In re Thomas

J. Kevin Benjamin, Theresa S. Benjamin, Benjamin Legal Services PLC, 1016 W. Jackson Blvd., Chicago, IL 60607, Attorneys for Debtor

Phil Schroeder, Toni Townsend, McCalla Raymer Leibert Pierce, LLC, One N. Dearborn, Suite 1200, Chicago, IL 60602, Attorneys for JPMorgan Chase Bank

MEMORANDUM OPINION

Deborah L. Thorne, United States Bankruptcy Judge

JPMorgan Chase Bank National Association ("Chase") objects to the cramdown of its secured claim by Debtor Christy A. Thomas ("Christy") in her chapter 11 plan and argues that it is prohibited by the

anti-modification provision of 11 U.S.C. § 1123(b)(5). This court previously sustained the Chase objection in its order entered on May 10, 2023. (Dkt. No. 65.) Christy now brings a motion under Rule 59(e) of the Federal Rules of Civil Procedure to alter or amend and vacate the May 10 Order. Chase moves to modify the automatic stay of 11 U.S.C. § 362 seeking an in rem order to allow it to proceed with its state court remedies. The two matters were combined for hearing and testimony on November 7, 2023. For the reasons that follow, this court agrees with its May 10 Order and finds that 11 U.S.C. § 1123(b)(5) precludes the modification of Chase's claim. The stay is modified to allow in rem relief.

1. The 2008 Mortgage

In 2008, Christy and her husband, Dean Thomas, borrowed $902,000 from Chase to refinance the 2007 mortgage on their principal residence. They granted a security interest to Chase in their residence at 61 George Street, Grayslake, Illinois (the "Property"). (Dkt. No. 113, Ex. 9.) The following legal description described the Property in the 2008 Mortgage:

Lots 1 and 2 in the Dean G. Thomas Final Plat of Resubdivision, being a Subdivision of Lots 1 and 2 in Gerald Thomas' Resubdivision, being a Resubdivision of part of blocks 3 and 4 in Palmer's Addition to Grayslake, being a Subdivision in the southeast ¼ of the southeast ¼ of Section 27, Township 45 North, Range 10, East of the Third Principal Meridian, According to the Final Plat of said Resubdivision thereof recorded June 25, 1999 as document 4377029, in Lake County, Illinois.

PIN#'s 06-27-413-022-0000 & 06-27-413-023-0000

(Id.) This was the identical legal description contained in all previous mortgages granted in 2002, 2003, 2006¹ and 2007. (Dkt. No. 113, Exs. 5-9.)² The 2008 Mortgage and all others were recorded with the Lake County Recorder of Deeds. Certified copies of the recorded mortgages were admitted as exhibits during the hearing.

Peter Katsikas, a Chase employee familiar with loan originations and loss mitigation at Chase, testified concerning general practices at Chase as well as to the documents which were contained in Christy and Dean's file. Prior to signing the 2008 Note secured by the mortgage, Dean submitted the Uniform Residential Loan Application disclosing that he was applying for a conventional mortgage for 61 George Street, Grayslake, Illinois, that the Property would be his primary residence and the purpose of the refinance was for his personal

use. (Dkt. No. 113, Ex 20.) At about the same time and prior to the 2008 Mortgage refinance, an appraisal for the Property (Lots 1 and 2) was prepared showing that the Property was worth $1,150,000. (Dkt. No. 113, Ex. 19.) Mr. Katsikas testified that Chase was able to extend the $902,000 loan because the loan to value ratio was appropriate and supported the extension of credit. The loan closed and thereafter, Christy and Dean made fifteen mortgage payments and then defaulted. (Dkt. No. 67 ¶ 8.) On July 2, 2010, Chase filed a foreclosure complaint in state court, Christy and Dean answered and did not dispute the legal description or the common address which was identical to that quoted above. (Dkt. No. 113, Ex. 14, ¶ 3(I).)

Ultimately, a judgment of foreclosure was entered in March 2016.³ The statutory period of redemption expired in June 2016 and a judicial sale was scheduled for July 26, 2016. (Dkt. No. 67 ¶¶ 11-13.) The entry of the judgment by the State Court triggered a series of bankruptcy filings by Christy, by Dean and by Christy and Dean together.⁴ These, in combination with the cessation of foreclosure sales during the two years of the COVID pandemic, allowed Christy and Dean to stay in the Property and to avoid making mortgage payments for over seven years after the judgment of foreclosure. Moreover, they did not pay property taxes or insurance—Chase made these payments. As a result, Chase filed a proof of claim in this case for $1,728,365.38 reflecting principal, interest, and costs incurred by Chase for property tax, insurance payments and reasonable attorneys' fees. Although no evidence of the current value of the Property now or on the date of the petition for the Property was offered, the court believes that it is far less than $1,728,365.38 because the claim includes insurance and property tax payments in addition to the $902,000 originally borrowed in 2008.⁵ Finally, no objection to the Chase claim has been filed and it stands as prima facie evidence of the claim as of the petition date.

Although Christy did not testify at the hearing, Dean did, and he testified that the 2008 loan was only for Lot 1 in spite of the fact that the mortgage clearly stated that both Lots 1 and 2 secured the note. He also testified that the closing in 2008 was in a Jewel parking lot and that he did not receive copies of the executed documents until an overnight package was received at a later time, but that package and its

contents were never admitted.⁶ Apparently neither Christy nor Dean questioned the fact that the mortgage clearly showed that both Lots 1 and 2 were given as collateral and never raised this with Chase until after the foreclosure judgment, in an earlier bankruptcy.

Dean's testimony concerning the argument that the 2008 mortgage only granted Chase an interest in Lot 1 was not believable. He has worked in the construction/development business for many years and he provided no credible explanation as to why a lender would loan $902,000 based upon an appraisal of $1,150,000 for both lots, but in exchange for only a portion of the appraised property. Dean did not offer an explanation as to why he signed the mortgage documents which plainly covered both lots or why all the previous mortgages covered both lots. Further, he had no explanation as why this was not raised during the state court foreclosure.

Although Chase did not raise the inadmissabilty of this testimony, none of this testimony was admissible under the parol evidence rule to contradict the plain terms of the mortgage. Davis v. G N Mortgage Corp., 244 F.Supp 2d 950, 956 (N.D. Ill 2003) ("the parol evidence rule seeks to assure that a writing, intended to be a final expression of agreement between the parties to a contract, is not to be changed by the admission of evidence that adds to, modifies, or contradicts that agreement as written. See generally, John D. Calamari & Joseph M. Perillo, The Law of Contracts § 3.2 (4th ed.1998)"). While there is a fraud exception to the parol evidence rule, it must be established by clear and convincing evidence, and none was provided. Id. at 957. No credible evidence was put forth that Chase in any way defrauded Christy and Dean by recording the 2008 mortgage.

2. January 2023 Proposed Plan

Christy proposed a plan which would bifurcate and cram-down Chase's loan (Dkt. 51 at 7-9.) In support of the proposed cram-down, Christy argues that Chase's claim is secured by two separate properties—the primary residence (Lot 1) and a "vacant buildable lot" separate from the residence (Lot 2) - and the mortgage is therefore subject to modification and can be crammed-down to the reduced secured value, reflecting two separate lots. (Id. at 7-8.)

Chase objected to confirmation of the Debtor's plan and argued that the treatment of its loan violated the antimodification provision of 11 U.S.C. § 1123(b)(5). The court sustained Chase's objection by an order entered...