In re Toth
| Decision Date | 21 May 1986 |
| Docket Number | Bankruptcy No. 85 B 5853. |
| Citation | 61 BR 160 |
| Court | U.S. Bankruptcy Court — Northern District of Illinois |
| Parties | In re John W. & Kathleen M. TOTH, Debtors. |
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Francis L. Keldermans, McBride, Baker & Coles, Chicago, Ill., for Talman Home Mortgage Corp.
Cornelius F. Riordan, McNeela & Griffin, Ltd., Chicago, Ill., for debtors.
Marc C. Lipinski, Rudnick & Wolfe, Chicago, Ill., for El Lago Apartments Venture.
MEMORANDUM AS TO ORDER DENYING TALMAN'S MOTION TO MODIFY STAY
Creditor Talman Home Savings & Loan moved post confirmation to modify the automatic stay. For reasons set forth below that motion has been denied.
Debtors filed their chapter 13 petition on May 7, 1985, and their original chapter 13 Plan on July 18th. The original Plan provided inter alia that: (i) creditor Talman Savings & Loan would receive title to Unit 15B, 6157 North Sheridan Road, Chicago, Illinois; and (ii) creditor El Lago Apartments Venture would receive such equity in Unit 15B as would remain after Talman's claim was satisfied.
On August 8th, El Lago objected to that Plan. On September 5th, its objection was heard and found well taken. Debtors were given 14 days to file an Amended Plan, and the case was continued to October 3, 1985, for confirmation hearing on the Amended Plan to be filed.
On September 19, 1985, debtors filed their Amended Plan which provided inter alia: (i) debtors would deliver to Talman a deed in lieu of foreclosure conveying Unit 15B in return for (a) Talman's release of its mortgage against Unit 15B, and (b) Talman's cancellation and delivery to the debtors of the promissory note secured by Talman's mortgage; and (ii) nothing contained in that Plan would impair a note dated August 31, 1981, in the principal amount of $8,672, or a contemporaneous junior trust against Unit 15B securing the note. The latter instruments ran in favor of El Lago.
On October 3, 1985, El Lago withdrew its objection to confirmation and the Amended Plan was confirmed that date. However, the order confirming Plan was not entered by the clerk on the docket until November 14, 1985. Therefore, it was appealable until November 24, 1985.
On October 31, 1985, Talman moved to modify the automatic stay so as to proceed to foreclose its mortgage against Unit 15B. Talman alleged it was the holder of a purchase money mortgage against Unit 15B (having earlier filed its claim for the full amount of its mortgage, $37,043.83). Talman alleged in its motion that when the case was filed debtors were in default on the mortgage, the unpaid arrearage totalling $2,190.20. Debtors had made no monthly mortgage payments, thereby resulting in additional post petition default of $3,201.66 through October of 1985. For these reasons and the depreciation of its collateral due to debtors' continued use of the property, Talman alleged lack of adequate protection of its interest as mortgage holder justifying relief from the automatic stay under § 362 of the Bankruptcy Code.
Debtors and El Lago objected to Talman's motion on ground that the Amended Plan was confirmed and Talman had never objected to confirmation, or moved to vacate, reconsider, or appeal the order of confirmation. Therefore, they argued that Talman is bound by the treatment provided for it in the Plan; that is it must take title to Unit 15B in lieu of a foreclosure action and cannot obtain collateral relief by seeking modification of the stay. They say that Talman will obtain adequate protection from implementation of the Plan. Debtors stand ready, willing, and able to tender the requisite quit claim deed to Talman.
Talman argued that it is not so bound, because: (i) it received no notice at all of the Amended Plan until October 31, 1985, when it presented its motion to modify the stay; and (ii) the Amended Plan impaired Talman's rights, and therefore it was entitled to, but did not receive, twenty days notice of the modification and an opportunity to accept or reject the Amended Plan as provided by 11 U.S.C. § 1323 and Bankr.R. 2002(a)(6). Talman also contended (iii) that debtors' attempt to modify Talman's rights through the Amended Plan was ineffective under 11 U.S.C. §§ 1322, 1325, because the offer of deed subject to El Lago's lien is not a "surrender" allowed by 11 U.S.C. § 1325(a)(5)(C), or a permissable result under 11 U.S.C. § 506(a). Therefore, Talman argues that the terms of the confirmation order simply cannot apply to it, and the automatic stay should be modified to allow it to proceed with foreclosure.
Concerning Talman's alleged lack of notice of the Amended Plan, the parties stipulated to the following facts: The court held a hearing on confirmation of debtors' original Plan, on notice to all creditors, on August 22, 1985. No notice was served on Talman of El Lago's objection to the original Plan. Talman did not attend the confirmation hearing set for August 22, 1985, or the continued confirmation hearing set for September 5, 1985. Talman did not file an objection to the original Plan. Talman also did not file, before or after confirmation, any objection to debtors' Amended Plan, and Talman never sought modification of the confirmation order. Transcript of Proceedings, Jan. 31, 1986, at pp. 8-13.
Talman had ample notice and opportunity to seek modification or vacation of the confirmation order. When Talman presented its motion to modify stay on October 31, 1985, it says that it first learned of the confirmed Amended Plan. Talman's counsel was immediately advised by the Court that if she wanted to seek to vacate the order confirming the Amended Plan the Court would entertain such a motion. Counsel for Talman requested and was granted time to file that motion. Transcript of Proceedings, Oct. 31, 1985, at pp. 11-13. See also, Order of that date setting motion of Talman to modify stay for December 12, 1985, along with motion of Talman to vacate order of confirmation to be filed before then. It is undisputed, however, that despite the Court's invitation and the recognition by Talman's counsel of the importance of filing such a motion, Talman never filed any motion seeking relief from the order confirming debtors' Amended Plan.
Instead, Talman obtained a stipulation from debtors and filed it along with purported "agreed" order1 to be entered. That stipulation (to which El Lago was not a party and had no prior notice) recited that debtors' Chapter 13 Plan had been amended without notice to Talman, and that Talman agreed to waive such notice in consideration of debtors' agreement to amend the Plan to modify the stay to allow Talman to proceed with foreclosure. The "agreed" order modifying stay (and thereby amending the Plan) was entered on December 9, 1985, but vacated on January 9, 1986, since it was conceded that no notice thereof had been served on El Lago.
Some additional facts that came to light during the course of these notice-free proceedings are pertinent. The property in question, Unit 15B, is not debtors' principal residence. It is not occupied by them and they have no interest in keeping this real estate. Transcript of Proceedings, Jan. 31, 1986, at p. 54. The debtors opposed Talman's motion to modify the stay to foreclose only because the result would be contrary to the Amended Plan and would allow Talman to seek a deficiency. Transcript of Proceedings, Oct. 31, 1985, at p. 45. To explain why he signed the stipulation with Talman to modify stay, debtors' counsel stated he was unsure whether the confirmation order had been docketed. If it had not been docketed, Talman would have a right to modification of stay, he explained. Id. at 89. The Court does not understand that explanation, in the light of the Amended Plan.
Counsel for debtors also stated that he contacted Talman's in-house counsel within the week before the Amended Plan was filed. He spoke with a male attorney, whose name he did not recall, and informed him about the relevant Amended Plan terms. Transcript of Proceedings, Jan. 31, 1986, at pp. 30-32. On September 18, 1985, the day before the Amended Plan was filed, he spoke with Ms. Jill Kelly, one of Talman's in-house attorneys, and again told her the contents of the relevant amendment. Id. at pp. 32-3. Debtors' counsel also explained why he never served formal notice of the Amended Plan on Talman. He stated his understanding of the Bankruptcy Rules (Bankr.R. 2002(a)) was that the Court Clerk would serve notice of modifications of an Amended Plan to advise creditors (though in fact there is no such procedure). Further, he was not told by his office to serve notice thereof on El Lago. Id. at 88.
Whatever difficulties counsel for debtors or El Lago may have had in finding the Talman attorney responsible for this case, Talman filed its proof of claim on June 5, 1985, showing the name, address and phone number of its outside counsel. Oral notice by telephone call is simply not by itself a proper substitute for the formal written notice that the Bankruptcy Rules require. 11 U.S.C. § 1323, and Bankr.R. 2002(a)(6).
Why didn't Talman move to vacate the order of confirmation after requesting time to do so when its motion to modify stay was heard on October 31st well before the confirmation order became final? After that hearing, the Talman attorney's file was sent back to Talman's outside counsel, Mr. Keldermans. Mr. Keldermans prepared the stipulation to modify stay and obtained the signature of debtors' counsel. Transcript of Proceedings, Jan. 31, 1986, at pp. 64-65. It was then still possible, as the court had suggested, for Talman to attack the confirmation order. Instead, the alternative tactic deliberately employed by Talman was to obtain the stipulation for modification of the stay, Id. at 66, and to have the order therefor entered without notice to El Lago.
If Talman were to obtain relief and proceed with foreclosure, it would extinguish El Lago's lien. But if bound by the...
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