In re Bowens

656 B.R. 883

IN RE: Julia BOWENS, Debtor.

Case No. 21 B 13626

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

Signed February 5, 2024

Attorney for Julia Bowens, Ariel Weissberg, Weissberg and Associates, Ltd., 125 South Wacker Drive, Suite 300, Chicago, IL 60606.

Attorneys for Arthur Czaja, Elyse Rosenzweig, and Semper Fidelis, LLC, William J. Factor, Ariane Holtschlag, Law

Office of William J. Factor, Ltd., 105 West Madison Street, Suite 1500, Chicago, IL 60602.

MEMORANDUM OPINION

DAVID D. CLEARY, United States Bankruptcy Judge

These matters come before the court on three motions filed by Julia Bowens ("Bowens" or "Debtor"): (1) a motion for sanctions and contempt of court for violation of the discharge injunction ("Discharge Motion"); (2) a motion for sanctions for violation of the automatic stay ("Stay Violation Motion"); and (3) a renewed motion to avoid fixing of lien as an impairment of the Debtor's homestead exemption pursuant to 11 U.S.C. § 522(f) ("Motion to Avoid Lien"). Having reviewed the papers submitted and heard the arguments of the parties, the court will deny all three motions.

I. JURISDICTION

The court has subject matter jurisdiction under 28 U.S.C. § 1334(b) and the district court's Internal Operating Procedure 15(a). This is a core proceeding under 28 U.S.C. § 157(b)(2)(G), (K) and (O). Venue is proper under 28 U.S.C. § 1409(a).

II. BACKGROUND¹

Fifth Third Bank ("Fifth Third") obtained a judgment against Bowens on September 22, 2014 (the "2014 Judgment"). Fifth Third recorded the 2014 Judgment and assigned it to a third party, which then assigned it to Semper Fidelis, LLC ("Semper Fidelis"). Semper Fidelis filed a complaint to foreclose its judicial lien ("Foreclosure Action") on Bowens's real property at 5845 W. Midway Park, Chicago, Illinois (the "Midway Park Property"). The Circuit Court of Cook County entered a judgment of foreclosure on April 19, 2021. After discovering that it had not named Bowens as a defendant in the Foreclosure Action, Semper Fidelis asked the state court to vacate the judgment of foreclosure, which the court did on August 16, 2021.

Meanwhile, on July 26, 2021, Bowens executed and delivered to Chicago Title Land Trust Company ("Chicago Title") a warranty deed naming Chicago Title as grantee of the Midway Park Property. Chicago Title accepted the deed.

On September 10, 2021, Semper Fidelis filed an amended complaint for foreclosure and other relief. In this amended complaint, Semper Fidelis sought to avoid the transfer to Chicago Title as a fraudulent transfer pursuant to 740 ILCS § 160/5(a)(1). Around the same time, Semper Fidelis filed a petition to revive the 2014 Judgment.

On November 30, 2021, Debtor filed a petition for relief under chapter 7 of the Bankruptcy Code.

About two weeks later, on December 15, 2021, the Circuit Court of Cook County granted Semper Fidelis's petition and revived the 2014 Judgment. Semper Fidelis recorded a notice of the revived judgment ("Revival Notice") on both December 27 and December 30, 2021. In its response to the Discharge Motion, Semper Fidelis concedes that "filing the Revival Notice may have been a tactical mistake because it was not necessary to preserve Semper Fi's right to foreclose the Judgment Lien[.]" (Response to Discharge Motion, p. 5.)

Semper Fidelis and Debtor engaged in motion practice in Debtor's bankruptcy case during 2021 and 2022, including a motion to avoid lien, but eventually resolved their differences. On May 18, 2022, Chicago Title executed a deed transferring title to the Midway Park Property back to the Debtor. Semper Fidelis prepared a Notice of Rescission of Recording of Notices of Court Order ("Rescission Notice"), which it recorded with the Cook County Clerk on June 14, 2022. This action mooted Debtor's motion to avoid lien, and she withdrew it.

On August 30, 2022, the court entered an order of discharge, and closed Debtor's bankruptcy case a few days later.

Debtor then asked Semper Fidelis to dismiss the Foreclosure Action. It did not, so Debtor filed her own motion to dismiss the Foreclosure Action on November 14, 2022. Semper Fidelis opposed dismissal, filing a response in the Circuit Court of Cook County.

On February 1, 2023, Debtor presented a motion to reopen her bankruptcy case, which the court granted. She then filed the Discharge Motion, the Stay Violation Motion and the Motion to Avoid Lien. The parties presented their arguments, and the court ordered responses and replies to be filed. After reviewing the papers, the court ordered supplemental briefing, and then took the matters under advisement.

III. ARGUMENTS OF THE PARTIES

A. Motion to Avoid Lien

Debtor seeks to avoid the judicial lien held by Semper Fidelis that encumbers the Midway Park Property.² Debtor argues that Semper Fidelis's lien impairs her homestead exemption and is therefore avoidable under 11 U.S.C. § 522(f). The Midway Park Property is also encumbered by a tax lien of the Internal Revenue Service ("Service") in the amount of $400,000, plus interest in the amount of approximately $348,000, dating from 2018. Debtor is not seeking to avoid the Service's lien.

In response, Semper Fidelis asserts that the Debtor had no legal or equitable interest in the Midway Park Property on the date she filed for relief under the Bankruptcy Code. The basis for this assertion is Debtor's execution and delivery to Chicago Title of the warranty deed naming Chicago Title as grantee of the Midway Park Property. Semper Fidelis contends that, although Chicago Title did not record the deed, delivery of the deed conveyed title to it. If Debtor did not have an interest in the Midway Park Property that could become property of the estate at the time of filing, Semper Fidelis could not have a lien "on an interest of the debtor in property." As a result, Debtor cannot use the provisions of § 522(f) to avoid Semper Fidelis's lien.

Semper Fidelis also argues that if the court concludes Debtor did own the Midway Park Property on the petition date, its lien should not be avoided in its entirety. Since its in rem rights would date back to the original recordation of the lien in 2014, its lien would be senior to the Service's, and there would be equity in the Midway Park Property to which its lien could attach.

In reply, Debtor contends that Semper Fidelis's lien expired in July 2021, seven years after the original judgment was entered, and is no longer enforceable. Illinois law requires strict compliance with the procedures relating to the revival of judgments in order to preserve a creditor's lien rights. Debtor urges the court to reject Semper Fidelis's position that a creditor can preserve the enforceability of a lien by filing a foreclosure complaint prior to the expiration of its judgment.

After briefing was complete, the court asked the parties to address two questions. First, when a party revives a judgment, does the lien relate back to the original judgment date, or is it considered to be a new lien? Second, if there is equity in the Midway Park Property after the exemption amount, would Semper Fidelis's entire lien be avoided, or would it be avoided only in part?

The parties filed simultaneous briefs addressing these questions. Relying on the plain language of § 522(f), Debtor asserted that the total judicial lien would be avoided. As for the post-revival lien, it does not relate back to the original date of the judgment.

Semper Fidelis took the opposite view on both questions. Only the portion of a judicial lien that impairs the exemption is avoided under § 522(f). As for the revived judgment, the lien can relate back to the original judgment. Semper Fidelis argues that this may occur even if the original judgment went dormant, so long as the creditor filed an action to foreclose its lien before dormancy. If Semper Fidelis had not filed suit before the judgment expired, and its lien lapsed, revival of the judgment with a new filing would have created a new judgment lien.

B. Discharge Motion

In the Discharge Motion, Debtor seeks monetary sanctions and a finding of contempt against Semper Fidelis, its principal ("Rosenzweig") and its attorney ("Czaja") for violation of the discharge injunction in 11 U.S.C. § 524. She asserts that Semper Fidelis's opposition to her motion to dismiss the Foreclosure Action "is a clear violation of the discharge injunction of Section 524(a) of the Bankruptcy Code." (Discharge Motion, ¶ 20.)

In response, Semper Fidelis argues that it is pursuing only its in rem rights against the Midway Park Property. It is not seeking to impose any in personam liability on the Debtor, and therefore its actions do not violate the discharge injunction.

The parties dispute whether the expiration of Semper Fidelis's judgment lien in 2021 precludes it from taking to conclusion a foreclosure suit filed before the lien expired. One district of the Illinois Appellate Court found that a creditor may continue with such a suit. See Schindler v. Watson, 2017 Il App (2d) 160126, ¶ 34, 411 Ill.Dec. 598, 73 N.E.3d 1197. Another Illinois Appellate Court decision held the opposite. See Barth v. Kantowski, 409 Ill.App.3d 420, 350 Ill.Dec. 207, 948 N.E. 2d 276 (2011).

Semper Fidelis asserts that the question of whether it has the right to pursue the Foreclosure Action should be decided in Illinois state court. It seeks an opportunity to have the state court rule on Debtor's motion to dismiss the Foreclosure Action and to decide that question. In order for that to occur, this court must find that it is not appropriate to make a finding of contempt and impose sanctions against Semper Fidelis, Rosenzweig and Czaja for their continued litigation of the Foreclosure Action.

C. Stay Violation Motion

In the Stay Violation Motion, Debtor seeks sanctions against Semper Fidelis on the grounds that recording the Revival Notice violated the automatic stay. Semper Fidelis asserts that the Debtor did not own the Midway Park Property on the date she filed...