In re Turner

• Decision Date: 16 September 2016
• Docket Number: Bankruptcy No. 11-B-84241
• Citation: 558 B.R. 269
• Parties: In re: Michael A. Turner and Sharon L. Turner, Debtors.
• Court: U.S. Bankruptcy Court — Northern District of Illinois

558 B.R. 269

In re: Michael A. Turner and Sharon L. Turner, Debtors.

Bankruptcy No. 11-B-84241

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

Signed September 16, 2016

Robert R. Benjamin, Caren A. Lederer, Golan & Christie LLP, Chicago, IL, for Debtors.

MEMORANDUM OPINION

Thomas M. Lynch

, United States Bankruptcy Judge

The Debtors seek to hold CitiMortgage, Inc. in civil contempt for violating their discharge and the terms of their confirmed and completed Chapter 13 plan when the creditor re-recorded an improperly recorded pre-petition mortgage in the correct county and commenced a state court complaint to foreclose on that mortgage. For the reasons set forth below, the Debtors' Petition For Rule To Show Cause Against CitiMortgage For Violation of 11 U.S.C. § 524

And For Other Relief (ECF No. 77) is DENIED.

I. JURISDICTION

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. The Debtors seek to interpret and enforce the discharge issued by this Court and the confirmation order entered by this Court confirming the Debtors' Chapter 13 Plan, including resolving issues as to the extent of the discharge and the validity of liens and claims treated by the plan. Adjudication is therefore a matter arising under the Bankruptcy Code, a core proceeding pursuant to 28 U.S.C. § 157(b)(2)(A), (B), (I), (K), (L) and (O), and as such this Court has constitutional and jurisdictional authority to enter a final order. Although the bankruptcy case closed after the Debtors completed their Chapter 13 Plan and the Chapter 13 Trustee filed a final report, the Court “has continuing authority to enforce its orders after a case has been closed.” In re Rockford Prods. Corp., 741 F.3d 730, 732 (7th Cir. 2013) (citing Travelers Indem. Co. v. Bailey, 557 U.S. 137, 129 S.Ct. 2195, 174 L.Ed.2d 99 (2009) ). The power of a bankruptcy court to enforce its own injunctions through civil contempt includes enforcement of the discharge injunction. Cox v. Zale Del., Inc ., 239 F.3d 910, 917 (7th Cir. 2001).

II. FINDINGS OF FACT AND PROCEDURAL BACKGROUND

In considering the Motion for Rule to Show Cause, this Court has considered the evidence and the argument presented by the parties at trial and in their pleadings. Based on the record before it the Court makes the following findings of fact.¹

The Debtors and Sharon's father, Harry Semrow, purchased the Debtors' current residence at 3300 W. Bretons Drive, McHenry, Illinois, on August 31, 2001. A deed showing the three purchasers holding the property as joint tenants was filed with the McHenry County Recorder's office. The purchase price was in part funded by a loan from ABN AMRO. To secure that loan the Debtors and Mr. Semrow granted a mortgage to ABN AMRO, which also was properly recorded. On May 1, 2006, the Debtors paid off the ABN AMRO loan using proceeds from a new $200,000 refinancing loan from Oak Street Mortgage LLC, secured by a mortgage in the Debtors' interest in the Bretons Drive residence.² However, the Oak Street mortgage was incorrectly recorded in Cook County on May 18, 2006, rather than in McHenry County where the property is located. ABN AMRO signed a release of its mortgage, which was recorded with the McHenry County Recorder on June 5, 2006. In addition to paying off the ABN AMRO loan for $138,603.71, the Debtors used the proceeds from the Oak Street refinancing loan to pay off approximately $20,000 in credit card and other debts and received the approximately $25,000 remaining in cash. CitiMortgage later succeeded to Oak Street's interest in the refinancing loan and mortgage.

The Debtors filed their voluntary Chapter 13 petition on September 29, 2011. They scheduled CitiMortgage as a creditor in their initial filings, but listed its claim as unsecured. The Debtors listed a debt to “Beneficial” of $33,635 as the only claim secured by an interest in their residence. HSBC Mortgage Services, Inc. filed a proof of claim on February 24, 2012 as servicer on behalf of Beneficial Financial I Inc., successor by merger to Beneficial Illinois Inc., asserting a secured claim of $33,541.98. (Claim No, 20-1.) HSBC / Beneficial's proof of claim attached a copy of a mortgage in the Debtors' interest in their residence that was dated December 26, 2007. That mortgage indicated that it was recorded with the McHenry County Recorder on January 9, 2008. No one objected to HSBC / Beneficial's proof of claim.

The Debtors listed CitiMortgage, Inc. as the holder of a general unsecured claim in their Schedule F. The Turners described the CitiMortgage claim to involve an unliquidated, contingent debt of $183,844 for an “Unrecorded Loan 5/18/06” in connection with their residence. Notice of the bankruptcy and the meeting of creditors was sent to CitiMortgage by the Bankruptcy Noticing Center by electronic transmission on October 1, 2011. (BNC Certificate of Service, ECF No. 9 (showing a service date of October 2, 2011)).³ In a January 25, 2012 letter from CitiMortgage to the Debtors, CitiMortgage acknowledged that there had been a “chapter 13 bankruptcy filed on September 29, 2011.” (Debtor's Ex. 1.1.) The letter proposed the modification of the Debtors' loan to CitiMortgage, but also noted that because of the pending bankruptcy case the Debtors would “be required to obtain court approval prior to the application of this modification to your account.”

CitiMortgage never filed a proof of claim in the case. It did not object to the Debtors' initial proposed Chapter 13 plan, filed September 30, 2011 (ECF No. 10) which was noticed to creditors by the Bankruptcy Noticing Center on October 2, 2011 (ECF No. 11) or to the first amended proposed plan filed January 16, 2012 (ECF No. 21) and noticed to creditors on January 19, 2012. (ECF No. 28.) Nor did CitiMortgage object to the Debtors' second amended proposed Chapter 13 plan filed on February 15, 2012 (ECF No. 34) and noticed to creditors via the Bankruptcy Noticing Center on February 18. (ECF No. 39.)

On March 30, 2012, the Court confirmed the Debtors' second amended Chapter 13 plan. (ECF No. 41.) The Debtors used the Northern District of Illinois' model Chapter 13 plan as the template for their second amended plan. The Turners' plan, as modified by the confirmation order, provides for the Debtors to make sixty monthly payments increasing in steps from $1,620 to $2,816.43 until all allowed claims are paid in full. Section C of the confirmed plan identifies the pre-petition claims that the Debtors are to pay directly: “Beneficial” at $454.00 per month, and two other secured claims, each of which were scheduled as secured by the Debtors' 401(k) retirement plans. CitiMortgage is not mentioned by name in Section C or under Section E's provisions for payment of secured claims through disbursements by the Chapter 13 Trustee, or anywhere in the confirmed plan.

Adopting the standard terms of the model plan, Section B.3 of the confirmed plan states:

The holder of any claim secured by a lien on property of the estate, other than a mortgage treated in Section C or in Paragraph 2 of Section E, shall retain the lien until the earlier of (a) payment of the underlying debt determined under nonbankruptcy law, or (b) discharge under 11 U.S.C. § 1328

, at which time the lien shallterminate and be released by the creditor.

(ECF No. 34 (emphasis added).) Section G of the confirmed plan, the section of the model plan which indicates any special terms modifying the model plan, states that “[n]o payment shall be made on any unsecured claim that is not timely filed.” (Id . ) Finally, the confirmation order entered on March 20, 2012, provides in pertinent part that “[a]ll property of the estate, as specified by 11 U.S.C. §§ 541

and 1306, will continue to be property of the estate following confirmation, unless (l) the plan provides for surrender of the property, or (2) the property is sold pursuant to the plan or court order.” (Order Confirming Plan, ECF No. 41.)

Because CitiMortgage and several other creditors either did not file claims or had their claims disallowed, the Debtors were able to complete their plan sooner than expected, in 15 months, paying a total of $24,729.23 into the plan through the Chapter 13 Trustee. On January 29, 2013, the Chapter 13 Trustee filed a notice of completion of plan payments and the discharge order was entered on February 5, 2013. (ECF No. 99.) CitiMortgage has stipulated that it received a copy of the discharge order.

The Chapter 13 Trustee filed her final report on April 4, 2013, showing that she had distributed $23,495.15, the full amount of allowed general unsecured claims, to general unsecured creditors. She also reported distributing $1,234.08 in administrative expenses. (Chapter 13 Final Report & Account, ECF No. 74.) While the Debtors indicated in their initial bankruptcy schedules that CitiMortgage held a $183,844.00 unsecured claim, the final report noted that its claim was not allowed because it had not been timely asserted by the creditor. CitiMortgage never objected to the final report, nor has it ever sought to vacate or modify the confirmation order or the plan. The case closed and the Chapter 13 Trustee was discharged on April 5, 2013.

On August 29, 2013, CitiMortgage, through its attorneys at Codilis & Associates, sent a demand letter by U.S. Mail to the Debtors threatening to institute foreclosure proceedings against the Bretons Drive property under the 2006 mortgage. The letter states that the attorneys are “attempting to collect the debt that you owe the present creditor,” identifying the “name of the creditor to whom the debt is owed [as] CitiMortgage, Inc.” (Id . ) It further asserts that as “of the date of this letter, you owe $216,073.09” and that “Federal law gives you thirty (30) days after you receive this letter to dispute the validity of the debt or any part of it [or] our firm will...