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In re Mrdutt

United States Bankruptcy Appellate Panel of the Ninth Circuit

May 6, 2019

In re: DAVID MRDUTT and CHRISTINA MRDUTT, Debtors.
v.
DAVID MRDUTT; CHRISTINA MRDUTT, Appellees. DEVIN DERHAM-BURK, Chapter 13 Trustee, Appellant,

          Argued and Submitted on May 25, 2018, at San Francisco, California

          Appeal from the United States Bankruptcy Court for the Northern District of California, Honorable Hannah L. Blumenstiel, Bankruptcy Judge, Presiding

          Jane Z. Bohrer argued for appellant.

          Devin Derham-Burk, Chapter 13 Trustee.

          Before: BRAND, TAYLOR and FARIS, Bankruptcy Judges.

          OPINION

          BRAND, BANKRUPTCY JUDGE.

         Chapter 13[1] trustee, Devin Derham-Burk ("Trustee"), appeals an order granting the debtors' motion to modify their chapter 13 plan. The debtors proposed to modify their confirmed plan to surrender their residence to the lender. Trustee opposed the motion as untimely, because it was filed seven months after the debtors had completed their plan payments to Trustee. The bankruptcy court held that, because the debtors had not cured their prepetition mortgage arrears as provided for in the plan, the payments under the plan were not complete; therefore, the motion to modify was timely under § 1329(a). The court allowed the plan modification under § 1329(c) to surrender the residence, even though the 60-month time period set forth in § 1329(c) had already expired.

         We agree with the bankruptcy court that the debtors' plan payments were not complete for purposes of § 1329(a). We conclude, however, that the debtors could not modify their plan to surrender their residence, because the surrender was a payment made outside the 60-month time limit. Accordingly, we REVERSE.

         I. FACTUAL BACKGROUND AND PROCEDURAL HISTORY

         David and Christina Mrdutt filed their chapter 13 bankruptcy case on November 30, 2011. Their residence, valued at $235, 000, was encumbered by two deeds of trust in favor of Wells Fargo. Wells Fargo filed two related secured proofs of claim: one for $406, 299.67 for the first lien (the primary mortgage), which included nearly $65, 000 in prepetition arrears; and one for $42, 427.01 for the second lien (a HELOC). The Mrdutts later obtained an order avoiding the wholly unsecured second lien, which was contingent upon their completion of a chapter 13 plan and receiving discharges.

         Prior to plan confirmation, the Mrdutts filed a declaration required by local guidelines stating that their request to Wells Fargo to modify the primary mortgage loan was still pending.

         Months later, with the loan modification still pending, the bankruptcy court confirmed the Mrdutts' second amended chapter 13 plan on December 11, 2012 ("Plan"). The 60-month Plan provided $0 for allowed general unsecured claims. The Plan also provided that all prepetition mortgage arrears would be cured if Wells Fargo approved the loan modification; if Wells Fargo disapproved it, the Mrdutts would file a modified plan to pay the arrears. The Mrdutts also agreed to make all postpetition mortgage payments directly to Wells Fargo.[2]

         Following confirmation, the Mrdutts continued to make regular payments to Trustee and the case proceeded uneventfully until after they made their final Plan payment to her in October 2016, which she distributed in November. In December 2016, Mr. Mrdutt wrote a letter to the bankruptcy judge asking her to stop Wells Fargo from foreclosing on the residence. Sadly, Mrs. Mrdutt had passed away from cancer. Mr. Mrdutt explained that Wells Fargo was refusing to deal with him for a loan modification because the loan was in Mrs. Mrdutt's name only.

         In January 2017, Wells Fargo moved for relief from stay to foreclose its first lien on the residence. The Mrdutts had failed to make postpetition mortgage payments totaling $123, 819. The outstanding debt for the primary mortgage was now $536, 861. The residence was still valued at $235, 000. The bankruptcy court granted stay relief but ordered that its effectiveness was stayed until entry of the Mrdutts' discharges.

         In June 2017, Trustee filed notices of plan completion and requested that the case be closed without discharge. Trustee asserted that the Mrdutts were not entitled to a discharge because they had failed to deal with their prepetition mortgage arrears.

         In response, the Mrdutts[3] moved to modify their Plan ("Motion to Modify"). Because they ultimately did not receive the loan modification, they wished to modify the Plan to surrender the residence. Trustee argued that the Motion to Modify was untimely, because plan payments had been completed months prior.

         After a hearing, the bankruptcy court granted the Motion to Modify, finding that it was timely under § 1329(a) and that the Mrdutts could surrender the residence even though the 60-month time period under § 1329(c) had expired. Trustee timely appealed.

         II. JURISDICTION

         The bankruptcy court had jurisdiction under 28 U.S.C. §§ 1334 and 157(b)(2)(L). We have jurisdiction under 28 U.S.C. § 158.

         III. ISSUES

         1. Did the bankruptcy court err in determining that, because the Mrdutts had not completed all payments under the Plan due to their failure to satisfy the prepetition mortgage arrears, the Motion to Modify was timely under § 1329(a)?

         2. Did the bankruptcy court err in determining that the Plan, as modified, complied with the time limits set forth in § 1329(c)?

         IV. ...


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