In re Townsend
| Decision Date | 04 October 1972 |
| Docket Number | 44203.,No. 44202,44202 |
| Parties | In the Matter of Orrin Dean TOWNSEND and Rose Georgia Townsend, Debtors. |
| Court | U.S. District Court — Western District of Missouri |
Dennis G. Muller, Kansas City, Mo., for debtors.
Paul Anthony White, Asst. U. S. Atty., Kansas City, Mo., for petitioner.
The United States has petitioned the Court in this Chapter XIII proceeding for review of the Referee's order of June 19, 1972, enjoining the Veterans' Administration (V.A.), the Administrator of Veterans' Affairs, his agents, servants and employees, and the Trustee from conducting any further proceedings in the sale of the debtors' home or in the enforcement of the V.A.'s asserted lien upon the debtor's home. Upon review we have determined that the Referee's order is proper in all respects and it will be affirmed.
The facts have been largely stipulated. In 1961, the debtors purchased their home in Gladstone, Missouri, with a V. A. insured loan of $17,250. The private lender foreclosed in 1964. The V.A. purchased the debtors' home at the foreclosure sale and sold it to the debtors on a direct loan of $18,400 with interest at 5½ per cent per annum. The debtors' note was made payable at the rate of $103.14 per month and was secured by a deed of trust on the debtors' home.
The debtors became delinquent in their payments almost immediately and they have not been current since that time. In 1966, debtor Orrin Townsend was employed by National Folding Chairs Company as a filing clerk. In five years he advanced to office manager. On September 7, 1971, he was discharged. By that time the debtors had reduced the arrearage on the V.A. loan to $987, i. e. they were seven monthly payments behind schedule.
In January, 1972, debtor Orrin Townsend, then in his fourth month of unemployment, conferred with the V.A. office in Kansas City, Missouri, regarding his delinquency. He was advised to make a partial payment of $1,000 on the existing arrearage and thereafter to make one and one-half the monthly payments as they became due until the arrearage was extinguished. This sum was tendered to the V.A. in St. Louis, Missouri. The V.A. refused the tender and directed the commencement of foreclosure proceedings. It should be noted that this foreclosure was the first to be initiated since the inception of the direct loan by the V.A. in 1964, even though the debtors were delinquent for virtually the entire seven years.
On January 19, 1972, the debtors' home was appraised at $22,000 by a professional real estate appraiser on behalf of the V.A. The debtors believe, however, that their home would sell for $21,500 at a forced sale and for $25,000 if allowed ample time to sell.
On February 23, 1972, the debtors filed a wage earners' plan under Chapter XIII of the Bankruptcy Act. 11 U.S.C. § 1001 et seq. (1970). They proposed to pay all existing debts and the entire arrearage on the V.A. loan within three years and to pay the $141 monthly payments (which includes insurance and escrow payments) on the V.A. loan as they became due. To this end, the debtors proposed to pay $75 per week to the Trustee to be distributed in the following fashion: (a) $141 per month to be applied to the V.A. loan; (b) $55 per month to be applied to the arrearage on the V.A. loan until extinguished and then to the other creditors under the plan; and (c) the balance to be paid to the other creditors according to the provisions of the plan. In addition, the debtors proposed to immediately pay $1,000 to the V.A. to be applied to the arrearage on the loan.
On March 7, 1972, the balance due on the debtors' note was $18,048.21 with interest at 5½ per cent per annum. At that time the debtors were $2,267.02 in arrears. Given that the $22,000 appraisal by the V.A. is accurate, the debtors presently have an equity of at least $4,000 in their home. Since the filing of the plan, the debtors have paid $75 each week to the Trustee as proposed.
Nevertheless, the V.A. notified the debtors that it intended to foreclose on the debtors' home without regard to the plan. The V.A. initiated foreclosure publication on April 6, 1972, for sale on May 3, 1972.
On April 6, 1972, the debtors applied to the Referee for an order staying enforcement of the lien asserted by the V. A. against the debtors' property. The debtors contended that the possession and use of their home was essential to the success of the plan, that their equity of $4,000 to $6,000 was jeopardized by the foreclosure proceedings, and that the requested stay would not injure or prejudice the V.A.'s security. On April 17, 1972, the Referee conditionally stayed the V.A.'s foreclosure proceedings, subject to reconsideration in the event the debtors failed or neglected to make the proposed payments. The Referee also ordered the debtors to keep and maintain the property in good condition and repair and adequately insured.
On April 21, 1972, the United States petitioned the Referee for reconsideration of his order staying the foreclosure proceedings. Upon reconsideration the Referee expanded his order to apply not only to the V.A., but also to the Administrator of Veterans' Affairs, his agents, servants and employees, and to the Trustee. On June 19, 1972, the Referee amended the order issued on the United States' petition for reconsideration. In the amended order, the Referee found that foreclosure would cause substantial loss and irreparable injury to the debtors' estate and would jeopardize consummation of the debtors' plan and that enjoining the foreclosure proceedings would not impair the V.A.'s security. Accordingly, the Referee again ordered that the V.A., the Administrator, and the Trustee be enjoined from conducting any further proceedings in the sale of the debtors' home or in the enforcement of its asserted lien upon the debtors' home, upon the condition that the debtors conformed to their plan and kept and maintained their home in good condition and repair and adequately insured. The Referee again provided that his order was subject to reconsideration upon five days' notice should the debtors fail to abide by the condition set forth in the amended order.
On May 22, 1972, the United States petitioned this Court for review of the Referee's order, contending that the order was improper because (a) the Referee did not have authority to enjoin the V.A., and (b) the referee did not have jurisdiction over the person of the Administrator of Veterans' Affairs. The Referee's certificate was filed on June 22, 1972. The parties have stipulated that no additional evidence need be adduced, that the petition shall be considered solely on the evidence adduced before the Referee as incorporated in the stipulations of facts now before the Court, and that the case be presented for adjudication on the briefs now before the Court.
At issue first is whether a referee in a Chapter XIII proceeding may enjoin enforcement by foreclosure of a lien on real property. Subsections (1) and (2) of section 606 of the Bankruptcy Act, 11 U.S.C. § 1006(1) and (2) (1970), restrict the scope of a wage earner's plan. Subsection (1) excludes claims secured by estates in real property from the definition of "claims" for the purposes of Chapter XIII, and subsection (2) defines a "creditor" as "the holder of any claim." The debtors' note held by the V.A. is secured by a deed of trust on the debtors' home, real property. As such, the V.A. neither has a "claim" nor is a "creditor" within the meaning of Chapter XIII. However, jurisdiction to enjoin foreclosure of a lien on real property is not subject to the same restrictions as is the scope of a wage earner's plan. Hallenbeck v. Penn Mutual Life Ins. Co., 323 F.2d 566, 569 (4th Cir. 1963).
Sections 611 and 614 of the Bankruptcy Act provide that the bankruptcy court retains jurisdiction over all of the debtor's property, without qualification as to its nature, and may enjoin or stay "any proceeding to enforce any lien upon the property of a debtor." 11 U.S.C. §§ 1011 and 1014 (1970). "From these sections of the Act, it appears that the Referee has exclusive jurisdiction over all of the debtor's property, real and personal, during the entire period of consummation of the plan, and is specifically invested with jurisdiction to stay any proceedings to enforce a lien upon the debtor's property." In re Rutledge, 277 F.Supp. 933, 935 (E.D.Ark.1967). We conclude, then, as a first step, that the Referee's order was proper to the extent that it enjoined foreclosure proceedings to enforce a lien on the debtors' real property. See, e. g., Hallenbeck v. Penn Mutual Ins. Co., supra, 323 F.2d, at 569-570; In re Clevenger, 282 F.2d 756 (7th Cir. 1960); In re Terry, 294 F.Supp. 253, 255 (S.D.Ga.1968), aff'd 411 F.2d 553 (5th Cir. 1969); In re Pizzolato, 268 F.Supp. 353, 357 (W.D.Ark. 1967); In re Willett, 265 F.Supp. 999, 1002-1003 (S.D.Calif.1967); In re Garrett, 203 F.Supp. 459, 460-462 (N.D. Ala.1962); In re Duncan, 33 F.Supp. 997, 998 (E.D.Va.1940).
Of concern next is whether the injunctive relief provided by section 614 of the Bankruptcy Act is available within the context of this case against the V.A. as a federal instrumentality. Our inquiry focuses on the doctrine of sovereign immunity. See United States v. Mel's Lockers, Inc., 346 F.2d 168 (10th Cir. 1965). 38 U.S.C. § 1820 (1970) provides, in part:
The Courts have consistently viewed such "sue and be sued" clauses as broadly waiving governmental immunity from suit, Federal Deposit Ins. Corp. v. Sumner Financial Corp., 451 F.2d 898, 904 (5th Cir. 1971), and the Supreme Court has treated such a clause as an express waiver of immunity, Federal Land Bank of St. Louis...
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