In re Schweiger
| Decision Date | 11 May 2018 |
| Docket Number | Case No. 17–19857–DER |
| Parties | IN RE: Glenn D. SCHWEIGER, Debtor. |
| Court | U.S. Bankruptcy Court — District of Maryland |
Counsel for the Debtor: Michael Patrick Coyle, Esq., Columbia
Counsel for the Trustee: Frederick Eric Nix, Esq., Annapolis
This case is before this court for a decision on the Chapter 13 trustee's objection to confirmation of the debtor's proposed Chapter 13 plan. The court held a hearing on confirmation of the plan on April 24, 2018. The relevant facts are not in dispute. After hearing the legal arguments of counsel, the court held this matter under advisement. After due deliberation and consideration of the facts and the legal arguments, the court is prepared to rule on this matter.
The debtor's plan seeks to cure the arrearages on the mortgage indebtedness secured by his residence. This is the debtor's second attempt to persuade the court that the unpublished opinion in Ocwen Loan Servicing, LLC v. Kameni (In re Kameni) , 2014 WL 3563658 (D. Md. July 16, 2014), aff'd , 589 Fed. Appx. 145 (4th Cir. 2015), permits a Chapter 13 debtor to cure mortgage defaults when a foreclosure auction sale has occurred prior to the filing of the debtor's bankruptcy petition. As explained in this opinion, the debtor's argument fails because (i) the moment the gavel falls at the public auction a landowner's equity of redemption is extinguished under Maryland foreclosure law, and (ii) thereafter, cure of defaults is precluded by 11 U.S.C. § 1322(c)(1) unless the debtor's equity of redemption is restored by the state court ratification process.
The court has subject matter jurisdiction over this proceeding under 28 U.S.C. § 1334, 28 U.S.C. § 157(a), and Local Rule 402 of the United States District Court for the District of Maryland. This is a "core proceeding" under 28 U.S.C. § 157(b)(2)(L). This memorandum opinion constitutes the court's findings of fact and conclusions of law in accordance with Rule 52 of the Federal Rules of Civil Procedure ().
Based upon the prior hearings conducted by this court and the record in this proceeding, the court makes the following findings of fact which are not in dispute.
MidFirst Bank ("MidFirst") is the holder of a promissory note executed by Glenn David Schweiger (the "Debtor") that is secured by a deed of trust on his residence at 4421 Shamrock Avenue, Baltimore, Maryland 21206 (the "Property"). Before this case was filed, the Debtor defaulted on his loan and MidFirst commenced foreclosure proceedings against the Property in the Circuit Court for Baltimore City, Maryland (the "Circuit Court"). The substitute trustees under the deed of trust conducted a public auction foreclosure sale of the Property on July 20, 2017, at which MidFirst was the high bidder and purchased the Property for $57,760.00. Approximately 30 minutes later, the Debtor filed a voluntary petition in this court seeking relief under Chapter 7 of Title 11 of the United States Code (the "Bankruptcy Code"). As a result, further foreclosure proceedings in the Circuit Court were stayed automatically under § 362(a) of the Bankruptcy Code.
On September 12, 2017, MidFirst filed a motion for relief from the automatic stay in order to obtain ratification of the sale by the Circuit Court and conclude the foreclosure proceeding. The Debtor thereafter filed a motion to convert this case to one under Chapter 13 of the Bankruptcy Code, which motion was granted on September 28, 2017. This court conducted a hearing on MidFirst's motion on October 16, 2017. Earlier that same day, the Debtor filed a proposed Chapter 13 plan under the terms of which the anticipated pre-petition arrears due MidFirst of $20,000.00 would be paid over 60 months and the Debtor would maintain post-petition payments directly (that is, outside the plan) in accordance with § 1322(b)(5) of the Bankruptcy Code. At the October 16, 2017 hearing, the Debtor asserted that Kameni was the "governing law" in this district and dictated that the Debtor be afforded an opportunity to obtain confirmation of a plan proposing to cure pre-petition arrearages despite completion of the foreclosure auction of the Property prior to the filing of his bankruptcy petition.
This court declined to adopt the Debtor's interpretation of Kameni and granted MidFirst's request to terminate the automatic stay, thereby permitting MidFirst to seek ratification of the sale of the Property. The Debtor filed a timely appeal from that order. His request for a stay pending appeal from this court was denied. In re Schweiger , 578 B.R. 734, 737 (Bankr. D. Md. 2017) (" Schweiger I ") (). The district court recently affirmed this court's order granting relief from the automatic stay. Schweiger v. MidFirst Bank , 2018 WL 1471680, *3 (D. Md. March 26, 2018) (" Schweiger II ") ().1
While the appeal was pending the Debtor filed an amended Chapter 13 plan, which was later amended by a second amended Chapter 13 plan filed on January 15, 2018 (the "Chapter 13 Plan").2 The Chapter 13 trustee objected to confirmation of the Chapter 13 Plan because, among other things, cure of pre-petition arrears is not permitted under § 1322(c)(1) of the Bankruptcy Code when "under Maryland law the foreclosure sale was held before the Voluntary Petition was filed and the equity of redemption has, therefore, been extinguished." Amended Objection to Confirmation [Docket No. 60, Page 2 of 5] ().
Although the Chapter 13 Plan was served on MidFirst and its counsel, and it was on notice of the April 24, 2018 confirmation hearing, MidFirst did not object to confirmation of the Chapter 13 Plan or appear at the hearing.3 As far as the Debtor and the Chapter 13 trustee were then aware, the Circuit Court had not yet ratified the sale of the Property. The Debtor did not argue at the hearing that the foreclosure was not conducted according to Maryland law or that he has any basis to take exception to ratification of the sale. The Chapter 13 trustee argued that in light of the district court's recent ruling on the Debtor's appeal, Kameni was not applicable and the Debtor's proposed cure and reinstatement of the MidFirst mortgage was not permitted under § 1322(c)(1) of the Bankruptcy Code for the reasons stated in May , Denny , and De Souza . The Debtor argued that (i) the Chapter 13 trustee lacked standing to object to confirmation of the Chapter 13 Plan because MidFirst had not objected to the plan, and (ii) this court's ruling on MidFirst's motion for relief from the automatic stay was not dispositive and the Debtor should be permittedto cure arrearages and reinstate the mortgage on the Property under Kameni .
For the reasons that follow, this court declines to adopt either of the arguments advanced by the Debtor as a basis for confirmation of the Chapter 13 Plan.
The language of the Bankruptcy Code makes clear that a Chapter 13 trustee has standing to object to confirmation of a Chapter 13 plan. Section 1302 provides in pertinent part as follows: "The [Chapter 13] trustee shall ... appear and be heard at any hearing that concerns ... confirmation of a plan." 11 U.S.C. § 1302(b)(2)(B). See also In re Davis , 411 B.R. 225, 228 (Bankr. D. Md. 2008). As another court in the Fourth Circuit has observed, this statutory language In re Ballard , 2007 WL 7340479, *2 (Bankr. D.S.C. Sept. 13, 2007) (). In any event, regardless of whether the Chapter 13 trustee has standing, the court may raise an objection to the plan sua sponte as the ultimate arbiter regarding whether the plan is confirmable. See In re Fox , 249 B.R. 140, 144 (Bankr. D.S.C. 2000).
The Debtor argued at the hearing that the standing of the Chapter 13 trustee was negated by the combined effect of an absence of objection by MidFirst and the Supreme Court's decision in United Student Aid Funds v. Espinosa , 559 U.S. 260, 130 S.Ct. 1367, 176 L.Ed.2d 158 (2010). The court disagrees. Espinosa simply has no application here. In Espinosa , the Supreme Court held that a creditor that did not appeal confirmation of a Chapter 13 plan was bound by the terms of that plan even though it provided for the discharge of student loan debt without the commencement of a separate adversary proceeding as otherwise required under Bankruptcy Rule 7001(6). 559 U.S. at 276, 130 S.Ct. 1367. That ruling does not apply here because this court is presented with an objection prior to (not after) confirmation of the Chapter 13 Plan.
More importantly, in Espinosa the Supreme Court emphasized that bankruptcy courts are to confirm Chapter 13 plans (regardless of whether there is an objection) only if the plan meets the statutory requirements for confirmation. As the Supreme Court said, "§ 1325(a) instructs ...
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...would be asked to continuously reconsider legal conclusions it had already made at every step of the litigation." In re Schweiger , 587 B.R. 469, 474 (Bankr. D. Md. 2018) ; see also, e.g. , Christianson v. Colt Indus. Operating Corp. , 486 U.S. 800, 816, 108 S.Ct. 2166, 100 L.Ed.2d 811 (198......
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