In re Parsons

Decision Date06 September 2013
Docket NumberCase No. 12-72023
PartiesIn Re JEFFREY A. PARSONS, Debtor.
CourtU.S. Bankruptcy Court — Central District of Illinois

________

Mary P. Gorman

United States Chief Bankruptcy Judge

Chapter 7

OPINION

Before the Court are a Motion for Relief from Automatic Stay and a Motion for Abandonment, both filed by Travis McLeod. The motions relate to two tracts of land which Travis McLeod sold to the Debtor, Jeffrey Parsons, on a contract for deed in 2010. Mr. McLeod contends that the contract for deed was terminated and the Debtor's interest in the land was forfeited before this case was filed. Accordingly, he claims that the land is not property of the estate and his requested relief should be granted. The Chapter 7 Trustee disagrees and claims that Mr. McLeod failed to comply with the notice provisions contained in the contract for deed and required by Illinoislaw to terminate the Debtor's interest in the land pre-petition. Because the Debtor's interests in the contract for deed and in the land subject to it were not effectively terminated before this case was filed, and because Mr. McLeod has not otherwise established his right to the relief he seeks, both motions will be denied.

I. Factual and Procedural Background

In November 2010, Jeffrey A. Parsons ("Debtor") entered into a contract for deed with Travis McLeod to purchase two tracts of land in Pike County, Illinois for the sum of $1,526,250. The Debtor agreed to pay that sum plus 3.25% interest per annum by making a $200,000 down payment and monthly payments of $20,000 until October 1, 2012, when a balance of $957,405.31 would be due. The Debtor paid the down payment and made all of the required monthly installments through June 2012.

The contract for deed provided, inter alia, that a default by the Debtor would occur in the event of the non-payment of any sums due or the failure of the Debtor to perform any provision of the contract after having been given a 30-day notice to perform. In the event of default, Mr. McLeod had the right to retain the sums already paid under the contract for deed and regain possession of the land. The contract for deed also provided that any notices or demands required to be given could be served personally or by mail. If service was by mail, it was required to be made by certified mail, return receipt requested.

The contract for deed contained an acknowledgment that the land was enrolled in the federal Conservation Reserve Program ("CRP") and required the Debtor to assume an existing CRP contract and to indemnify and hold Mr. McLeod harmless with respect to the obligations under that CRP contract. Another provision required the Debtor to pay for all labor or materials associated withconstructing improvements on the land and prohibited the Debtor from allowing liens to attach to the land.

On March 1, 2012, a representative of the United States Department of Agriculture ("USDA") sent a letter to Mr. McLeod informing him that the Debtor had not completed the paperwork to assume the CRP contract and that Mr. McLeod would, therefore, be obligated to refund certain CRP payments previously received by him. On March 9, 2012, Mr. McLeod's attorney sent a letter to the Debtor notifying him of the correspondence from the USDA and reminding him of his obligation to assume the CRP contract. The letter stated that if the Debtor did not resolve the issues with the USDA regarding the CRP contract, the Debtor would be responsible for Mr. McLeod's damages and associated fees and costs. The March 9th letter was sent to the Debtor by priority mail with a delivery confirmation request but was not sent by certified mail, return receipt requested.

On May 24, 2012, Peters Heating & Air Conditioning, Inc. ("Peters") filed a mechanics lien with the Recorder of Deeds in Pike County, Illinois. The mechanics lien referenced the land subject to the contract for deed and claimed that the Debtor had failed to pay Peters for labor and materials provided to the Debtor for the construction of a building on the land. Peters' lien claim was in the amount of $91,941 plus interest, attorney fees, and costs. On June 11, 2012, Mr. McLeod's attorney sent the Debtor a letter regarding the Peters' mechanics lien which stated that the lien would constitute a default under the contract for deed "unless it is removed within 10 days after you receive notice that it has been filed." The letter then provided further that if "the lien is not removed within 10 days, then that will constitute a default" under the contract for deed which could result in a forfeiture of the Debtor's rights under the contract for deed. The June 11th letter was sent by certified mail, return receipt requested, and the return receipt was signed for by the Debtor on June 18, 2012.

On July 18, 2012, Mr. McLeod's attorney sent the Debtor a letter which stated that it wasformal notification that Mr. McLeod was electing to terminate the contract for deed. The letter stated that pursuant to the contract for deed "possession of the property and all improvements on the property now reverts (sic) to the Seller, Travis McLeod." The letter was sent to the Debtor by priority mail with a delivery confirmation request but was not sent by certified mail, return receipt requested. The Debtor's subsequent tender of his July payment was rejected by Mr. McLeod.

On July 23, 2012, another mechanics lien was filed referencing the land subject to the contract for deed. Floyd D. Vetter and Land & Sea Consulting, Inc. jointly filed the lien in the amount of $51,358.31 plus interest, attorney fees, and costs, claiming that they had not been paid for labor and materials provided to the Debtor related to construction on the land. On September 9, 2012, Floyd D. Vetter filed another mechanics lien in the amount of $84,000 plus interest, attorneys fees, and costs for labor associated with project management of construction on the land. An action to foreclose the several mechanics liens remains pending in state court.

The Debtor filed his voluntary petition under Chapter 7 on September 9, 2012. Charles Covey is the Chapter 7 Trustee ("Trustee"). Mr. McLeod filed his Motion for Relief from Automatic Stay and Motion for Abandonment on June 28, 2013. In the motions, he claims that the Debtor's interests in the contract for deed and the Pike County land were terminated pre-petition and, accordingly, the Trustee cannot administer the land as an estate asset. Alternatively, Mr. McLeod claims that the estate has no equity in the land and, because this is not a reorganization case, he is entitled to the relief requested. The Trustee filed written objections to both motions. The Trustee claims that the Debtor's rights pursuant to the contract for deed were not effectively terminated pre-petition and that there is equity in the land which can be administered for the benefit of the Debtor's creditors.

Oral arguments on both motions were heard on July 30, 2013. Both Mr. McLeod and the Trustee have subsequently filed briefs in support of their respective positions. The matters are readyfor decision.

II. Jurisdiction

This Court has jurisdiction over the issues before it pursuant to 28 U.S.C. §1334. Issues regarding the automatic stay and abandonment of estate property are core proceedings. See 28 U.S.C. §157(b)(2)(A), (G), (O).

III. Legal Analysis

Relief from the automatic stay may be granted for cause or, if an action against property is stayed, relief may be granted if a debtor has no equity in the property and the property is not necessary to an effective reorganization. 11 U.S.C. §362(d)(1), (2). When relief from stay is sought by a creditor in a Chapter 7 case, reorganization is not an issue, so the only question is whether there is equity to be administered for the benefit of creditors. See Matter of Vitreous Steel Products Co., 911 F.2d 1223, 1232 (7th Cir. 1990). A party seeking relief from the automatic stay has the burden of proof on the issue of whether there is equity in the property, and the party opposing relief has the burden of proof on all other issues. 11 U.S.C. §362(g).

A trustee may abandon property of the estate that is burdensome or of inconsequential value and benefit to the estate. 11 U.S.C. §554(a). When a trustee does not voluntarily abandon property, a party in interest may request the court to compel abandonment, and a court may order a trustee to abandon property that it determines is burdensome or of inconsequential value or benefit to the estate. 11 U.S.C. §554(b).

Because Mr. McLeod claims that the contract for deed was terminated pre-petition, he asserts that he is entitled to relief from stay for cause, and that the Trustee should be compelled to abandonthe contract for deed and the land subject to it because it is of inconsequential value to the estate. Likewise, because Mr. McLeod claims that the Debtor has no equity in the land, he asserts that stay relief should be granted and the Trustee should be compelled to abandon it. Unfortunately for Mr. McLeod, his claims are not supported by the facts or the relevant authority and he cannot prevail.

A. The Contract for Deed is Property of the Estate because

it was Not Effectively Terminated Pre-Petition

When a bankruptcy case is commenced, an estate is created which consists generally of all of a debtor's legal and equitable interests in property. 11 U.S.C. §541(a)(1). The term "property" has been broadly construed and includes "every conceivable interest of the debtor, future, nonpossessory, contingent, speculative, and derivative[.]" Matter of Yonikus, 996 F.2d 866, 869 (7th Cir. 1993). Because property rights generally derive from state law, bankruptcy courts look to state law to determine whether a debtor actually has any legal or equitable interest in property when a case is commenced. Butner v. United States, 440 U.S. 48, 55 (1979).

Here, the land subject to the contract for deed is located in Illinois and both the Debtor and Mr. McLeod are residents...

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