Reinbold v. Schertz (In re Schertz)

• Decision Date: 17 November 2022
• Docket Number: 21-70207,Adv. 21-07017
• Parties: In Re ROBERT SCOTT SCHERTZ, Debtor. v. KIMBERLY D. SCHERTZ, Defendant. JEANA K. REINBOLD, solely as Chapter 7 Trustee, not individually, Plaintiff,
• Court: U.S. Bankruptcy Court — Central District of Illinois

In Re ROBERT SCOTT SCHERTZ, Debtor.

JEANA K. REINBOLD, solely as Chapter 7 Trustee, not individually, Plaintiff,
v.
KIMBERLY D. SCHERTZ, Defendant.

No. 21-70207

Adv. No. 21-07017

United States Bankruptcy Court, C.D. Illinois

November 17, 2022

Chapter 7

OPINION

Mary P. Gorman United States Bankruptcy Judge

Before the Court after trial is a complaint filed by the Chapter 7 trustee of the bankruptcy estate of Robert Scott Schertz seeking authority to sell real estate co-owned by the bankruptcy estate and Kimberly D. Schertz as tenants

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by the entirety. For the reasons set forth herein, judgment will be entered in favor of the Trustee.

I. Factual and Procedural Background

Robert Scott Schertz ("Debtor") filed a voluntary petition under Chapter 13 of the Bankruptcy Code in the District of Utah on January 4, 2021. Shortly thereafter, the Debtor filed a notice of voluntary conversion to Chapter 7, and Kimberly Schertz filed a motion for relief from the automatic stay seeking to be allowed to proceed with a dissolution of marriage case she had filed in McLean County, Illinois, on December 9, 2020. Mrs. Schertz asked to be allowed to have the Illinois state court divide the couple's property and debts and to resolve other related disputes; the Debtor objected to the motion.

On March 17, 2021, after two hearings on the motion, the Utah bankruptcy court entered an order granting limited relief to allow the Illinois state court to "identify, value, apportion, divide and allocate the parties' marital property[.]" The order did not, however, provide stay relief for the allocation of the parties' debts and explicitly stated that the state court's "determination as to the allocation and division of the parties' marital property shall not be binding on the Bankruptcy Court, the creditors, or the Chapter 7 Trustee in this case until and unless the Bankruptcy Court has a further hearing and order approving the allocation of property of the bankruptcy estate[.]" The same day, the Utah bankruptcy court entered an order granting a motion to transfer venue of the case to the Central District of Illinois. The transfer motion had

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been filed by Compeer Financial, PCA ("Compeer"), a creditor of the Debtor, Kim Schertz, and the related entity, Schertz Aerial Service, Inc. ("Schertz Aerial"). The transferred case was docketed in this District on March 22, 2021.

After the case was transferred, Jeana K. Reinbold was appointed as the Chapter 7 trustee ("Trustee"). The Trustee commenced administration of the estate. She sold the Debtor's stock in Schertz Aerial-of which the Debtor was the sole shareholder-along with related causes of action to Kim Schertz for $20,000. The Trustee also commenced this adversary proceeding against Kim Schertz by filing a complaint to compel the sale of real estate consisting of a single-family home on 11 acres and an additional 52 acres located at 22761 N. 1300 East Road, Hudson, Illinois 61748 ("Hudson property"), co-owned by the estate and Kim Schertz as tenants by the entirety.

Prosecution of the Trustee's adversary complaint was postponed for some time out of deference to the state court in its consideration of marital dissolution matters. But after it became clear that there was no end in sight to the dissolution case and because Compeer recorded a $2 million judgment against Kim Schertz that encumbered her interest in the Hudson property, this Court entered an order in the main bankruptcy case on August 3, 2022, reconsidering the original order granting stay relief. The order vacated the stay relief order only as to the Hudson property. After this Court's determination that the issues concerning the real estate were best resolved through the

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bankruptcy case and proceedings, the Trustee's complaint was scheduled for trial for September 28, 2022.^[1]

The Trustee's case in chief at trial consisted of five witnesses. Faiq Mihlar and Jennifer Dixon were called to testify as to the public records regarding title and ownership of the Hudson property. Mr. Mihlar identified himself as a managing member of the law firm Heavner, Beyers & Mihlar, which he said also owns and operates Central Illinois Title Company. He said that, in June 2022, Central Illinois Title Company received a request for a title search on behalf of Compeer as to the Hudson property. Mr. Mihlar stated that the company completed the search as requested, which showed the property was owned by the Debtor and Kim Schertz as tenants by the entirety. In September 2022, an updated, supplemental report was completed at the request of the Trustee.

Mr. Mihlar explained that the property was previously owned solely by the Debtor until June 29, 2020, when ownership was transferred by deed to the Debtor and Kim Schertz as tenants by the entirety. According to Mr. Mihlar, ownership of the property has not changed since that transfer. Jennifer Dixon identified herself as a manager of Central Illinois Title Company and testified that she was familiar with the title searches and reports that Mr. Mihlar referenced in his testimony. She further testified that she had

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performed an online search of the McLean County Recorder's Office website the day before trial to confirm the continuing accuracy of the reports issued by Central Illinois Title Company and found no new recordings.

Next, the Trustee called Noelle Burns to testify. Ms. Burns identified herself as a realtor and an owner of RE/MAX Rising. She testified that she has been a realtor for 22 years, working for Coldwell Banker prior to her association with RE/MAX. Ms. Burns was familiar with the Hudson property, having visited and conducted a market analysis of the property in fall 2021. She said she did not personally inspect the acreage but did walk through the residence on the property, describing it as a great house admittedly in need of some updating. Ms. Burns identified a report that she prepared following her visit that included her opinion as to the value of the property. As to the process for completing her report, Ms. Burns explained that, following a site visit, she searches the multiple listing service system for "comps"-recently sold, pending, or currently active property listings comparable to the subject property. She said that adjustments can be and often are made when conducting a market analysis to account for differences in the properties being compared. Following this process, Ms. Burns concluded that the value of the Hudson property at the time of her report was approximately $736,000.

Ms. Burns also identified an updated report for the Hudson property that she generated the week before trial. She explained that the real estate market in the area had improved and that pending sales of some of the comps she relied on in her first report had since closed, providing more accurate

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comparison data. Ultimately, Ms. Burns concluded that $11,000 per acre was the average price for farmland in the area and that $275,000 for the house and 11 acres upon which it sits was a fair estimation of value-up from the $250,000 at which she initially valued the residence. Based on those figures, Ms. Burns concluded that the entire property-the house and all 63 acres- was worth approximately $829,000 as of the week before trial.

Ms. Burns said she considered her opinion to be a conservative estimate, that a price per acre of $11,000 was a base amount with room for upward adjustment, and that she felt confident the Hudson property would appraise for at least $829,000. She did acknowledge, however, that most of the Hudson property's value came from the farmland and that she did not take any steps to determine the specific value of that acreage other than looking at the per acre prices of her selected comps. On cross examination, she admitted that the listing details for one of the comps she used included a note about the high quality of its soil per testing and that no such testing had been conducted to establish the quality of soil on the Hudson property.

Kevin Buente, a representative of Compeer, also testified. He described his 27-year career with Compeer, first as a credit analyst and currently as principal credit officer. He said he is familiar with the Debtor and Kim Schertz through a series of loan transactions with Compeer on behalf of themselves and Schertz Aerial. Mr. Buente was assigned to the Schertz account in October 2020 but had helped his predecessor before taking over as the account officer. Mr. Buente also said he was familiar with the claim filed on behalf of Compeer

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in the Debtor's bankruptcy case, confirming that the $3,511,322 debt asserted was based on information provided by Compeer to its attorney and was accurate as to the amount owed at the time of filing. He acknowledged that the debt had been paid down some since the claim was filed and stated that the balance owed at the time of trial was approximately $2.596 million.

Mr. Buente identified a standstill/forbearance agreement entered into in June 2020 between Compeer, Schertz Aerial, and the Debtor and Kim Schertz individually. According to him, the purpose of the agreement was to give the borrowers time to sell assets to satisfy or otherwise pay down the debt owed to Compeer. Mr. Buente asserted that no further agreements had been entered into by the parties, but he also did not foreclose the possibility of a further agreement being reached in the future.

Mr. Buente also identified a judgment entered by the Circuit Court of McLean County, Illinois, on December 7, 2021, in favor of Compeer and against Kim Schertz. Because the outstanding balance owed on the Schertz Aerial loans exceeded the value of collateral securing the debt, Mr. Buente said that Compeer engaged its attorney to pursue Mrs. Schertz for the balance. To that end, he also identified a memorandum of judgment against Kim Schertz in the amount of $2,675,112.44 plus costs that Compeer's...