Summary
continuing automatic stay in effect, conditioned upon monthly payments by the debtor, despite debtor's lack of equity in property
Summary of this case from In re GradyOpinion
Case No. 98-17991-SSM, Contested Matter No. 98-2082
December 3, 1998
Lawrence E. Rifken, Esquire, McGuire, Woods, Battle Booth LLP, McLean, VA, of Counsel for the movant
Kevin M. O'Donnell, Esquire, Henry O'Donnell, P.C., Fairfax, VA, of Counsel for the debtor
MEMORANDUM OPINION
A hearing was held on November 25, 1998, on the motion for relief from the automatic stay brought by Security Bank Corporation, the holder of a second-lien deed of trust against the residence owned by the debtor and his wife. At the conclusion of the hearing, the court ruled that the automatic stay would not be terminated but would be continued in effect conditioned upon the making of adequate protection payments. An order was signed on November 27, 1998, reflecting the court's ruling. The purpose of this memorandum opinion is to supplement the findings of fact and conclusions of law made orally on the record.
Facts
Charles H. Jones ("the debtor") filed a voluntary petition under chapter 7 of the Bankruptcy Code in this court on November 2, 1998, and has not yet been granted a discharge. The petition was filed on the morning of a scheduled foreclosure sale by Security Bank Corporation ("the Bank") to enforce a second-lien deed of trust against the residence owned by the debtor and his wife located in Fairfax County, Virginia, at 3287 Willow Glen Drive, Herndon, Virginia.
The legal description is Lot 75, Section 2, Still Oaks subdivision, Fairfax County, Virginia.
The Bank's deed of trust secured two promissory notes. The first, referred to variously in the testimony as the "C C note" or the "Jones note" was a credit line promissory note dated May 31, 1991, in the original principal amount of $100,000.00, with interest at prime plus 2%, repayable in monthly installments and due in full May 31, 1991. The maker of the note was C C Plumbing, Inc., a corporation owned by the debtor and his wife, Candace C. Jones, and the note was guaranteed by the debtor and his wife. It is secured by a second deed of trust dated May 31, 1990, and recorded the same date in the clerk's office of the Circuit Court of Fairfax County, Virginia. C C Plumbing, which had been formed in 1980, closed its doors in February 1996. At or around that time, the debtor caused a new corporation to be formed, Northern Virginia Plumbing Mechanical, Inc. ("NVPM"). The stock of the corporation is held in some form of trust for the benefit of the debtor's children. The Bank entered into a lending relationship with the new corporation which is evidenced by a line of credit promissory note dated April 8, 1996, in the original principal amount of $65,000.00, with interest at prime plus 1.25%, repayable in monthly installments and due in full April 8, 1997. The note is guaranteed by the debtor and his wife. On the same day that the NVPM note was signed, the debtor and his wife also signed a note and deed of trust modification agreement which had the effect of substituting the debtor and his wife as the makers of the C C note; reducing the interest rate to prime plus 1.25%; extending the maturity to October 8, 2006; providing for monthly payments based on a ten-year amortization; and expanding the Bank's deed of trust to secure also the NVPM note. The modification agreement was recorded in the clerk's office of the Circuit Court of Fairfax County on April 17, 1996. A second note and deed of trust modification agreement dated September 9, 1997, had the effect of extending the maturity of the NVPM note to September 9, 2002 and changing the interest rate to prime plus 1.5%. On the date of the relief from stay hearing, the payoff of the C C (or Jones) note, exclusive of attorneys fees, was $100,092.01, and the payoff of the NVPM note was $55,757.41.
The debtor and his wife had also set up a separate corporation known as Northern Virginia Equipment Leasing, Inc. which owned, and leased to NVPM, 21 pickup trucks and vans. The purchase of the trucks was financed by the Bank. By December 1997, the truck loans were in arrears, and the Bank had made demand for the surrender of the collateral. At that time, the C C note and the NVPM note were also several payments in arrears. On December 24, 1997, the Bank's attorney mailed default letters to the debtor accelerating the C C note and the NVPM note and demanding immediate payment in full. The letters were received the first week of January 1998. The debtor testified that he immediately telephoned L. Thomas Campbell, the Bank's executive vice president and senior credit officer, who told him that the default letters had not been authorized and that the Bank "didn't want" the debtor's house but did want the trucks. At or about this time payments were made to the Bank in the amount of $6,008.61 (apparently representing four monthly payments) on account of the C C note and $1,441.89 (apparently representing one monthly payment) on account of the NVPM note. According to the debtor's testimony, these payments brought both loans current, including late charges, through December 1997.
The checks are dated December 30, 1997. The debtor testified they were delivered to the Bank that same date.
It is undisputed that a payment was not made in January 1998 on either note. On January 29, 1998, default letters, signed by Mr. Campbell, were mailed to the debtor and his wife accelerating both the C C note and the NVPM note and demanding payment "in full, immediately[.] " Each letter contained the following language:
Although not entirely clear from the record, it appears that the payments were due on the 8th of the month for the C C note and on the 9th of the month for the NVPM note.
The payoff amount on the C C note was stated to be $103,775.15 as of January 26, 1998, with a per diem of $26.31. The payoff of the NVPM note was stated to be $65,731.35, with a per diem of $17.73.
You should be further advised that any payments hereafter made on the Note in any amount less than the full amount outstanding thereunder shall be accepted by the Lender without prejudice to the Lender's demand for payment in full and without prejudice to any of the Lender's rights under the Note and/or any of the other Loan Documents. Furthermore, nothing contained in this letter or in any other communication transmitted in connection herewith shall be deemed to constitute an election of remedies . . . or a waiver . . . of any default under the Note[.]
Notwithstanding the acceleration, the Bank continued to send monthly payment notices on each of the notes as though acceleration had not occurred. In February 1998, two months' payments were made on each of the notes. Each month thereafter, a payment was made to the Bank consistent with the payment notice sent by the Bank. The debtor testified that during this time frame he was cooperating with the Bank in turning in, and finding buyers for, the trucks, and that Mr. Campbell assured him that, if he did so, the Bank would be willing to enter into a forbearance agreement. After Mr. Campbell left the Bank, the Bank sent the debtor and his wife a proposed forbearance agreement and related documents on July 24, 1998. Among other provisions, the debtor and his wife were to execute a deficiency note for the truck notes in the amount of $79,165.75, to be secured by a third-lien deed of trust against the property, due in full in 12 months. When the debtor and his wife did not sign the forbearance agreement, the Bank initiated a nonjudicial foreclosure of the second deed of trust, with the foreclosure sale set for November 2, 1998.
As will be discussed below, Central Fidelity Bank had obtained a judgment against the debtor and his wife on September 30, 1996, in the amount of $350,000.00, plus interest, attorneys fees and costs, which was a lien against the property and which would, as a practical matter have prevented the Bank from obtaining a third-party lien.
The copy of the sale advertisement mailed to the debtors stated that the sale was scheduled for October 2, 1998.
In response, the debtor and his wife filed a bill of complaint against the Bank in the Circuit Court of Fairfax County, Virginia, seeking an injunction against the foreclosure sale as well as damages in tort for fraud and "economic duress." A three-hour hearing was held by the Circuit Court on October 29, 1998, on a motion for a preliminary injunction. At the conclusion of the hearing, the chancellor, the Honorable Kathleen MacKay, found that although the debtor and his wife had established the elements of irreparable harm and lack of an adequate remedy at law, they had not established a substantial likelihood of success on the merits. Accordingly, Judge MacKay denied the motion for a preliminary injunction. The debtor then filed his chapter 7 petition the morning of the foreclosure sale.
Ironically enough, Bank's counsel argued at the preliminary injunction hearing that "of course Mr. and Mrs. Jones do have a remedy of law. They can file bankruptcy proceedings and stop this foreclosure. . . . [T]hat is their right, and they can stop the foreclosure proceeding, and they don't need your Honor to do it."
The evidence at the relief from stay hearing established that the fair market value of the debtor's house was $480,000.00. The appraiser's testimony also established that approximately six months exposure to the market would be required to achieve that price if the property were listed now, and that typical costs of sale (including real estate commissions) and seller concessions are in the range of 9 1/2%. The appraiser estimated that the seller could expect to net approximately $434,500 before payoff of liens. The testimony also established that the principal balance on the first deed of trust against the property is $221,558.17. Although the Bank's attorney suggested in argument that the first deed of trust was in default, the debtor denied that it was, and no evidence was offered to the contrary.
In addition to the two deeds of trust, there are four docketed judgments that constitute liens against the real estate. The first, dated July 5, 1996, in favor of Central Fidelity Bank, is in the amount of $350,000.00, with interest at prime plus 1% from October 31, 1995, together with 25% attorneys fees. The second, dated September 12, 1996, in favor of Central Fidelity Bank, is in the amount of $50,000.00, with interest at prime plus 1% from January 22, 1996, and attorneys fees of 25%. Both judgments have been assigned to William R. Clay, the debtor's brother in law, who testified that there was no agreement with the debtor and his wife concerning the payment of the judgments. He also testified, however, that he had not undertaken any actions to enforce the judgments. The third judgment is dated August 6, 1997, in favor of Ferguson Enterprises, Inc., in the amount of $88,881.26, with interest at 24% from October 20, 1995, and attorneys fees of 25%. The amount due on the judgment, as of the relief from stay hearing, was $177,258.45. Finally, the fourth judgment is dated April 30, 1998, in favor of First Virginia Bank in the amount of $6,266.13, with interest at 16.98% from June 2, 1997, and 20% attorneys fees.
The judgment was entered by the Circuit Court of Prince William County, but was docketed in the clerk's office of the Circuit Court of Fairfax County on September 30, 1996.
This judgment was likewise docketed in Fairfax County on September 30, 1996.
Conclusions of Law and Discussion I.
Under 11 U.S.C. § 362(a), the filing of a bankruptcy petition operates as a stay, among other actions, of
(3) any act to obtain possession of property of the estate or of property from the estate or to exercise control over property of the estate;
(4) any act to create, perfect, or enforce any lien against property of the estate; [and]
(5) any act to create, perfect, or enforce against property of the debtor any lien to the extent that such lien secures a claim that arose before the commencement of the case under this title[.]
Such stay may be terminated, modified, conditioned, or annulled upon a showing, among other grounds, that " (A) the debtor does not have an equity in such property; and (B) such property is not necessary to an effective reorganization." 11 U.S.C. § 362(d)(2). This court has jurisdiction over a request for relief from the automatic stay under 28 U.S.C. § 1334 and 157(a) and the general order of reference from the United States District Court for the Eastern District of Virginia dated August 15, 1984. Under 28 U.S.C. § 157(b)(2)(G), this is a core proceeding in which final judgments and orders may be entered by a bankruptcy judge. The Bank, as the party seeking relief from the stay, has the burden of proof on the issue of lack of equity; the debtor has the burden of proof on all other issues. 11 U.S.C. § 362(g).
II.
By way of preface to the discussion that follows, the court observes, as it did at the hearing, that had the debtor chosen to file under chapter 11 rather than chapter 7, the issue of the Bank's right to accelerate would have been essentially moot and there would have been no need for a four-hour hearing. The debtor's basic defense was that the two notes secured by the deed of trust were not truly in default — or, more accurately, that the defaults had been waived — and that the Bank therefore had no right to foreclose. But under chapter 11, the debtor could have proposed a plan to deaccelerate the note, bring payments current, and resume making normal payments without regard to whether the Bank had the right to accelerate. 11 U.S.C. § 1123(a)(5) (G). Indeed, if the only treatment of the two notes was to cure any prepetition defaults and reinstate the maturity, the claims would not even be considered "impaired" and the Bank's acceptance would not be required for confirmation. 11 U.S.C. § 1124(2) and 1126(f). But, of course, a chapter 11 reorganization would also require the debtor to address, and not simply discharge, his unsecured debts (including his liability to the Bank on the truck loans). The debtor, for whatever reason, seems to be reluctant to proceed under chapter 11 except as a last resort, and obviously hopes both to discharge his unsecured liabilities and to obtain a judicial determination that acceleration of the two notes secured by the deed of trust has been waived. Having suffered an initial setback in state court, his attorney advised the court that the debtor intended to remove that action into this court under 28 U.S.C. § 1452. He requested a continuance (which the Bank opposed) to permit a trial in the removed action to be held concurrently with a final hearing on the motion for relief from stay.
Suffice it to note that this court has grave doubts that removal would be appropriate. Under 28 U.S.C. § 1452(a), an action to which a bankruptcy debtor is a party may be removed from state to Federal court only if the Federal court would have subject matter jurisdiction of the claim under 28 U.S.C. § 1334. Section 1334 in turn confers on the Federal courts jurisdiction over bankruptcy "cases," civil proceedings "arising under" the Bankruptcy Code, civil proceedings "arising in" a bankruptcy case, and civil proceedings "related to" a bankruptcy case. Although the jurisdictional grant of Section 1334 is comprehensive, it is not unlimited. As Chief Judge Bostetter of this court has cautioned,
Like other federal courts, bankruptcy courts are courts of limited jurisdiction, and as such, they "must be alert to avoid overstepping their limited grants of jurisdiction."
Poplar Run Five L.P, v. Virginia Electric Power Co. (In re Poplar Run Five L.P., 192 B.R. 848, 854-55 (Bankr. E.D. Va. 1995) (internal citations omitted).
To determine whether a civil case "arises under" the Bankruptcy Code, a court must
apply the same test used for deciding whether a civil action presents a federal question under 28 U.S.C. § 1331. This means that "arising under" jurisdiction in bankruptcy extends to "only those cases in which a well-pleaded complaint establishes either that federal [bankruptcy] law creates the cause of action or that the plaintiff's right to relief necessarily depends on resolution of a substantial question of federal [bankruptcy] law."
Id. (internal citations omitted) (alterations in original). Proceedings "arising in" a bankruptcy case, as the Fourth Circuit has explained, are those proceedings that "are not based on any right expressly created by [the Bankruptcy Code], but nevertheless, would have no existence outside of the bankruptcy." Bergstrom v. Dalkon Shield Claimants Trust (In re A. H. Robins Co., Inc.), 86 F.3d 364, 372 (4th Cir. 1996), cert. denied, — U.S. —, 117 S.Ct. 483, 136 L.Ed.2d 377 (1996). Finally, the "related to" category of proceedings is "quite broad and includes proceedings in which the outcome could have an effect upon the estate being administered[.]". Id., citing Pacor, Inc. v. Higgins, 743 F.2d 984, 994 (3d Cir. 1984) ("An action is related to bankruptcy if the outcome could alter the debtor's rights, liabilities, options, or freedom of action (either positively or negatively) and which in any way impacts upon the handling and administration of the bankrupt estate.") Nevertheless, the "related to" category is not so broad as to encompass litigation of state law claims that will not have an effect on the bankruptcy estate, simply because one of the litigants has filed a petition in bankruptcy. Lux v. Spotswood Construction Loans, 176 B.R. 416 (E.D. Va. 1994), aff'd, 43 F.3d 1467 (table), 1994 WL 621820 (4th Cir. 1994) (after the chapter 7 case was closed, there was no "related to" jurisdiction over adversary proceeding brought by debtor challenging a foreclosure).
The Pacor formulation was cited with approval by the Supreme Court in Celotex Corp v. Edwards, 514 U.S. 300, 308, 115 S.Ct. 1493, 1499, 131 L.Ed.2d 403 (1995).
The Fairfax County chancery suit clearly invokes no right created by the Bankruptcy Code. Nor does it concern a controversy that, while not arising under the Bankruptcy Code, would have no practical existence but for the bankruptcy. Finally, the litigation involves only the debtor's rights outside bankruptcy and will have no effect, even indirect, on distributions to creditors or on rights protected by the Bankruptcy Code. Accordingly, the chancery suit is not even "related to" the bankruptcy case in any meaningful sense. For that reason, remand would almost certainly be required if the Fairfax County action were removed to this court. But even if the court is wrong, and subject matter jurisdiction does technically exist, remand would also be appropriate under 28 U.S.C. § 1452(b), which allows remand "on any equitable ground. " Simply put, the fact that only issues of state law are involved, that this is not a reorganization case, and that no possible benefit could accrue to creditors regardless of the ultimate ruling, would all militate in favor of remand.
III.
For the purpose of determining whether relief from stay should be granted, the court assumes that the debtor's claims for equitable and legal relief will be heard in the Circuit Court of Fairfax County and not by this court. The Bank urges that the merits of that litigation are simply irrelevant to the relief from stay motion, and that regardless of whether the Bank has an immediate legal right to foreclose, the undisputed evidence establishes that the debtor has no equity in the property, and that termination of the stay is accordingly mandatory.
A.
The Bank's argument that the existence of an equitable defense to foreclosure is irrelevant to the decision whether to terminate the stay under § 362(d)(2), Bankruptcy Code, is not supported either by a literal reading of the statute or by case law. The pertinent statutory language is as follows:
(d) On request of a party in interest and after notice and a hearing, the court shall grant relief from the stay . . . such as by terminating, annulling, modifying, or conditioning such stay —
* * *
(2) with respect to a stay of an act against property . . . if —
(A) the debtor does not have an equity in such property; and
(B) such property is not necessary to an effective reorganization[.]
11 U.S.C. § 362 (d) (emphasis added). Clearly the statute, by its use of the verb "shall," requires some type of "relief" be granted if the twin conditions are met, but it just as clearly leaves to the court's discretion whether that relief is to consist of an order terminating, modifying, conditioning, or annulling the stay. Which form of relief is appropriate must, in the very nature of things, depend on all the circumstances, including the existence, or possible existence, of a defense to the creditor's proposed action. Indeed, the Fourth Circuit, in a chapter 7 case in which the debtor apparently had no equity in the secured creditor's collateral (an automobile), held that a bankruptcy court properly declined to grant relief from the stay where the debtor was current on payments, even though the bankruptcy filing constituted a default under the loan instrument and the debtor had previously fallen behind in payments. Riggs Nat'l Bank v. Perry (In re Perry), 729 F.2d 982, 984-85 (4th Cir. 1984).
B.
Since this is a chapter 7 and not a reorganization case, the property by definition cannot be necessary to the debtor's reorganization. The question of whether the debtor has equity in the property, however, is not so easily answered. The fair market value of the house, as noted, is $480,000. The balance due on two deeds of trust against the property (exclusive of the Bank's claimed legal fees, which its witness estimated at approximately $50,000.00) totals $377,226, which would leave an equity of approximately $102,774. However, the property is additionally encumbered by judgment liens in the total amount of approximately $798,000. Clearly, if those judgments were to remain as liens, the debtor would have no equity in the property.
Where a debtor seeks to retain property, equity for the purpose of the § 362(d) analysis is properly measured by the fair market value without deduction for hypothetical costs of sale. See Brown Co. Securities Corp. v. Balbus (In re Balbus), 933 F.2d 246, 250-51 (4th Cir. 1991) (no deduction of hypothetical sales costs in determining unsecured portion under § 506(a) and debtor's eligibility for chapter 13 relief); Coker v. Sovran Equity Mortgage Corp. (In re Coker), 973 F.2d 258 (4th Cir. 1992) (same holding in the context of motion to avoid junior deed of trust); but see La Jolla Mort. Fund v. Rancho El Cajon Assocs., 18 B.R. 283 (Bankr. S.D. Cal. 1982). In the present case, however, reducing the fair market value by the assumed costs of sale would not change the result.
The Central Fidelity Bank judgments do not bear interest at a fixed rate but rather at a floating rate measured from prime. The assignee of the judgments was unable to provide a current payoff figure. For the purpose of this opinion, the court made a simplifying assumption that the applicable judgment interest rate was 9%. Applying that assumption, the total payoff on the July 5, 1996, judgment (principal, interest, and attorneys fees) at the date of the relief from stay hearing was $536,933.88, and the payoff of the September 12, 1996, judgment was $75,297.26. The court's calculation of the balance due on the First Virginia Bank judgment is $9,096.39. As noted, testimony was offered that the payoff of the Ferguson Enterprises, Inc., judgment was $177,258.45.
The debtor, however, has claimed a nominal $1 equity in the property as exempt under the Virginia homestead exemption. Under § 522(f)(1)(A), Bankruptcy Code, the debtor may avoid the judgment liens to the extent they "impair" his exemption. Under the 1994 amendments to the Bankruptcy Code, impairment is measured by a mathematical test. 11 U.S.C. § 522(f)(2)(a). The practical effect of the test is that the judgment liens may be avoided to the extent that they exceed the remaining equity in the property after taking account of the two deeds of trust and the homestead exemption. Canelos v, Mignini (In re Canelos), 216 B.R. 159, 164-65 (Bankr. D. Md. 1997). Thus, accepting the $480,000 valuation, the judgment liens would be avoided (in order of priority) to the extent they exceeded $102,773. The result of such avoidance would be to leave the debtor with $1 (the amount of his claimed homestead exemption) of equity in the property. Whether a purely nominal equity is sufficient to defeat a relief from stay action under § 362(d)(2) is an interesting question, but given that the only judgment lien likely to remain against the property if the debtor avails himself of his lien avoidance rights is held by his brother-in-law, who from his testimony appeared to be a friendly party motivated to preserve a roof over his sister's head, the existence of some equity, even if only nominal, would plainly be relevant in determining whether to terminate the stay or to grant some other relief, such as modifying or conditioning the stay.
C.
The Bank, however, argues that the debtor's claimed equitable defenses are meritless, based on Judge MacKay's ruling, in denying the motion for a preliminary injunction, that the debtor and his wife had not shown "a substantial likelihood of succeeding on the merits." That ruling, however, has no collateral estoppel effect and is not binding on this court, since it was not a final judgment but only a preliminary ruling that did not terminate the suit or prevent the debtor and his wife from proceeding to a full trial on the merits. The fact that a judge, in an early stage of a particular litigation, does not find a "substantial" likelihood of success is simply not the same as a finding that there is "no" chance of success or that the litigation is frivolous.
In support of its position that the debtor's defense is meritless, the Bank offered into evidence a transcript of Judge MacKay's oral ruling at the October 29, 1998, hearing. This court declined to admit or consider the transcript for that purpose. See Nipper v. Snipes, 7 F.3d 415 (4th Cir. 1993) (judicial findings of fact in a different case involving the same parties are not "public records" within meaning of public records exception to hearsay rule and were improperly admitted, despite limiting instruction). In any event, this court, in the course of drafting this opinion, has reviewed Judge MacKay's one-and-a-quarter page ruling and does not find that the details — as opposed to the substance, which was already in evidence — would have made any difference in this court's view of the evidence.
Of course, there will be times when a judge's ruling in a different case is not offered for the truth of the findings but to show that the findings were made. Thus, when one court has made findings that are entitled to collateral estoppel effect in subsequent litigation, proof of the first court's rulings is properly admitted, not for the truth of the rulings, but to establish their content for the purpose of collateral estoppel. That is not the case here, since the denial of the motion for preliminary injunction was not a final ruling and is not entitled to collateral estoppel effect.
The Bank also attempted to place into evidence that portion of the hearing transcript that contained the testimony of its senior vice president, Edna T. Brannan, who apparently inherited responsibility for the C C and NVPM loans after Mr. Campbell left the bank. Ms. Brannan was not present at the relief from stay hearing because of a death in her family. Evidence of her former testimony was potentially admissible under Federal Rule of Evidence 804(b)(1), which provides as follows:
(b) Hearsay Exceptions. The following are not excluded by the hearsay rule if the declarant is unavailable as a witness:
(1) Former Testimony. Testimony given as a witness at another hearing of the same or a different proceeding, or in a deposition taken in compliance with law in the course of the same or another proceeding, if the party against whom the testimony is now offered, or, in a civil action or proceeding, a predecessor in interest, had an opportunity and similar motive to develop the testimony by direct, cross, or redirect examination.
(emphasis added). A witness is deemed to be "unavailable" if, among other circumstances, he or she
(4) is unable to be present or to testify at the hearing because of death or then existing physical or mental illness or infirmity; or
(5) is absent from the hearing and the proponent of a statement has been unable to procure the declarant's attendance . . . by process or other reasonable means.
Fed.R.Evid. 804(a)(4) and (5). "The burden of proving the unavailability of a witness under Rule 804(a) rests with the proponent of the hearsay evidence[.]". United States v, Acosta, 769 F.2d 721, 723 n. 2 (11th Cir. 1985). In Acosta, the witness was asserted to be unavailable for trial because " [s]he's got a baby and when the baby was born, it had an operation and the baby is not well. . . ." Id. at 722. The Court of Appeals, in sustaining the trial court's refusal to admit the transcript of the witness's testimony from an earlier hearing, noted, among other considerations, that "there was no pre-trial motion for a continuance in order to produce the witness at a later trial." Id. at 723. In the present case, the Bank not only did not seek a continuance to allow Ms. Brannan to appear at a later hearing, it strenuously opposed the debtor's motion to continue the hearing for a brief period in order to obtain discovery. There is no suggestion that Ms. Brannan's family crisis is other than temporary or could not have been accommodated by a brief continuance. Accordingly, the Bank did not carry its burden of proving Ms. Brannan's unavailability for the purpose of admitting her former testimony under Federal Rule of Evidence 804(b)(1).
Following the relief from stay hearing, the court has reviewed the transcript of Ms. Brannon's testimony. Contrary to the suggestion of Bank's counsel that it would "paint a totally different picture" of the debtor's conduct, Ms. Brannon's testimony contains no smoking gun and is not inconsistent with the debtor's testimony on any point as to which she had personal knowledge, with one exception, namely that the Bank's records reflect that the C C loan and the NVPM loan are two months in arrears. (According to Ms. Brannon, seven months payments were due in late December 1997 when the debtor paid a lump sum equal to five months payments, and the notes have remained two months delinquent since then.) The monthly payment reminders sent by the Bank to the debtor after January 1998 do not, however, reflect payments as being other than current. It is noteworthy that the Bank's witness at the relief from stay hearing, Erin Moore, did not bring a payment history, even though it had been sought by the debtor in discovery. Certainly, Ms. Moore could have testified from the Bank's records as to the precise status of payments, had that seriously been an issue.
D.
Having carefully considered the evidence at the relief from stay hearing, the court would be hard-pressed to conclude that the debtor had a particularly strong defense to the Bank's attempted foreclosure. But at this point there has been no discovery of the Bank's internal records, and while it may seem unlikely that the debtor will ultimately prevail, the court is unable to conclude that the debtor has no chance of success or that his suit for an injunction is totally without merit. The automatic stay, by its very nature, is only temporary. In a chapter 7 case, it terminates as a matter of law when the debtor is granted or denied a discharge and when the property ceases to be property of the bankruptcy estate. 11 U.S.C. § 362(c). In connection with the present motion, the interim chapter 7 trustee filed a response stating that he had no objection to relief from the stay, which strongly suggests that he is prepared to abandon the property as an asset of the bankruptcy estate. In the normal course of events (that is, assuming no timely objection to the debtor's discharge), the debtor will receive a discharge in early February 1999. There is no evidence that the property is declining in value, and the Bank's second deed of trust is protected by a substantial equity cushion. Thus the Bank, at least in the short term, will suffer no economic harm so long as the debtor continues to make monthly payments, as he has done since February 1998, on the two notes. Conversely, the debtor's state court action will be largely mooted if the Bank is permitted to foreclose before the debtor is able to go to trial on his injunctive action. Accordingly, having considered all the equities, the court concludes that the automatic stay should not be terminated but rather should be conditioned upon the debtor's continuing to make the monthly payments due, without acceleration, on the C C note and the NVPM note.
The first and second trust combined equate to a 79% loan-to-value ratio. The bank has not argued that its lien interest is not adequately protected.
Additionally, continuation of the automatic stay pending discharge will give the debtor an opportunity to consider whether to convert his case to a Chapter 11 reorganization case.
IV.
A separate order has been entered consistent with this opinion conditioning the automatic stay upon the continuation of monthly payments.