In re Parks
| Decision Date | 02 August 1995 |
| Docket Number | Bankruptcy No. 94-07373-BGC-13. |
| Citation | 193 BR 361 |
| Parties | In re Robert J. PARKS and Jennifer Parks, Debtors. |
| Court | U.S. Bankruptcy Court — Northern District of Alabama |
Eric Fancher, Birmingham, Alabama, for Debtors.
Robert Moorer, Birmingham, Alabama, for Movant.
ORDER DENYING MOTION FOR RELIEF FROM AUTOMATIC STAY
(Filed by United Companies Financial Corporation)
This matter came before the Court on a Motion for Relief from the Automatic Stay filed by United Companies Financial Corporation on February 6, 1995. A preliminary hearing was held on February 22, 1995 at which the Court considered United's motion and its objection to confirmation of the Debtors' proposed chapter 13 plan. At that hearing the parties reached an agreement that caused the Movant's objection to confirmation to become moot. This Court entered an order to that effect on March 8, 1995.
A final hearing was held on United's motion for relief from stay on March 21, 1995. The Debtors; Mr. Eric M. Fancher, attorney for the Debtors; Mr. Robert Moorer, attorney for the Movant; and Mr. Charles King, assistant chapter 13 trustee appeared. The matter was submitted on certain undisputed facts, the testimony of Mr. Robert Parks, documentary evidence admitted at trial and arguments of counsel, who advised the Court that no other testimony would be offered. For the reasons given below this Courts finds that the Motion for Relief From Automatic Stay is due to be denied.
Most facts are undisputed. The Debtors purchased a home in 1990 financed by the Movant. The Debtors gave the Movant a mortgage on February 22, 1990, (Movant's Exhibit No. 2), secured by a promissory note entered the same day (Movant's Exhibit No. 1). Subsequent to the purchase the Debtors became delinquent in their payments to the Movant, the Movant invoked a "due on sale" clause in the mortgage and accelerated all unmatured payments.1 A mortgage foreclosure notice was given. A mortgage foreclosure sale was conducted on September 13, 1994. A foreclosure deed of that sale was recorded in the Probate Court of Jefferson County, Alabama, Bessemer Division, on September 13, 1994. (Movant's Exhibit No. 3). On September 14, 1994, attorneys for the Movant mailed a certified, return receipt requested, 10-day demand letter to the Debtors advising the Debtors of their redemption rights under Code of Alabama 1975, § 6-5-251. (Movant's Exhibit No. 4).2 The Debtors did not vacate the property after the demand letter was mailed and have at all times pertinent to this matter lived on the subject property.
Mr. Parks was the only witness at trial and his testimony is uncontroverted. Mr. Parks testified that he and his wife entered into the mortgage and promissory note relationship with the Movant, paid $8000.00 as a down payment on the $31,000.00 property. He testified that he did not have knowledge of the foreclosure sale and took no action until confronted with ejectment.
Mr. Parks experienced some personal problems in March 1994 and stopped making his mortgage payments. He did not make those payments from March 1994 through December 1994, at which time he and his wife filed their chapter 13 bankruptcy petition. Mr. Parks testified that since the petition was filed, that he and his wife made all mortgage payments to the Movant and that those payments were accepted by the Movant. The Debtor testified that he had worked for the same employer for 31 years and that their plan payments were being deducted from his wages. Other than administrative costs there are no other debts in this case.
The Movants filed a claim in this case for $4,379.29 representing the Debtors' payment arrearage plus some late fees and interest for the March 1994 through December 1994 mortgage payments. The Debtors are making their plan payments on those arrearages. All administrative costs have been paid. After ongoing chapter 13 trustee administrative fees are paid, the balance of the Debtors' plan payments of $34.62 per week are being paid to reduce the outstanding pre-petition arrearage owed the Movant.3
The Parks owe the Movant $4,379.29 for 10 unpaid pre-petition mortgage payments. Mr. Parks testified that these payments were not made because he was "drinking" and "gambling" and not taking care of his personal finances. He was at the time earning enough money to make the payments, and still is, but at that time spent the money on other things.
The only evidence of the fair market value of the Parks's home is Mr. Parks's testimony of $26,000.00. There is equity in the home. The Movant's proof of claim acknowledges that even with late charges and interest at a rate of 14.5 percent, the total unpaid principal plus the amount necessary to cure all arrearages and reinstate the mortgage would be $22,767.79.
This matter involves three issues. These are: (1) Whether the continued recognition and acceptance by the mortgagee of mortgage payments from the mortgagor-debtors, after grounds for accelerating the mortgage and instituting foreclosure existed, constituted a waiver of forfeiture; (2) if there was no waiver and there is now a recognizable foreclosure, did the Debtors, in failing to vacate the subject property after the Movant mailed a 10 day demand letter pursuant to Code of Alabama 1975, § 6-5-251, retain their statutory redemption rights in the property;4, and, (3) if the Debtors did retain their right of redemption after a recognizable foreclosure, may they now exercise that right through a chapter 13 bankruptcy plan. Because this Court finds for the Debtors as to the first issue, that is, that the foreclosure should be set aside because the mortgagee waived the forfeiture by accepting post-foreclosure payments from the Debtors, the Court need not decide the second or third issues.5
This fact pattern is a familiar bankruptcy pattern. Many debtors whose financial health deteriorates become delinquent in mortgage payments. After the problem times, when those financial conditions improve, they seek assistance from the Bankruptcy Code to allow them to retain their homes. This situation was recognized by the Court of Appeals for the Eleventh Circuit in In re Hoggle, 12 F.3d 1008 (11th Cir.1994). Judge R. Lanier Anderson, III, writing for the court said:
Moreover, we believe that this result is consistent with legislative intent. Chapter 13\'s overall policy is to facilitate adjustments of the debts of individuals with regular income through flexible repayment plans funded primarily from future income. H.R.Rep. No. 95-595, 95th Cong., 1st Sess. 118 (1977); S.Rep. No. 95-989, 95th Cong., 2d Sess. 141 (1978) U.S.Code Cong. & Admin.News 1978, p. 5787. The flexibility permitted in the formulation of Chapter 13 plans represents a central element in the implementation of the Congressional goal to encourage expanded use of Chapter 13. H.R.Rep. No. 95-595, 95th Cong., 1st Sess. 117-18 (1977). A main area of expansion was the Code\'s recognition of the desire of homeowners to save their homes through Chapter 13. Under prior law, a Chapter XIII plan could not provide protection to the debtor\'s home. As a result, courts evolved a solution, granting injunctions against foreclosure on mortgages during the pendency of Chapter XIII cases where foreclosure would defeat the purposes of the plan, and allowing debtors to cure defaults on their mortgages while maintaining current payments. See In re Garrett, 203 F.Supp. 459 (N.D.Ala.1962). Section 1322(b)(5) was intended to codify the practice under which foreclosure was enjoined during the pendency of a Chapter XIII, with the debtor given a reasonable time to cure defaults. 5 Collier on Bankruptcy 1322.09 at 1322-25 (15th Ed.1993). Accordingly, permitting cure of postconfirmation defaults best accords with Congressional intent to permit homeowners to utilize its flexible provisions for debt relief without sacrificing their homes.
The Movant recognized a post-foreclosure, mortgagee-mortgagor relationship with the Debtors.6 The Movant's filed a claim in this case for pre-petition arrearage. Exhibit "A" to the proof of claim reads, "Total Reinstatement $4,379.29." That amount represents the amount the Movant claims is owed for pre-petition arrearage. The Exhibit "A" also reads, "Total Unpaid Principal Plus Reinstatement $22,767.79." That is the amount the Movant claims is owed if the mortgage is reinstated. This recognition of an ongoing relationship is consistent with the Movant's actions regarding post-petition mortgage payments, that is the acceptance of those payments after foreclosure and after the bankruptcy petition was filed. This conclusion is supported by the only evidence before the Court on this point. Mr. Parks testified that the Debtors had made all post-petition monthly mortgage payments and that the Movant had accepted whatever mortgage payments were tendered.7
The Movant accelerated the Parks mortgage under a due-on-sale clause in their mortgage. Under Alabama law matters involving due-on-sale clauses and foreclosures are equitable in nature. In a case involving a fire loss before a foreclosure sale, but discovered by neither party until after the sale, the Supreme Court of Alabama recognized the power of a court of equity to set aside the foreclosure sale. Chrysler First Financial Services Corporation v. Bolling, 608 So.2d 734, 737 (Ala.1992). Similarly, the court recognized that trial courts should consider whether the enforcement of due-on-sale clauses would be unconscionable or inequitable when determining whether to enforce such clauses. Powell v. Phenix Federal Savings & Loan Association, 434 So.2d 247, 254 (Ala.1983). Actions such as those before this Court are considered sufficient for a court of equity to set aside a foreclosure sale and find that the enforcement of a due-on-sale clause would be unconscionable or inequitable....
To continue reading
Request your trial