In re Primes

• Decision Date: 26 September 2014
• Docket Number: No. 13–B–83310.,13–B–83310.
• Citation: 518 B.R. 466
• Court: U.S. Bankruptcy Court — Northern District of Illinois
• Parties: In re Patricia A. PRIMES, Debtor.

518 B.R. 466

In re Patricia A. PRIMES, Debtor.

No. 13–B–83310.

United States Bankruptcy Court, N.D. Illinois, Western Division.

Signed Sept. 26, 2014.

David L. Davitt, Schlueter Ecklund, Rockford, IL, for Debtor.

MEMORANDUM DECISION

THOMAS M. LYNCH, Bankruptcy Judge.

Before the court is Alpine Bank & Trust Co.'s motion to modify the automatic stay. Alpine Bank seeks relief under 11 U.S.C. § 362(d)(2) for certain real estate located in Rockford, Illinois, arguing that the Debtor is not entitled to possession by virtue of a Quit Claim deed given to the bank in connection with a forbearance agreement. Alpine Bank contends that the plan's proposed treatment of the property as remaining vested in the Debtor in her proposed Chapter 13 plan is invalid and, therefore, the property is not necessary for her effective reorganization. For the reasons discussed herein, the motion is denied.

JURISDICTION AND PROCEDURE

The Court has jurisdiction to decide this matter pursuant to 28 U.S.C. § 1334 and Internal Operating Procedure 15(a) of the United States District Court for the Northern District of Illinois. This matter adjudicates a motion for relief from the automatic stay and is a core proceeding arising under title 11 in which the bankruptcy court is authorized to enter final orders. 28 U.S.C. § 157(b)(2)(G). In re Woods, 13BK39194, 2014 WL 4059229, 2014 Bankr.LEXIS 3507 (Bankr.N.D.Ill., August 18, 2014).

FACTS AND PROCEDURAL BACKGROUND

The parties do not dispute most of the relevant facts. From the review and consideration of the procedural background and the docket of this case, the Debtor's previous Chapter 13 case (No. 10BK72718 (Bankr.N.D.Ill. 2010) the “2010 Case”), and from all the exhibits submitted and the testimony and exhibits.¹ presented at the evidentiary hearing on the motion, the court finds as follows

For many years Patricia Primes has lived at 4020 Mila Avenue in Rockford, Illinois. On or about November 30, 2004, Ms. Primes granted a mortgage in the property to Alpine Bank of Illinois to secure her promissory note for the principal amount of $73,050. The note provided for monthly payments of $461.73 with a balloon payment of the remaining balance on December 1, 2007. The mortgage was recorded on December 2, 2004. The Debtor apparently failed to repay the loan after it matured and Alpine, now known as Alpine Bank and Trust Co.,² filed a foreclosure action in Winnebago County in 2010 to foreclose on the property. Alpine Bank brings this motion under Section 362(d) of the Bankruptcy Code to allow it to proceed with its foreclosure action against the Mila Avenue property.

The First Chapter 13 Case. After Alpine commenced its foreclosure action in the state court the Debtor commenced her first voluntary Chapter 13 case on May 27, 2010. Alpine filed its proof of claim to assert a secured principal claim of $79,535.42, in support of which it attached Primes' 2004 note and mortgage. No one objected to Alpine's proof of claim. Subsequently the court confirmed the Debtor's proposed Chapter 13 plan. (2010 Case, ECF No. 40). That plan provided, in pertinent part, for the Debtor to make direct payments of $902.00 per month to Alpine as “current monthly payments.” The plan further provided:

No payments shall be made by the Trustee on the claim of Alpine Bank for pre-petition mortgage arrears on the Debtor's homestead property located at 4020 Mila Avenue, Rockford, Illinois. Alpine Bank shall have immediate relief from the automatic stay and has agreed to rewrite the Debtor's mortgage loan to include all past due principal, interest and costs.

(Chapter 13 Plan, Section G, 2010 Case ECF No. 38). The Debtor completed her plan payments and a discharge order was entered on April 1, 2013. (ECF No. 60). The 2013 case subsequently closed and the Chapter 13 Trustee was discharged on May 24, 2013, following the submission of the Trustee's Final Report. (ECF Nos. 62, 63).

The Forbearance Agreement. As anticipated by Section G of the Plan, the Debtor and Alpine entered into an agreement styled “Forbearance Agreement” on July 13, 2011. The Forbearance Agreement recited that Alpine and the Debtor had agreed “to modify the terms of the [2004] Note” whereby: (i) the “Promissory Note is hereby changed as of July 5, 2011 to $83,408.86,” (ii) the “maturity date is changed to 2016,” (iii) “Monthly Payment of Principal and Interest = $500.08,” (iv) “Monthly Real Estate Tax and Insurance Escrow = $440.27” and (v) “Total Monthly Payment = $940.35.” Paragraph of the Forbearance Agreement further states:

As part of this Forbearance Agreement, Borrower has agreed to execute a Quit Claim Deed from Borrower to Bank for the Property. A copy of said Deed is attached hereto and marked as Exhibit C. Said Deed shall be held in escrow with ____. [sic] Said Deed shall remain in escrow and not be recorded or delivered to Bank until the earlier of the following events:

(a) If a default occurs under the terms of this Agreement (or any documents associated therewith), Bank shall give written notice to Borrower of said default and give Borrower thirty (30) days to cure said default. If said default is not cured within thirty (30) days, ____ [sic] is directed to release the Deed to the Bank and the Bank is entitled to record said Deed and take possession of the Property. By the recording of said Deed, Bank is not releasing Borrower from any indebtedness due Bank. Upon the sale of the Property, Bank shall provide a credit to Borrower against the indebtedness which is due at that time. Any deficiency which remains after the sale of the Property shall be due and payable in full to Bank from Borrower. Nothing in this Forbearance Agreement or in any other document shall prohibit Bank from instituting collection proceedings immediately against Borrowers in the event that a default is not cured within the cure period stated herein.

(b) If Bank is not paid in full by August 1, 2016, ____ [sic] is directed to release the Deed to the Bank and the Bank shall be allowed to record the same. The recording of the Deed will not extinguish the debt of Borrower to Bank.

(Mot., Ex. A, ECF No. 21. (emphasis supplied)). The Forbearance Agreement also recites that it “shall be construed in accordance with the laws of the State of Illinois” and that the “Borrower and Bank each acknowledge that they have thoroughly read and reviewed [its] terms and provisions ... and ... entered into [it] freely, voluntarily, with full knowledge and after consulting with their attorneys.” Id., ¶¶ 11, 14.

On July 13, 2011, the Debtor signed the quit claim deed that purports to convey the Mila Ave. property to Alpine. The instrument states: “this deed is a deed in lieu of foreclosure under 735 ILCS 5/15–1401 and all rights associated and granted by this deed to Grantee shall remain as stated by Illinois law.” (Mot., Ex. C, ECF No. 21.) Thereafter, Alpine voluntarily dismissed its foreclosure action.

When the Debtor failed to make her May and June, 2013 installment payments under the Forbearance Agreement, Alpine notified her that it would record the quit claim deed if she failed to timely cure her default. The Debtor failed to do so and Alpine recorded the quit claim deed on August 9, 2013.

The Second Chapter 13 Case. The Debtor filed this bankruptcy case, also under Chapter 13, on September 25, 2013. On the same day she filed a 36–month plan which proposed “current monthly payments” in the amount of $940.35 to be paid directly to Alpine. It further provided for the repayment of the bank's $4,750 “mortgage arrearage” claim through additional plan payments to the Chapter 13 trustee. (2013 Chapter 13 Proposed Plan, ECF No. 9). This proposed Chapter 13 plan also provided that:

Notwithstanding the Quit Claim Deed signed by the Debtor in favor of Alpine Bank and Trust Company pursuant to the Forbearance Agreement between the parties ownership of the Debtor's real estate located at 4020 Mila Avenue, Rockford, Illinois shall remain vested in the Debtor, subject to the Mortgage held by Alpine Bank and Trust Company, which secures payment of the Promissory Note held by Alpine Bank and Trust Company. (Id. )

The Debtor's proposed plan at the time of the hearing on Alpine's motion, therefore, appears to reinstate the note with Alpine as modified by the Forbearance Agreement and repay the Debtor's arrearage according to its terms through the Chapter 13 plan.³ Subsequent to filing her current Chapter 13 case, or at least by the filing of the bank's motion, Ms. Primes returned to her job and resumed making her direct monthly payments to the bank, payments that Alpine accepted.

Ms. Primes testified at trial that she did not understand any of this and that she did not know what a quit claim deed means or what forbearance is, claiming that her attorney did not explain these terms to her. She does not dispute that she was represented by counsel when she signed those documents. The Debtor testified that she signed the Forbearance Agreement and thereafter paid the required monthly installments to Alpine until she fell behind when she broke her wrist and was unable to work for several months. She further testified that after she returned to work, the bank accepted her resumed payments and continues to do so. Alpine apparently does not dispute that it issued receipts for the Debtor's “loan payments” when she resumed her payments in the fall of 2013.

An officer of the bank testified at trial that the purpose of the quit claim deed was to help the bank collect its debt and that Alpine continued to carry the Debtor's loan on the books after it received the quit claim deed in July, 2011. He admitted during cross examination that it was not the bank's “understanding” that it was receiving the Rockford property at that time, but rather that the deed was “just security for the loan.” The bank officer further testified that the bank took physical possession of the quit claim deed at or around July 13, 2011, the date of the Forbearance Agreement, and...