By 2006, the Debtor was the owner of a number of parcels of real property: one in Wisconsin (the “Spread Eagle Property”); and three in Michigan (the “Moon Lake Property,” the “Cabin Property,” and the “3–40 Acre Parcels”). The Debtor inherited the Moon Lake Property from his parents. The Cabin Property was purchased by the Debtor during the 1990s. It is a forty acre parcel, adjoining and south of the 3–40 Acre Parcels. The 3–40 Acre Parcels are three contiguous parcels which the Debtor acquired through inheritance and purchase. The Spread Eagle Property is a lake-side house which the Debtor had also acquired through inheritance and purchase. Miller, 433 B.R. at 207.

Following high school, the Debtor, who had been employed in his father's plumbing business, became a union certified journeymen plumber and pipefitter. He was employed through the Upper Peninsula of Michigan Plumbers and Pipefitters Union No. 111. However, in 2006, the Debtor developed a serious heart condition which required the implantation of a pacemaker. As a result of this illness, the Debtor was unemployed during most of 2006. Because of his pacemaker, the Debtor was unable to work near certain welding equipment and could no longer be employed as a journeymen plumber and pipefitter. Miller, 433 B.R. at 208.

In early 2007, the Debtor eventually found employment with the maintenance department of the Iron County Medical Care Facility. However, in April 2007, the Debtor, while working at the Facility, slipped off a roof and injured his knee. The knee developed an antibiotic-resistant infection. As a result, the Debtor was bedridden for several months and became permanently disabled. Miller, 433 B.R. at 208.

The Debtor's medical problems caused a complete loss of his income. As a result, in October 2006, and thereafter, he obtained loans from the Bank. To secure those loans, the Debtor gave mortgages to the Bank which covered all parcels of his real property, with the exception of the Cabin Property. Miller, 433 B.R. at 208.

B. The Various Loans and Mortgages.

The Debtor's initial borrowing was on October 16, 2006 in the amount of $221,444.29 (“Note 1”). (Exhs. E and R.) Note 1 was secured by a real estate mortgage dated October 16, 2006 on the Spread Eagle Property. (Exhs. E and S.) The October 16, 2006 mortgage provides that it serves as collateral for:

[A]ll obligations, debts and liabilities, plus interest thereon, of [the Debtor to the Bank] ... whether now existing or hereafter arising, whether related or unrelated to the purpose of the Note, whether voluntary or otherwise, whether due or not due, direct or indirect, determined or undetermined, absolute or contingent, liquidated or unliquidated....

(Exh. S.)

When Note 1 was entered into, the Debtor applied for, and apparently received, a $100,000 line of credit (“Note 2”) from the Bank. (Exh. I.) The Revolving Line of Credit document, also known as the “Credit Agreement,” was never introduced into evidence. The court finds that Note 2 was funded, in whole or in part, because the Debtor granted a mortgage on the 3–40 Acre Parcels which states that it secures the Revolving Line of Credit/Credit Agreement. (Exh. M.) Apparently, Note 2 was either paid in full by the Debtor or incorporated into a later loan by the Bank, because the Bank offered no evidence that any amounts remained owing to it on Note 2. Likewise, the Bank's Proof of Claim makes no reference to obligations owed to it under the Revolving Line of Credit/Credit Agreement.

On December 22, 2006, the Debtor applied for a $300,000 loan from the Bank. (Exh. J.) The application provides that $300,000 was to “refinance” an existing debt of $300,000. However, no proofs were offered as to whether the refinanced debt was owed to the Bank as a result of a prior loan or whether the debt was owed to another financial institution. Likewise, no proofs were offered to show if Note 2 was incorporated within the $300,000 to be “refinanced.” No evidence was introduced as to any loan which resulted from the December 22, 2006 loan application (“Note 3”). Assuming money was loaned, the Bank no longer claims any amount remains unpaid to it on Note 3. (Bank Proof of Claim.)

Finally, on January 20, 2007, the Debtor gave a $400,000 note (“Note 4”) to the Bank. (Exh. T.) That Note states that it is secured by the January 20, 2007 mortgage (Exh. U), the October 20, 2006 real estate mortgage (Exh. M), and a real estate mortgage dated January 20, 2006 (never introduced into evidence). Like Note 1, the Bank claims that Note 4 was at least partially unpaid as of the filing of this case. (Bank Proof of Claim.)

C. The Foreclosures.

During 2008, the Debtor continued to be disabled and unemployed. Although he had applied for both workers' compensation and social security disability benefits, neither benefit was quickly approved or promptly paid to him. As a result, the Debtor defaulted on his Bank loans. Miller, 433 B.R. at 208–09. This caused the Bank to begin taking a number of actions to foreclose its mortgages to repay itself the loans.

The Bank officer in charge of the foreclosure of the mortgages was Clyde Nelson (“Nelson”), the Bank's senior credit officer. (Trans. at 46.) Nelson is an experienced banker who has been foreclosing mortgages, both in Wisconsin and Michigan, since 1980. (Trans. at 46.)

The Bank retained both Wisconsin and Michigan counsel. In April, 2008, the Bank's Wisconsin counsel instituted a judicial mortgage foreclosure...