In re: Mark Raimundo Watson, HI-17-1012-TaLB

Background

Debtor Mark Watson previously received a Chapter 7 discharge and then filed Chapter 13 the same day; his schedules and confirmed Chapter 13 plan did not list or provide for any secured creditor holding a lien on his Waikoloa, Hawaii property.
The confirmed plan provided 36 monthly payments and estimated a 100% distribution to unsecured creditors; it did not treat any secured creditor classes and stated the estate property would revest in debtor on confirmation.
Ditech (holder of a 2005 note and mortgage) moved for relief from the automatic stay asserting the note was in default (11 postpetition missed payments, 5 postconfirmation missed payments) and sought to foreclose.
Debtor opposed, arguing his Chapter 7 discharge eliminated personal liability, a state-court foreclosure dismissal barred in rem enforcement, lack of proof of Ditech’s standing, and that he was not in default under the confirmed plan.
At the stay hearing Debtor and his counsel did not appear; the bankruptcy court accepted Ditech’s counsel’s representation that he held the original note indorsed in blank, overruled Debtor’s objections, and granted relief from the automatic and codebtor stays.
On appeal, the BAP affirmed: Debtor’s Chapter 7 discharge did not extinguish Ditech’s lien; Debtor’s confirmed plan did not bind unsecured treatment of an unlisted secured creditor; failure to make postpetition/postconfirmation payments constituted "cause" to lift the stay.

Issues

Issue	Plaintiff's Argument	Defendant's Argument	Held
Whether Debtor’s confirmed Chapter 13 plan and §1327 res judicata precluded Ditech from enforcing its lien	Watson: confirmed plan was final and res judicata; Ditech’s lien rights were effectively negated because plan didn’t list or provide for Ditech	Ditech: plan didn’t provide for secured creditor; liens pass through Chapter 7/13 unless treated; unlisted secured creditor can enforce lien	Held: Plan did not bind Ditech; res judicata does not preclude postconfirmation defaults or enforcement by an unprovided-for secured creditor
Whether Chapter 7 discharge terminated Ditech’s in rem lien or foreclosure rights	Watson: Chapter 7 discharge eliminated obligations such that Ditech could not foreclose	Ditech: Chapter 7 discharge only removes personal liability; lien survived and may be enforced against collateral	Held: Chapter 7 discharge did not affect Ditech’s lien; lien survives and foreclosure permitted
Whether Ditech had standing to seek stay relief (ownership/possession of original note)	Watson: Ditech failed to prove it was creditor/holder	Ditech: counsel represented possession of original note indorsed in blank and would produce it; successor-in-interest status asserted	Held: Bankruptcy court reasonably credited Ditech’s counsel; Ditech had a colorable claim/standing; Debtor failed to appear to inspect note
Whether failure to make postpetition/postconfirmation payments is "cause" to lift the automatic stay under §362(d)(1)	Watson: He contends he missed no plan payments or that prepetition acceleration eliminated postpetition obligation	Ditech: Multiple missed postpetition/postconfirmation payments meant it wasn’t receiving payments and had cause to enforce in rem rights	Held: Failure to make postpetition/postconfirmation payments constitutes cause; stay relief appropriate despite prepetition acceleration or plan confirmation

Key Cases Cited

Blendheim v. HSBC Bank USA, N.A., 803 F.3d 477 (9th Cir. 2015) (describing “Chapter 20” debtors and lien effects of successive filings)
Johnson v. Home State Bank, 501 U.S. 78 (1991) (mortgage lien survives discharge of personal liability)
Brawders v. County of Ventura, 503 F.3d 856 (9th Cir. 2007) (liens generally pass through bankruptcy unaffected absent estate action)
In re Ellis, 60 B.R. 432 (9th Cir. BAP 1985) (postconfirmation payment defaults can constitute cause for stay relief)
In re Kronemyer, 405 B.R. 915 (9th Cir. BAP 2009) (stay-relief legal standard; review de novo for legal issues)