Opinion
Case No. 01-56973 Adv. Pro. No. 12-2341
05-15-2014
In re: Henry Ray Bush Glenda L. Bush, Debtors. Henry Ray Bush Glenda L. Bush, Plaintiffs. v. Jim Walter Homes, Inc., Mid State Trust II, & Mid-State Homes, Inc., Defendants.
Chapter 13
Judge Caldwell
MEMORANDUM OPINION AND ORDER ON COMPLAINT SEEKING DAMAGES
FOR ALLEGED STAY VIOLATIONS (DOC. NO. 1)
Henry Ray Bush and Glenda L. Bush ("Plaintiffs") allege in this adversary that Jim Walter Homes, Inc., Mid State Trust II, and Mid-State Homes, Inc., ("Defendants") violated the automatic stay in two bankruptcies filed by the Plaintiffs. Collectively the Defendants are engaged in construction, financing and mortgage servicing for single family homes dating back to 1946.
The first alleged stay violation occurred during a Chapter 13 case filed only in the name of Glenda L. Bush (Case No. 97-53741) in which the Defendants foreclosed on an Alabama home owned by the Plaintiffs. The second alleged stay violation transpired in 2001 during the Plaintiffs' joint Chapter 13 bankruptcy (Case No. 01-56973), when Defendants failed to dismiss or reverse the impact of the 1997 foreclosure, followed by the sale of the home for unpaid real estate taxes.
Based on the evidence and testimony presented, including credibility assessments, the Court finds and concludes that the Plaintiffs have failed to prove that the Defendants violated the automatic stay in either bankruptcy case, and Plaintiffs are not entitled to damages. The Court's reasoning and decision follows.
In 1984 the Plaintiffs purchased a home in Frisco City, which is located in Monroe County, Alabama. Defendants, held the mortgage on the property; however, taxes and insurance were not escrowed. Instead, these expenses were paid directly by Plaintiffs. The Plaintiffs lived together in the home until 1996, when Ms. Bush moved to Columbus, Ohio for a new job.
Ms. Bush testified at that time they were delinquent on their mortgage payments. Subsequently, in January or February 1997, Mr. Bush received a certified letter providing foreclosure notice for the home. Mr. Bush testified that he forwarded this letter to his spouse in Ohio. To save the home, Ms. Bush filed a Chapter 13 case on April 22, 1997, solely in her name, even though Mr. Bush was a co-owner. Attorney Jeffery W. Farkas, who filed this bankruptcy case, was given a copy of the foreclosure notice by Ms. Bush.
However, there is no written record and the Plaintiffs or not aware, of any actions Mr. Farkas took to provide constructive notice of the stay to the Defendants and/or the Monroe County, Alabama officials. Typically for bankruptcy cases filed in the Southern District of Ohio, where foreclosure is imminent, counsel for debtors provide creditors with a copy of the bankruptcy petition. This action is taken in recognition of the inherent delay creditors experience in receipt of official notice of a bankruptcy filing, and in order to avoid inadvertent stay violations.
Seven days after the first bankruptcy filing and on April 29, 1997, Defendants foreclosed on the Plaintiffs' home. However, Defendants were not provided official notice of this first bankruptcy filing until May 7, 1997, nearly ten days after the foreclosure. There is no evidence that the Plaintiffs, or their bankruptcy counsel at the time, took any immediate action in response to this foreclosure.
To further complicate matters, on May 29, 1997, the Defendants executed a "Correction Foreclosure Deed" that states:
"The foreclosure as to Glenda Ann Bush was not proper as a stay of proceedings was issued by the United States Bankruptcy Court ....Southern District of Ohio, Case No. 97-53741, prior to the date of the sale. Hereby, the foreclosure deed is amended as to only be effective against Henry Ray Bush. The original foreclosure deed was recorded on April 29, 1997..."Plaintiffs did not produce any evidence whether this "correction foreclosure deed" was the result of Mr. Farkas' actions, or whether the Defendants acted on their own after receipt of official notice of the bankruptcy filing.
Next, Defendants filed a $26,137.66 proof of claim on July 28, 1997 in Ms. Bush's Chapter 13 case. The proof of claim asserted the debt was secured and attached the original note and mortgage. However, the proof of claim and a subsequent amendment did not mention either the first or the "correction foreclosure deed". In addition, an objection to the original and/or amended claim was not filed on behalf of Ms. Bush, and the Chapter 13 plan prepared for her provided that the twice-foreclosed mortgage would be paid through the Chapter 13 Trustee, including a cure of the mortgage arrearage and associated interest. The plan was confirmed on July 9, 1997, and Ms. Bush made monthly payments until her discharge on February 1, 2000. The Trustee's final report states that Ms. Bush paid $21,054.18 into the case, $15,681.39 of which was paid to Defendants, even though the property at that point had been the subject of two foreclosure deeds.
The Plaintiffs testified that in June 1997, Mr. Bush moved to Columbus, Ohio to join his wife. Their niece moved into the home in Alabama. In lieu of rent, their niece took care of the property, and she was never told to vacate the property or otherwise disturbed in its use. Mr. Bush testified that he traveled to Alabama in 1998 to pay the property taxes. According to Mr. Bush, his payment was not accepted, and his name could not be found on the deed. The Plaintiffs testified that they informed Mr. Farkas of these problems. The Plaintiffs; however, did not present any evidence that they, or Mr. Farkas, took any action after learning this information in 1998. From 1998 until 2006, Mr. Bush testified that he would travel to Alabama each year to pay property taxes, but was unsuccessful each time.
Unfortunately, the Plaintiffs again fell behind in their home mortgage. This prompted the filing of the second and current bankruptcy case on June 13, 2001, that included both of the Plaintiffs, and they were represented by current bankruptcy counsel, James E. Nobile and Matthew J. Thompson. The bankruptcy schedules showed a 15-month mortgage arrearage in the amount of $18,190.00. Also, Plaintiffs listed in the Statement of Financial Affairs an outstanding foreclosure for their home with a pending sheriff's sale. Regarding the real estate taxes, Schedule J listed them as being paid separately from their monthly mortgage payment; however, no monthly amount was included. Also, there was no mention of outstanding real estate taxes in this second bankruptcy case.
On June 13, 2001, the Plaintiffs filed their Chapter 13 plan, which proposed monthly mortgage payments to cure the arrearage, stated the mortgage would be satisfied within the 60 month plan period, and required that the Defendants release the mortgage upon satisfaction. On September 13, 2001, Defendants filed an Objection to the Plaintiffs' Chapter 13 plan, stating that in relevant part that: the previous (1997) case was filed after it began foreclosure proceedings; that the Plaintiffs were in arrears on their mortgage to the extent of $3,953.60, dating back to June 30, 2000; and that in March 2001, Plaintiffs' former bankruptcy attorney ("Mr. Farkas") was notified of Defendants' intent to again pursue foreclosure.
In a Memorandum to support confirmation also filed on September 13, 2001, Plaintiffs' current bankruptcy counsel, James E. Nobile, represented in relevant part that he discussed the amount of Defendants' claim with their representative to determine the amount owed, and the Plaintiffs' plan was amended to provide 7% interest to all creditors, except the Defendants, who would be paid their contractual interest rate. However, in this Memorandum Mr. Nobile did not mention the two 1997 foreclosures, nor was there any challenge to the right of Defendants to continue to receive mortgage payments through the Chapter 13 Trustee or directly from the Plaintiffs. Next, Defendants filed a secured proof of claim on September 17, 2001 for $15,239.55. It included itemized costs for an undated Alabama foreclosure, and was accompanied by the note and mortgage. New counsel for the Plaintiffs did not file an objection to this proof of claim.
On April 9, 2002, approximately one year into the second bankruptcy filing, Defendants corresponded with Plaintiffs' current bankruptcy Counsel, James E. Nobile, stating that the property taxes and insurance from 2001 to 2002 remained unpaid in the total amount of $409.54. Also, the letter stated that if these delinquencies were not cured, Defendants would seek relief from the bankruptcy stay. Mr. Nobile responded on May 9, 2002, and questioned whether taxes and insurance were included with the mortgage payments. Almost one year later, on February 19, 2003, Defendants sent another letter to Mr. Nobile, again requesting tax payments and insurance for 2002 to 2003 in the total amount of $445.93.
According to the records of the Monroe County Revenue Commissioner, a sale of the property for delinquent taxes was ordered on March 3, 2004, and on April 26, 2004, a Mr. Joseph Broughton purchased the property at a public tax sale. In September 2004, Plaintiffs' home was damaged in Hurricane Ivan. Plaintiffs testified they received insurance payments, but the funds were not sufficient to make the necessary repairs. According to Ms. Bush, it was not until approximately two years later and during a June, 2006, visit to Alabama that she learned the property had been foreclosed and sold. Ms. Bush testified that they tried to collect their belongings from the home, but Mr. Broughton had already removed them and changed the locks. Ms. Bush testified that she contacted Mr. Broughton to discuss the property sale and recovery of her household items, but he refused to speak to her.
Ms. Bush testified that she next contacted her current bankruptcy counsel, Matthew J. Thompson. As a result, Mr. Thompson addressed a letter to the Defendants on June 27, 2006, requesting clarification, claiming that Defendants took control of the property during the pending bankruptcy and subsequently sold it to a third party, and declaring that all these actions violated the automatic stay. In the interim the Plaintiffs received their discharge on July 8, 2006.
On July 13, 2006, the Defendants responded to Mr. Thompson's letter stating: a. that based upon payments received from the Chapter 13 Trustee only the balance of $98.90 remained on the mortgage; b. Plaintiffs were aware that they were contractually obligated to pay taxes and insurance directly; c. that after the property taxes remained unpaid a tax certificate was issued to Mr. Broughton; and d. that the Defendants would pursue redemption on Plaintiffs' behalf upon receipt of $684.34 for the unpaid taxes. According to Ms. Bush, the Plaintiffs decided not to accept this offer, because by this point, they no longer wanted the home.
Nearly a year later on June 21, 2007, this second Chapter 13 case was closed, and it was not until more than three years later, on October 20, 2010, that a motion to reopen was filed on Plaintiffs' behalf. The stated purpose was the recovery of, "real property that was improperly sold during the pendency of the Debtors' bankruptcy." For the next fifteen months the Plaintiffs pursed motions to show cause for alleged stay violations by the Defendants, Monroe County, Alabama officials, and the third party purchaser, Mr. Broughton. The stated goal was to obtain damages and recover the home by having this Court invalidate the sale to Mr. Broughton.
However, on January 30, 2012, this Court ruled that given the nature of the relief requested, an adversary proceeding was required. Fed. R. Bank. Pro. 7001(1), (7) and (9). The instant adversary proceeding was filed approximately seven months later, on August 14, 2012. Now, Plaintiffs seek attorney's fees, the costs of traveling to Alabama to pay their property taxes, return of the payments made to Defendants during their bankruptcies, compensation for the value of their lost home and furniture, in addition to punitive damages.
Having observed the Plaintiffs during the trial, they appear honestly confused and upset by the preceding litany of mishaps and missed opportunities that led them to lose their home after completing all of the Chapter 13 plan payments. However, the role of the Court is to measure these facts against applicable legal standards to determine whether any recompense is possible. Specifically, the offending creditor must have notice of the bankruptcy filing, deliberately act against a debtor's property interests causing actual harm, and debtors bear the burden of proof by a preponderance of the evidence. In re Webb, 472 B.R. 665, at 16 (6th Cir. BAP 2012).
In the instant case, when the facts are measured against this legal standard, the Court finds and concludes that the Plaintiffs have failed to establish that the Defendants willfully violated the automatic stay provisions. First, the Court's records show that Defendants were not provided official notice of the first bankruptcy filing, commenced by Ms. Bush alone, until May 7, 1997, nearly ten days after the initial foreclosure proceeding. No evidence of constructive notice was provided. As a matter of fundamental due process, formal and/or constructive notice of the bankruptcy filing is a precursor to finding that a party has willfully violated the stay and is liable for compensatory and punitive damages. Hatfield v. Providian (In re Hatfield), 354 B.R. 499, 502 (Bankr. S.D. Ohio 2006).
This outcome is not changed by Defendants' May 29, 1997, recordation of the "correction foreclosure deed" to apply only to the non-filing spouse at the time, Mr. Bush. While this deed may be actionable as a co-debtor stay violation under Section 1301(a) of the United States Bankruptcy Code, Plaintiffs have failed to establish that there was any injury as a result of this recordation. Plaintiffs were never deprived of the use and quiet enjoyment of the property. Indeed, their niece lived in the home for approximately eight years without paying any rent, and the Plaintiffs collected insurance proceeds when the home was damaged in Hurricane Ivan.
In addition, the Plaintiffs have failed to establish that the Defendants violated their stay rights in the second bankruptcy filing that was filed jointly in 2001. Here, there was no proof that the Defendants took any actions against the Defendants or caused any harm. See Webb, 472 B.R. 665, at *16 (holding that the individual seeking damages must demonstrate that the actions were taken in willful violation of the stay and caused actual damages); Hutchings v. Ocwen Federal Bank, FSB, et. al (In re Hutchings), 348 B.R. 847, 879-80 (Bankr. N.D. Al. 2006) (holding that despite actions that violated the stay, the debtor was not able to demonstrate entitlement to compensatory damages because the actions did not cause him injury).
Instead, it is merely asserted that the Defendants failed to reverse the 1997 foreclosure and continued to receive mortgage payments from the Chapter 13 Trustee. However, as expressed earlier, the Plaintiffs' continued to enjoy all the benefits of home ownership. Further, Plaintiffs failed to present evidence of any affirmative steps taken on their behalf to determine the reason for the county officials' refusal to accept their tax payments. Although Ms. Bush testified that she told her former attorneys about the difficulty paying the real estate taxes, there is no evidence of any investigation or action.
Further, when the 2001 case was filed with new attorneys there is no evidence of any inquiry regarding the status of and/or defects in the title, and instead a Chapter 13 plan was filed, and the Plaintiffs voluntarily continued to make mortgage payments after the two foreclosure deeds were recorded. Indeed, Defendants filed a proof of claim to substantiate the amount owed, and then objected to the proposed plan on the basis that it did not provide statutorily required treatment for secured creditors. A memorandum was filed on Plaintiffs' behalf, but it did not question the ownership status of the property and/or Defendants' entitlement to payment as mortgage creditors.
Finally, the Plaintiffs claim Defendants violated the stay by selling the property to Mr. Broughton in 2004, and seek damages for the value of the home and furniture lost when Mr. Broughton took possession. However, the evidence showed that the Alabama Probate Court ordered the sale after the Plaintiffs failed to pay their property taxes. In fact, Defendants sent two letters to the Plaintiffs' new attorneys regarding these outstanding tax payments. For the sum of $684.34 the Plaintiffs could have redeemed their interest in the property, but failed to do so. The Defendants cannot be held accountable for an action that they did not perform or cause, and an injury that does not stem from their behavior.
The Court is sympathetic to the Plaintiffs' loss of their home and belongings. However, the evidence presented at trial demonstrates that legal culpability cannot be assigned to the Defendants. For the above reasons, the Court finds and concludes that the Plaintiffs' have failed to establish a willful stay violation, and no damages are awarded.
IT IS SO ORDERED.
Copies to:
Matthew Thompson, Esq. (electronic service)
James E. Nobile, Esq. (electronic service)
David J. Demers, Esq. (electronic service)
Henry Ray and Glenda L. Bush, 5710 South LaSalle Street, Chicago, Illinois 60621