Eric R Blackburn and Kathy S Blackburn
12-34299
Bankr. E.D. Va.Apr 17, 2017Background
- Debtors Eric and Kathy Blackburn filed Chapter 13 on July 23, 2012; a modified 60‑month plan confirmed September 3, 2015 required direct mortgage contract payments outside the plan and plan payments to cure arrears inside the plan.
- Movant U.S. Bank Trust, as Trustee of PRP II Pals Investments Trust, moved (Dec. 15, 2016) for relief from the automatic and co‑debtor stay under 11 U.S.C. § 362(d)(1), alleging post‑petition mortgage defaults totaling roughly $40,050.44 (Dec. 6, 2016) and larger totals later.
- Debtors admitted they had not made mortgage payments since March 2013 and disputed Movant’s status as holder of the note, arguing lack of standing.
- Movant attached the original note endorsed in blank and recorded an assignment of the deed of trust; notice of claim transfer was filed in November 2015 and no objection to the claim was lodged by Debtors.
- The Court found (Mar. 22, 2017 hearing) that Debtors substantially defaulted under the confirmed Modified Plan, Movant lacked adequate protection, and Movant is the holder of the note; stay relief was granted and an order entered March 30, 2017.
Issues
| Issue | Movant's Argument | Debtors' Argument | Held |
|---|---|---|---|
| Whether cause exists under § 362(d)(1) to lift the stay for foreclosure | Debtors failed to make post‑petition mortgage payments required by the confirmed plan, constituting substantial default | Payments were not owed to Movant or Movant lacks standing; therefore no cause | Cause exists: default on contract and plan payments justified stay relief |
| Whether Movant is adequately protected | Movant’s security is eroded by mounting arrears, advances for taxes, and lack of plan adequate protection payments | Debtors did not directly rebut erosion or provide adequate protection proposals | Movant not adequately protected; lack of adequate protection supports stay relief |
| Whether Movant has standing as holder of the note | Movant produced the original note endorsed in blank and recorded assignment of deed of trust and notice of claim transfer | Movants failed to allege holder status; Debtors challenged standing | Movant holds the note (bearer instrument endorsed in blank) and has standing to move for relief |
| Whether valuation/equity cushion bars relief | Movant pointed to tax assessment showing value but did not press valuation as dispositive | Debtors implicitly raised valuation by contesting amounts owed | Court made no finding on valuation because Debtors did not assert an equity cushion; relief nevertheless granted due to defaults and inadequate protection |
Key Cases Cited
- Horvath v. Bank of New York, 641 F.3d 617 (4th Cir. 2011) (endorsed‑in‑blank note becomes bearer instrument and holder may enforce note and related security interest)
- In re Neals, 459 B.R. 612 (Bankr. D.S.C. 2011) (post‑petition failure to make mortgage payments under confirmed plan can constitute cause for stay relief)
- In re Moffett, 288 B.R. 721 (Bankr. E.D. Va. 2002) (discusses scope of automatic stay and relief standards)
- In re Cho, 164 B.R. 730 (Bankr. E.D. Va. 1994) (allocation of burdens under 11 U.S.C. § 362(g))
- Evans v. Stackhouse, 564 B.R. 513 (E.D. Va. 2017) (payments made pursuant to a chapter 13 plan qualify as plan payments for discharge/plan compliance analysis)