JOHN W. KOLWE, Bankruptcy Judge.
The Debtor, Dionne Britton Banks, filed this Chapter 13 case for the primary purpose of curing a sizeable (over six thousand dollars) prepetition arrearage on her home loan with JPMorgan Chase Bank, N.A. She confirmed a plan that amortizes the arrearage over the 60 month term of the plan. It also provides for the Standing Chapter 13 Trustee, Jon C. Thornburg, to act as the conduit for making the ongoing post-petition mortgage payments to Chase. As long as Banks timely makes her plan payments, the Trustee should have sufficient funds to pay the ongoing mortgage payment as provided by the Plan.
The Trustee's records indicate that Banks has consistently made her plan payments in the two years that her case has been pending. Nevertheless, a post-petition arrearage in excess of $11,500 had accrued on her mortgage account with Chase as of January 2017. Banks had no knowledge of this fact until being served with Chase's Motion for Relief from the Automatic Stay, which is presently before the Court. Banks objects to Chase's Motion, primarily relying on the fact that Banks is not in default of her plan obligations.
This matter is a core proceeding under 28 U.S.C. § 157(b)(G)(2), over which the Court has jurisdiction under 28 U.S.C. § 1334(b). The Court's findings of fact and conclusions of law are made pursuant to Fed. R. Bankr. P. 7052. Considering the pleadings, documentary evidence, testimony of the Debtor, arguments of counsel, and relevant authorities, the Court finds that Banks remains entitled to the protection of the automatic stay because she has fulfilled her obligations under the terms of the confirmed conduit plan. Therefore, Chase's Motion will be denied.
The debtor filed her Chapter 13 Petition and Plan on February 25, 2015. Chase objected to the plan on the basis that the ongoing monthly mortgage payment was incorrect. The Debtor amended the Plan to satisfy the objection, Chase withdrew its Objection, and the Plan was confirmed as amended on June 5, 2015. The confirmed Plan requires Banks to make monthly payments to the Trustee, and directs the Trustee to make three separate payments to Chase: the ongoing monthly mortgage payment of $986.01 for 58 months (the "conduit" payment), an administrative delay payment of $1,972.02 (representing the pre-confirmation payments for March and April 2015), and a prepetition arrearage of $6,325.10, payable at $105.42 for 60 months.
On February 2, 2017, Chase moved for relief from the automatic stay alleging that Banks had missed the post-petition mortgage payments for the months of February 2016 through January 2017, resulting in an account delinquency of $11,508.69. Attached to Chase's Motion are copies of the note, mortgage, a pre-petition loan modification agreement, a payment ledger showing no receipts on the account from February 2016 to January 2017, and a Declaration of one of Chase's Vice-Presidents, which includes a chart showing the post-petition missed payments as of January 23, 2017.
Banks' filed an Objection and Memorandum in Opposition to the Motion. She asserts that Chase's Motion is improper because she is current in making her plan payments to the Trustee. She attached to her Opposition certain financial records of the Trustee to prove this point. Banks also contends that the delinquency on the Chase loan was caused solely by the manner in which the Trustee calculates and makes disbursements in conduit cases, and not due to any fault of her own.
After multiple continuances at the parties' request, the Court conducted an evidentiary hearing on Chase's Motion on June 8, 2017. The Debtor, Dionne Britton Banks; her attorney, Joseph R. Moore; Jessica Chapman, attorney for Chase; and Ryan Robison, staff attorney for the Standing Chapter 13 Trustee attended the hearing. Before beginning the hearing, Chase orally moved to withdraw its Motion. This was met with opposition by the Debtor, who by that time had been required to file an objection, amend the plan, and file a memorandum in opposition to the motion. Moreover, debtor's counsel argued that over the course of the five months this Motion had been pending, he and the Trustee's staff counsel had engaged in discussions with Chase's counsel to resolve Chase's issues so that the Debtor would not need to file a formal opposition, and to avoid a hearing. Debtor and her attorney were also required to travel over an hour to attend the hearing. After taking all these factors into consideration, the Court denied Chase's motion to withdraw, and proceeded with the evidentiary hearing.
Chase offered into evidence its Motion with attachments and its Proof of Claim by reference.
Banks was the only witness at the hearing. She testified that she filed this case for the primary purpose of saving her home, in which she is raising her three children. She confirmed that she is currently employed, on payroll deduction, and that she is current in making her plan payments. She was also confident she would be able to continue making all required plan payments. Banks offered into evidence three exhibits which she contends establish that she is current in plan payments, and which show the various disbursements the Trustee has made to Chase on both the ongoing mortgage payment and the prepetition arrearage.
Although the Trustee did not file a written response to either Chase's Motion or the Debtor's Opposition, his staff attorney appeared at the hearing and confirmed that the Debtor is current on all plan payments. He urged that Chase's Motion be denied for the reasons set forth by the Debtor. He defended against the assertions that the Trustee's disbursements were contrary to the terms of the confirmed Plan by arguing that the timing and amounts of disbursements were made pursuant to a longstanding policy of his office that is commensurate with the practices of other trustees administering conduit plans. However, the Trustee did not provide any specifics regarding that policy.
The analysis begins with a brief consideration of the burden of proof in stay litigation under 11 U.S.C. § 362. The party opposing a motion for relief from stay has the ultimate burden on all issues except the issue of the debtor's equity in property, which the movant must establish. 11 U.S.C. § 362(g). Section 362(g), however, "does not address the burden of going forward with evidence, which is generally placed on the party seeking relief." 3 Collier on Bankruptcy ¶ 362.10 (Alan N. Resnick & Henry J. Sommer eds., 16th ed.). In other words, "the movant must carry the initial burden of establishing a prima facie case for relief under § 362(d)." In re Powell, 223 B.R. 225, 232 (Bankr. N.D. Ala. 1998); In re Kowalsky, 235 B.R. 590, 594 (Bankr. E.D.Tex. 1999). A prima facie case requires a showing by the movant of "a factual and legal right to the relief that it seeks." In re Elmira Litho, Inc., 174 B.R. 892, 902 (Bankr. S.D.N.Y. 1994).
Generally, "where a debtor materially defaults under the terms of his [or her] confirmed plan the creditor may be entitled to relief from the automatic stay" for cause. In re Carona, 254 B.R. 364, 367 (Bankr. S.D. Tex. 2000), quoting In re Lee, 167 B.R. 417, 427 (Bankr. S.D. Miss. 1992), aff'd sub nom. Green Tree Fin. Corp.-Mississippi v. Cowan, 168 B.R. 319 (S.D. Miss. 1993), aff'd sub nom. Matter of Payton, 22 F.3d 1094 (5th Cir. 1994). Chase's Declaration and supporting payment ledger show that at the time Chase filed its Motion, it had given Banks credit for all post-petition disbursements made by the Trustee. Thereafter, there remained a delinquency on Banks' account as set forth in Chase's Declaration. Thus, Chase has established a prima facie case under § 362(d)(1), which authorizes a bankruptcy court to lift the automatic stay for "cause, including lack of adequate protection." 11 U.S.C. § 362(d)(1).
Additionally, Chase has met its burden under § 362(d)(2), which allows the court to grant stay relief when a debtor lacks equity in the property and the property is not necessary for reorganization. Generally, a debtor lacks equity when the balance of all debts secured by liens on the property exceed the fair market value of the property. Mendoza v. Temple-Inland Mortgage Corp. (In re Mendoza), 111 F.3d 1264, 1272 (5th Cir.1997); In re Powell, 223 B.R. 225, 235 (Bankr. N.D.Ala. 1998). The evidence in this case shows that Chase's secured lien exceeds the scheduled value of her home.
The ultimate burden of persuasion now shifts to Banks to show either that the collateral is not declining in value, the movant is adequately protected by periodic cash payments, an equity cushion, replacement liens, or otherwise, or that there is a significant likelihood of a successful reorganization in a reasonable time. Banks contends that since her confirmed Plan is a conduit plan, and she is current on plan payments, there is no basis for Chase to obtain stay relief against her home. She acknowledges, however, that a significant post-petition delinquency accrued on her home mortgage, but contends it was caused solely by factors outside of her control, for which Chase cannot hold her responsible. These arguments will be considered below.
Banks' Plan is a "conduit" plan — a plan under which the debtor's post-petition ongoing mortgage payment is made to the Trustee as part of the debtor's monthly plan payment and then passed on to the mortgage lender by the Trustee in accordance with the terms of the plan. Under these circumstances, "the Bankruptcy Code requires only that the debtor fulfill [his or her] obligations under the terms of the plan in order to claim the protection of the automatic stay." In re Lee, 167 B.R. at 427. In other words, "`[A] creditor's motion to modify the stay after confirmation can be an appropriate vehicle only when there is a post-confirmation default by the debtor, such as failure to make payments, maintain insurance, waste, or other changed circumstances.'" Id., quoting In re Toth, 61 B.R. 160, 166 (Bankr.N.D.Ill.1986) (emphasis supplied).
Banks testified that she was current in making plan payments at the time Chase filed its motion and as of the date of the hearing. She submitted to the Court certain financial records maintained by the Trustee which confirm she is current, a point that Chase conceded during the hearing. Moreover, there are no allegations, much less any evidence, showing that the property is depreciating, subject to waste, or uninsured. Nor have there been any changed circumstances, as the Debtor also confirmed through her testimony that she is employed and subject to payroll deduction, and thus able to make the plan payments as they come due. Therefore, Banks has met her burden to establish she is not in material default of her plan obligations.
Even though Banks has fully performed her obligations under the plan, the evidence in this case establishes that a significant post-petition arrearage existed on her mortgage at the time Chase filed its Motion. Banks contends that the delinquency is a result of the Trustee's method of, and/or delay in, making disbursements under her conduit Plan. In support of this allegation, Banks and Chase allege the Trustee paid another secured creditor ahead of Chase. Banks also alleges that the Trustee may have diverted her ongoing mortgage payments to payment of Chase's prepetition arrearage.
Although the Trustee's staff attorney acknowledged that a delinquency existed, he adamantly defended against these allegations, maintaining that all payments to Chase have been in accordance with the Trustee's longstanding policies when making payments to mortgagees under a conduit plan. Because there is a lack of evidence on these issues, and because no party is seeking relief against the Trustee, the Court will pretermit any findings regarding the manner in which the Trustee has disbursed funds under the terms of Banks' Plan.
The only issue before the Court related to the Trustee's alleged disbursement delay is Chase's argument that the accrued delinquency is cause to lift the stay against the Debtor's home. This argument was unsuccessfully asserted in Lee, where the secured creditor claimed that the delay in receipt of conduit payments from the Chapter 13 Trustee constituted a lack of adequate protection, thereby requiring the automatic stay to be lifted against the debtors. Id. The court flatly rejected this argument, stating:
Id., 167 B.R. at 427; 428-29, quoting In re Rutenbeck, 78 B.R. 912, 913 (Bankr.E.D.Wis.1987) (emphasis supplied).
Chase attempts to distinguish Lee on the grounds that the delay in that case was mere weeks compared to the twelve month delay here. While the disbursement allegation may be ground for other relief, the Court finds that Lee is dispositive regarding relief from stay against the Debtor. Chase cannot impute the Trustee's alleged disbursement delay to Banks to establish "cause" to lift the stay on Banks' home.
In fact, it is difficult to conceive of a situation in which a debtor can be held responsible for a post-petition arrearage on his or her mortgage when the evidence conclusively shows that the funds necessary to pay the mortgage were turned over to the trustee by the debtor in accordance with the terms of the confirmed plan. Obviously, the debtor has no control over the method or timing of the payment to the mortgagee by the trustee, and it is reasonable for the debtor to assume that the payment to the mortgagee will be made by the trustee as provided by the terms of the plan. See 11 U.S.C. § 1326(c). For these reasons, to the extent Chase is relying on the Trustee's delay in disbursing Banks' ongoing mortgage payment to establish "cause," the Court will deny Chase's Motion.
Although Chase has established that Banks lacks equity in her home, one of the criteria necessary to lift the stay under § 362(d)(2), the Court nonetheless rejects the application of this provision in this case. Chase should have raised this issue during the confirmation process. It did not, and Chase is now bound by the confirmed plan. 11 U.S.C. § 1327(a). Under these circumstances, Chase "`cannot . . . assert any other interest other than that provided for [it] in the confirmed plan, and that all of the issues of adequate protection, lack of equity, the fact that the property is not necessary for effective reorganization of debtor's affairs, etc. could and should have been raised in objections to confirmation.'" In re Lee, 167 B.R. at 426, quoting, Ford Motor Company v. Lewis (In re Lewis), 8 B.R. 132, 137 (Bankr. D. Idaho 1981) (emphasis supplied). This is particularly true when it is shown that the Debtor is in compliance with his or her obligations under the Plan.
Put another way, Chase cannot obtain lift of the stay in this case based solely on the fact the Debtor lacks equity in her home, when the apparent basis of the Motion is Chase's dissatisfaction with how the Trustee is making disbursements in this case. Moreover, the Court finds that Banks presented evidence that she has a reasonable possibility of successfully completing her plan. Banks testified that she is currently employed, on payroll deduction, and that, as of now, she can afford to continue to make all required plan payments. Accordingly, Chase's motion for relief under § 362(d)(2) will also be denied.
Banks confirmed a plan under which the Trustee serves as the conduit for making her ongoing monthly post-petition mortgage payments to Chase. To date, she has made all plan payments. Under these circumstances, Chase cannot establish cause to lift the automatic stay against the Debtor's home. Moreover, Chase cannot rely upon the Trustee's method of disbursing the ongoing mortgage payment to establish cause to lift the stay. As long as Banks fulfills her obligations under the plan, she is entitled to claim the protection of the automatic stay. Therefore, Chase's Motion for Relief from the Automatic Stay will be denied in a separate and confirming order.
