In re Stuart, 05-19154 (ELF).
| Citation | 402 B.R. 111 |
| Decision Date | 15 March 2009 |
| Docket Number | No. 05-19154 (ELF).,05-19154 (ELF). |
| Parties | In re Alan R. STUART, Debtor. |
| Court | United States Bankruptcy Courts. Third Circuit. U.S. Bankruptcy Court — Eastern District of Pennsylvania |
David A. Scholl, Regional Bankruptcy Center of SE PA, Law Office of David A. Scholl, Newtown Square, PA, for Plaintiff.
Andrew K. Stutzman, Sean Robert Adam, Michelle K. Carson, Strandley Ronon Stevens & Young LLP, Jonathan J. Bart, Wilentz Goldman & Spitzer P.A., Daniel S. Bernheim, Philadelphia, PA, Lauren R. Berschler, Wilentz, Goldman & Spitzer, Pittsburgh, PA, for Defendants.
Lincoln Mortgage Associates, LLC, pro se.
Prior to the commencement of this chapter 13 bankruptcy case, Homecomings Financial ("Homecomings")1 obtained a state court judgment in mortgage foreclosure against Debtor Alan Stuart ("the Debtor") and his spouse. The subject of the mortgage foreclosure judgment was the real property that serves as the home of the Debtor and his spouse ("the Residence").2 After the entry of the mortgage foreclosure judgment, the Debtor and his spouse notified Homecomings that they were rescinding the underlying mortgage loan transaction based on alleged material violations of the Truth in Lending Act, 15 U.S.C. §§ 1601 et seq. ("TILA"). At all times, Homecomings has contested the validity of the purported rescission of the mortgage.
The Debtor then filed this bankruptcy case and, eventually, obtained confirmation of his chapter 13 plan. The Debtor's confirmed chapter 13 plan provides for the Debtor to litigate the validity of the purported rescission in state court ("the State Court Rescission Litigation"), for Homecomings' claim to be paid "outside the plan" after the conclusion of that litigation and for the automatic stay to remain in place with respect to the mortgage on the Residence until the "resolution" of the State Court Rescission Litigation.
Several months after plan confirmation, Homecomings obtained judgment on the pleadings in the State Court Rescission Litigation at the trial court level. The Debtor has appealed that decision to the Pennsylvania Superior Court.
Following its trial court victory in the State Court Rescission Litigation, Homecomings filed a motion for relief from the automatic stay in this court ("the Stay Relief Motion"), seeking permission to complete foreclosure proceedings against the Residence. Homecomings asserted that:
(1) its interest in the Residence was not adequately protected because the Debtor has failed to make instalment payments on the mortgage since confirmation; and,
(2) under the terms of the Debtor's confirmed chapter 13 plan, the automatic stay had expired because the State Court Rescission Litigation had reached "resolution."
In response, the Debtor argued that:
(1) the State Court Rescission Litigation had not reached a "resolution" due to the pendency of his appeal of the trial court decision; and,
(2) granting relief would violate the terms of his confirmed plan.
This court entered an order denying the Stay Relief Motion. Presently before the court is Homecomings' Motion for Reconsideration ("the Reconsideration Motion").
As explained more fully below, I find it appropriate to reconsider the merits of the order denying the Stay Relief Motion. On the merits, the parties' dispute presents the issue whether the Debtor's confirmed chapter 13 plan, binding on Homecomings under 11 U.S.C. § 1327(a), categorically precludes Homecomings from obtaining relief from the automatic stay under 11 U.S.C. § 362(d)(1) prior to "resolution" of the State Court Rescission Litigation.
Based on my interpretation of the Debtor's confirmed plan, I find that the plan does not supersede the conventional application of § 362(d)(1). Because Homecomings has established a prima facie case for relief from the automatic stay under § 362(d)(1) and the Debtor has not rebutted Homecomings' case, Homecomings is entitled to the relief it seeks.
On January 26, 2004, the Debtor and his spouse, Elizabeth T. Stuart, entered into a residential real estate mortgage loan transaction with Homecomings' predecessor-in-interest with respect to the Residence. Following their default on the mortgage, foreclosure proceedings were initiated in the Court of Common Pleas, Chester County ("the CP Foreclosure Court") on February 28, 2005. The CP Foreclosure Court entered a default judgment against the Debtor on April 20, 2005. The Debtor's residence was then scheduled to be sold at a sheriff's sale.
On May 9, 2005, after the entry of the CP Foreclosure Court judgment, the Debtor sent a letter purporting to exercise his right to rescind the loan agreement based on alleged material violations of the Truth in Lending Act, 15 U.S.C. §§ 1601 et seq. ("TILA").
The Debtor filed a voluntary petition under chapter 13 of the Bankruptcy Code on July 6, 2005. The filing stayed the scheduled sheriff's sale of the Debtor's residence.
On the same day that he filed his chapter 13 petition, the Debtor filed a chapter 13 plan ("the First Plan"). The key elements of the First Plan were:
• the Debtor would pay the Chapter 13 Trustee $50.00 a month for 36 months. First Plan ¶ 2.
• the Debtor and his spouse would initiate an adversary proceeding to enforce their right to rescind their mortgage. Id. ¶ 3.
• the Debtor would "make at least partial post-petition mortgage payments to RFC" to protect its interest in the property during the pendency of the litigation. Id.
• the Debtor's plan payments to the chapter 13 trustee would be distributed first, to the Class One administrative claimants until they were paid in full, second, to Homecomings with respect to its filed claim,3 and last, to any other allowed general unsecured claimants. Id. ¶ 5.
• the automatic stay would remain in effect until the case was closed and following confirmation, "relief [from stay] shall be granted only for a material violation of the t[e]rms of payment to the trustee under the terms of the plan." Id. ¶ 8.4
On July 13, 2005, the Debtor and his spouse instituted an adversary proceeding (Adv. No. 05-0459) ("the Bankruptcy Court Rescission Litigation"), against Homecomings and two (2) other parties5 seeking, inter alia, to enforce their rescission of the mortgage transaction pursuant to TILA.
On November 14, 2005, the Debtor filed an Amended Chapter 13 Plan ("the Amended Plan"). See Docket Entry No. 22. The Amended Plan included the following changes to the First Plan, providing (or stating) that:
• the Debtor would pay the chapter 13 trustee $200.00/month through November 2005 and $180.00/month for the remaining 56 months of the plan. Amended Plan ¶ 2.
• the Debtor and his spouse had filed an adversary proceeding to enforce their right to rescind their mortgage. Amended Plan ¶ 3.
• the Debtor and his spouse had "been unable to make even partial post-petition mortgage payments to [Homecomings]" and anticipated that "their claims against [Homecomings would] eliminate all of their arrears and other obligations owed to this creditor." Id.
On April 6, 2007, this court granted summary judgment in favor of Homecomings on the TILA rescission claim asserted in the Bankruptcy Court Rescission Litigation because it lacked subject matter jurisdiction under the Rooker-Feldman doctrine. See In re Stuart, 367 B.R. 541 (Bankr.E.D.Pa.2007). The dismissal was without prejudice to the right of the Debtor and his spouse to assert their TILA rescission claim in a court of competent jurisdiction.
On May 10, 2007, following the dismissal of the TILA rescission claim by the bankruptcy court, the Debtor and his spouse instituted a state court action in the Pennsylvania Court of Common Pleas, Chester County ("the C.P. Rescission Court"), again asserting their right to rescind the mortgage transaction under TILA.
On October 9, 2007, the Debtor filed a Second Amended Chapter 13. See Docket Entry No. 87. This plan differed from the Amended Plan in that it:
• provided that the Debtor would make plan payments to the chapter 13 trustee of $50.00/month for the first four months and $178.57/month for the remaining 56 months of the plan. Second Amended Plan ¶ 2.
• stated, for the first time, that the automatic stay as to Homecomings would remain in effect until the validity of the purported mortgage rescission had been litigated to "resolution." See Id. ¶ 3.
• no longer made any mention of post-petition payments to Homecomings during the pendency of the State Court Rescission Litigation.
• did not provide for any distribution to Homecomings by the Chapter 13 Trustee, stating that the Trustee would make distributions only to the holders of administrative expenses and allowed unsecured claims. See Id. ¶¶ 4-5.6 Instead, any payments "found to be due" to Homecomings would be made by the Debtor directly "outside the plan." Id. ¶ 3.
No objections were filed to confirmation of this plan and the Chapter 13 Trustee recommended confirmation. By order dated November 13, 2007, the court confirmed the Second Amended Chapter 13 Plan (hereinafter "the Confirmed Plan" or "the Plan"). See Docket Entry No. 91.
The Confirmed Plan remains in effect and is the subject of the parties' dispute.
The plan provision most critical to the current dispute is Paragraph 3. Paragraph 3 sets forth the Debtor's proposed treatment of Homecomings' secured claim:
3. In addition the Debtor and his spouse ("the Borrowers") have filed an action in the Court of Common Pleas of Chester County to enforce their right to rescind a loan secured by a first mortgage on her...
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