Jeffrey Charles Chamberlin Margaret Mary Chamberlin v. 1ST Source Bank (In re Jeffrey Charles Chamberlin Margaret Mary Chamberlin)

• Decision Date: 17 March 2015
• Docket Number: CASE NO. 14-31183 HCD,PROC. NO. 14-3021
• Parties: IN THE MATTER OF JEFFREY CHARLES CHAMBERLIN MARGARET MARY CHAMBERLIN DEBTORS JEFFREY CHARLES CHAMBERLIN MARGARET MARY CHAMBERLIN PLAINTIFFS v. 1st SOURCE BANK; CHASE MANHATTAN MORTGAGE CORPORATION; INDIANA DEPARTMENT of REVENUE; QUINTO SQUADRONI; and JANINE SQUADRONI DEFENDANTS
• Court: United States Bankruptcy Courts. Seventh Circuit. U.S. Bankruptcy Court — Northern District of Indiana

IN THE MATTER OF JEFFREY CHARLES CHAMBERLIN

MARGARET MARY CHAMBERLIN DEBTORSJEFFREY CHARLES CHAMBERLIN MARGARET MARY CHAMBERLIN PLAINTIFFS v. 1^st SOURCE BANK; CHASE MANHATTAN

MORTGAGE CORPORATION; INDIANA

DEPARTMENT of REVENUE; QUINTO SQUADRONI; and JANINE SQUADRONI DEFENDANTS

CASE NO. 14-31183 HCD

PROC. NO. 14-3021

UNITED STATES BANKRUPTCY COURT NORTHERN DISTRICT OF INDIANA SOUTH BEND DIVISION

March 17, 2015

CHAPTER 13

Appearances:

Debra Voltz-Miller, Esq., 1951 East Fox, South Bend, Indiana 46613, attorney for plaintiffs Jeffrey Charles Chamberlin and Margaret Mary Chamberlin.

William G. Lavery, Esq., Whisler & Lavrey, 600 South Main Street, Suite 200, Elkhart, Indiana 46516, attorney for defendant 1^st Source Bank.

Christina M. Bruno, Esq., Bose McKinney & Evans LLP, 111 Monument Circle, Suite 2700, Indianapolis, Indiana 46204, attorney for defendant Chase Manhattan Mortgage Corporation.

Steven D. Carpenter, Esq., Legal Division, IGCN-N248, 100 North Senate Avenue, Indianapolis, Indiana 46204, attorney for defendant Indiana Department of Revenue.

Phillip A. Garrett, Esq. and Michael A. Trippel, Esq., Thorne Grodnik LLP, PO Box 1210, Mishawaka, Indiana 46546-1210, attorneys for defendants Quinto Squadroni and Janine Squadroni.

MEMORANDUM OF DECISION

At South Bend, Indiana, on March 17, 2015.

Before the court is the Motion for Summary Judgment ("Motion") filed by defendant 1^st Source Bank ("1^st Source"). This Motion asks the court to enter summary judgment in favor of 1^st Source against Jeffrey Charles Chamberlin and Margaret Mary Chamberlin ("Chamberlins") "as well as any andall defendants or other parties" in this adversary proceeding. For the reasons stated in this Memorandum of Decision, the court grants the 1^st Source's Motion.¹

BACKGROUND

The parties to this adversary proceeding have jointly filed a Stipulation of Facts, ECF No. 21 ("Stipulation") that sets out the facts relevant to the matter before the court. The essential issues in this adversary proceeding concern the priority among mortgage holders in a bankruptcy case when a state court has defaulted a senior mortgagee in a foreclosure proceeding before the bankruptcy filing. The question arises from an unsuccessful business involving the Chamberlins. Several properly recorded mortgages burden the property of the Chamberlins. Absent the foreclosure proceeding, the matter before this court would be easily resolved. Under Indiana law, a mortgage takes priority according to the time of its filing. IC § 32-21-4-1(b). The existence of a pre-petition state court foreclosure judgment in favor of a junior lien holder alters this outcome.

The Mortgages

In January 1999, the Chamberlins gave Irwin Mortgage Corporation a $102,350.00 promissory note secured by a mortgage on their residence. This mortgage was recorded January 15, 1999 at 2:33 p.m., as document number 9902071. Irwin assigned the mortgage to Chase Manhattan Mortgage Corporation ("Chase"). This assignment was recorded August 18, 1999 at 8:58 a.m. as document number 9938488.

On June 24, 2002, Jeffrey Chamberlin, David Fawver and Lewis Mark ("Guarantors") formed a company named JDL LLC ("JDL"). On August 21, 2002, JDL obtained a loan² from 1^st Source.Jeffrey, David, and Lewis and their spouses each signed personal guarantees for the loan that included mortgages on their residences. 1^st Source recorded its mortgage on August 29, 2002 at 10:13:01, as document number 0246436. Also August 21, 2002, the Guarantors and their spouses executed mortgages on their principal residences in favor of Quinto Squadroni and Janine Squadroni ("Squadronis") to secure a $175,000.00 loan. The Squadronis recorded their mortgage on the Chamberlins residence on August 29, 2002 at 10:13:07, as document number 0246442. JDL used the loan proceeds to purchase a business known as Squads 2^nd Precinct and buildings owned by Squadronis.

State Court Foreclosure Action

1^st Source filed a foreclosure complaint against JDL, the Chamberlins, Chase, the Squadronis, the Guarantors, the Indiana Department of Revenue, the Internal Revenue Service, St. Joseph County Treasurer, and National City Bank in St. Joseph County Circuit Court ("state court") on April 21, 2011.³ This complaint sought foreclosure of real estate owned by JDL and other real property including the residences of the Chamberlins and other Guarantors. Squadronis filed a cross claim in this action seeking foreclosure of the mortgages given by the Guarantors.

The St. Joseph County Circuit Court defaulted Chase on June 8, 2011. See Stipulation, Exhibit G. The state court, on December 15, 2011, issued a Partial Summary Judgment and Decree Foreclosing Note, Mortgages, and Security Interest. See Stipulation, Exhibit H. In granting partial summary judgment, the state court specifically "ordered, adjudged and decreed" that the security interest of 1^st Source "is the first and prior lien to that of any other party, entitled to be foreclosed." The state court also ordered that the Partial Summary Judgment "in no way adjudicates the rights of Quinto J. Squadroni and Janine R. Squadroni ... other than to allow 1^st Source to foreclose its Mortgages on the Real Estate and to extinguish any rights of the Squadronies [sic] upon the successful completion of Sheriff's sales of the Real Estate." Id. The state court, on March 30, 2012, entered summary judgment infavor of the Squadronis against the Chamberlins and the other Guarantors on Squadronis' mortgages. That judgment found that Chase was in default. The state court specifically found that the mortgage of the Squadronis was superior to any interest in the subject property other than the first priority of 1^st Source.

In the state court foreclosure action, Chase actually participate by filing a motion to set aside the 1^st Source June 8, 2011 default judgment. The state court held a hearing on this motion on April 15, 2013. On July 17, 2013, the state court denied Chase's motion to set aside the default judgment entered against Chase in favor of 1^st Source on June 8, 2011. See Stipulation Exhibit I. In that same order, the state court set aside the March 30, 2012 entry of summary judgment, default judgment and decree of foreclosure against Chase in favor of the Squadronis. Chase did not appeal the entry of the judgments or the orders on the motions to set aside the judgments.

Bankruptcy Proceedings

In this court, on August 22, 2013, the Chamberlins sought relief under chapter 13 in case number 13-32439. In that prior case, the court denied confirmation of the plan submitted by the Chamberlins. On motion of the standing chapter 13 in the prior case, the court dismissed the case without prejudice on March 10, 2014.

The Chamberlins filed the present case, numbered 14-31183, seeking relief under chapter 13 on May 7, 2014. 1^st Source filed proof of secured claim number 6-1 for $97,446.19 on May 22, 2014. The Squadronis filed proof of claim number 8-1 for $103,910.36 on July 8, 2014. Squadronis did not claim to be secured creditors. On September 2, 2014, Chase filed proof of secured claim number 11-1 for $81,274.11, with arrearage of $6,944.64. On May 22, 2014, the Chamberlins filed this adversary proceeding to determine the "extent and priority of liens to permit Debtors to propose a plan." Alldefendants filed timely answers to the complaint.⁴ Four of the five parties to this adversary proceeding joined in filing the Stipulation, ECF No. 21, on August 22, 2014.⁵

On October 20, 2014, 1^st Source filed its Motion seeking summary judgment, dismissal, and the recovery of costs and reasonable attorney fees. ECF No. 28. Chase responded to the Motion on November 19, 2014, by asking for a finding by this court that it has a first priority mortgage on the Chamberlins residence. ECF No. 30. The Chamberlins and the Squadronis have not responded to the 1^st Source Motion.

DISCUSSION

In this adversary proceeding, the Chamberlins ask the court to "determine the extent and priority of the liens" against their residence. The Chamberlins want this court to decide the precedence among the Chase, 1^st Source and Squadronis mortgages. Proceedings to "determine the validity, priority, or extent of a lien or other interest in property" are proper subjects for determination by this court. See 11 U.S.C. § 157(b)(2)(K); Fed. R. Bankr. P. 7001(2). To resolve the mortgage issues in this matter, the court must look to Indiana law. National Republic Bank of Chicago v. N.S.D. Corp., 2009 WL 4547424, at *6 (N.D. Ind. Nov. 30, 2009) (Mortgage foreclosure actions are governed by the law of the state where the subject real estate is located.", citing Lewis v. Davis, 55 N.E.2d 119, 120 (Ind. App. 1944).

The Motion before the court seeks summary judgment. Rule 7056 of the Federal Rules of Bankruptcy Procedure provides that Federal Rule of Civil Procedure 56 governs this court's review of a motion for summary judgment. Summary judgment is proper only where the record shows that "there is no genuine issue as to any material fact and the moving party is entitled to a judgment as a matter of law." Fed. R. Civ. P. 56(a); Fed. R. Bankr. P. 7056. See Celotex Corp. v. Catrett, 477 U.S. 317, 322 (1986)."One of the principal purposes of the summary judgment rule is to isolate and dispose of factually unsupported claims or defenses." Id. at 323-24. The moving party bears the initial burden of showing that no genuine issue of material fact exists. Id. at 323.

Rooker-Feldman⁶

Before examining whether a genuine issue of material fact is present in this adversary proceeding, the authority of this court to make such a determination must exist. Both 1^st Source and Chase have discussed the application of the Rooker-Feldman doctrine at length in their submissions to this court. Rooker-Feldman applies in bankruptcy matters to prohibit federal court review of state court judgments. In re Wilson, 116 F.3d 87, 90 (3^rd Cir. 1997). "The Rooker-Feldman doctrine prevents the federal district courts from entertaining actions...