Opinion
Case No. 3:15-bk-4161-PMG
10-19-2016
In re: Raymond Robert Shelton, Debtor.
Chapter 13 ORDER ON U.S. BANK, NATIONAL ASSOCIATION'S MOTIONS FOR RELIEF FROM AUTOMATIC STAY AND CO-DEBTOR STAY
THIS CASE came before the Court for a final evidentiary hearing to consider the Motions of U.S. Bank, National Association (the Bank) for Relief from the Automatic Stay and Co-Debtor Stay. (Docs. 41, 42).
Section 362(d)(4) of the Bankruptcy Code provides for stay relief with respect to real property, if the filing of the petition was part of a scheme to delay, hinder, or defraud creditors, and the scheme involved multiple bankruptcy filings affecting the property.
The Bank is the holder of a Final Judgment of Foreclosure with respect to the Debtor's real property. This is the fifth bankruptcy case filed by the Debtor or his wife that affects the property. The filing of this case was part of a scheme to delay, hinder, or defraud the Bank, as evidenced by the multiple filings, the timing and sequence of the filings, the Debtors' inability or unwillingness to make payments to the Bank, and the Debtors' use of the bankruptcy cases to collaterally attack the Bank's Final Judgment of Foreclosure. Accordingly, relief from the stay should be granted pursuant to §362(d)(4) of the Bankruptcy Code.
I. Background
The Debtor in this case is Raymond Robert Shelton, and the Debtor's wife is Dorothy Anne Shelton (collectively, the Debtors).
The Debtors own the real property located at 10731 S.W. 185 Terrace, Dunnellon, Florida (the Property). According to Mr. Shelton, the Property consists of two combined lots, upon which are situated a residential cottage and a large rental house on the Rainbow River. The Debtors reside on the Property, and market the larger house as a vacation rental home. (Debtor's Exhibits 1, 3).
The Property is valued at $514,835.00 according to the 2016 Marion County Property Appraiser report. (Bank's Exhibit F).
On June 7, 2010, the Bank obtained a Summary Final Judgment of Foreclosure with respect to the Property in the Circuit Court of Marion County, Florida. As of the date of the Final Judgment, the amount owed to the Bank was $731,577.46. (Bank's Exhibit A).
II. Section 362(d)(4)
The Bank seeks relief from the stay and co-debtor stay in this bankruptcy case pursuant to §362(d)(4) of the Bankruptcy Code. Section 362(d)(4) provides:
11 USC §362. Automatic stay
. . .
(d) On request of a party in interest and after notice and a hearing, the court shall grant relief from the stay provided under subsection (a) of this section, such as by terminating, annulling, modifying, or conditioning such stay—
. . .
(4) with respect to a stay of an act against real property under subsection (a), by a creditor whose claim is secured by an interest in such real property, if the court finds that the filing of the petition was part of a scheme to delay, hinder, or defraud creditors that involved either—11 U.S.C. §362(d)(4)(Emphasis supplied). The section became part of the Bankruptcy Code under the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005, and its purpose is to reduce abusive filings. In re Behrens, 501 B.R. 351, 354-55 (8 Cir. BAP 2013).
(A) transfer of all or part ownership of, or other interest in, such real property without the consent of the secured creditor or court approval; or
(B) multiple bankruptcy filings affecting such real property.
For a Court to grant relief under §362(d)(4), the record must show that the filing was part of a scheme to delay, hinder, or defraud creditors. Generally, a scheme under §362(d)(4) is an intentional or systematic plan of action to delay, hinder, or defraud creditors. In re JCP Properties, Ltd., 540 B.R. 596, 619-20 (Bankr. S.D. Tex. 2015)("The current language of 'or' in paragraph (4) reflects a 2010 amendment to §362(d)(4), which changed 'hinder, and' to 'hinder, or.'"). Because the statute is written in the disjunctive, §362(d)(4) requires only that the filing be part of a scheme to delay or hinder creditors, and the Court is not required to decide whether the filing was made with fraudulent intent. In re Behrens, 501 B.R. at 357 n.2.
A Court may infer the existence of a scheme to delay, hinder, or defraud creditors solely from the fact of serial filings, and may also consider other factors in determining whether relief under §362(d)(4) is warranted. Such other factors include the timing and sequence of the filings, the feasibility of any plan proposed by the debtor in the cases, and the debtor's use of the cases to collaterally attack a foreclosure judgment related to the property. In re Richmond, 516 B.R. 229, 235 (Bankr. E.D. N.Y. 2014).
In Richmond, for example, the Court found that §362(d)(4) relief was appropriate where the debtor's multiple cases were filed on the eve of significant events in the foreclosure action, where the debtor had not shown that he could meet his obligations under a proposed plan, and where the debtor had continued to challenge the creditor's foreclosure judgment in the bankruptcy case, even though the challenges were precluded by res judicata and the Rooker-Feldman doctrine. In re Richmond, 516 B.R. at 235. See also In re Behrens, 501 B.R. at 355-56.
The Court has considered the factors and circumstances presented in this case, and finds that relief from the stay should be granted under §362(d)(4).
III. Multiple filings
First, the Debtors have filed a total of five bankruptcy cases in which they listed the Property as an asset. The cases were not filed as joint cases, but were instead filed by either Mr. Shelton or Mrs. Shelton individually.
On August 1, 2007, Mr. Shelton filed the first bankruptcy case, a Chapter 7 case which was assigned Case No. 07-3298. The Chapter 7 case was closed on April 5, 2010.
On August 4, 2010, Mrs, Shelton filed the second bankruptcy case, a Chapter 13 case which was assigned Case No. 10-6803. No Chapter 13 Plan was confirmed, and Mrs. Shelton converted the case to a case under Chapter 7 of the Bankruptcy Code on November 7, 2011, following the entry of an Order Dismissing the Chapter 13 case. On April 19, 2012, the Chapter 7 case was dismissed based on Mrs. Shelton's failure to appear at the creditors' meeting.
On October 3, 2012, Mrs. Shelton filed the third bankruptcy case, a Chapter 7 case which was assigned Case No. 12-6496. The Chapter 7 case was twice converted to a case under Chapter 13 (on October 29, 2012, and December 2, 2013), and twice re-converted to a Chapter 7 case based on Mrs. Shelton's failure to make payments to the Chapter 13 Trustee (on October 7, 2013, and January 24, 2014). The case was closed on November 30, 2015.
On August 5, 2014, while Mrs. Shelton's case was pending, Mr. Shelton filed the fourth bankruptcy case, a Chapter 13 case which was assigned Case No. 14-3836. No Chapter 13 Plan was confirmed, and Mr. Shelton voluntarily dismissed the case on December 5, 2014.
On September 18, 2015, Mr. Shelton filed the fifth and current bankruptcy case, a Chapter 13 case which was assigned Case No. 15-4161.
IV. Timing and sequence
The timing and sequence of the Debtors' five bankruptcy cases indicate that the filings were part of a scheme to delay, hinder, or defraud creditors.
The Debtors originally obtained the loan from the Bank on November 22, 2003. The amount of the original Note was approximately $618,000,00, and the loan was secured by the Debtors' Property.
Bill Fogleman, as general counsel for the Bank's servicer, testified that the Debtors initially defaulted under the terms of the loan prior to 2008, and Mr. Shelton appeared to agree that the initial default occurred in 2006 or 2007.
The first bankruptcy case was filed by Mr. Shelton on August 1, 2007. In the first case, the Debtor listed the Property with a scheduled value of $804,395.00, and with three scheduled mortgages in the total amount of $1,056,701.50. Mr. Shelton received his Chapter 7 Discharge on January 18, 2008. (Case No. 07-3298, Doc. 44).
The Bank filed its action to foreclose the Property in 2008 in the Circuit Court for Marion County, Florida, Case No. 42-2008-CA-003056. On June 7, 2010, the Bank obtained a Summary Final Judgment of Foreclosure in the State Court action. (Bank's Exhibit A).
The Debtors' second and third bankruptcy cases were both filed one day before foreclosure sales that were scheduled pursuant to the Bank's Final Judgment, The Foreclosure Judgment dated June 7, 2010, for example, originally scheduled a sale of the Property for August 5, 2010. The sale was not conducted on that date, however, because Mrs. Shelton filed bankruptcy case No. 10-6803 one day earlier, on August 4, 2010. After that bankruptcy case was dismissed on April 19, 2012, the Bank returned to State Court and rescheduled the foreclosure sale for October 4, 2012. That sale was also stayed, however, when Mrs. Shelton filed her second bankruptcy case (and the third case affecting the Property) on October 3, 2012.
Mrs. Shelton received a Chapter 7 Discharge in the third case on October 15, 2015. (Case No. 12-6496, Doc. 156).
On August 5, 2014, while Mrs. Shelton's case was still pending, Mr. Shelton filed a petition under Chapter 13 of the Bankruptcy Code, the fourth bankruptcy case for the couple. On November 20, 2014, the Bank filed Motions for Relief from the Stay and Co-Debtor Stay in the Chapter 13 case, and the Motions were scheduled to be heard on December 15, 2014. (Case No. 14-3836, Docs. 36, 37, 38). On December 5, 2014, ten days before the scheduled hearing on the Bank's stay relief Motions, Mr. Shelton filed a Motion to voluntarily dismiss the Chapter 13 case, and the case was dismissed on December 8, 2014, before the Motions could be adjudicated. (Case No. 14-3836, Docs. 40, 41).
On September 18, 2015, Mr. Shelton filed the fifth and current bankruptcy case.
In summary, the record shows that (1) all of the Debtors' five bankruptcy cases were filed after the loan from the Bank was troubled; (2) the cases were separately filed by Mr. Shelton or Mrs. Shelton individually, and not as joint cases; (3) two of the cases were filed one day before scheduled foreclosure sales; and (4) one case was voluntarily dismissed only ten days before the Bank could obtain appropriate relief under §362(d) of the Bankruptcy Code. The timing and sequence of the five cases indicate that the filings were part of a scheme to delay, hinder, or defraud creditors. In re Behrens, 501 B.R. at 355-56; In re Richmond, 516 B.R. at 235.
V. Inability or unwillingness to pay
In addition to the timing and sequence of the bankruptcy cases, the Debtors' inability or unwillingness to pay the Bank also indicates that the filings were part of a scheme to delay, hinder, or defraud creditors.
On January 25, 2016, the Bank filed Proof of Claim Number 2-1 in the current Chapter 13 case. Claim Number 2-1 was filed in the total amount of $963,842.35, and is secured by the Debtors' Property. According to the Claim, payments are due on the loan from December 1, 2008, and the Claim includes the sum of $41,772.29 for "force place insurance." Further, the Claim states that the "amount necessary to cure any default on the loan as of the date of the petition" is $440,224.40.
The Marion County Tax Collector has also filed Claims in the current Chapter 13 case for unpaid taxes on the Debtors' Property. Claim Number 4-1 was filed in the amount of $17,957.78 for the 2011 and 2012 tax years, Claim Number 5-1 was filed in the amount of $986.65 for the 2013, 2014, and 2015 tax years, and Claim Number 6-1 was filed in the amount of $53,418.54 for the tax years beginning in 2008 and ending in 2015. Based on the Tax Collector's Claims, therefore, the total amount of the real estate taxes due on the Property since 2008 equals the sum of $72,362.97.
During the course of the five bankruptcy cases, the Debtors have shown little ability to address the substantial debt on the Property. Four of the five bankruptcy filings have involved Chapter 13 cases, but no Chapter 13 Plan has ever been confirmed in any of the cases. In Case No. 10-6803, for example, Mrs. Shelton proposed a Chapter 13 Plan which stated that "no distribution is provided for any mortgage holder under the plan." (Case No. 10-6803, Doc. 13). Later, in Case No. 14-3836, Mr. Shelton proposed a Chapter 13 Plan which provided for "re-amortized payments" with a "balloon Mortgage" over a 7-year Plan period. (Case No. 14-3836, Doc. 4). The Debtors' proposed Plans were not confirmable under §1322 and §1325 of the Bankruptcy Code.
Further, at the final evidentiary hearing on the Bank's stay Motions, Mr. Shelton testified that the Debtors' sole source of income is the marketing of the house on the Property as a vacation rental home. Specifically, Mr. Shelton stated that the rental of the house provides the sole income for his family, and that the Debtors have no other source of income. Although Mr. Shelton asserted that the rental business is successful, he did not produce any documents or accounting records to demonstrate the amount of income currently received from the rentals, the revenues historically generated from the rentals, any rental agreements with existing or prospective tenants, or the costs and expenses incurred to manage the Property.
In fact, at the final hearing on October 4, 2016, the Chapter 13 Trustee reported that the Debtor's interim Chapter 13 payments in this case are delinquent in the amount of $2,870.24, and that the last payment that he had received from the Debtor was in May of 2016.
In summary, the debt owed to the Bank exceeds the sum of $900,000.00 and is due from 2008, and the property taxes owed to the Marion County Tax Collector exceed the sum of $72,000.00 for the tax years beginning in 2008. The Debtors did not show that they have the income or resources to address an indebtedness of that magnitude, and have not proposed any confirmable Chapter 13 Plan during the course of their five bankruptcy filings. The Debtors' inability or unwillingness to make payments to the Bank indicates that the filing of this case was part of a scheme to delay, hinder, or defraud creditors. See In re Lee, 467 B.R. 906, 921 (6 Cir. BAP 2012)(Section 362(d)(4) relief was appropriate, where the debtor's sole income was from rental property, and the debtor demonstrated no realistic ability to pay the debt on her property.).
VI. Continued challenges to the foreclosure judgment
Finally, the Debtors' use of the bankruptcy cases to collaterally attack the Bank's Final Judgment of Foreclosure also indicates that the filing is part of a scheme to delay, hinder, or defraud creditors.
The Bank obtained a Summary Final Judgment of Foreclosure in the Circuit Court for Marion County, Florida on June 7, 2010. (Bank's Exhibit A). At the final hearing on the Bank's stay relief Motions, Bill Fogleman testified that the Debtors filed at least two motions in the foreclosure action to vacate the Judgment. The Debtors' requests for relief from the Judgment were denied by the State Court.
Despite the decisions by the State Court in the foreclosure action, the Debtors have continued to challenge the Final Judgment during their bankruptcy cases. In their proposed Chapter 13 Plans, for example, the Debtors have asserted that their Property is not subject to "any valid encumbrance," and that they would pursue litigation to avoid any claimed encumbrances on the Property. (Case No. 10-6803, Doc. 13; Case No. 12-6496, Doc. 104).
In fact, the Debtors filed two separate adversary proceedings against the Bank in connection with Mrs. Shelton's bankruptcy cases. On April 14, 2011, for example, the Debtors as co-Plaintiffs filed a Complaint in the Bankruptcy Court in connection with Case No. 10-6803, in which they named the Bank as a Defendant, disputed the capacity of SN Servicing Corporation as servicer for the Bank, and sought a determination that the Property was free and clear of the Bank's mortgage. (Adv. Pro. 11-187, Doc. 1). The adversary proceeding was dismissed after dismissal of the underlying bankruptcy case.
Later, on September 19, 2013, and in connection with bankruptcy case No. 12-6496, the Debtors as co-Plaintiffs filed a second Complaint against the Bank, in which they disputed the authenticity of the loan documents filed in the foreclosure action, and asserted that the Bank had failed to demonstrate that it was the holder of a note and mortgage encumbering the Property. (Adv. Pro. 13-447). The Debtors voluntarily dismissed the adversary proceeding on March 3, 2014.
In determining whether stay relief is appropriate under §362(d)(4), a Court may consider the debtor's use of a bankruptcy case to collaterally attack a foreclosure judgment related to his property. In re Richmond, 516 B.R. at 235. In this case, the Debtors have used their bankruptcy cases to challenge the Bank's Summary Final Judgment of Foreclosure, after the State Court had determined the issue. The continued challenges indicate that the filing of the bankruptcy cases was part of a scheme to delay, hinder, or defraud creditors.
VII. Conclusion
Section 362(d)(4) of the Bankruptcy Code provides for stay relief with respect to real property, if the filing of the petition was part of a scheme to delay, hinder, or defraud creditors, and the scheme involved multiple bankruptcy filings affecting the property.
The Bank is the holder of a Final Judgment of Foreclosure with respect to the Debtors' real property. This is the fifth bankruptcy case filed by the Debtor or his wife that affects the Property. The filing of this case was part of a scheme to delay, hinder, or defraud the Bank, as evidenced by the multiple filings, the timing and sequence of the filings, the Debtors' inability or unwillingness to make payments to the Bank, and the Debtors' use of the bankruptcy cases to collaterally attack the Bank's Final Judgment. Accordingly, relief from the stay should be granted pursuant to §362(d)(4) of the Bankruptcy Code.
Accordingly:
IT IS ORDERED that:
1. The Motions of U.S. Bank, National Association for Relief from the Automatic Stay and Co-Debtor Stay are granted, and the automatic stay is modified pursuant to §362(d)(4) of the Bankruptcy Code.
2. U.S. Bank, National Association is permitted to proceed with and conclude its foreclosure proceedings with respect to the real property located at 10731 S.W. 185 Terrace, Dunnellon, Florida, to sell the Property under the terms of the Mortgage, and to take any necessary action to obtain possession of the Property.
3. If recorded in compliance with applicable State laws governing notices of interests or liens in real property, this Order shall be binding in any other bankruptcy case purporting to affect the real property filed not later than 2 years after the date of the entry of this Order, except that a debtor in a subsequent bankruptcy case may move for relief from this Order based upon changed circumstances or for good cause shown, after notice and a hearing.
4. The 14-day stay provided by Bankruptcy Rule 4001(a)(3) is waived.
DATED this 19 day of October, 2016.
BY THE COURT
/s/_________
PAUL M. GLENN
United States Bankruptcy Judge