In re Turner, 558 B.R. 269

Background

Debtors refinanced their McHenry County home in 2006; the mortgage to Oak Street (later CitiMortgage) was recorded in Cook County by mistake and thus unperfected in McHenry County.
Debtors filed Chapter 13 in 2011, listed CitiMortgage as an unsecured creditor; CitiMortgage did not file a proof of claim or object to the plan; the plan was confirmed in March 2012.
Debtors completed plan payments and received a discharge in February 2013; the Trustee’s final report noted CitiMortgage’s claim was not allowed because it was not timely filed.
In December 2013 a title company rerecorded the May 2006 mortgage in McHenry County; CitiMortgage then initiated a state-court foreclosure action in 2014.
Debtors moved to reopen the bankruptcy and sought a rule to show cause for contempt under 11 U.S.C. § 524, arguing the rerecording and foreclosure attempts violated the discharge and the confirmed plan.
The bankruptcy court found CitiMortgage had an unperfected but valid lien under Illinois law as of the petition date, and that the confirmed Chapter 13 plan did not terminate that lien; the motion for contempt was denied except as to whether certain fee/cost requests in the state-court complaint might seek in-personam relief violating the discharge.

Issues

Issue	Plaintiff's Argument	Defendant's Argument	Held
Did the mis-recorded mortgage create no lien on the property as of the petition date?	Turner: recording in wrong county meant no lien existed and thus no in-rem rights.	CitiMortgage: mortgage valid between parties and effective against those with notice despite lack of recordation.	Court: Under Illinois law an unrecorded mortgage is valid between parties and against creditors with notice; CitiMortgage had a lien.
Did the confirmed Chapter 13 plan or discharge terminate CitiMortgage’s lien?	Turner: Model Plan ¶B.3 terminates liens at discharge for creditors not provided for in the plan, so lien ended.	CitiMortgage: ¶B.3 applies only to secured claims provided for in plan; lien survives discharge absent avoidance action.	Court: Plan did not terminate liens of unsecured/non-participating secured creditors; lien survived discharge.
Did CitiMortgage’s in-rem foreclosure actions violate the discharge injunction (11 U.S.C. § 524)?	Turner: Rerecording and foreclosure enforcement improperly sought to collect discharged debt.	CitiMortgage: Discharge bars in-personam collection but does not eliminate in-rem enforcement of valid liens.	Court: Enforcement of lien in rem did not violate §524(a); actions to foreclose were permitted.
Are there remaining claims for contempt based on costs/fees sought in state suit?	Turner: Certain counts (II and IV) might seek costs/fees that function as in-personam collection, violating discharge.	CitiMortgage: Complaint omitted personal liability for deficiency and stated no personal liability; foreclosure counts are in rem.	Court: Denied contempt except it left open whether requests for costs/fees constitute willful violation; parties may supplement record on that narrow issue.

Key Cases Cited

Butner v. United States, 440 U.S. 48 (property interests governed by state law)
Long v. Bullard, 117 U.S. 617 (discharge does not extinguish valid liens; preserves in-rem enforcement)
Johnson v. Home State Bank, 501 U.S. 78 (bankruptcy discharge extinguishes only in-personam remedies; lien survives)
Harms v. Sprague, 105 Ill.2d 215 (unrecorded mortgage valid between parties and against those with notice under Illinois law)
Nobelman v. American Savings Bank, 508 U.S. 324 (Chapter 13 may not modify rights of holders of claims secured only by debtor’s principal residence)
In re Penrod, 50 F.3d 459 (plan confirmation interpreted like contract in Chapter 11 lien-extinguishment context)
In re Swanson, 312 B.R. 153 (Model Plan ¶B.3 does not extinguish liens of creditors not provided for in the plan)
In re Pajian, 785 F.3d 1161 (secured creditor that fails to file a proof of claim may still enforce its lien post-discharge)