Errol Walters
14-10119-smb
Bankr. S.D.N.Y.Jun 25, 2015Background
- Walters filed a chapter 11 petition on January 14, 2014, and is an accountant residing in New Jersey.
- Walters owns two properties: the New York Property at 551 West 161st Street, subject to Wells Fargo’s mortgage, and the Bronx Property at 741 St. Ouen Street with two mortgages serviced by Ocwen and Real Time.
- Wells Fargo foreclosed the New York Property in 2008; a judgment of foreclosure and sale was entered, which Walters unsuccessfully sought to vacate.
- On January 21, 2014 Walters issued the Select Note (to Wells Fargo’s note-holder group), the Real Time Note, and later the Ocwen Note, asserting unique, non-typical terms and theories aimed at discharging debt.
- Walters filed the Debtor’s Motion on March 3, 2015 seeking discharge of the Notes; Select filed a secured proof of claim of over $1.3 million in October 2014; Ocwen Note issuance occurred after petition and was not approved by the Court.
- Wells Fargo separately moved for relief from the automatic stay on May 29, 2015 to foreclose the New York Property; Walters opposed the motion but did not oppose on substantive grounds, and the Court granted Wells Fargo relief from stay.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Discharge of underlying debt via notes | Walters contends the Notes discharged the loans. | Wells Fargo/Select argues notes are not legal tender and cannot discharge the debt. | Debtor's Motion denied; notes do not discharge debt. |
| Treatment of Select's secured claim | Debtor challenges the validity/priority of Select’s claim. | Select’s secured claim should be allowed up to collateral value and treated as unsecured for the balance. | Select’s claim deemed allowed (secured up to collateral; balance unsecured). |
| Relief from the automatic stay | Walters asserts protection is warranted; disputes adequate protection evidence. | Wells Fargo shows lack of adequate protection and continued delinquency; debtors have no equity cushion. | Relief from stay granted to Wells Fargo. |
Key Cases Cited
- Blocker v. U.S. Bank, N.A., 993 N.E.2d 1154 (Ind. Ct. App. 2013) (promissory notes cannot discharge mortgage debt; cash required)
- In re Elmira Litho, Inc., 174 B.R. 892 (Bankr. S.D.N.Y. 1994) (standard for relief from stay and burden on debtor)
- In re Frascatore, 98 B.R. 710 (Bankr. E.D. Pa. 1989) (absence of adequate protection supports stay relief)