FILED

U.S. Bankruptcy Appellate Panel

of the Tenth Circuit

October 22, 2015

Blaine F. Bates

Clerk NOT FOR PUBLICATION

UNITED STATES BANKRUPTCY APPELLATE PANEL

OF THE TENTH CIRCUIT

IN RE TIMMY DEWAYNE JESTER,

also known as Tim D. Jester, and

REBECCA JO JESTER, also known as

Becky Jo Jester, formerly known as

Rebecca Jo Hillsberry, formerly known

as Becky Jo Hillsberry,

Debtors.

BAP No. EO-15-002

TIMMY DEWAYNE JESTER and

REBECCA JO JESTER,

Appellants,

Bankr. No. 11-80627

Chapter 7

v. OPINION

*

WELLS FARGO BANK N.A.,

Appellee.

Appeal from the United States Bankruptcy Court

for the Eastern District of Oklahoma

Before THURMAN, JACOBVITZ, and HALL, Bankruptcy Judges.

HALL, Bankruptcy Judge.

Filing bankruptcy will delay the foreclosure of a debtor’s home, but it will

not prevent it. If a debtor wants to keep his home from foreclosure, he must come

to terms with the mortgagee.

Timmy and Rebecca Jester, pro se, appeal the bankruptcy court’s order that

This unpublished opinion may be cited for its persuasive value, but is not

*

precedential, except under the doctrines of law of the case, claim preclusion, and

issue preclusion. 10th Cir. BAP L.R. 8026-6.
denied his motion to reopen their Chapter 7 bankruptcy case. Mr. Jester had

sought to reopen their case in order to, inter alia, file claims against Wells Fargo

Bank N.A. (“Wells Fargo”) for alleged violations of the automatic stay and the

discharge injunction based mainly on: 1) its failure to dismiss a prepetition state

foreclosure action upon being notified of their bankruptcy filing; 2) its

misapplication of postpetition payments; and 3) its filing of a foreclosure action

and obtaining a judgment against them postdischarge. After hearing oral

arguments and reviewing the record and applicable law, we affirm the bankruptcy

court’s decision to deny the motion to reopen.

I. Factual Background

1

Timmy and Rebecca Jester (collectively “Debtors”) filed a no-asset,

Chapter 7 case on April 29, 2011. They claimed their residence (the “Property”)

exempt and stated an intent to reaffirm the debt on it, but no reaffirmation

2

agreement was ever filed. They received a discharge on July 27, 2011, and their

3

case was closed on August 11, 2011.

Prepetition, Wells Fargo had initiated a foreclosure action on the Property

in state court against Debtors and Mr. Jester’s former wife on February 23, 2011

(the “2011 Foreclosure Action”). After their bankruptcy case closed, Mr. Jester

executed a loan modification agreement with Wells Fargo (the “Modification

All references to Appellants’ Appendix are to the third appendix they filed

1

on March 30, 2015 (“Appellants’ App.”). Because Appellants did not

consistently consecutively paginate their appendix, page number references are to

the PDF page numbers as they appear in the appellate record. Thus, the reference

“App. at 147” refers to page 147/273 of the PDF document in the record, as

opposed to Appellants’ designation of page 142. Page number references to

Appendix of Appellee Wells Fargo Bank, NA (“Appellee’s App.”) are to the

bates-stamp.

Form B8 at 2, in Appellants’ App. at 29.

2

According to Debtors’ former counsel, Jeremy Mix, Wells Fargo was

3

unwilling to negotiate with or provide him with a reaffirmation agreement

because Debtors were over $9,777 in arrears on their mortgage and had not made

a payment since August 2010. Mix’s Objection to Motion to Reopen Case at 1, in

Appellee’s App. at 4.

Page 2 of 20
Agreement”). The Modification Agreement provided, in pertinent part, that:

4

1. Borrower filed for relief under Chapter [7] . . . on 04/29/2011.

2. At the Borrowers request, the borrower and counsel for both

parties agree to address the defaulted amount by means of a loan

modification.

3. Borrower received the consent of the United States Bankruptcy

Court or equivalent, to modify the mortgage . . . [which]

Borrower received or will receive a discharge of . . . on or about

07/27/11.

* * *

5. Borrower, during the course of the bankruptcy case . . . , did not,

and does not intend to reaffirm the debt.

6. Borrower desires to retain the Property securing the Note, and

acknowledges that Lender’s security interest and lien are still

valid and enforceable.

7. Borrower acknowledges and understands that [he] is not

obligated to enter into this Agreement, and that [he] is entering

into this Agreement at Borrower’s request, voluntarily and with

no coercion or pressure from Lender, for the sole purpose of

retaining the Property. Borrower understands that [he] has no

personal obligation to repay the debt secured by the Property if

said debt is discharged in bankruptcy without a valid

reaffirmation agreement.

* * *

10. Borrower desires to retain the Property securing this debt, and

Lender has agreed to such request, in exchange for payment to

Lender of the debt secured by the Property in the manner

specified herein . . . . Borrower and Lender jointly agree [inter

alia] as follows:

* * *

4. [C]osts and expenses, together with accrued interest,

in the total amount of $12,791.87 have been added

to the . . . Note . . . and that as of 10/01/2011, . . .

[the unpaid principal balance on the Note] is

$147,702.34.

5. [I]nterest will be charged on the unpaid principal

balance at the yearly rate of 4.500% beginning

10/01/2011. The Borrower shall make monthly

Modification Agreement, in Appellants’ App. at 209-12. The agreement

4

was made effective on August 23, 2011 and signed by Mr. Jester on October 6,

2011.

Page 3 of 20
payments of . . . $748.39 . . . beginning on

11/01/2011 and . . . thereafter on the same day of

each succeeding month until [the Note is paid in

full] . . . .

* * *

9. If Borrower fails to pay . . . the amount due and

owing or to pay any monthly payment . . . ,

Borrower shall surrender the Property to Lender. If

Borrower fails or refuses to surrender the Property

to Lender, Lender may exercise any and all

remedies to recover the Property . . . pursuant to its

security interest and lien and applicable law.

5

Shortly after the Modification Agreement was executed, Wells Fargo filed a

Release of Notice of Pending Action and the 2011 Foreclosure Action was

dismissed on November 3, 2011.

6

Debtors stopped making payments on the Property in November 2011.

7

Wells Fargo filed a foreclosure petition against Debtors in Wagoner County

District Court on July 6, 2012 (the “2012 Foreclosure Action”). Although

8

Debtors contested the foreclosure, summary judgment in favor of Wells Fargo and

against Debtors was entered on October 8, 2014 (the “Foreclosure Judgment”).

9

Timmy Jester filed a motion to reopen the Debtors’ bankruptcy case on

October 28, 2014 (the “Motion”). The bankruptcy court succinctly summarized

Modification Agreement at 1-4, in Appellants’ App. at 209-12.

5

Release of Notice of Pending Action, in Appellants’ App. at 196; Motion to

6

Reopen Case at 30, in App. at 62.

Unofficial Tr. of Dec. 10, 2014 Hrg. at 6, in Appellee’s App. at 20 (“Court:

7

When was the last time you paid the payment in this case, Mr. Jester? Timmy

Jester: November 2011”).

Objection of Wells Fargo Bank, NA, Successor by Merger to Wells Fargo

8

Home Mortgage, Inc., to Debtor’s Motion to Re-open Case (“Wells Fargo’s

Objection to Motion to Reopen”) at 1, ¶ 2, in Appellee’s App. at 6; Ex. A, On

Demand Court Records (“2012 Foreclosure Action Dkt”) at 1, in Appellee’s App.

at 9.

2012 Foreclosure Action Dkt at 3, in Appellee’s App. at 11. The

9

Foreclosure Judgment itself was not presented to the bankruptcy court nor

included in the appellate record.

Page 4 of 20
the Motion as follows:

The Motion requests that this Court reopen Debtor’s bankruptcy case so

that he can file an adversary proceeding against Wells Fargo Bank, his

bankruptcy attorney Jeremy S. Mix, and attorneys Ben Callicoat and

Cliff Baker. He alleges that Wells Fargo violated the automatic stay

and discharge injunction by foreclosing on his mortgage, and he alleges

a multitude of violations of various state and federal laws. He wants .

. . Wells Fargo [held] in contempt, and [] punitive damages [assessed]

against it. He alleges violations of federal law, including the Truth in

Lending Act, the Real Estate Settlement Procedures Act, and the

Federal Discovery Code.. He also alleges violations of Oklahoma law,

including violations of the Oklahoma Constitution, the Oklahoma

Discovery Code, and Oklahoma lien laws. Other allegations include

intentional infliction of emotional distress, fraud, robo-signing, and

misapplication of payments. . . . Essentially, he wants this Court to set

aside the state foreclosure action and release the lien on his home,

asserting that his debt to Wells Fargo was discharged in bankruptcy and

the attempt to foreclose on the mortgage post-discharge is a violation

of the automatic stay and discharge injunction.

10

The Trustee, Wells Fargo, and Debtors’ bankruptcy attorney (Jeremy Mix) filed

objections to the Motion. They countered that reopening the case was futile.

A hearing on the Motion was held on December 10, 2014. The

11

bankruptcy court issued an order denying the Motion on December 30, 2014,

concluding that: 1) there was no violation of the automatic stay or discharge

injunction by Wells Fargo; and 2) there was no relief that it could provide to

Debtors. Additionally, the bankruptcy court found that it had no authority to set

12

aside the mortgage lien or review a final, state court judgment. This appeal

13

followed.

II. Appellate Jurisdiction and Standard of Review

This Court has jurisdiction to hear timely filed appeals from “final

judgments, orders, and decrees” of bankruptcy courts within the Tenth Circuit,

Order Denying Motion to Reopen at 2-3, in Appellants’ App. at 148-49.

10

Unofficial Tr. of Dec. 10, 2014 Hrg., in Appellee’s App. at 15-21.

11

Order Denying Motion to Reopen, in Appellants’ App. at 147-51.

12

Id. at 4, in Appellants’ App. at 150.

13

Page 5 of 20
unless one of the parties elects to have the district court hear the appeal.

14

Debtors timely filed a notice of appeal from the Order Denying Motion to

15

Reopen, a final order. The parties have consented to this Court’s jurisdiction by

16

not electing to have this appeal heard by the United States District Court for the

Eastern District of Oklahoma. This Court, therefore, has appellate jurisdiction

over this appeal.

This Court reviews a bankruptcy court’s decision on a motion to reopen a

closed case under 11 U.S.C. § 350(b) for an abuse of discretion. “Under the

17 18

abuse of discretion standard: ‘a trial court’s decision will not be disturbed unless

the appellate court has a definite and firm conviction that the lower court made a

clear error of judgment or exceeded the bounds of permissible choice in the

circumstances.’” “Whether a party’s actions have violated the automatic stay is

19

a question of law which is reviewed de novo.” “Whether a creditor’s actions

20

violated the discharge injunction is also a question of law subject to de novo

28 U.S.C. § 158(a)(1), (b)(1), and (c)(1); Fed. R. Bankr. P. 8001(e) (now at

14

Fed. R. Bankr. P. 8005, effective Dec. 1, 2014); 10th Cir. BAP L.R. 8001-3 (now

at 10th Cir. BAP L.R. 8005-1, effective Dec. 1, 2014).

This Court construes the initial Notice of Appeal, filed within 14 days of

15

the order appealed from, as filed on behalf of both Timmy and Rebecca Jester

even though it was signed only by Mr. Jester. See Fed. R. App. P. 3(c)(2) (“A pro

se notice of appeal is considered filed on behalf of the signer and the signer’s

spouse and minor children (if they are parties), unless the notice clearly indicates

otherwise.”).

In re Riazuddin, 363 B.R. 177, 182 (10th Cir. BAP 2007) (order denying

16

motion to reopen was a final order for purposes of 28 U.S.C. § 158(a)).

All future references to “Code,” “Section,” and “§” are to the Bankruptcy

17

Code, Title 11 of the United States Code, unless otherwise indicated.

In re Woods, 173 F.3d 770, 778 (10th Cir. 1999); Redmond v. Fifth Third

18

Bank, 624 F.3d 793, 798 (7th Cir. 2010).

Moothart v. Bell, 21 F.3d 1499, 1504 (10th Cir. 1994) (quoting McEwen v.

19

City of Norman, 926 F.2d 1539, 1553-54 (10th Cir. 1991)).

Diviney v. Nationsbank of Texas, N.A. (In re Diviney), 225 B.R. 762, 769

20

(10th Cir. BAP 1998) (quoting Barnett v. Edwards (In re Edwards), 214 B.R. 613,

618 (9th Cir. BAP 1997)).

Page 6 of 20
review.” Likewise, we review the application of the Rooker-Feldman doctrine

21

de novo. De novo review requires an independent determination of the issues,

22

giving no special weight to the bankruptcy court’s decision.

23

III. Analysis

The main issue in this appeal is whether the bankruptcy court abused its

discretion in denying Debtors’ motion to reopen their bankruptcy case to file

claims against Wells Fargo. Resolution of this issue requires us to determine

1) whether Wells Fargo violated the automatic stay or discharge injunction, and

2) whether the bankruptcy court could provide Debtors with the requested relief

of releasing the mortgage lien on the Property and permanently enjoining Wells

Fargo from asserting any claims against the Property. We answer these

24

questions in the negative and affirm the bankruptcy court’s decision.

A. The bankruptcy court correctly concluded that Wells Fargo did not

violate the automatic stay or discharge injunction.

1. No automatic stay violation

Section 362(a) of the Bankruptcy Code automatically imposes a stay of a

number of actions immediately upon the filing of a bankruptcy petition. Among

25

other activities, while the automatic stay is in effect, creditors may not commence

or continue an action against the debtor that was or could have been commenced

before the filing of the bankruptcy case. Nor are creditors allowed to collect or

26

Santander Consumer, USA, Inc. v. Houlik (In re Houlik), 481 B.R. 661, 668

21

(10th Cir. BAP 2012).

In re Miller, 666 F.3d 1255, 1260 (10th Cir. 2012).

22

Salve Regina Coll. v. Russell, 499 U.S. 225, 238 (1991).

23

Motion, Prayer ¶¶ 4 and 8 at 66-67, in Appellants’ App. at 97-98. The

24

remaining prayers were for monetary damages.

11 U.S.C. § 362(a).

25

11 U.S.C. § 362(a)(1). The 2011 Foreclosure Action was filed prepetition,

26

(continued...)

Page 7 of 20
enforce a prepetition claim. “A debtor alleging a [willful] violation of the

27

automatic stay has the burden to demonstrate, by a preponderance of the evidence,

that a violation of the automatic stay has occurred, that the violation was willfully

committed and that the debtor suffered damage as a result of the violation.”

28

Debtors claim that Wells Fargo violated the automatic stay by 1) failing to

dismiss the 2011 Foreclosure Action upon receiving notice of Debtors’

bankruptcy filing, 2) negotiating the Modification Agreement and coercing Mr.

Jester to sign it, and 3) harassing them by phone and mail while aware of their

bankruptcy. Like the bankruptcy court, we see no violation of the automatic

29

stay based on these allegations. First, there is no affirmative duty to dismiss a

prepetition foreclosure action upon learning the defendant filed a bankruptcy

petition. The automatic stay prevents prosecution of the foreclosure action, but

30

does not require its dismissal. In other words, the creditor must refrain from any

activity that would move the case forward in the legal process. In this case, there

is nothing in the record to indicate that Wells Fargo took any action to continue

the 2011 Foreclosure Action while the automatic stay was in effect. Thus, the

bankruptcy court correctly concluded that Wells Fargo’s failure to dismiss the

2011 Foreclosure Action upon notice of Debtors’ bankruptcy filing did not

constitute an automatic stay violation.

(...continued)

26

thus its commencement did not violate the automatic stay.

11 U.S.C. § 362(a)(2)-(6).

27

Kline v. Tiedemann (In re Kline), 424 B.R. 516, 524 (Bankr. D. N.M. 2010)

28

citing Johnson v. Smith (In re Johnson), 501 F.3d 1163, 1172 (10th Cir. 2007);

see also In re Scroggin, 364 B.R. 772, 780 (10th Cir. BAP 2007).

Appellants’ Br. at 15; Appellants’ Reply Br. at 3.

29

In re Long, No. 07-60011, 2009 WL 981134 at *5 (Bankr. D. Mont. Jan. 9,

30

2009) (obligation to “discontinue” collection proceedings permits staying rather

than dismissing the proceeding if proceeding was commenced prepetition).

Page 8 of 20
Second, the automatic stay of any action other than an action against

property of the estate terminates upon the earliest of: (A) the time the case is

closed; (B) the time the case is dismissed; or (C) in an individual Chapter 7 case,

the time a discharge is granted or denied. In this case, the earliest of the

31

identified events was the granting of Debtors’ Chapter 7 discharge on July 27,

2011. The Modification Agreement was entered after the automatic stay had

terminated. Thus, its entry did not constitute an automatic stay violation.

32 33

As for the harassing phone calls and mail, there is no evidence in the record

detailing them. Even if they occurred, they appear to have been made in 2013

34

and 2014, well after the automatic stay had terminated. Accordingly, these

35

contacts could not constitute automatic stay violations. In sum, the bankruptcy

court correctly concluded that Wells Fargo did not violate the automatic stay.

11 U.S.C. § 362(c)(2). The automatic stay remains in place as to property

31

of the estate until the property is no longer property of the estate. See 11 U.S.C.

§ 362(c)((1).

Because there is nothing in the record detailing the negotiation of the

32

Modification Agreement, our stay violation analysis is limited to its entry date.

In re Houlik, 481 B.R. 661, 669-70 (10th Cir. BAP 2012) (no automatic

33

stay violation where stay had terminated prior to repossession of truck). See also

Kline v. Deutsche Bank Nat’l Trust Co. (In re Kline), 472 B.R. 98, 103-04 (10th

Cir. BAP 2012), aff’d, 514 F.App’x 810 (10th Cir. 2013) (“[A]ny actions

Defendants took after . . . dismissal of Debtor’s case, by definition, do not

constitute stay violations.”). Because the Modification Agreement was executed

postdischarge, we will address Debtors’ complaints regarding it in the discharge

injunction section.

None of the letters mentioned in the Motion were presented to the

34

bankruptcy court. Factual allegations in the Motion are not evidence. Collins v.

Jackson Pub. Sch. Dist., 609 F.App’x 792, 795 (5th Cir. 2015) (“Arguments in

briefs, like allegations in a complaint, are assertions, not evidence.”); Tibbs v.

City of Chicago, 469 F.3d 661, 663 n.2 (7th Cir. 2006) (mere allegations of a

complaint are not evidence) (citations omitted).

See Motion, in Appellants’ App. at 58 (“Wells Fargo Bank N.A. kept

35

calling Mr. Jester . . . to send more information for a new [l]oan

[m]odification.”), 66 (Wells Fargo representative, Adriann Rey, repeatedly called

Mr. Jester), 92 (“Wells Fargo Bank N.A. repeatedly called Mr. Jester in 2013 and

2014 . . . .”).

Page 9 of 20
2. No violation of the discharge injunction

Section 524(a)(2) provides that a discharge “operates as an injunction

against the commencement or continuation of an action, the employment of

process, or an act, to collect, recover or offset any such debt as a personal

liability of the debtor, whether or not discharge of such debt is waived . . . .”

36

The discharge injunction does not constitute a blanket prohibition against all

actions undertaken by creditors after the entry of discharge. Actions to collect

against the debtor personally are enjoined. In contrast, in rem actions, which

include actions to enforce a lien against encumbered property, are not prohibited

by the discharge injunction. The debtor bears the burden of proving that the

37

creditor willfully violated the discharge injunction by clear and convincing

evidence.

38

a. The Modification Agreement did not violate the

discharge injunction.

Debtors claim that Wells Fargo violated the discharge injunction by

attempting to collect a discharged debt through the Modification Agreement,

which was invalid because it was not approved by the bankruptcy court. They

further claim that Wells Fargo coerced them into signing the Modification

Agreement. Debtors’ arguments here are unpersuasive.

While it is understandable that Debtors felt that they had no choice but to

11 U.S.C. § 524(a)(2).

36

Johnson v. Home State Bank, 501 U.S. 78, 84 (1991) (“[A] bankruptcy

37

discharge extinguishes only one mode of enforcing a claim -namely, an action

against the debtor in personam—while leaving intact another -namely, an action

against the debtor in rem”); Chandler Bank of Lyons v. Ray, 804 F.2d 577, 579

(10th Cir. 1986) (per curiam) (discharge injunction does not preclude in rem

actions by secured creditors); 3 Hon. William L. Norton Jr. & William L. Norton

III, Norton Bankr Law & Prac. § 58:4 (3d ed. 2015) (“[Section] 524 does not bar

the creditor from enforcing a valid, prebankruptcy lien or security interest against

property that has been retained . . . by the debtor after discharge.”).

Otero v. Green Tree Servicing, LLC (In re Otero), 498 B.R. 313, 319

38

(Bankr. D. N.M. 2013).

Page 10 of 20
sign the Modification Agreement to avoid foreclosure based on prepetition

defaults, the record is devoid of facts suggesting that Mr. Jester’s execution of the

Modification Agreement was anything but voluntary. The agreement itself

39

contains several provisions indicating voluntariness. Paragraph 2 of the

agreement states the loan modification was at Debtors’ request. Paragraph 7

40

states:

Borrower acknowledges and understands that he/she is not obligated

to enter into this Agreement, and that he/she is entering into this

Agreement at Borrower’s request, voluntarily and with no coercion

or pressure from Lender, for the sole purpose of retaining the

Property. Borrower understands that he/she has no personal

obligation to repay the debt secured by the Property if said debt is

discharged in bankruptcy without a valid reaffirmation agreement.

41

And contrary to Debtors’ assertion, court approval of the Modification

Agreement was not required because it is not a reaffirmation agreement that

requires court approval. A reaffirmation agreement is a contract between a debtor

and a creditor where the debtor agrees to reassume the in personam liability of a

dischargeable debt in order to keep the property for which the debt was incurred

while making periodic payments on that property. The Modification Agreement

42

repeatedly provided that it does not revive or create any personal liability on a

discharged debt. Paragraph 10.3 states:

Borrower and Lender acknowledge and agree that this Modification

Agreement does not affect the discharge of the Borrower’s personal

A Wells Fargo representative telling them that they would lose their home

39

if they did not sign the agreement is not coercion, but simply a statement of fact.

Modification Agreement at 1, in Appellants’ App. at 209 (“At the

40

Borrowers [sic] request, the borrower and counsel for both parties agree to

address the defaulted amount by means of a loan modification.”). This comports

with this Court’s general understanding that borrowers must apply for a loan

modification.

Id.

41

In re Schott, 282 B.R. 1, 7 (10th Cir. BAP 2002). A reaffirmation

42

agreement must be made before the granting of the debtor’s discharge. 11 U.S.C.

§ 524(c)(1). The Modification Agreement was executed postdischarge, which is

another indication it was not an reaffirmation agreement.

Page 11 of 20
liability on the debt.

43

Paragraph 10.6 states:

Notwithstanding any monthly payments hereunder, Borrower

understands that (1) Lender’s sole recourse is the enforcement of its

security interest in the Property and any action which may exist in

relation to the Property itself and that (2) nothing in this Agreement

revives or purports to revive any debt, or create any personal liability

or obligation for a debt that was discharged in bankruptcy.

44

Paragraph 10.11 states:

NOTHING CONTAINED HEREIN SHALL BE CONSTRUED TO

BE A WAIVER OF THE BORROWER’S DISCHARGE, AN

ATTEMPT TO COLLECT AGAINST THE BORROWER

PERSONALLY, OR AN ATTEMPT TO REVIVE PERSONAL

LIABILITY.

45

The Modification Agreement was a contract where Debtors agreed to make

periodic payments in exchange for Wells Fargo’s forbearance of its right to

foreclose on its lien. Because the Modification Agreement did not attempt to

46

make Debtors personally liable for the discharged mortgage debt, the bankruptcy

court correctly concluded that the Modification Agreement did not constitute a

violation of the discharge injunction.

47

Modification Agreement at 2, in Appellants’ App. at 210.

43

Id.

44

Id. at 4, in App. at 211.

45

Paragraph 10.2 of the agreement states, “Borrower and Lender agree that

46

the consideration for this Agreement is Lender’s forbearance from presently

exercising its rights and pursuing its remedies under the Security Instrument as a

result of the Borrower’s default of its obligations thereunder.” Id. at 2, in App. at

210.

See Bates v. CitiMortgage, Inc. (In re Bates), 517 B.R. 395, 400 (Bankr.

47

D. N.H. 2014) (loan modification agreement with similar language did not violate

discharge injunction; it was a contact permitted postdischarge under § 524(j)).

Section 524(j) excepts from the discharge injunction acts by creditors if “(1) such

creditor retains a security interest in real property that is the principal residence

of the debtor; (2) such act is in the ordinary course of business between the

creditor and the debtor; and (3) such act is limited to seeking or obtaining

periodic payments associated with a valid security interest in lieu of pursuit of in

rem relief to enforce the lien.” Wells Fargo did not argue to the bankruptcy court,

(continued...)

Page 12 of 20
b. Filing an in rem action and obtaining an in rem

judgment did not violate the discharge injunction.

Debtors claim that Wells Fargo violated the discharge injunction by filing

the 2012 Foreclosure Action and obtaining judgment against them. As an initial

matter, we note that neither the foreclosure petition nor the Foreclosure Judgment

were presented to the bankruptcy court or to this Court, which made it difficult

for this Court to determine the exact nature of the state action. The 2012

Foreclosure Action docket sheet, however, sufficiently supports the bankruptcy

court’s conclusion that Wells Fargo had filed an in rem foreclosure action. The

48

docket sheet indicated the “Offense or Cause” as “Foreclosure.” Additionally,

49

at oral arguments, Debtors conceded that the Foreclosure Judgment was in rem

only. Because the discharge injunction does not preclude in rem actions by

secured creditors, the bankruptcy court correctly concluded that commencing the

2012 Foreclosure Action and obtaining the Foreclosure Judgment did not

constitute violations of the discharge injunction.

50

c. The alleged misapplication of postpetition payments

(...continued)

47

and does not argue on appeal, that its conduct in connection with the Modification

Agreement was protected by § 524(j), Accordingly, we need not consider

whether § 524(j) applies. Venture Bank v. Lapides, 800 F.3d 442, 447 n. 3 (8th

Cir. 2015) (appellate court refused to consider whether § 524(j) exception applied

because bank did not raise it below or on appeal).

2012 Foreclosure Action Dkt. at 1-4 , in Appellee’s App. at 9-12.

48

Id. at 1, in Appellee’s App. at 9; see In re Weinhold, 393 B.R. 623, 631

49

(Bankr. E.D. Wis. 2008) (a foreclosure action is generally an in rem proceeding);

Sooner Fed. Sav. & Loan Ass’n v. Oklahoma Cent. Credit Union, 790 P.2d 526,

530 n.18 (Okla. 1989) (“As a general rule, a decree of foreclosure is in rem . . .

.”); Bank of Wilson v. Hartman, 785 P.2d 338 (Okla. Civ. App. 1989) (an action

in foreclosure is in rem).

Chandler Bank of Lyons v. Ray, 804 F.2d 577, 579 (10th Cir. 1986) (per

50

curiam) (discharge injunction does not preclude in rem actions by secured

creditors); 3 Hon. William L. Norton Jr. & William L. Norton III, Norton Bankr

Law & Practice § 58:4 (3d ed. 2015) (“[Section] 524 does not bar the creditor

from enforcing a valid, prebankruptcy lien or security interest against property

that has been retained . . . by the debtor after discharge.”).

Page 13 of 20
did not constitute a violation of the discharge

injunction.

Debtors claim that Wells Fargo violated the discharge injunction by not

properly crediting postpetition payments under the Modification Agreement as

required by § 524(i). They also claim that “[Wells Fargo] charged [them]

51

$13,000 in late fees and appraisal fees that were discharged in Bankruptcy.”

52

Section 524(i) provides:

The willful failure of a creditor to credit payments received under a

plan confirmed under this title, unless the order confirming the plan

is revoked, the plan is in default, or the creditor has not received

payments required to be made under the plan in the manner required

by the plan (including crediting the amounts required under the plan),

shall constitute a violation of an injunction under subsection (a)(2) if

the act of the creditor to collect and failure to credit payments in the

manner required by the plan caused material injury to the debtor.

53

The Modification Agreement was not a plan confirmed under the Code, thus

§ 524(i) does not apply.

As to Debtors’ claim that $13,000 was added to a discharged debt, it is

based on paragraph 10.4 of the Modification Agreement, which states that:

Borrower acknowledges that the Lender has incurred, paid, or

otherwise advanced taxes, insurance premiums, and other expenses

necessary to protect or enforce its security interest in the Note and

Security Instrument and that such costs and expenses, together with

accrued interest, in the total amount of $12,791.87 have been added

to the indebtedness under the terms of the Note and Security

Instrument, and that as of 10/01/2011, . . . [the Unpaid Principal

Balance] is [] $147,702.34.

54

Because these charges are associated with the enforcement of Wells Fargo’s

security interest, they were a part of Wells Fargo’s in rem claim and not an

attempt to increase a debt discharged in bankruptcy. Even if we construed

Motion at 6, in Appellants’ App. at 38; Attachment [in Support of Motion]

51

at 5, in App. at 104; Appellants’ Br. at 17, 20.

Appellants’ Br. at 17.

52

11 U.S.C. § 524(i).

53

Modification Agreement, ¶10.4 at 2, in Appellants’ App. at 210.

54

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paragraph 10.4 as Debtors suggest, that provision must be read in conjunction

with the other provisions in the agreement. As discussed previously, the

Modification Agreement did not make Debtors personally liable for any debt

secured by the Property. Thus, paragraph 10.4 of the Modification Agreement did

not constitute a violation of the discharge injunction.

B. The bankruptcy court correctly concluded that it could not provide

any relief to Debtors.

Debtors requested monetary damages for violations of the automatic stay

and discharge injunction, release of the lien on the Property, and a permanent

injunction to prevent Wells Fargo from asserting any claims against the

Property. Having concluded that there were no violations of the automatic stay

55

or discharge injunction, we need only address the latter two types of requested

relief.

1. The bankruptcy court cannot set aside the lien on the

Property.

Generally, to finance the purchase of a home, debtors will execute at least

two documents: a promissory note and a mortgage against the property. A

promissory note is a promise to pay the debt incurred to procure the property. “A

mortgage is an interest in real property that secures a creditor’s right to

repayment.” “A mortgage is a consensual lien [or security interest] since it is

56

created by agreement.” This is exactly the case here – to finance the purchase

57

of the Property, Debtors executed a note and granted a lien against the Property.

What Debtors stubbornly refuse to understand and accept is the concept that the

Motion at 65-67, in Appellants’ App. at 96-98.

55

Johnson v. Home State Bank, 501 U.S. 78, 82 (1991).

56

In re Sun ‘N Fun Waterpark, LLC, 408 B.R. 361, 370 (10th Cir. BAP

57

2009). The Bankruptcy Code defines a “lien” as a “charge against or interest in

property to secure payment of a debt or performance of an obligation.” 11 U.S.C.

§ 101(37). A “security interest” is a “lien created by an agreement.” 11 U.S.C. §

101(51).

Page 15 of 20
debt and the lien are treated distinctly in bankruptcy. The debt was discharged,

58

but the lien survived bankruptcy.

59

Generally, a lien on real property passes through bankruptcy unaffected and

“stays with the real property until the foreclosure,” based on the bargained-for

agreement between a mortgagor and mortgagee. This is true unless the lien is

60

avoided or modified in bankruptcy. Here, neither Debtor nor the Chapter 7

61

trustee challenged the lien on the Property during the bankruptcy case. Debtors’

62

suggestion that Well Fargo’s failure to file a proof of claim somehow invalidates

the lien on the Property contradicts § 506(d) and case law. Section 506(d)

provides that a lien securing a claim against a debtor will not be void just because

no entity filed proof of that claim under § 501. Additionally, the United States

63

Supreme Court has held that a lien holder is not required to file a proof of claim

or otherwise participate in a bankruptcy case in order to protect his lien.

64

The grant of a discharge does not extinguish any debt, it simply prevents

58

any act to collect the debt as a personal liability of the debtor. 11 U.S.C. §

524(a)(2); Johnson, 501 U.S. at 84.

Dewsnup v. Timm, 502 U.S. 410, 418 (1992) (a lien on real property passes

59

through bankruptcy unaffected); Farrey v. Sanderfoot, 500 U.S. 291, 297 (1991)

(“Ordinarily, liens and other secured interests survive bankruptcy”).

Dewsnup, 502 U.S. at 417.

60

Id. at 417-18 (lien unaffected subject, of course, to the power of other

61

persons or entities to pull lien holder into the proceeding pursuant to § 501); In re

Picht, 428 B.R. 885, 891-92 (10th Cir. BAP 2010) (“The United States Supreme

Court has repeatedly held that liens pass through Chapter 7 bankruptcy

unaffected, and the debt secured by the lien continues to exist and is enforceable

against property securing the debt (unless, of course, the lien is avoided).”).

See In re Lowther, 52 F.App’x 476 (10th Cir. 2002) (debtor’s ex-husband’s

62

lien granted through divorce decree was not extinguished by debtor’s bankruptcy

discharge even though ex-husband did not file proof of claim or properly perfect

lien under state law, where debtor listed her debt to ex-husband only as unsecured

claim and failed to avoid lien in her bankruptcy case).

11 U.S.C. § 506(d)(2).

63

See Dewsnup, 502 U.S. at 417-18; Chandler Bank of Lyons v. Ray, 804 F.2d

64

(continued...)

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Finally, Debtors cite no statutory authority to avoid the lien on the Property.

65

Even if there was a statutory basis to avoid the lien on the Property, it is now too

late. Because the lien on the Property remained intact, the bankruptcy court

66

correctly concluded that it could not now set aside the lien.

67

2. The bankruptcy court cannot review the Foreclosure

Judgment.

The Rooker–Feldman doctrine provides that lower federal courts, such as

68

bankruptcy courts, lack jurisdiction to engage in appellate review of “claims

‘actually decided by a state court’ and claims ‘inextricably intertwined with a

prior state-court judgment.’” As described by the Supreme Court:

69

The Rooker–Feldman doctrine . . . is confined to cases of the kind

(...continued)

64

577, 579 (10th Cir. 1986).

See 11 U.S.C. § 522(f) (granting debtor power to avoid judicial lien that

65

impairs exemption); 11 U.S.C. § 544 (granting the trustee the power to avoid

unperfected liens). “An individual debtor may . . . exercise section 544 avoiding

powers only in the limited circumstances outlined in section 522(h)”. 5 Collier

on Bankruptcy ¶ 544.07[4], at 544-32 (Alan N. Resnick & Henry J. Sommer eds.,

16th ed.). Section 522(h), however, limits the debtor’s ability to avoid a lien to

situations where the transfer was involuntary. Because Debtors voluntarily

granted the lien on the Property, they lack standing to avoid it under § 544.

Likewise, § 522(f) is not applicable because the lien at issue is not a judicial lien.

See In re Nichols, 265 B.R. 831 (10th Cir. BAP 2001) (consensual mortgage lien

was not transformed into judicial lien by virtue of state court’s foreclosure

decree); In re Ruck, 451 B.R. 128, 131-32 (Bankr. D. Kan. 2011) (even if

mortgage “merged” into foreclosure decree, it did not convert consensual lien of

mortgage to judicial lien).

See Smiley v. Assocs. Fin’l Servs. (In re Smiley), 26 B.R. 680, 683 (Bankr.

66

D. Kan. 1982) (motion to avoid a lien filed postdischarge deemed untimely;

motion must be filed prior to the granting of a discharge to effectively carry out

the Code and provide some finality to a bankruptcy case and to the fixed right of

all parties).

The issue of who holds the lien is distinct from whether a lien exists

67

against the Property.

See Rooker v. Fid. Trust Co., 263 U.S. 413 (1923); D.C. Court of Appeals

68

v. Feldman, 460 U.S. 462 (1983).

Mo’s Express, LLC v. Sopkin, 441 F.3d 1229, 1233 (10th Cir. 2006)

69

(quoting Kenmen Eng’g v. City of Union, 314 F.3d 468, 473 (10th Cir. 2002)).

Page 17 of 20
from which the doctrine acquired its name: cases brought by

state-court losers complaining of injuries caused by state-court

judgments rendered before the federal district court proceedings

commenced and inviting district court review and rejection of those

judgments. Rooker–Feldman does not otherwise override or supplant

preclusion doctrine . . . .

70

The Tenth Circuit has applied the Rooker-Feldman doctrine to bar claims that are

inextricably intertwined with foreclosure decisions.

71

Here, Wells Fargo brought the 2012 Foreclosure Action in state court and

obtained a judgment against Debtors. Then, Debtors, the “state-court losers,”

turned to the bankruptcy court and asked it to enjoin Wells Fargo from asserting

any claims against the Property. They challenged Wells Fargo’s documentation

72

to foreclose and claimed that Wells Fargo was not the true lien holder, thereby

lacking standing to commence the foreclosure action. They sought monetary

73

damages against Wells Fargo for its “[i]nappropriate and costly mistakes,” release

of the lien on the Property, as well as an injunction against Wells Fargo from

asserting any claims on the Property. All of Debtors’ injuries are based on the

74

Foreclosure Judgment.

“To commence a foreclosure action in Oklahoma, a plaintiff must

demonstrate it has a right to enforce the [mortgage] . . . .” Although the

75

Foreclosure Judgment is not a part of the record, we can presume it included

Exxon Mobil Corp. v. Saudi Basic Indus., 544 U.S. 280, 284 (2005).

70

Dillard v. Bank of N.Y., 476 F.App’x 690, 692 (10th Cir. 2012); Orcutt v.

71

Libel, 381 F.App’x 866, 868-69 (10th Cir. 2010).

Exxon Mobil Corp. v. Saudi Basic Indus., 544 U.S. 280, 284 (2005).

72

Debtors argue that they can challenge standing at any time during the

73

judicial process. Appellants’ Br. at 23. What Debtors fail to recognize is that the

2012 Foreclosure Action and the bankruptcy case are two different judicial

proceedings. Debtors must raise the issue of Wells Fargo’s standing to file the

2012 Foreclosure Action in the court where the action was filed.

Motion, Prayer ¶¶ 4, 7, and 8 at 66-67, in Appellants’ App. at 97-98.

74

Deutsche Bank Nat’l Tr. v. Brumbaugh, 270 P.3d 151, 154 (Okl. 2012).

75

Page 18 of 20
findings of every material fact necessary to support the judgment. Thus, we

76

presume the state court concluded that Wells Fargo had standing to enforce the

mortgage. Debtors’ claims based on the inadequacy of the foreclosure

documentation, the nonapplication of payments, and Wells Fargo’s alleged

violation of the Real Estate Settlement Procedures Act and the Truth in Lending

Act are issues that are inextricably intertwined with the state court proceedings

because a determination on them would invariably require the bankruptcy court to

review and reject the Foreclosure Judgment. The Rooker-Feldman doctrine bars

77

such a review. Thus, the bankruptcy court correctly concluded that it lacked

jurisdiction to review the Foreclosure Judgment.

C. The bankruptcy court did not abuse its discretion in refusing to reopen

Debtors’ case.

Section 350(b) provides that “[a] case may be reopened in the court in

which such case was closed to administer assets, to accord relief to the debtor, or

for other cause.” Bankruptcy courts have broad discretion to reopen a case.

78 79

“A bankruptcy court that refuses to reopen a Chapter 7 case that has been closed

KMC Leasing, Inc. v. Rockwell-Standard Corp., 9 P.3d 683, 688-89 (Okla.

76

2000) (absent explanation of the ruling by the trial court and absent a record to

the contrary, appellant court will presume the trial court found every special thing

necessary to sustain the general finding and conclusion).

Dillard, 476 F.App’x at 691. (claims challenging bank’s documentation to

77

foreclose and alleging that bank used deceptive tactics in its pursuit of mortgaged

property were barred by Rooker-Feldman doctrine as they effectively sought

review and rejection of foreclosure proceedings); Orcutt, 381 F.App’x at 866.

(claims that foreclosures were illegal and that sought an injunction and damages

are inextricably intertwined with foreclosure decisions because they assert

injuries based on the state court decision and to prevail, would require the district

court to review and reject those decisions); In re Kline, 472 B.R. 98, 106 (10th

Cir. BAP 2012) (even though debtor did not ask for direct reversal of foreclosure

judgment, the relief and arguments presented would necessarily require the

bankruptcy court to reject the foreclosure judgment, thus debtor was barred by the

Rooker-Feldman doctrine from attempting to relitigate propriety of creditor’s

conduct).

11 U.S.C. § 350(b).

78

In re Alpex Computer Corp., 71 F.3d 353, 356 (10th Cir. 1995); In re

79

Petroleum Prod. Mgmt., Inc., 282 B.R. 9, 13 (10th Cir. BAP 2002).

Page 19 of 20
will not abuse its discretion if it cannot afford the moving party any relief in the

reopened case.” If substantive relief cannot be granted, then reopening a case

80

would be futile and a waste of judicial resources. This is exactly the case here.

81

Debtors asked the bankruptcy court to 1) sanction Wells Fargo for

violations of the automatic stay and discharge injunctions, 2) release the lien on

the Property, and 3) set aside the Foreclosure Judgment. Because Debtors are not

entitled to any such relief, it would have been futile to reopen their bankruptcy

case. Accordingly, the bankruptcy court did not abuse its discretion in denying

82

the motion to reopen.

IV. Conclusion

Because the bankruptcy court properly found Wells Fargo did not violate

the automatic stay or the discharge injunction and that it lacked jurisdiction to

review the Foreclosure Judgment, it did not abuse its discretion in denying

Debtors’ Motion to Reopen. Accordingly, we affirm the bankruptcy court’s

decision.

83

In re Schicke, 290 B.R. 792, 798 (10th Cir. BAP 2003).

80

In re Carberry, 186 B.R. 401, 402 (Bankr. E.D. Va. 1995).

81

In re Skyline Woods Country Club, LLC, 431 B.R. 830, 835 (8th Cir. BAP

82

2010) (affirming the bankruptcy court’s denial of a motion to reopen on the basis

that reopening the case would have been futile and a waste of judicial resources

because the doctrine of res judicata precluded review of the state judgment, which

was exactly the relief the appellants sought).

We grant Wells Fargo’s motion to strike (BAP ECF No. 33) certain

83

documents from Appellants’ Appendices because they were not before the

bankruptcy court at the time of its decision. Adams v. Royal Indem. Co., 99 F.3d

964, 967 n.3 (10th Cir. 1996) (court should strike documents in appendix not

presented to trial court); Aero–Med., Inc. v. United States, 23 F.3d 328, 329 n.2

(10th Cir. 1994) (court should strike documents in appendix not presented to trial

court).

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