In re Rushani

In re: Xhevdet and Fize Rushani, Debtors.

Bankruptcy No. 15-82590

UNITED STATES BANKRUPTCY COURT NORTHERN DISTRICT OF ILLINOIS WESTERN DIVISION

February 15, 2019

Chapter 13

Judge Lynch

MEMORANDUM DECISION

The Rural Housing Service of the United States Department of Agriculture's Rural Development Division ("USDA") seeks relief from the automatic stay to allow it to pursue foreclosure against Debtors' residence at 309 East Lafayette Street, Somonauk, Illinois. (ECF No. 51.) For the reasons stated below, the motion of USDA will be granted.

Jurisdiction

The United States District Courts have "original and exclusive jurisdiction" of all cases under title 11 of the United States Code. 28 U.S.C. § 1334(a). The district courts also have "original but not exclusive jurisdiction" of all civil proceedings arising under title 11 of the United States Code, or arising in or related to cases under title 11. 28 U.S.C. § 1334(b). District courts may, however, refer these cases to the bankruptcy judges in their districts. 28 U.S.C. § 157(a). Internal Operating Procedure 15(a) of the District Court for the Northern District of Illinois refers its civil proceedings arising under title 11 to the district's bankruptcy judges.

"A bankruptcy judge to whom a case has been referred may enter final judgment on any core proceeding arising under the Bankruptcy Code or arising in a case under title 11." In re Morrow, 495 B.R. 378, 382 (Bankr. N.D. Ill. 2013) (citing 28 U.S.C. § 157(b)(1)). "A motion for relief from stay arises in a case under title 11 and is specified as a core proceeding." Id. (citing authority). Accordingly, this is a core proceeding over which this Court has authority to hear, determine, and enter final orders or judgments. 28 U.S.C. § 157(b)(2)(G).

Facts and Procedural Background¹

Debtors Xhevdet and Fize Rushani filed for relief under Chapter 13 on October 15, 2015. They listed in their bankruptcy schedules one jointly-owned real property located at 309 East Lafayette Street, Somonauk, Illinois (the "Somonauk Property"). The Somonauk Property is Debtors' residence. On April 26, 2016, counsel for the Debtors filed a proof of a secured claim on behalf of USDA in the amount of $106,415.² USDA later filed a proof of claim which it amended on May 1, 2017, to assert a secured claim of $128,237.69. Neither the Debtors nor the standing trustee has objected to the amended claim.

The court confirmed³ the Debtors' thrice-amended plan of reorganization on May 4, 2016. (Chapter 13 Plan of Reorganization; USDA Exhibit F; ECF No. 39). The confirmed plan required the Debtors to make direct payments to two lenders holding mortgages on the Somonauk Property. This required the Debtors to pay $592.70 per month to "Centrue [Bank, the senior lender,]"⁴ on its first mortgage and $718.59 per month to "USDA Rural Development", the junior lender, on its secondmortgage. The confirmed plan further required the Debtors to make their current monthly mortgage payments directly to USDA. However, the arrearages on both mortgage loans were to be paid through the plan without interest.

USDA seeks relief from the automatic stay to pursue foreclosure proceedings against the Debtors' residence in Somonauk, Illinois under 11 U.S.C. § 362(d).⁵ Bothparties submitted briefs on the motion, following which the court conducted an evidentiary hearing on the issues raised on February 7, 2019. Prior to the hearing, Debtors and USDA filed stipulations at the direction of the court. (ECF No. 66; "Stipulations".) At the request of the Debtors, the proceedings were translated by a sworn, certified court translator pursuant to FED. R. EVID. 604, 605. Both Debtors joined their attorney at the trial, but only Mr. Rushani testified. In addition to his testimony, the court received in evidence without objection the following:

• The Debtors' promissory note in the original principal amount of $118,000 and mortgage given USDA in the Somonauk Property dated April 9, 2004. Among other things, the note provides for the repayment of subsidies that may be granted the Rushani's in the form of payment assistance;

• The "subsidy repayment agreement" between USDA and Debtors dated April 9, 2004;

• The November 8, 2018, declaration of Deborah Mitchell of USDA that purports to summarize four payment assistance agreements with effective dates ranging from May 5, 2004, to January 9, 2018. The declaration states that no post-confirmation payments were received by USDA from Debtors until January 10, 2018 and attaches a worksheet which purports to summarize the loan repayments and post-petition arrearages;

• The confirmed plan;

• The renewal certification of Debtors' payment subsidy dated October 9, 2017, and related transmittal letter to USDA from Debtors' counsel dated November 8, 2017;

• The December 21, 2017 transmittal letter from USDA to the Debtors and accompanying payment assistance agreement for monthly payment assistance of $343.51 effective January 9, 2018 (the "December Letter");

• The Standing Trustee's report of receipts and disbursements for the period from December 1, 2017, through May 31, 2018, showing receipts and disbursements of $3,635;

• Certified mail receipts alleged to relate to Debtors' payments between May 3, 2018 and September 9, 2018; and• The Debtors' group exhibit that includes a letter dated February 16, 2016 from USDA to the Rushanis regarding its return of their attempted $720 payment, the returned check and certain handwritten notes that Mr. Rushani testified were his.

Mr. Rushani testified that he and his spouse sought bankruptcy relief to stop a sheriff's foreclosure in state-court proceedings brought by Centrue Bank. He testified about the refusal of his attempted payment in February 2016, and stated that he engaged Mr. Ward, his trial counsel here, when the Rushanis found themselves unable to keep up with their USDA payments. Mr. Rushani further testified that he did not understand the contents of the December Letter except that he believed that it reduced his payments to $351.32 per month as of January 9, 2018.

On cross-examination, Mr. Rushani admitted that the terms of the confirmed plan called for payments of approximately $718 per month. He acknowledged that he made some direct payments to Centrue Bank under the confirmed plan, but that he failed to make the direct payments to the USDA as provided by the confirmed plan to USDA. He further admitted that he did not set aside or provide for funds that could be used to pay USDA upon resolving the question of accepting payment. He also acknowledged the bold-face statement found in the December Letter stated that stated the agreement did not resolve his delinquency. The parties in interest expressly consented to the continuation of the automatic stay until the conclusion of the final hearing and announcement of the court's decision pursuant to 11 U.S.C. § 362(e).

USDA's mortgage interest in the property is not in dispute. Debtors stipulate that they signed a promissory note and mortgage on the property in favor of USDA in 2004 to memorialize a loan they received from USDA. (Stipulation, ¶¶ 1-4.) They further stipulate that their confirmed plan required them to make direct monthly payments to USDA of $718.59. The Debtors do not contest that they did not make any of the required direct payments to USDA from the petition date of October 15, 2015 until January 2018 - missing 26 monthly payments, or nearly half the amountof payments due USDA under the terms of their confirmed plan.⁶ (E.g., Stipulations Ex. "E"). Nor have the Debtors shown they are financially able to cure that default within a reasonable period or during the term of the plan.

In considering the motion, the court has considered the motion, the arguments of the parties presented in their briefs and at trial, the exhibits, stipulations of the parties, and testimony of Mr. Rushani. The court also has taken judicial notice of the contents of the docket in this matter. See Inskeep v. Grosso (In re Fin. Partners), 116 B.R. 629, 635 (Bankr. N.D. Ill. 1989) (discussing the authority of a federal court to take judicial notice of its own or other dockets).

Discussion

Burden of Proof. "The decision to modify the automatic stay pursuant to § 362(d) is committed to the sound discretion of the bankruptcy court." In re Pelham Enterprises, Inc., 376 B.R. 684, 689 (Bankr. N.D. Ill. 2007) (citing cases). USDA bears the burden of proof as to a lack of equity in the Somonauk Property, 11 U.S.C § 362(g)(1), and Debtors bear the burden of proof on all other matters, 11 U.S.C § 362(g)(2). However, "the party making the request also has the initial burden of producing evidence sufficient to establish a prima facie case of entitlement." In re SSK Partners LLC, 11-BK-49091, 2012 WL 4929019, at *4 (Bankr. N.D. Ill. Oct. 12, 2012) (citation omitted). But see In re Hood, 449 Fed. Appx. 507, 509 (7th Cir. 2011) ("properly executed and filed proof of claim is prima facie evidence that a claim is valid"). USDA must show a "colorable claim of a lien on" Debtors' real property. C.f. Matter of Vitreous Steel Products Co., 911 F.2d 1223, 1234 (7th Cir. 1990) (citation omitted) (emphasis in original). Those showings must be established by a preponderance of the evidence. See In re Pelham Enterprises, Inc., 376 B.R. 684, 690(Bankr. N.D. Ill. 2007). If the Court determines that USDA made a prima facie showing, then Debtors burden becomes one to "rebut this presumption, not to prove that cause [for relief from the automatic stay] does not exist." SSK Partners, 2012 WL 4929019, at *4.

Analysis. Section 362(d)(1) provides for relief from the automatic stay on request of a party in interest "for cause, including the lack of adequate protection of an interest in property of such party in interest." 11 U.S.C. §362(d)(1). Although Section 362(d) "is written in mandatory terms, the bankruptcy court has discretion whether and to what extent it will grant relief from the stay." In re Williams, 144...