Rushmore Loan Management Services, LLC v. Kohar (In re Kohar)
Docket: No. 14-24485-TPA
Court: United States Bankruptcy Court, W.D. Pennsylvania; January 7, 2015; Us Bankruptcy; United States Bankruptcy Court
Rushmore Loan Management Services, LLC filed an Expedited Motion for Relief from Stay Nunc Pro Tunc, seeking dismissal of the bankruptcy case with prejudice and sanctions against the Kohars, who are accused of being serial bad faith filers abusing the bankruptcy process to avoid mortgage payments on their residence. An evidentiary hearing occurred on December 16, 2014, where the Court decided to grant the motion. The Kohars secured a mortgage for $85,000 on their residence in Ambridge, Pennsylvania, which was recorded in Beaver County. The mortgage was assigned multiple times, ultimately to Wells Fargo, which then assigned it to itself as trustee for the RMAC Pass-Through Trust, Series 2010-A. Rushmore acts as the servicing agent for this mortgage and was granted power of attorney to act on behalf of the trust.
In a prior foreclosure action initiated in 2007, a default judgment for $136,621.54 was entered against the Kohars in 2011, including ongoing interest. The Kohars' motion to strike this judgment was denied, and their appeal was affirmed in 2013. Following the dismissal of their seventh bankruptcy case, the property was scheduled for a sheriff sale on November 10, 2014. Rushmore's counsel monitored the docket and confirmed no new bankruptcy filings before the sale, which concluded with the property sold to Wells Fargo. However, the Kohars had filed their eighth bankruptcy case just minutes before the sale occurred.
Rushmore seeks relief from stay on a nunc pro tunc basis, dismissal of the case with prejudice, and the imposition of sanctions. Prior to the hearing, Rushmore filed a Motion in Limine to prevent relitigation regarding amounts owed under the Note and Mortgage and to assert its standing as Wells Fargo Bank, N.A.'s agent under the Rooker-Feldman Doctrine. During the evidentiary hearing, documentary evidence confirming the judgment in the Foreclosure Action was admitted, and the Debtor acknowledged the essential facts of the judgment. Given that the Foreclosure Action judgment was final and affirmed prior to the Debtor’s petition, the Rooker-Feldman doctrine applies, establishing that the judgment determined the default and amount due on the Mortgage.
The Debtors questioned Rushmore's standing, noting a lack of clarity regarding the chain of title. The Foreclosure Action was initiated by Deutsche Bank National Trust Company, later substituted by Act Properties, LLC, and then by Wells Fargo. The evidence did not clarify Deutsche Bank's interest in the Mortgage and Note, creating a perceived gap in the chain of title. However, the Court determined it could not investigate the standing of the parties involved in the Foreclosure Action due to the Rooker-Feldman doctrine, which prevents the Court from reevaluating the standing established by the Foreclosure Action judgment. Numerous cases support this, demonstrating that the Court lacks jurisdiction to reconsider standing issues related to the judgment, as it implicitly confirms Wells Fargo's standing.
In *Schmid v. Bank of America, N.A.*, the Rooker-Feldman doctrine barred the bankruptcy court from reviewing a pre-petition state court judgment, even though the plaintiff-lender had assigned its mortgage interest prior to judgment. Similarly, in *In re Hinson*, the doctrine prevented the bankruptcy court from declaring that the holder of a state foreclosure judgment lacked standing, as this would imply the state court had erred. At the evidentiary hearing, Rushmore demonstrated it was the mortgage servicer, having authority via a Limited Power of Attorney from Wells Fargo, which allowed it to act on behalf of Wells Fargo in foreclosure-related matters. The Kohars did not contest the validity of this Power of Attorney. The court found Rushmore to be a proper party in interest to seek relief from the automatic stay, as supported by multiple precedents indicating that a mortgage servicer can act as an agent of the mortgage holder. The Kohars' claim that Rushmore lacked standing was dismissed as unfounded. Rushmore contended that the Kohars were abusing the bankruptcy process by repeatedly filing cases, enabling them to occupy the property without making significant mortgage payments, while Rushmore was covering property taxes and insurance. The context highlighted the Kohars as serial filers attempting to evade foreclosure.
Case No. 05-24197-JAD (13) was filed on April 6, 2005, and dismissed on April 13, 2006, due to the debtors being over $20,000 behind in plan payments. Case No. 06-22294-TPA (13) was filed on May 23, 2006, and dismissed on March 29, 2007, with debtors more than $14,000 behind in payments. Case No. 07-25560-MBM (7) was filed on September 4, 2007, and closed with a discharge on April 10, 2008. Case No. 08-26086-TPA (13) was filed on September 15, 2008, and dismissed on February 9, 2009, as debtors failed to make any full payments and were over $7,000 behind.
Individual Case No. 11-25716-TPA (13) for Michele was dismissed on September 29, 2011, for failing to cure filing deficiencies. Case No. 11-26937-TPA (13), also for Michele, was dismissed on March 21, 2013, due to failure to make plan payments. Case No. 13-24420-TPA (13) for Michael was dismissed on August 15, 2014, with an appeal pending, but no brief filed by the debtor. Case No. 14-24485-TPA (13) for Michele remains pending.
The two most recent cases prior to the pending one raise concerns about the Kohars' good faith. In Case No. 11-26937, filed after a foreclosure judgment, Michele objected to Rushmore's mortgage claim and proposed a plan with payments of only $100 per month, despite having made only three payments by the time an Order to Show Cause was issued on December 18, 2012. The Court noted that she identified Wells Fargo as a creditor but proposed $0 payments, and she acknowledged owing money but disputed the proper payee. On January 8, 2013, the Court mandated a plan with monthly payments of at least $682.51, including $582.50 toward the mortgage. Michele failed to make the required January payment, leading to dismissal of the case. Her subsequent motion to vacate the dismissal was denied, as evidence showed she made the payment only after default affidavits were filed.
The Court characterized the Debtor as "disingenuous" in her attempts to vacate a prior dismissal, expressing disapproval of her actions. In a related case filed by her husband, Michael Kohar, he proposed a minimal payment plan and sought to challenge a claim but was ordered to participate in the Loss Mitigation Program and make higher monthly payments. Kohar failed to comply, leading to his case being dismissed with prejudice. Although he appealed and was granted a stay pending appeal, this was contingent upon posting a $10,000 bond and making monthly payments of $1,000 to the Chapter 13 Trustee, which he did not fulfill. Consequently, the stay automatically ended, and he never filed an appellate brief, resulting in an order to show cause for dismissal of his appeal.
The Debtor has similarly disregarded the Court's orders, failing to pay her filing fee installments or submit required documentation following a post-hearing order. The Kohars' bankruptcy history reflects a pattern of exploiting bankruptcy protections while neglecting their obligations, including non-payment on their mortgage since 2006 and failing to pay property taxes and insurance, which has burdened Wells Fargo/Rushmore. The debt from the Foreclosure Action has escalated from $136,621.54 to over $200,000, including significant unpaid principal, interest, late charges, and costs related to foreclosure and insurance. Rushmore has requested nunc pro tunc stay relief to validate a recent Sheriff Sale.
Stay relief is justified under 11 U.S.C. § 362(d)(1) for cause, and under § 362(d)(2) due to the Kohars' lack of equity in the Property and its non-necessity for effective reorganization. Rushmore claims it has not received adequate protection in previous bankruptcies and that the Kohars have been discharged from personal liability, meaning stay relief pertains solely to in rem rights. Additional arguments for "cause" include the declining value of the Property, which has decreased from $150,000 to $90,000, and the Kohars' lack of candor with the Court. The Court concurs that stay relief is warranted under both prongs of § 362(d).
The bankruptcy court has discretion to lift the automatic stay, assessing the totality of circumstances. In this case, the Court identifies cause for relief, citing the Kohars' prolonged non-payment, misuse of bankruptcy, and inadequate protection for Rushmore. The Kohars' debt exceeds $200,000, surpassing any asserted valuation of the Property. They also failed to demonstrate that the Property is necessary for a viable reorganization, as required by § 362(d)(2)(B). The Court finds no evidence suggesting that this case will differ from previous unsuccessful attempts by the Kohars.
The motion for relief is complicated by Rushmore's request for retroactive relief, effectively seeking to annul the automatic stay to ratify a November 10, 2014, Sheriff Sale. The Court considers the balancing of equities and three key factors, with the first factor favoring Rushmore, as there is no evidence that Rushmore was aware of the bankruptcy filing or encouraged a violation of the stay. Rushmore's counsel monitored the docket closely prior to the sale, finding no filings, which supports the request for nunc pro tunc relief.
The Debtor's conduct is characterized as inequitable and unreasonable due to a history of serial bankruptcy filings and specific actions surrounding the November 10th Sheriff Sale. The Court finds that the Debtor had a duty to notify the Sheriff or Rushmore about her recent bankruptcy petition, which she failed to do, allowing the sale to proceed. This unreasonable behavior supports granting nunc pro tunc relief. Denying such relief would prejudice Rushmore, necessitating a restart of the sale process without any hope of recovering costs from the Debtors, who are discharged from personal liability. The interests of Rushmore and Wells Fargo would be irreparably harmed without this relief, especially considering the co-debtor stay involving Michael Kohar under 11 U.S.C. § 1301(a).
Rushmore's motion also seeks dismissal of the bankruptcy case with prejudice under 11 U.S.C. § 1307(c), arguing that without this, the Kohars may file a ninth bankruptcy to obstruct recovery efforts. While the Court recognizes its discretion in determining "cause" for dismissal, it notes that the granting of retroactive relief from the automatic stay alters the situation significantly. This relief validates the Sheriff Sale, allowing Rushmore to regain possession of the Property, which is now held by Wells Fargo and excluded from the Debtors' bankruptcy estate. Although the potential for further filings by the Kohars remains speculative, their current position is less favorable than before.
The Court will deny the Motion to dismiss the current case, whether with or without prejudice. The request for sanctions against the Debtor under Fed. R. Bankr. P. 9011 is procedurally defective, as such motions must be filed separately and require specific detailing of the alleged misconduct, which Rushmore failed to provide. Additionally, there was no evidence that the Motion was served on the Debtor prior to filing, violating procedural requirements intended to allow the Debtor an opportunity to correct any alleged misconduct.
The Court retains jurisdiction under 28 U.S.C. § 1334, as the matters raised are core issues. The Kohars were previously discharged from personal liability on the Note in a 2007 Chapter 7 bankruptcy, and the current proceedings pertain solely to a foreclosure on the Mortgage. The interest rate on the Note is 8.99%, which the Debtor did not contest concerning arrearages. The principal balance generates significant annual interest.
In a prior adversary proceeding, the Debtor challenged Wells Fargo’s lien, but it was dismissed as moot before addressing the Rooker-Feldman doctrine. The Court noted the Kohars’ history of serial filings, lack of payments, and proposed plans, suggesting potential grounds for stay relief under Section 362(d)(4), though this was not argued by Rushmore. The Debtor did not establish a specific value for the Property during the hearing, despite Rushmore referencing a $150,000 valuation from the Debtor's Schedule A. There was insufficient evidence presented to demonstrate that moving from the residence would cause undue hardship. The Court is cautious in assuming the Property’s necessity for the Debtors' reorganization. An exception for prior service exists if the filing itself constitutes the alleged misconduct, but the Motion did not specify this, and the Court will not assume it.
