Mead v. HSBC Bank USA, N.A. (In re Mead)

IN RE HELEN LOUISE MEAD, Debtor.

HELEN LOUISE MEAD, Appellant, v. HSBC BANK USA, NATIONAL ASSOCIATION,

AS TRUSTEE FOR STRUCTURED

ADJUSTABLE RATE MORTGAGE LOAN TRUST 2004-1, and ETRADE BANK, Appellees.

BAP No. CO-19-001

Bankr. No. 18-10447

UNITED STATES BANKRUPTCY APPELLATE PANEL OF THE TENTH CIRCUIT

October 16, 2019

NOT FOR PUBLICATION^*

Chapter 13

OPINION

Appeal from the United States Bankruptcy Court for the District of Colorado

Helen Louise Mead, pro se.

Nichol Williams (Joseph DeGiorgio with her on the brief) of Barrett Frappier & Weisserman, LLP, Denver, Colorado for Appellee HSBC Bank USA, National Association, as Trustee for Structured Adjustable Rate Mortgage Loan Trust 2004-1.

Aaron Waite (Deanna Westfall of Weinstein & Riley, P.S., Broomfield, Colorado, with him on the brief) of Weinstein & Riley, P.S., Las Vegas, Nevada for Appellee ETrade Bank.

Before CORNISH, HALL, and LOYD,^** Bankruptcy Judges.

CORNISH, Bankruptcy Judge.

This Court is asked to review the propriety of the Bankruptcy Court's order which allowed two mortgage creditors to proceed with state court foreclosure actions. The subject real estate was Helen Louise Mead's homestead located near Aspen, Colorado. Mead claims the real estate had an equity cushion and the automatic stay should not have been lifted. We disagree and AFFIRM.

I. Factual Background

Helen Louise Mead (the "Debtor") resides at 8019 Woody Creek Road, Woody Creek, Colorado (the "Property"). The Debtor executed an adjustable rate promissory note in the principal amount of $780,000 and a deed of trust encumbering the Property in favor of Colorado Federal Savings Bank on December 4, 2003. The Debtor received a loan modification on the principal due on September 25, 2009.¹ HSBC Bank USA, National Association, as Trustee for Structured Adjustable Rate Mortgage Loan Trust 2004-1 ("HSBC") is the current holder of the promissory note and first deed of trust. The Debtor initiated a home equity line of credit with Countrywide Home Loans, Inc. onApril 5, 2006. The line of credit is secured by a second priority deed of trust. ETrade Bank ("ETrade") is the current beneficiary of the line of credit agreement and the second deed of trust.

The Debtor defaulted on her obligations to both HSBC and ETrade. HSBC filed a foreclosure proceeding in state court. The Debtor filed a chapter 13 petition on January 23, 2018, staying HSBC's foreclosure. In Schedule A of her petition, the Debtor valued the Property at $770,000 subject to $1,159,782 in claims including HSBC, ETrade, and a third priority lien creditor.

HSBC filed its Motion for Relief from Automatic Stay on April 11, 2018, seeking relief from the stay under 11 U.S.C. § 362(d)(1) and (2) ("HSBC's Motion").² HSBC asserted the Debtor's postpetition arrearages totaled $14,163.96 and the monthly mortgage payment continued to accrue at $4,721.32 per month. HSBC argued the Property lacked equity to provide adequate protection under § 362(d)(1), noting the Debtor's $770,000 valuation compared to its claim of $738,840.35 and second and third liens of $338,620 and $75,162, respectively. HSBC also argued it was entitled to relief from the stay because the Property lacked any equity and was not necessary for an effective reorganization under § 362(d)(2).

ETrade filed its Motion for Relief from Stay on May 16, 2018, seeking relief under § 362(d)(1) and (2) ("ETrade's Motion").³ ETrade asserted the Debtor's postpetitionarrearages totaled $10,181.40 and the monthly mortgage payment continued to accrue at $2,545.35 per month. ETrade sought relief under § 362(d)(1) as it was not adequately protected since the Debtor failed to make any postpetition payments. ETrade also sought relief under § 362(d)(2) because the Property lacked equity and was not necessary for an effective reorganization.

The Bankruptcy Court conducted a final evidentiary hearing on HSBC and ETrade's Motions on June 21, 2018.⁴ At the hearing, the Debtor's testimony suggested the $770,000 valuation was no longer applicable, favoring a valuation of over $1,000,000. The Debtor pointed to the Property's proximity to the world-renowned Aspen ski resorts and the exclusivity of being bordered by federal conservation lands. The Debtor referenced an appraisal report sent to her by HSBC valuing the Property at $4,189,000, suggesting that amount was closer to the actual value of the Property.

HSBC offered the testimony of a Nationstar Mortgage, LLC employee as evidence. Nationstar Mortgage, LLC serviced the promissory note on behalf of HSBC. The employee testified the loan was in default and that the most recent appraisals valued the Property at $770,000. The witness explained the $4,189,000 valuation, was a computer-generated value based on recent sales and that it did not represent a truevaluation of the Property.⁵ ETrade introduced evidence suggesting the value of the Property was not more than $1,250,000.⁶

The Debtor also testified that there were three rental units on the Property in addition to her residence, which brought in between $11,000 and $12,000 of rental income per month.⁷ The Debtor argued the Property was necessary for an effective reorganization because she relied on its rental income to pay her mortgages and living expenses. However, the Debtor did not introduce any evidence to support finding any rental income existed. Furthermore, the Debtor suggested her chapter 13 plan of reorganization would seek to modify claims secured by the Property, her principal residence, despite § 1322(b)(2)'s anti-modification provision.

The Bankruptcy Court issued its opinion granting both HSBC and ETrade's Motions for cause under § 362(d)(1) and (2) on December 20, 2018.⁸ The Bankruptcy Court valued the Property at $770,000, the amount listed in Schedule A. The Bankruptcy Court found neither HSBC nor ETrade were adequately protected, little to no equity existed in the Property, and the Property was not necessary for the Debtor's effective reorganization.

Section 362(d)(1) findings

The Bankruptcy Court found that while the $770,000 valuation exceeded HSBC's claims by $31,159.65, HSBC was entitled to postpetition interest and fees under § 506(b).Adding $27,023.08 in postpetition interest to the claim, the Property still had $4,136.57 in equity. However, the Bankruptcy Court found the 0.5% equity cushion did not adequately protect HSBC and would be erased upon adding additional accrued interest, costs, and attorneys' fees to HSBC's claim. The Bankruptcy Court further found the Property had no equity to protect ETrade's second lien and cause existed to grant ETrade relief from the automatic stay.

Section 362(d)(2) findings

The Bankruptcy Court also considered whether the Property was necessary to the Debtor's effective reorganization under § 362(d)(2). The Bankruptcy Court noted, "the parties agree[d] the Debtor's ability to effectively reorganize depend[ed] on the Debtor's ability to modify her HSBC mortgage pursuant to § 1322."⁹ The Debtor argued that because she rented several units on the Property, it was transformed from being her principal residence and no longer subject to § 1322(b)(2)'s anti-modification provision. The Bankruptcy Court adopted a bright-line test, concluding "§ 1322(b)(2) applies 'as long as the debtor principally resides in some portion of the real property.'"¹⁰ Because the Debtor conceded there was no prospect of reorganization without modifying the mortgage, the Bankruptcy Court could not find the Property was necessary to an effective reorganization. The Debtor filed a timely appeal of the Bankruptcy Court's Order granting both creditors relief from the automatic stay.

II. Jurisdiction & Standard of Review

"With the consent of the parties, this Court has jurisdiction to hear timely-filed appeals from 'final judgments, orders, and decrees' of Bankruptcy Courts within the Tenth Circuit."¹¹ An order granting relief from the automatic stay is a final order for purposes of appellate review.¹² Neither party in this case elected for these appeals to be heard by the United States District Court pursuant to 28 U.S.C. § 158(c). Accordingly, this Court has jurisdiction over this appeal.

A ruling on a motion for relief from the automatic stay is reviewed for abuse of discretion.¹³ "An abuse of discretion . . . may occur when a ruling is premised on an erroneous conclusion of law or on clearly erroneous fact findings."¹⁴ The Bankruptcy Court's conclusions of law are reviewed de novo.¹⁵ "When an appellate court reviews a [trial] court's factual findings, the abuse-of-discretion and clearly erroneous standards are indistinguishable: A court of appeals would be justified in concluding that a [trial] [] court had abused its discretion in making a factual finding only if the finding was clearly erroneous."¹⁶

III. Analysis

The Debtor argues the Bankruptcy Court erred by failing to hold an evidentiary hearing and by granting HSBC and ETrade relief from the automatic stay. The record before this Court indicates the Bankruptcy Court held an evidentiary hearing on HSBC and ETrade's Motions on June 21, 2018.¹⁷ The Debtor was represented by counsel at the hearing. The Debtor appears to argue that although she received notice of the evidentiary hearing, she was not allowed to fully state her case at the hearing.¹⁸

However, the Debtor does not specifically point the Court to instances where she was denied the opportunity to present her objections. Upon review of the transcript, the Bankruptcy Court did not deny the Debtor due process. The Debtor was present and testified at the hearing. On numerous occasions, the Debtor's counsel attempted to direct the Debtor to issues related to the valuation of the Property and her objection to HSBC and ETrade's Motions. Likewise, the Bankruptcy Court asked only questions relevant to the issue of stay relief. As the Debtor was adequately afforded due process, we proceed to the substantive issues on appeal.

a. Section 362(d)(1) - Lack of Adequate Protection

Section 362(d)...