Court Opinion

ID: 4219582
Source: CourtListenerOpinion
Date Created: 2017-11-10 00:00:58.57771+00
Date Added: 2024-06-11T13:26:15.290568
License: Public Domain

FILED
                                                            NOV 09 2017
 1                         NOT FOR PUBLICATION
 2                                                      SUSAN M. SPRAUL, CLERK
                                                          U.S. BKCY. APP. PANEL
                                                          OF THE NINTH CIRCUIT
 3                  UNITED STATES BANKRUPTCY APPELLATE PANEL
                              OF THE NINTH CIRCUIT
 4
 5   In re:                        )      BAP No.      HI-17-1012-TaLB
                                   )
 6   MARK RAIMUNDO WATSON,         )      Bk. No.      15-01228
                                   )
 7                  Debtor.        )
     ______________________________)
 8                                 )
     MARK RAIMUNDO WATSON,         )
 9                                 )
                    Appellant,     )
10                                 )
     v.                            )      MEMORANDUM*
11                                 )
     DITECH FINANCIAL LLC,         )
12                                 )
                    Appellee.      )
13   ______________________________)
14                         Submitted Without Argument
                               on October 26, 2017
15
                            Filed – November 9, 2017
16
               Appeal from the United States Bankruptcy Court
17                  for the District of Hawaii (Honolulu)
18        Honorable Robert J. Faris, Bankruptcy Judge, Presiding
19
     Appearances:     William H. Gilardy, Jr. for on brief for
20                    appellant Mark Raimundo Watson; Derek W.C. Wong
                      of TMLF Hawaii, LLLC and Renee M. Parker of The
21                    Mortgage Law Firm, PLC for appellee Ditech
                      Financial LLC.
22
23   Before:   TAYLOR, LAFFERTY, and BRAND, Bankruptcy Judges.
24
25
26        *
             This disposition is not appropriate for publication.
27   Although it may be cited for whatever persuasive value it may
     have (see Fed. R. App. P. 32.1), it has no precedential value.
28   See 9th Cir. BAP Rule 8024-1(c)(2).
 1                               INTRODUCTION
 2        Chapter 131 debtor Mark Watson (“Debtor”) appeals from the
 3   bankruptcy court’s order granting Ditech Financial, LLC
 4   (“Ditech”) relief from the automatic stay to enforce its lien
 5   against his property.    Debtor argues that his confirmed
 6   chapter 13 plan was res judicata as to Ditech’s lien rights and
 7   precluded foreclosure.    We disagree.   And Debtor’s failure to
 8   make postpetition and postconfirmation payments was cause for
 9   stay relief.   Accordingly, we AFFIRM.
10                                  FACTS
11        Debtor received a chapter 7 discharge on October 15, 2015.
12   Although ineligible for another discharge, he filed a chapter 13
13   petition that same day.    His chapter 13 schedules, filed four
14   days later, reflect an ownership interest in real property in
15   Waikoloa, Hawaii (the “Property”).     He scheduled no secured
16   creditors.
17        On April 25, 2016, the bankruptcy court entered an order
18   confirming Debtor’s chapter 13 plan.2      Debtor’s confirmed
19   chapter 13 plan is consistent with his schedules.      It provides
20   for 36 months of $622.05 payments, resulting in an estimated
21   100% distribution to unsecured claims.      It neither provides for
22   nor lists secured creditors.
23
24
          1
             Unless otherwise indicated, all chapter and section
25   references are to the Bankruptcy Code, 11 U.S.C. §§ 101-1532.
26        2
             We exercise our discretion to take judicial notice of
27   documents electronically filed in the underlying bankruptcy
     case. See Atwood v. Chase Manhattan Mortg. Co. (In re Atwood),
28   293 B.R. 227, 233 n.9 (9th Cir. BAP 2003).

                                      2
 1        As it turns out, the schedules and plan provided a woefully
 2   incomplete picture of Debtor’s state of affairs.
 3        About seven months later, Ditech moved for relief from the
 4   automatic stay to foreclose on the Property under §§ 362(d)(1)
 5   and 1301(c).    It asserted a secured interest in the Property
 6   based on a note and mortgage executed by Debtor and his spouse
 7   in July 2005.    And it alleged that the note was in default
 8   because Debtor had failed to make 11 postpetition installment
 9   payments, totaling $27,668.19.
10        As it turns out, even given the additional factual
11   assertions of the stay relief motion, the picture remained
12   incomplete.    Significant foreclosure activity preceded the stay
13   relief motion.
14        Debtor opposed the stay relief motion.    He argued: first,
15   that his in personam liability was discharged in his chapter 7
16   case; second, that the in rem debt was not valid because a
17   judicial foreclosure suit had been dismissed with prejudice;
18   third, that Ditech has not provided evidence that it was a
19   creditor; and fourth, that he was not in payment default under
20   his confirmed chapter 13 plan.
21        When Ditech replied, it asserted that it was the holder of
22   the note, indorsed in blank, and stated that it would produce
23   the note at the hearing.    And it explained that the state court
24   dismissal with prejudice was vacated with the Debtor’s consent.
25        Apparently, in April 2013, Ditech’s predecessor in interest
26   filed a judicial foreclosure proceeding.    And no one disputes
27   that, at some point, the proceeding was dismissed with prejudice
28   and that later the dismissal was vacated, allegedly with

                                      3
 1   Debtor’s consent.    As the bankruptcy court puzzled out and
 2   ultimately determined at the hearing, the vacature did not
 3   violate the automatic stay because Ditech’s predecessor in
 4   interest had received relief from the automatic stay.      Debtor
 5   does not dispute this point.
 6        The matter came on for hearing.      Neither Debtor nor his
 7   counsel appeared.    The bankruptcy judge, nevertheless, addressed
 8   Debtor’s objections.    Based on Ditech’s counsel’s representation
 9   that he had the original note with him and Debtor’s counsel’s
10   non-appearance to examine it, the bankruptcy judge concluded
11   that Ditech had standing.    He found that Debtor’s previous
12   chapter 7 discharge had no effect on Ditech’s lien rights.        He
13   noted that the state court set aside the dismissal.      As for the
14   chapter 13 plan, the bankruptcy judge explained:
15        The plan just says who the Debtor wants to pay. The
          Debtor can’t not pay a Creditor with a lien and retain
16        a secured property. So that the plan simply doesn’t
          have the effect that the Debtor says it has of being
17        an adjudication that the Creditor has no lien rights.
18   Hr’g Tr. (Jan 10. 2017) 4:15-19.      With that, the bankruptcy
19   judge concluded: “So, for all those reasons, I think the
20   objection is borderline frivolous, and I will overrule it and
21   grant the motion.”    Id. at 5:3-5.
22        The bankruptcy court later entered an order granting relief
23   from the automatic and codebtor stays.
24        Debtor timely appealed.
25                               JURISDICTION
26        The bankruptcy court had jurisdiction under 28 U.S.C.
27   §§ 1334 and 157(b)(2)(G).    We have jurisdiction under 28 U.S.C.
28   § 158.

                                      4
 1                                   ISSUE
 2        Did the bankruptcy court err in granting Ditech relief from
 3   the automatic stay?
 4                           STANDARD OF REVIEW
 5        We review for an abuse of discretion the bankruptcy court’s
 6   decision to grant relief from the automatic stay.       Moldo v.
 7   Matsco, Inc. (In re Cybernetic Servs., Inc.), 252 F.3d 1039,
 8   1045 (9th Cir. 2001); Gruntz v. County of Los Angeles
 9   (In re Gruntz), 202 F.3d 1074, 1084 n.9 (9th Cir. 2000)
10   (en banc).   We “review de novo contentions that present an issue
11   of law regarding stay relief.”    Kronemyer v. Am. Contractors
12   Indem. Co. (In re Kronemyer), 405 B.R. 915, 919 (9th Cir. BAP
13   2009) (citing Mataya v. Kissinger (In re Kissinger), 72 F.3d
14   107, 108 (9th Cir. 1995)).
15        A bankruptcy court abuses its discretion if it applies the
16   wrong legal standard, misapplies the correct legal standard, or
17   if it makes factual findings that are illogical, implausible, or
18   without support in inferences that may be drawn from the facts
19   in the record.   See TrafficSchool.com, Inc. v. Edriver Inc.,
20   653 F.3d 820, 832 (9th Cir. 2011) (citing United States v.
21   Hinkson, 585 F.3d 1247, 1262 (9th Cir. 2009) (en banc)).
22                                 DISCUSSION
23        We start with context.    Debtor is what is “colloquially
24   known as [a] ‘Chapter 20’ debtor[].”       HSBC Bank USA, N.A. v.
25   Blendheim (In re Blendheim), 803 F.3d 477, 480 (9th Cir. 2015).
26   Before filing his present chapter 13 proceeding, he filed for
27   and received a chapter 7 discharge.
28        But, as the bankruptcy court explained, Debtors’ chapter 7

                                       5
 1   discharge has no effect on Ditech’s lien rights or right to
 2   foreclose on the property.   “Absent some action by the
 3   representative of the bankruptcy estate, liens ordinarily pass
 4   through bankruptcy unaffected . . . .”      Brawders v. Cnty. of
 5   Ventura (In re Brawders), 503 F.3d 856, 867 (9th Cir. 2007); see
 6   Schlegel v. Billingslea (In re Schlegel), 526 B.R. 333, 342 (9th
 7   Cir. BAP 2015).   True, Debtor received a discharge of his
 8   personal liability for the debt, but Ditech’s liens remained in
 9   full force, and Ditech retained the right to recover its claims
10   from the collateral.   See Johnson v. Home State Bank, 501 U.S.
11   78, 80 (1991) (holding that a mortgage lien, after a chapter 7
12   proceeding has discharged a debtor’s personal obligation on the
13   underlying debt, remains a “claim against the debtor that can be
14   rescheduled under Chapter 13”).       As such, secured creditors such
15   as Ditech “may choose not to participate in the bankruptcy case
16   and look to their liens for satisfaction of the debt.”
17   In re Schlegel, 526 B.R. at 342.
18        The bankruptcy court did not abuse its discretion in
19   granting relief from the automatic stay.       Under § 362(d), the
20   bankruptcy court must grant relief from the automatic stay “for
21   cause, including the lack of adequate protection . . . .”
22   11 U.S.C. § 362(d)(1).   “Because there is no clear definition of
23   what constitutes ‘cause,’ discretionary relief from the stay
24   must be determined on a case by case basis.”      Mac Donald v.
25   Mac Donald (In re Mac Donald), 755 F.2d 715, 717 (9th Cir.
26   1985); In re Kronemyer, 405 B.R. at 921.      In Ellis v. Ellis
27   (In re Ellis), 60 B.R. 432 (9th Cir. BAP 1985), we held, in a
28   virtually identical situation, that “[f]ailure to make post-

                                       6
 1   confirmation payments can constitute cause for lifting the
 2   stay.”   Id. at 435.
 3        Here, Watson failed to make 5 postconfirmation payments
 4   (and 11 postpetition payments).        And the bankruptcy court
 5   concluded that this was cause to grant stay relief.        As in
 6   In re Ellis, and on the record before us, we see no error in the
 7   bankruptcy judge’s determination that cause existed for
 8   terminating the automatic stay.
 9        Debtor’s confirmed chapter 13 plan does not suggest a
10   different result.      Debtor makes much of the fact that he has
11   confirmed a chapter 13 plan.     Debtor argues that stay relief was
12   inappropriate because Ditech failed to object to his chapter 13
13   plan, which was confirmed, final under § 1327, and thus res
14   judicata as to all issues that could have been raised.        We
15   disagree; we rejected this argument in Ellis. 60 B.R. at 434
16   (“Post-confirmation defaults would not be considered at the
17   confirmation hearing and are therefore not subject to res
18   judicata flowing from the order.”).
19        Debtor’s confirmed chapter 13 plan (i.e., Hawaii’s form
20   chapter 13 plan) does not address the present situation: a
21   secured creditor not provided for in the plan.        Debtor’s plan
22   provides for the following potential classes of secured
23   creditors:
24   •    “Class 1 consists of secured claims where (a) Debtor was in
25        default on the petition date and (b) the claimant’s rights
26        are not modified by the plan, except for the curing of the
27        default.”
28   •    “Class 2 consists of secured claims where the rights of the

                                        7
 1        holder of a secured claim are modified by the plan under
 2        11 U.S.C. § 1322(b)(2) or (c)(2).”
 3   •    “Class 3 consists of secured claims that are satisfied by
 4        surrender of collateral.”
 5   •    “Class 4 consists of secured claims where (a) Debtor was
 6        not in default on the petition date and (b) the rights of
 7        the holder are not modified by this plan.”3
 8   In filling out the plan, Debtor stated that there were no
 9   creditors falling into any of these classes.   Debtor thus did
10   not provide for Ditech’s interest in the plan.4
11        The plan does provide that “[e]xcept to the extent
12   necessary to fund this plan, property of the estate shall revest
13   in Debtor upon entry of the confirmation order.”   This language,
14   combined with § 1327, underscores that Ditech’s interest
15
16        3
             The national official form chapter 13 plan is similar.
     It provides for the following classes of secured claims, but
17   does not address what happens when a secured creditor is not
18   treated under the plan:

19   •    Section 1322(b)(5) treatment: “Maintenance of payments and
          cure of default, if any.”
20
     •    Bifurcation under § 506(a): “Request for valuation of
21        security, payment of fully secured claims, and modification
          of undersecured claims.”
22   •    Section 1325(a)(5)’s “hanging paragraph”: “Secured claims
          excluded from 11 U.S.C. § 506.”
23
     •    Section 522(f): “Lien avoidance.”
24   •    “Surrender of collateral.”
          4
25           The bankruptcy court granted Ditech relief from the
     § 1301 codebtor stay. This was unquestionably correct under
26   § 1301(c), which provides that the bankruptcy court shall grant
27   relief from the codebtor stay to the extent that “the plan filed
     by the debtor proposes not to pay such claim . . . .” 11 U.S.C.
28   § 1301(c)(2).

                                      8
 1   survives.   Section 1327(c) states that, except as otherwise
 2   provided for in the plan or confirmation order, “the property
 3   vesting in the debtor under subsection (b) of this section is
 4   free and clear of any claim or interest of any creditor provided
 5   for by the plan.”    11 U.S.C. § 1327(c) (emphasis added).   To the
 6   extent the property revested in Debtor, it remained encumbered
 7   by Ditech’s lien.
 8        Debtor also contends that Ditech’s claim was not provided
 9   for in the plan because it had been assigned to a different
10   party.   Because the plan does not otherwise provide for the
11   alleged assignee, we consider this as a renewal of Debtor’s
12   standing argument.    In the stay relief context, a party “seeking
13   stay relief need only establish that it has a colorable claim to
14   the property at issue.”    Arkison v. Griffin (In re Griffin),
15   719 F.3d 1126, 1128 (9th Cir. 2013).    The bankruptcy court
16   addressed Debtor’s concerns at the hearing.    And Debtor does not
17   argue on appeal that the bankruptcy court’s reasoning was in
18   error.   Nor do we see any error: the bankruptcy court accepted
19   the uncontested representation from Ditech’s counsel that his
20   client held the original note indorsed in blank.    Debtor’s
21   counsel had an opportunity to inspect that note, but lost the
22   opportunity when he failed to appear at the stay relief hearing.
23   We determine that the bankruptcy court did not err in concluding
24   that Ditech had standing to seek stay relief.
25        Debtor also argues that Ditech’s foreclosure action had
26   been dismissed, with prejudice, by the Hawaii state court.     The
27   bankruptcy court, however, addressed this; it explained that the
28   dismissal was vacated and that the vacature was not void as an

                                      9
 1   act in violation of the automatic stay.   Debtor does not argue
 2   that the bankruptcy court erred in so determining.   Thus, for
 3   purposes of the stay relief issues the facts of the judicial
 4   foreclosure action do not evidence error.
 5        Debtor next contends that the bankruptcy court erred
 6   because he had missed no plan payments.   But that is immaterial.
 7   As Debtor concedes, Debtor’s confirmed chapter 13 plan does not
 8   provide for payment to Ditech.   As discussed above, Ditech, as a
 9   secured creditor, could look to its lien rights for satisfaction
10   of its debt; and Ditech requested stay relief to pursue those
11   rights because it was not receiving payment either under or
12   outside the plan.
13        Finally, Debtor argues that there was no postpetition debt
14   because the debt had been accelerated prepetition.   Although
15   true, we do not find this argument persuasive.   The relevant
16   question is whether there was cause to grant stay relief.   As we
17   explained above, Debtor used chapter 7 to discharge his personal
18   liability on the note; accordingly, Ditech could not seek a
19   deficiency judgment and could look only to the Property for
20   satisfaction of the debt.   And Debtor (and his spouse) opted to
21   remain in possession of the Property; this possessory interest
22   in the Property was protected by the automatic stay.
23   Presumably, so long as payments on the Property were being made
24   on its in rem rights, Ditech would not proceed with foreclosure.
25   But payments were not made, and Debtor did not propose to
26   restructure his relationship with Ditech in his chapter 13 plan.
27   Accordingly, it is not a question of whether the debt Debtor
28   owed was pre- or postpetition (that debt was discharged); rather

                                      10
 1   the analysis centers on whether Ditech could enforce its in rem
 2   right to receive monthly payments on the Property.   Ditech was
 3   not receiving those payments; this was cause to grant stay
 4   relief as to Debtor’s possessory interest in the Property.
 5                              CONCLUSION
 6        Based on the foregoing, we AFFIRM.
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