523 B.R. 560
Bankr. E.D. Tenn.2014Background
- Debtors filed Chapter 11 in 2002 owning Boone Ridge (residence) and Spurgeon Lane (business) properties, with the Bank secured by the Boone Ridge Property.
- Three bank notes (1997, 1998, 2002) and a cross-collateralized Deed of Trust secured the debt, with the 1997 Note marked paid after refinancing.
- The Debtors proposed a Modified Plan (2002) treating the Bank’s security as on Spurgeon Lane Property, while Schedule/Summary Sheet suggested Boone Ridge Property as collateral, creating a potential collateral substitution.
- Foreclosure of the Spurgeon Lane Property occurred in 2004; the Debtors later failed to make balloon payments under the Modified Plan, prompting Bank foreclosure concerns on Boone Ridge.
- Debtors reopened the case and filed adversary proceedings seeking to avoid the deed of trust, claim reformation to substitute collateral, and treat the debt as unsecured, while Bank sought to enforce, arguing plan reformation was proper and the deed remains valid.
- The court held that the Modified Plan mistakenly described collateral, reformation is appropriate to clarify that Boone Ridge Property secures the Bank, and the Bank’s deed of trust remains enforceable under the plan and dragnet/future-advance provisions.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether the Modified Plan intended collateral substitution | Paynes claim substitution to Spurgeon Lane. | Bank asserts a scrivener’s error and substitution never occurred. | Reformation granted; collateral should be Boone Ridge Property. |
| Whether the Bank is holder of enforceable note under the plan | Note marked paid; no new note proven post-confirmation. | Deed of trust plus dragnet future-advance clause supports enforcement of Modified Plan debt. | Bank is holder of enforceable debt under Modified Plan. |
| Whether Tenn. Code Ann. § 28-2-111 bars foreclosure | 10-year limit lapses; plan does not extend properly. | Dragnet/future-advance clause and Confirmation Order extend/ toll the period; plan sets new maturity. | Statute not a bar; foreclosure enforceable. |
Key Cases Cited
- Sikora v. Vanderploeg, 212 S.W.3d 277 (Tenn. App. 2006) (mutual mistake and reform available when elements shown)
- In re Dow Corning Corp., 456 F.3d 668 (6th Cir. 2006) (contract interpretation governs confirmed plans)
- In re Consumers Realty & Dev. Co., Inc., 238 B.R. 418 (8th Cir. BAP 1999) (confirmed plan as new contract binding creditors)
- Fidelity Mut. Life Ins. Co. v. Wall, 68 S.W.2d 108 (Tenn. 1934) (statute tolls and instruments between parties valid as to enforceability)