Matter of Nelson
| Decision Date | 27 June 1986 |
| Docket Number | Bankruptcy No. 85-00286. |
| Citation | 66 BR 231 |
| Parties | In the Matter of Daisey C. NELSON, Debtor. |
| Court | U.S. Bankruptcy Court — District of New Jersey |
David Paul Daniels, Camden, N.J., for debtor.
Wood, Jahos, Broege & Wight by Peter J. Broege, Manasquan, N.J., for Robert M. Wood, Trustee.
Myers, Matteo, Rabil, Pluese & Norcross, by Robert T. Pluese, Cherry Hill, N.J., for Central Mortg. Co.
The matter presently before the court is a motion to vacate the automatic stay, brought against the debtor, Daisey C. Nelson, by Central Mortgage Company (Central Mortgage). Central Mortgage is a secured creditor of the debtor, holding a first mortgage on the debtor's residence, which is located at 1458 Kenwood Avenue, Camden, New Jersey.
The facts of this case are as follows. The debtor filed a petition for relief under Chapter 13 of the Bankruptcy Code on January 17, 1985.1 On June 17, 1985, Central Mortgage filed the instant motion to vacate the automatic stay. Central Mortgage contends that the subject property was fraudulently transferred to the debtor just prior to the commencement of the instant bankruptcy case, in order to prevent the completion of a pending foreclosure proceeding. Central Mortgage further asserts that the alleged lack of consideration for the transfer, together with the debtor's alleged lack of good faith, render the transfer void against Central Mortgage. Accordingly, Central Mortgage requests the following relief:
The debtor opposes Central Mortgage's motion to vacate the automatic stay on the grounds that: (1) the debtor's Chapter 13 plan was filed in good faith and should be confirmed, and; (2) the transfer of the subject property from Phillip Nelson to the debtor, Daisey Nelson, was not fraudulent.
On or about May 31, 1979, Phillip Nelson, the debtor's son, executed a mortgage bond in the sum of $17,550.00 payable to Central Mortgage Company of New Jersey. On May 31, 1979 Phillip Nelson executed a mortgage to Central Mortgage Company of New Jersey. Pursuant to the mortgage, the land and premises commonly known as 1458 Kenwood Avenue, Camden, New Jersey, was conveyed to Central Mortgage Company of New Jersey. The mortgage provided in part, "this mortgage is given to secure a portion of the purchase money for the above-described premises." The aforesaid mortgage was recorded in the Office of the Camden County Register of Deeds and Mortgages on June 4, 1979. On May 31, 1979 Central Mortgage Company of New Jersey executed an assignment of the mortgage to Central Mortgage Company, the creditor herein. The assignment of the mortgage was recorded in the Office of the Camden County Register of Deeds and Mortgages on July 16, 1979.
On or about November 1, 1983, the mortgage payments on the subject property fell into default. Pursuant to the terms of the mortgage, Central Mortgage elected that the entire unpaid principal amount, together with unpaid interest and advances, become immediately due and payable. Also under the terms of the mortgage, upon default, Central Mortgage became entitled to possession of the mortgaged premises. On September 19, 1984, Central Mortgage commenced a foreclosure action regarding the subject property in the Superior Court of New Jersey, Chancery Division, Camden County, naming Phillip Nelson as the defendant. On October 2, 1984 the defendant, Phillip Nelson, was served with a copy of the summons and foreclosure complaint. This service was effected by a copy of the summons and complaint being left by the Camden County Sheriff with the debtor, Daisey Nelson, Phillip Nelson's mother, at the subject premises. On October 5, 1984, a Notice of Lis Pendens was filed. An answer was not filed in response to the foreclosure complaint. Prior to the entry of a final judgment of foreclosure, Phillip Nelson conveyed the subject property to the debtor by Deed dated January 4, 1985. The consideration paid for the transfer was one dollar.
At a hearing before this court on August 28, 1985, the debtor testified that she has resided at the subject property since shortly after June, 1979. The debtor has, since that time, lived at the property with her dependent children. The debtor testified that at the time she moved to the property, she had seven dependent children. At the time of the confirmation hearing, the debtor was living at the property with four dependent children. The debtor stated that the original purchase money mortgage was obtained by her son, Phillip Nelson, and not by herself, because she did not have the financial prerequisites to qualify for a mortgage. The debtor indicated that since she moved into the subject premises, she has been paying the mortgage on the property. She stated that her son moved from the premises sometime in 1980 and that he is presently residing in Georgia. The debtor has been paying the mortgage by money orders upon which both her name and the name of Phillip Nelson appear. The debtor testified that after she commenced the instant bankruptcy proceeding, Central Mortgage accepted three payments from her, those for February, March, and April, 1985 before refusing to accept the payments. Based upon the fact that Central Mortgage accepted three post-petition payments, the debtor's attorney argued that the mortgagee waived its rights.
The debtor filed a proposed plan of reorganization which provides for monthly payments of $135.00 to the Standing Trustee2 for sixty months to cure estimated arrears to Central Mortgage in the sum of $5,400.00. The plan also provides for the making of regular monthly payments in the sum of $254.98 to Central Mortgage outside of the Chapter 13 plan. Finally, the plan provides for the payment of $1,200.00 to the City of Camden for water and sewer charges. No other creditors are listed in the debtor's petition. A hearing on the confirmation of the debtor's plan was held on August 28, 1985, but confirmation was held in abeyance pending the court's decision on Central Mortgage's motion. At the time of the August 28, 1985 hearing, the debtor was current in her payments to the Standing Trustee pursuant to her Chapter 13 plan. The Chapter 13 Standing Trustee has recommended confirmation of the debtor's plan.
Pursuant to 11 U.S.C. § 362(a), the filing of a petition in bankruptcy operates as a stay, subject to certain exceptions, of actions against a debtor, including the continuation of foreclosure proceedings. 11 U.S.C. § 362(a)(1). Relief from the automatic stay may be granted under 11 U.S.C. § 362(d). Section 362(d) provides in relevant part:
It has been specifically noted that, "`the lack of adequate protection of an interest in property of the party requesting relief from the stay is one cause for relief, but is not the only cause.'" In re Rye, 13 B.C.D. 853, 854 (Bkrtcy.D.S.C.1985) (quoting H.R.Rep. No. 95-595, 95th Cong., 1st Sess. 343 (1977); S.Rep. No. 95-589, 95th Cong., 2nd Sess. 52 (1978)), U.S.Code Cong. & Admin.News 1978, pp. 5787, 5838, 6299.
This court must determine whether the transfer of the subject property to the debtor, shortly before her filing of a petition in bankruptcy, constituted bad faith so as to grant Central Mortgage's request for relief from the automatic stay for cause pursuant to 11 U.S.C. § 362(d)(1), and permit it to continue with its foreclosure proceedings.
In the case of In re Yukon Enterprises, Inc., 39 B.R. 919 (Bkrtcy.C.D.Cal. 1984) (Yukon), the court held that when a creditor establishes that a Chapter 11 debtor received distressed property "in close proximity" to the filing of a petition in bankruptcy, a prima facie showing of bad faith has been demonstrated. 39 B.R. at 921. Accord, In re Rye, 54 B.R. 180, 13 B.C.D. 853, 854 (Bkrtcy.D.S.C.1985). Once such a rebuttable presumption of bad faith has been shown, the burden shifts to the debtor "to establish good and sufficient reasons why the relief should not be granted." Id.
In Yukon, three condominium units, which were in serious default were transferred to the debtor, a newly formed corporation. The deed transferring title to the debtor was recorded just two days prior to the commencement of the Chapter 11 case. The debtor's schedules reflected that the debtor's only assets were the three condominium units at issue, and that the debtor's only unsecured debt was to its bankruptcy attorney. The creditors in Yukon sought relief from the automatic stay in order to foreclose on the three condominium units on the grounds that the petition was filed in bad faith. After acknowledging that "close proximity" is not a precisely defined concept, the Yukon court concluded that the "close proximity" standard clearly had been met in the Yukon case. The court further noted, with regard to the concept of close proximity, that "most people will know it when they see it." 39 B.R. at 921.
In Yukon, the court further established that if a creditor proves that its substantive or procedural rights have been adversely affected by a property transfer and subsequent bankruptcy...
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