In re Snowden

352 B.R. 848

In re Neil SNOWDEN, Debtor Neil Snowden, S., Plaintiff, v. Litton Loan Servicing, Inc. and U.S. Bank, N.A., Defendants.

Bankruptcy No. 05 B 57906.

Adversary No. 06 A 01181.

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

October 11, 2006.

COPYRIGHT MATERIAL OMITTED

Patrick J. Semrad & Associates, Chicago, IL, for Movant or Plaintiff.

Mike Halpin, Pierce & Associates, Chicago, IL, for Respondent or Defendant.

Tom Vaughn, Chicago, IL Chapter 13 Trustee.

MEMORANDUM OPINION ON PLAINTIFF'S REQUEST FOR INJUNCTIVE RELIEF

JACK B. SCHMETTERER, Bankruptcy Judge.

This Adversary proceeding relates to the bankruptcy of Plaintiff/:Debtor Snowden ("Snowden" or "Plaintiff') filed under Chapter 13. Many months before the Adversary was filed, the automatic stay was annulled and the Defendant Litton Loan Servicing, Inc. ("Litton Loan") completed its mortgage foreclosure and evicted Snowden and his family from their home. A motion filed months afterward to vacate the annulment order was denied.

Plaintiffs "Complaint says that the named defendants or each of them" conducted a foreclosure sale prior to his bankruptcy filing. His "Complaint for Preliminary Injunction" seeks injunctive relief to compel the Defendants/Creditors to re-admit him and his family into their former home, and to prohibit Defendant from selling that property while he appeals the annulment order.

Following oral argument, and based on the undisputed facts set forth below, and the verified complaint, the request for injunction is by separate order denied.

UNDISPUTED FACTS

1. Prior to filing the instant bankruptcy case, Snowden was a defendant in a mortgage foreclosure proceeding brought by Litton Loan as servicing agent for U.S. Bank in Cook County, Illinois. Foreclosure judgment entered on September 9, 2005. A Foreclosure sale was held thereon prior to the filing by Debtor of his bankruptcy.

2. Litton Loan as agent or U.S. Bank purchased the foreclosed property at the judicial sale for an amount less than the balance due on the mortgage note.

3. As required under the Illinois Mortgage Foreclosure Law ("IMFL"), the sale was confirmed by a state court. An order indicating such was entered on October 5, 2005.

4. Snowden filed his voluntary Chapter 13 petition, along with a Plan, on October 15, 2005. In his Plan, Snowden sought to cure the default on the mortgage note to Litton Loan over life of the Plan. The Plan has not yet been confirmed and is next scheduled for hearing on October 19, 2006.

5. On November 8, 2005, Litton Loan filed a Motion in Snowden's bankruptcy case to Annul the Automatic Stay in order to validate its actions after bankruptcy was filed before it learned of the bankruptcy. In its motion, Litton Loan incorrectly alleged that a third party had purchased Snowden's property at the foreclosure sale. Relying on the Seventh Circuit Court of Appeals' decision in Colon v. Option One, 319 F.3d 912 (7th Cir.2003), it argued that the automatic stay should be annulled because the property was not a part of Snowden's bankruptcy estate. Snowden did not file a response to the motion or dispute the allegations stated therein.

6. A hearing on Litton Loan's motion was held on November 23, 2005. An Order granting the motion to annul stay was entered on November 28, 2005. The sale was confirmed and Debtor and his family subsequently lost possession of the property.

7. On March 9, 2006, Snowden filed a Motion to Vacate Annulment of the Automatic Stay based on Rule 60(b) of the Federal Rules of Civil Procedure. Relying on information obtained from a Litton Loan representative after the annulment Order was entered, Snowden's motion was based on the discovery that Litton Loan and not a third party had purchased the foreclosed property at the judicial sale. He argued that he therefore still held an unexpired statutory right under Illinois law to redeem the property when his bankruptcy case was filed, and that right allowed him to cure the default on the mortgage note in a Chapter 13 plan.

8. Pursuant to an opinion dated April 14, 2006, the Debtor's Motion to Vacate was denied. In re Snowden, 345 B.R. 607 (Bankr.N.D.Ill.2006). An Appeal from that denial is pending.

9. Debtor never moved for stay pending appeal of the annulment order or the order denying his motion to vacate the annulment order. So much time had elapsed before current counsel sought to assert the fact that Litton Loan bought at the foreclosure sale rather than a third party that he considered a stay pending appeal unlikely (Complaint, ¶¶ 10 and 11). Asserting because of those circumstances that he has no adequate remedy at law, he brought this action for injunctive relief (Complaint, ¶ 12).

10. Plaintiff also alleges that current property value of the subject property results in substantial equity over the Litton Loan debt which will be lost even if Snowden prevails on appeal; that without injunctive relief they will lose possession of their home; that they have been and will be deprived of self-employment income as a daycare provider operating out of the subject property; and that the spouse's daycare license has been suspended due to their eviction from that property (Complaint, ¶ 13(a)(b)(c)). While no evidence was taken on these matters, the Complaint was verified and the allegations are assumed to be true for purposes of considering the request for injunctive relief.

CONCLUSIONS OF LAW

Snowden argues, as he did in presenting his original motion to vacate annulment, that the annulment Order was entered based on a false assertion that the foreclosed property was purchased by a third party and not the mortgagee, Litton Loan. Snowden alleges that his counsel discovered this information from a Litton Loan representative after the Order was entered. Under the Illinois foreclosure statute (discussed more fully below), Litton Loan's purchase at the foreclosure sale afforded Snowden a special right to redeem the foreclosed property. This right had not expired when Litton Loan presented its motion to annul. According to Snowden, that situation now allows him to cure the default on the mortgage note in his Chapter 13 plan over a period of three to five years.

While Litton Loan agrees that it purchased the foreclosed property at the judicial sale, it argues that Snowden's special right to redeem cannot be extended for the life of his Chapter 13 plan; that Illinois law specifically defines the contours of a mortgagor's right to redeem and the Code does not allow for the type of expansion of property rights advocated by Snowden. Litton Loan additionally argues that even if the annulment Order was entered prematurely, it inevitably would have been entered because Snowden's special right to redeem has since expired without being exercised.

The Bankruptcy Cede a the mines Mortgage Foreclosure Law

The first issue presented is whether Snowden can use a Chapter 13 case to cure a default on a mortgage attached to his residence when his bankruptcy case was filed after the property was sold at a foreclosure sale but before expiration of his right afforded under state foreclosure law to redeem the property.

Under section 1322(b)(5) of the Bankruptcy Code, a Chapter 13 plan may "provide for the curing of any default within a reasonable time and maintenance of payments while the case is pending on any unsecured claim or secured claim on which the last payment is due after the date on which the final payment under the plan is due." See also 11 U.S.C. § 1322(b)(3) ("provide for the curing or waiving of any default."). Notwithstanding this allowance and applicable nonbankruptcy law, "a default with respect to, or that gave rise to, a lien on the debtor's principal residence may be cured under [section 1322(b)(5)] until such residence is sold at a foreclosure sale that is conducted in accordance with applicable nonbankruptcy law." 11 U.S.C. § 1322(c)(1) (emphasis added).

Under the Illinois Mortgage Foreclosure Law ("IMFL"), a successful bidder on foreclosed property at a judicial sale is awarded a receipt or certificate of sale. 735 MOS 5/15-1537. Until the sale has been confirmed by a court, "[t]he highest bid received by a sheriff at a judicial sale is merely an irrevocable offer to purchase the property an[d] acceptance of the offer takes place when the court confirms the sale." Citicorp Say. v. First Chicago Trust Co.,269 Ill.App.3d 293, 206 Ill.Dec. 786, 645 N.E.2d 1038, 1045 (1995); see also 735 ILCS 5/15-1508. The judicial sale is usually consummated once it is confirmed by a court, where there is no right to redeem after that date. World Say. & Loan Ass'n v. Amerus Bank, 317 Ill. App.3d 772, 251 Ill.Dec. 385, 740 N.E.2d 466, 474 (2000); BCGS, L.L.C. v. Jaster, 299 Ill.App.3d 208, 233 Ill.Dec. 367, 700 N.E.2d 1075, 1079 (1998).

However, despite entry of a confirmation order, a mortgagor is granted a special right to redeem the property if it was purchased at the foreclosure sale by the mortgagee. This period ends 30 days after the date the sale is confirmed. 735 ILCS 5/15-1604(a). The sale was confirmed October 5, 2005. But if a Chapter 13 case is filed prior to expiration of a redemption right, § 108(b) of the Bankruptcy Code extends the redemption period to 60 days from the date that the bankruptcy case was commenced.¹ Since the bankruptcy case was filed on October 15, 2005, the redemption period expired December 14, 2005. The latter date was three months before Snowden moved to vacate the order annulling stay.

Because the foreclosure sale of Snowden's property was confirmed by a state court judge on October 5, 2005 and the bankruptcy case was filed on October 15, 2005, Snowden points out correctly that his special right to redeem existed on the date of his bankruptcy filing and even on November 28, 2005, the date that the stay was annulled. He further deduces from this that for the purposes of curing his default under section 1322(c)(1) of the Bankruptcy...