In re Metzler

Citations: 530 B.R. 894; 2015 WL 2330131Docket: Case No. 8:12-bk-16792-MGW, Case No. 8:13-bk-09736-MGW

Court: United States Bankruptcy Court, M.D. Florida; May 13, 2015; Us Bankruptcy; United States Bankruptcy Court

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The memorandum opinion addresses the legal implications of a debtor's actions in surrendering real property during bankruptcy proceedings, specifically under chapter 7 and chapter 13. In the chapter 7 case, the debtor did not properly schedule property affected by a foreclosure action or file a required statement of intentions regarding retention or surrender. In the chapter 13 case, the debtor submitted a plan to surrender her homestead, which was also undergoing foreclosure, but continued to actively contest the foreclosure after purportedly surrendering the property. The court is tasked with determining whether such opposition is compatible with the concept of surrender as defined by the Bankruptcy Code. 

The opinion clarifies that surrender, while not explicitly defined in the Bankruptcy Code, has been interpreted by the First and Fourth Circuits as necessitating the relinquishment of all rights to the secured property, including possession, making it available to the secured creditor. The court concurs with these interpretations, emphasizing that any action that obstructs a secured creditor's ability to foreclose contradicts the act of surrender. 

The case of In re Metzler illustrates these principles: before filing for chapter 13, the debtor, Lisa Metzler, faced a foreclosure action from Wells Fargo. Despite her initial plan to save her home, which involved making payments and curing arrears, her later amendments indicated a decision to surrender the property. However, following this decision, she continued to defend against the foreclosure, prompting Wells Fargo to seek revocation of the court's confirmation of her surrender plan. Metzler argued that surrender only required her to make the collateral available, but the court found her actions inconsistent with the legal definition of surrender.

Nootan Patel purchased property at 5105 West Grace Street, Tampa, Florida, using a loan from Wells Fargo Bank, securing it with a first mortgage. After defaulting on the loan, Wells Fargo initiated foreclosure proceedings. Five years later, Patel filed for Chapter 7 bankruptcy but did not list the West Grace Street property, mistakenly believing she no longer owned it. Initially held in joint tenancy with her daughter, Patel's daughter quitclaimed her interest to Patel's ex-husband, making them tenants in common. Patel assumed her ex-husband owned the property and thus listed the Wells Fargo debt on her bankruptcy schedules without recognizing her ownership. Consequently, she did not file a statement of intentions regarding the mortgage. The property was never administered in her bankruptcy case, which concluded with Patel receiving a discharge.

Afterward, U.S. Bank, which acquired the mortgage, continued the foreclosure process. Mark Stopa from the Stopa Law Firm began defending the case for Patel and her daughter, filing an answer to the complaint with ten affirmative defenses, and a motion for summary judgment. Stopa argued that U.S. Bank failed to notify them of the default and that Wells Fargo did not inform Patel of the mortgage assignment. U.S. Bank subsequently moved to reopen Patel's bankruptcy case, asserting she must reaffirm or redeem the property since she had not done so.

A Chapter 7 debtor has three options regarding secured property: redeem it, reaffirm the debt, or surrender it. Under Bankruptcy Code § 521, debtors must file a statement of intentions within thirty days of filing a petition, which indicates their choice concerning secured property. They must act on their intentions, typically within thirty days after the creditors' meeting. The Eleventh Circuit has ruled that debtors cannot retain collateral without either redeeming it or reaffirming the associated debt. 

In contrast, a Chapter 13 debtor does not have to file a statement of intentions but must submit a reorganization plan detailing the treatment of secured property. Chapter 13 allows three treatments for secured debt: obtaining the creditor's consent, "cramming down" the plan over the creditor's objection, or surrendering the property. Cram-down requires the debtor to pay the present value of the secured claim over the plan's duration. It is acknowledged that neither Metzler nor Patel can retain collateral without payment; Patel does not contest foreclosure due to her attorney's actions without her consent, while Metzler opposes foreclosure, asserting that her prior 'surrender' under the confirmed plan does not bar her defense.

The term 'surrender' is not defined in the Bankruptcy Code. Judge Jennemann noted that the First Circuit interpreted 'surrender' in In re Pratt to mean making the property 'available' to the secured creditor, rather than requiring a physical transfer of the collateral.

The term 'surrender' in the context of bankruptcy law is interpreted to mean that a debtor must make the collateral available to the secured creditor and cede possessory rights within 30 days of filing a notice of intention to surrender. The First and Fourth Circuits have affirmed that 'surrender' involves relinquishing all rights in the collateral, including possession, without necessitating immediate physical delivery. This interpretation is supported by the Collier on Bankruptcy and aligns with various bankruptcy court rulings emphasizing the complete relinquishment of rights.

The court determined that 'surrender' does not require the debtor to deliver the property, as this could circumvent state law and foreclosure processes. Instead, 'surrendering' means refraining from actions that obstruct the creditor's ability to foreclose on the property. In the cases of Metzler and Patel, both took actions that prevented foreclosure—Patel through legal defenses and Metzler through a similar defense strategy. However, Metzler's view that 'surrender' could equate to merely lifting the automatic stay is rejected, as this interpretation would create a 'ride through' scenario, allowing debtors to retain possession without reaffirming the debt, contrary to the Eleventh Circuit's ruling in In re Taylor. The court emphasizes that such a 'ride through' would undermine the statutory alternatives provided in § 521 and § 1325(a), as it would allow debtors to maintain possession indefinitely while delaying creditor remedies.

Surrender, in the context of Bankruptcy Code §§ 521 and 1325, requires a debtor to yield secured property to the creditor and refrain from actions that could hinder the creditor's foreclosure rights. Metzler and Patel's active opposition to state court foreclosure proceedings demonstrates their failure to meet this surrender requirement. Patel's testimony revealed that she was unaware of an affidavit filed by her attorney, Stopa, in state court, asserting she did not sign or authorize it. The Court has ruled on Metzler's confirmation order and will issue a separate order compelling Patel to surrender the West Grace Street property.