518 B.R. 466
Bankr. N.D. Ill.2014Background
- Alpine Bank moved for relief from the automatic stay under 11 U.S.C. § 362(d)(2) to proceed with foreclosure of the Mila Avenue property in Rockford, Illinois.
- A July 13, 2011 Forbearance Agreement required the Debtor to execute a quit claim deed to Alpine, held in escrow and to be recorded only upon specified defaults or by August 1, 2016.
- The Forbearance Agreement adjusted the note, maturity, and monthly payments; it stated that recording the deed would not extinguish the debt.
- The Debtor filed a Chapter 13 petition in September 2013 after a prior 2010 Chapter 13 case; the plan in 2013 proposed continuing payments to Alpine and treating the Mila Avenue property as remaining vested in the Debtor.
- The Debtor later amended her plan to pay Alpine in full by August 1, 2016, and began making payments again after returning to work.
- The court found the Debtor held title to the Mila Avenue property as of petition date and that the quit claim deed did not extinguish the debt, treating the deed as equitable security rather than a transfer of ownership.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether the July 2011 quit claim deed was an actual transfer of title. | Primes: deed was not recorded and served as security for the loan. | Alpine: deed effects a transfer upon default. | Not a transfer; deed is merely security (equitable mortgage). |
| Whether the deed in escrow extinguishes the Debtor’s equity or right of redemption under Illinois law. | Equitable right of redemption remains; deed does not extinguish debt. | Deed creates a future transfer that could foreclose redemption. | Equitable right of redemption preserved; deed does not extinguish debt. |
| Whether the Debtor’s Chapter 13 plan is feasible and supports denial of stay relief. | Plan can cure arrears and refinance balloon maturity. | Feasibility requires more certainty about repayment. | Feasibility supports denial of stay relief at this stage. |
Key Cases Cited
- Hans v. First Ill. Nat’l Bank, 98 Ill.Dec. 150, 493 N.E.2d 1174 (1986) (Ill. 1986) (mortgage/redemption principles; disfavors extinguishing redemption rights)
- Bearss v. Ford, 108 Ill. 16 (1883) (Ill. 1883) (contingent quit claims in forbearance treated as mortgages, not absolute transfers)
- Wiemer v. Havana Nat’l Bank, 32 Ill.App.3d 578, 335 N.E.2d 506 (1975) (Ill. App. 1975) (equitable mortgage doctrine; deeds in workout contexts)
- Schwartzentruber v. Stephens, 133 N.E.2d 33 (1956) (Ill. 1956) (test for whether instrument is mortgage or deed based on debt security)
- Flores v. Eastern Savings Bank, 977 N.E.2d 242 (Ill. App. 2012) (Ill. App. 2012) (Flores discussed limits of contractual waivers; distinguished from Illinois redemption doctrine)
- Colon v. Option One Mortgage Corp., 319 F.3d 912 (7th Cir. 2003) (7th Cir. 2003) (discussion of redemption and plan treatment in Chapter 13)