Opinion
Case No. 99-11297-SSM, Contested Matter No. 99-1022
July 15, 1999
Ann N. Kathan, Esquire, Feidler, Long Kathan, P.L.L.C., alexandria, Va, Of Counsel for the movant
Joel Steinberg, Esquire, Joel Steinberg Associates, Fairfax, Va, Of Counsel for the debtor
MEMORANDUM OPINION AND ORDER
A preliminary hearing was held in open court on July 14, 1999, on a motion filed by Corporate America Federal Credit Union ("the Credit Union") for relief from the automatic stay in order to foreclose under a deed of trust against the debtor's residence. The movant and the debtor were each present by counsel. The court, having reviewed the particular note in question, was doubtful that it was in fact secured by the residence, but continued the motion for a final hearing on July 28, 1999, for production of the Truth-in-Lending Disclosure, which the court considered likely to be highly germane. Upon further reflection, however, the court concludes that the extent of the Credit Union's lien is not an issue that may properly be determined in the context of the present motion, since the automatic stay has already terminated as a matter of law. Accordingly, the court will dismiss the motion for relief from the automatic stay as moot without prejudice to the right of either party to bring a separate action in any court of competent jurisdiction to resolve the disputed issue.
Under Regulation Z issued by the Board of Governors of the Federal Reserve System under the authority of the Truth in Lending Act, 15 U.S.C. § 1601, et seq., a creditor is required to disclose, in connection with any extension of consumer credit, certain specified information, including the fact that the creditor "has or will acquire a security interest" in property of the borrower. 12 C.F.R. § 226.6(c).
The debtor, Carmel Margaret Dardis, filed a voluntary chapter 7 petition in this court on March 16, 1999. Among the debts listed on her schedules were a first and second mortgage to the Credit Union, as well as an unsecured signature loan owed to the Credit Union in the amount of $4,919,29. The chapter 7 trustee filed a report of no distribution on April 14, 1999, and the debtor was granted a discharge on June 24, 1999. In the interim, the Credit Union filed the present motion for relief from stay on June 23, 1999, alleging that the signature loan — which the debtor does not deny is in default — was cross-collateralized, and thus secured, by the deeds of trust securing the first-trust loan and the home equity loan. There is no assertion by the Credit Union that payments on either of those two loans are in default.
The relevant facts are not in dispute. On March 3, 1993, the debtor signed a $99,000.00 adjustable rate promissory note payable to SC Funding Corporation. That note, which has been endorsed to and is now held by the Credit Union, is secured by a first-lien deed of trust of the same date against the debtor's residence located at 808 South Filbert Court, Sterling, Virginia. That deed of trust was recorded in the Clerk's Office of the Loudoun County Circuit Court on March 11, 1993, in Deed Book 1215, Page 868.
On February 13, 1995, the debtor signed a $16,300.00 "home equity line of credit" note payable to the Credit Union. That note is secured by a second-lien revolving credit deed of trust against the South Filbert Court property dated the same date and recorded on February 17, 1995, in the Clerk's Office of the Loudoun County Circuit Court in Deed Book 1355,.
Some 19 months later, the debtor signed on September 23, 1996, a $7,500.00 promissory note (captioned "Open-End Credit Plan Advance Request Voucher"), repayable with interest at 12.75% in monthly installments of $171.00. According to the note, the purpose of the loan was "debt consolidation," and the security offered was "signature." The note also contains the following language, "Property given as security for this loan or for any other loan may secure all amounts I owe the credit union now and in the future. However, the credit union specifically waives any security interest it may have on my or any other person's principal residence given though any other mortgages or security agreements" (emphasis added).
In a separate block, the note reflects that the debtor pledged, as security for the note, her Credit Union share account in the amount of $100.00.
Notwithstanding this seemingly crystal-clear language "specifically" waiving any claim of security interest in the debtor's residence with respect to the signature loan, the Credit Union argues that the three promissory notes are nevertheless "tied together" such that a default on the signature loan entitles it to foreclose under either its first or second deed of trust. In support of this contention, the Credit Union points to language in the signature loan note which provides that it will be in default if, among other things, "you do not pay on time any of my other or future debts to you." Clearly, this language would make a default under either the first trust note or home equity note a default on the signature loan as well. The converse, however, is not true: the quoted language does not make default on the signature note a default under the other loans. Indeed, neither the first trust note nor the home equity note contains language whereby default under any other obligation constitutes an event of default on either of those two notes.
It seems reasonably clear, therefore, that the September 23, 1996, promissory note is not secured by either the first deed of trust or the revolving credit deed of trust. The procedural problem, however, is that the automatic stay, as such, has already terminated as a matter of law. Under § 365(c), Bankruptcy Code, the automatic stay, as it affects acts against property of the bankruptcy estate, terminates when the property ceases to property of the estate; and as it affects actions against the debtor or property of the debtor, it terminates when the debtor receives a discharge. As noted above, the trustee has filed a report of no distribution, and the debtor has been granted a discharge. The automatic stay, to be sure, is replaced upon entry of the discharge by the discharge injunction of § 524(a)(2), Bankruptcy Code, but valid liens, unless avoided in the course of the bankruptcy, survive discharge and may be enforced in rem against the collateral following discharge. Johnson v. Home State Bank, 501 U.S. 78, 111 S.Ct. 2150, 2153, 115 L.Ed.2d 66 (1991).
Since there is currently no stay in effect, there is effectively nothing for the court to determine in the context of the present proceeding, and this court, like all federal courts, may not render advisory opinions but may only decide "cases and controversies." The parties are free to bring a declaratory judgment action in this or any other court of competent jurisdiction to determine the extent of the Credit Union's lien. To obtain such a declaration (or an injunction against foreclosure) in this court, however, will require the bringing of an adversary proceeding. F.R.Bankr.P. 7001. Alternatively, if the Credit Union attempts to foreclose based solely on failure to pay the September 23, 1996, note — on which the debtor's personal liability has unquestionably been discharged — the debtor may bring an motion in this court to hold the Credit Union in contempt for violation of the discharge injunction. If the court were to determine, in the context of that motion, that the Credit Union does not in fact have a valid lien against the debtor's residence to enforce the payment of the September 23, 1996, note, then any attempted foreclosure would constitute a prohibited attempt to collect a discharged obligation as a personal liability of the debtor and would subject the Credit Union to appropriate sanctions.
However, since the automatic stay has already terminated, the present motion, to the extent it seeks relief from that stay is moot. It is, accordingly,
ORDERED:
1. The motion for relief from automatic stay is dismissed as moot.
2. The clerk will mail a copy of this order to counsel for the movant, counsel for the debtor, and the chapter 7 trustee.