In re: Dustin Roger Chantel and Elizabeth Darlene Chantel

• Court: United States Bankruptcy Appellate Panel for the Ninth Circuit
• Decided: June 8, 2017
• Docket: AZ-16-1239-LBJu
• Status: Unpublished

Opinion

FILED JUN 08 2017 1 NOT FOR PUBLICATION SUSAN M. SPRAUL, CLERK U.S. BKCY. APP. PANEL 2 OF THE NINTH CIRCUIT

3 UNITED STATES BANKRUPTCY APPELLATE PANEL OF THE NINTH CIRCUIT 4 5 In re: ) BAP No. AZ-16-1239-LBJu ) 6 DUSTIN ROGER CHANTEL and ) Bk. No. 0:13-bk-11909-EPB ELIZABETH DARLENE CHANTEL, ) 7 ) Debtors. ) 8 ______________________________) ) 9 DUSTIN ROGER CHANTEL; ) ELIZABETH DARLENE CHANTEL, ) 10 ) Appellants, ) 11 ) v. ) M E M O R A N D U M* 12 ) DITECH FINANCIAL LLC, fka ) 13 Green Tree Servicing LLC, ) ) 14 Appellee. ) ______________________________) 15 Submitted Without Argument on May 18, 2017 16 Filed - June 8, 2017 17 Appeal from the United States Bankruptcy Court 18 for the District of Arizona 19 Honorable Eddward P. Ballinger, Jr., Bankruptcy Judge, Presiding _________________________ 20 Appearances: Appellants Dustin Roger Chantel and Elizabeth 21 Darlene Chantel, pro se on brief; Mark W. Drutz, Thomas P. Kack, and Jeffrey Gautreaux of Musgrove 22 Drutz Kack & Flack, PC on brief for Appellee Ditech Financial LLC. 23 _________________________ 24 Before: LAFFERTY, BRAND, and JURY, Bankruptcy Judges. 25 26 * This disposition is not appropriate for publication. 27 Although it may be cited for whatever persuasive value it may have (see Fed. R. App. P. 32.1), it has no precedential value. 28 See 9th Cir. BAP Rule 8024-1. 1 INTRODUCTION 2 Appellee Ditech Financial LLC (“Ditech”) moved for relief 3 from the automatic stay in Appellants-Debtors’ chapter 71 4 bankruptcy, seeking to foreclose on its security interest in 5 Debtors’ residence in Kingman, Arizona (the “Property”) and to 6 resolve priority disputes with judgment lien creditors. Ditech 7 alleged that Debtors had no equity in the real property and that 8 Debtors had not been making payments. Debtors opposed the motion 9 but presented no evidence to refute those allegations; they 10 instead argued that Ditech lacked standing and that Ditech’s deed 11 of trust was void. After a hearing, the bankruptcy court granted 12 relief from stay, and Debtors appealed. We AFFIRM. 13 FACTS 14 Debtors filed a chapter 13 petition on July 11, 2013. The 15 case was dismissed on August 7, 2013, for failure to file a plan 16 timely; in response, Debtors filed a motion to reinstate the case 17 and convert it to chapter 7, which the bankruptcy court granted. 18 The order reinstating the case was entered August 12, 2013. 19 Debtors did not list any real property on Schedule A. On 20 Schedule G, Executory Contracts and Unexpired Leases, Debtors 21 listed a lease with an entity called Chan-Lan Trust (the 22 “Trust”), with the explanation “lease of land for farming.” The 23 Trust was actually an entity created in 1995 by Debtors, who were 24 its settlors, trustees, and beneficiaries. The Trust held 25 26 1 Unless otherwise indicated, all chapter and section 27 references are to the Bankruptcy Code, 11 U.S.C. §§ 101-1532. “LBR” references are to the Local Rules of Bankruptcy Procedure 28 for the District of Arizona.

-2- 1 various assets (including the Property) for the benefit of 2 Debtors. 3 Shortly after the case was converted, the chapter 7 trustee, 4 William E. Pierce (“Trustee”), and the United States Trustee 5 (“UST”) each filed separate adversary proceedings seeking denial 6 of Debtor’s discharge under § 727(a) based on Debtors’ failure to 7 disclose their interests in the Trust and for failure to disclose 8 pre- and post-petition transfers of real property held in the 9 name of the Trust. Trustee also sought a declaration that 10 property held by the Trust was property of the estate. The 11 adversary proceedings were consolidated for trial, and on 12 November 11, 2014, the bankruptcy court entered judgments for 13 Trustee and UST. Both judgments denied Debtors’ discharge under 14 various subsections of § 727(a); the judgment in Trustee’s 15 adversary proceeding also declared the property held by the Trust 16 to be property of the estate and ordered turnover of that 17 property to Trustee. Debtors appealed both judgments; this Panel 18 affirmed the judgment declaring the Trust assets to be property 19 of the estate and ordering turnover and for denial of discharge 20 under § 727(a)(2)(A), (a)(2)(B), and (a)(4) and reversed the 21 denial of Debtors’ discharge under § 727(a)(3) and (a)(4)(D). 22 Debtors appealed the Panel’s decision to the Ninth Circuit Court 23 of Appeals; those appeals remain pending. 24 On April 26, 2016, Ditech filed a motion for relief from 25 stay (“Stay Motion”) to commence judicial foreclosure on the 26 Property and to resolve a priority dispute with judgment 27 creditors Mohave Electric Cooperative Incorporated and Federated 28 Cooperative Rural Electric Exchange, Inc. (collectively,

-3- 1 “Judgment Creditors”). According to the Stay Motion, Countrywide 2 Home Loans, Inc. loaned Dustin Chantel $249,200 in 2005; 3 Mr. Chantel executed a note and deed of trust encumbering the 4 Property. The deed of trust was thereafter assigned to Green 5 Tree Servicing, LLC (“Green Tree”), which was subsequently 6 renamed as Ditech. Shortly after Debtors filed their bankruptcy 7 case, Green Tree loaned $168,520 to Debtors, as trustees of the 8 Trust, to refinance the 2005 loan; the loan was secured by a deed 9 of trust recorded August 7, 2013.2 Ditech asserted that although 10 Judgment Creditors had recorded their judgments on December 13, 11 2012 and June 11, 2013, Ditech’s deed of trust had priority over 12 those judgment liens because the 2013 deed of trust “replaced” 13 the 2005 deed of trust. Ditech intended to litigate that issue 14 in the context of a judicial foreclosure. 15 Ditech contended that the Property was worth $118,594 based 16 on the 2016 Mohave County Assessor’s assessment of “full cash 17 value.” Ditech asserted that it was owed $168,520 and that the 18 Property was also encumbered by the judgment liens totaling 19 approximately $200,000, thus Debtors had no equity in the 20 Property. Further, Ditech alleged that Debtors were not making 21 payments on the loan. Ditech also alleged that the Property was 22 not necessary to an effective reorganization because Debtors were 23 in a chapter 7. 24 2 The recording of the deed of trust does not appear to have 25 been a stay violation: the order dismissing the chapter 13 case 26 was entered on August 7, 2013 at 9:47:30; the 2013 deed of trust was recorded August 7, 2013 at 9:49:00. The bankruptcy court 27 entered an order reinstating the case on August 13, 2013. Moreover, at the time the deed of trust was recorded, the 28 Property was still in the name of the Trust.

-4- 1 Included as attachments to the Stay Motion were a copy of 2 the recorded 2013 deed of trust and a copy of a page from the 3 Mohave County Assessor’s website showing the assessed values of 4 the Property for 2015, 2016, and 2017. On July 15, 2016, Ditech 5 filed the declaration of Patricia Luna (“Luna Declaration”) 6 supporting the facts asserted in the Stay Motion. 7 Debtors filed an opposition, asserting (1) that Ditech did 8 not have standing to bring the motion, (2) that the 2013 deed of 9 trust attached to the motion was not valid; and (3) that the 10 Property was worth $320,000 based on an unauthenticated “Letter 11 of Appraisal” dated April 25, 2016, which was attached to the 12 opposition.3 13 With respect to standing, Debtors alleged that shortly after 14 the 2013 deed of trust was executed, Green Tree had sold its 15 interest in the deed of trust to Fannie Mae. Debtors attached to 16 their opposition an unauthenticated copy of a letter to Dustin 17 Chantel dated March 31, 2016, from the Fannie Mae Resource Center 18 confirming that Fannie Mae “is the investor” on the Property. 19 Regarding the validity of the 2013 deed of trust, Debtors 20 alleged that the borrowers were misidentified as “Dustin Chantel 21 and Elizabeth D. Chantel, Trustees of the Chan-Lan Trust dated 22 September 9, 1995.” It is not clear why Debtors believed this 23 designation was incorrect; they stated only that “the wording 24 25 3 Debtors did not include a copy of their opposition with 26 their excerpts of record. However, we have exercised our discretion to examine the bankruptcy court’s docket and imaged 27 papers in Case No. 13-11909 and related adversary proceedings. Woods & Erickson, LLP v. Leonard (In re AVI, Inc.), 389 B.R. 721, 28 725 n.2 (9th Cir. BAP 2008).

-5- 1 placed in the document clearly represented a different entity 2 than the entity that the [Debtors] were trustee of.” Debtors 3 stated that the notary who brought the deed of trust to their 4 home for signatures told them that the deed of trust could not be 5 changed but that Debtors could contact the lender within three 6 days to make the correction or cancel the transaction. Debtors 7 alleged that they did so but that the deed of trust was never 8 corrected or cancelled and thus the Property was “clouded with an 9 invalid Deed of Trust.” According to the Luna Declaration, Green 10 Tree never received a notice of cancellation from Debtors, and 11 the copy of the unauthenticated cancellation letter Debtors 12 produced in the bankruptcy court appears to have been sent to 13 Fannie Mae, not Green Tree. 14 Debtors made additional assertions in their opposition: 15 (1) that the 2013 deed of trust could not have been a 16 “replacement” deed of trust for the 2005 deed of trust because 17 the borrower’s names were different and the 2013 deed of trust 18 indicated that the loan was made in California; and (2) that 19 $3,808.38 added to the principal balance for accruing interest 20 was actually for “commissions, title insurance costs, fees, 21 documentation fees, recording fees and other miscellaneous fees 22 that Green Tree Servicing, LLC charged.” Debtors also accused 23 Green Tree/Ditech and their counsel of acting in bad faith and 24 presenting false and misleading information to the court. No 25 supporting declaration was filed with the opposition. 26 Judgment Creditors jointly filed a motion to intervene in 27 the relief from stay matter, disputing Ditech’s contention that 28 the 2013 deed of trust related back to the 2005 deed of trust so

-6- 1 as to take priority over Judgment Creditors’ liens. 2 Trustee did not file a response to the Stay Motion. 3 The bankruptcy court held a preliminary hearing on June 15, 4 2016, and continued the matter to July 20, 2016, at the request 5 of counsel for Ditech and Judgment Creditors, who indicated they 6 believed they would be able to settle their priority dispute. At 7 the continued hearing on July 20, 2016, counsel for Judgment 8 Creditors indicated that he had spoken to Trustee’s counsel and 9 that Trustee had no objection to the Stay Motion. Ditech’s 10 counsel stated that an agreement had been reached with Judgment 11 Creditors regarding the priority issue, which was to be litigated 12 in state court once the stay was lifted. With that, the 13 bankruptcy court took the matter under advisement; later that 14 day, the court granted the Stay Motion. Debtors timely appealed. 15 JURISDICTION 16 The bankruptcy court had jurisdiction pursuant to 28 U.S.C. 17 §§ 1334 and 157(b)(2)(G). We have jurisdiction under 28 U.S.C. 18 § 158. 19 ISSUES 20 Did the bankruptcy court abuse its discretion in granting 21 Ditech’s Stay Motion? 22 STANDARDS OF REVIEW 23 We review for abuse of discretion the bankruptcy court’s 24 order granting relief from stay. Leafty v. Aussie Sonoran 25 Capital, LLC (In re Leafty), 479 B.R. 545, 550 (9th Cir. BAP 26 2012). A bankruptcy court abused its discretion if it applied 27 the wrong legal standard or its findings were illogical, 28 implausible or without support in the record. TrafficSchool.com,

-7- 1 Inc. v. Edriver Inc., 653 F.3d 820, 832 (9th Cir. 2011). 2 We may affirm on any basis supported by the record. Caviata 3 Attached Homes, LLC v. U.S. Bank, N.A., 481 B.R. 34, 44 (9th Cir. 4 BAP 2012). 5 DISCUSSION 6 Under § 362(d), the bankruptcy court shall grant relief from 7 the automatic stay: 8 (1) for cause, including the lack of adequate protection of an interest in property of such party in 9 interest; 10 (2) with respect to a stay of an act against property under subsection (a) of this section, if– 11 (A) the debtor does not have an equity in such 12 property; and 13 (B) such property is not necessary to an effective reorganization[.] 14 15 The bankruptcy court did not make explicit findings as to 16 its reason for granting relief from stay. However, “[e]ven when 17 a bankruptcy court does not make formal findings, [we] may 18 conduct appellate review if a complete understanding of the 19 issues may be obtained from the record as a whole or if there can 20 be no genuine dispute about omitted findings.” Veal v. Am. Home 21 Mortg. Serv’g, Inc. (In re Veal), 450 B.R. 897, 919-20 (9th Cir. 22 BAP 2011) (citations and quotations omitted). 23 The record before us supports the bankruptcy court’s ruling. 24 Ditech alleged facts that would support stay relief under either 25 § 362(d)(1) or (2). First, Ditech alleged that Debtors were not 26 making payments on the obligation and that there was no equity 27 cushion to provide adequate protection for Ditech’s interest in 28 the Property, thus supporting a conclusion that Ditech was not

-8- 1 adequately protected. Second, Ditech alleged that Debtors lacked 2 equity in the Property and that the Property was not necessary to 3 an effective reorganization. 4 In response, the only plausible argument Debtors offered was 5 that the Property was worth more than Ditech asserted. Although 6 neither party presented authenticated evidence of value, even 7 accepting the higher value of $320,000 asserted by Debtors, they 8 had no equity in the Property: liens against the Property totaled 9 approximately $368,520. Debtors did not dispute the amount of 10 the liens, nor did they dispute the allegations that they had not 11 been making payments or that they did not need the Property for 12 an effective reorganization. 13 The other arguments advanced by Debtors in the bankruptcy 14 court and in this appeal (that Ditech lacks standing, the deed of 15 trust is void, and Debtors are entitled to a homestead exemption) 16 are issues that the bankruptcy court did not need to address in 17 the context of the Stay Motion: 18 Relief from stay proceedings . . . are primarily procedural; they determine whether there are sufficient 19 countervailing equities to release an individual creditor from the collective stay. One consequence of 20 this broad inquiry is that a creditor’s claim or security is not finally determined in the relief from 21 stay proceeding. 22 . . . . 23 Given the limited nature of the relief obtained through a motion for relief from the stay, the 24 expedited hearing schedule § 362(e) provides, and because final adjudication of the parties’ rights and 25 liabilities is yet to occur, this Panel has held that a party seeking stay relief need only establish that it 26 has a colorable claim to enforce a right against property of the estate. 27 28 In re Veal, 450 B.R. at 914-15 (citations omitted).

-9- 1 On appeal, Debtors make essentially the same arguments they 2 made to the bankruptcy court: that Ditech lacked standing and 3 that the Property is worth more than Ditech alleged. Debtors’ 4 standing argument is premised upon their belief that the deed of 5 trust was transferred to Fannie Mae. However, the record shows 6 that Fannie Mae is an investor in the loan and not the holder of 7 the note or deed of trust. The Luna Declaration indicated 8 that the deed of trust secured a note for $168,520.00 and that 9 Green Tree loaned those funds to Debtors, and the deed of trust 10 reflects that Green Tree was the lender. These documents 11 established that Ditech, which is merely the renamed version of 12 Green Tree, had a colorable claim to enforce its deed of trust 13 against the Property. 14 As for value, Debtors contend that a loan of $249,200 was 15 obtained against the Property in 2005 and thus the Property was 16 worth at least $300,000 at that time, and assessments have 17 increased since then. However, as noted, even if the Property 18 were worth the $320,000 asserted by Debtors, the encumbrances 19 against the Property exceeded that value, leaving no equity for 20 Debtors or the estate. 21 Debtors also seem to argue that because of the appeal 22 pending at the Ninth Circuit Court of Appeals, the bankruptcy 23 court lacked jurisdiction to grant the Stay Motion. However, a 24 pending appeal divests the trial court of jurisdiction only “over 25 those aspects of the case involved in the appeal.” Marino v. 26 Classic Auto Refinishing, Inc. (In re Marino), 234 B.R. 767, 769 27 (9th Cir. 1999) (citing Trulis v. Barton, 107 F.3d 685, 694–95 28 (9th Cir. 1995)). One of the pending Ninth Circuit appeals

-10- 1 involves the issue of whether the Property should be deemed to be 2 property of the estate. The outcome of that appeal would have no 3 impact on the issues involved in the Stay Motion, which is 4 “limited to issues of the lack of adequate protection, the 5 debtor’s equity in the property, and the necessity of the 6 property to an effective reorganization.” Johnson v. Righetti 7 (In re Johnson), 756 F.2d 738, 740 (9th Cir. 1985) (overruled on 8 other grounds by Travelers Cas. & Sur. Co. v. Pac. Gas & Elec. 9 Co., 549 U.S. 443 (2007)). 10 Debtors include in their brief a number of allegations that 11 are not supported by the record and have no bearing on the issues 12 relevant to this appeal. Debtors allege that Trustee, creditors, 13 their attorneys, and even the bankruptcy judge engaged in a 14 scheme to harm Debtors. Debtors allege they transferred property 15 worth $223,138.47 to Trustee but that Trustee did not acknowledge 16 or record payment of that judgment.4 Debtors further allege that 17 Trustee is holding the case open for the sole purpose of 18 collecting fees. Debtors accuse Trustee of retaliating against 19 Debtors for pointing out Trustee’s and his counsel’s “fraudulent 20 wrongful actions.” As for Ditech, Debtors allege that the filing 21 of the Stay Motion was an act to cover up Green Tree’s sale of a 22 null and void document to Fannie Mae. Debtors go so far as to 23 allege unspecified “criminal activity,” but there is simply 24 4 Debtors seem to assert that $223,138.47 transferred to the 25 Trustee was to pay off the Judgment Creditors’ liens, but that 26 assertion makes no sense. As noted, Trustee had obtained a judgment from the bankruptcy court that ordered Debtors to turn 27 over to Trustee all real and personal property of the Chan-Lan Trust; thus, any funds or property transferred to Trustee was 28 likely in satisfaction of that judgment.

-11- 1 nothing in the record to support these allegations. And even if 2 there were evidence of such activity, these are questions that 3 would need to be dealt with by the bankruptcy court in the first 4 instance. Finally, Debtors include in their brief an 5 incomprehensible discussion of “legal reform driven by divine 6 intelligence.” These arguments and allegations are not relevant 7 to lack of adequate protection, equity, or necessity of the 8 property to an effective reorganization, which, as noted, are the 9 only issues involved in determining whether to grant stay relief, 10 In re Johnson, 756 F.2d at 740; thus we need not consider them. 11 CONCLUSION 12 Simply put, Debtors have not demonstrated that the 13 bankruptcy court applied an incorrect legal standard or that its 14 (implicit) findings were illogical, implausible or without 15 support in the record. On the record before us, and given the 16 limited issues decided in the context of a motion for relief from 17 stay, we find no abuse of discretion by the bankruptcy court. 18 Accordingly, we AFFIRM. 19 20 21 22 23 24 25 26 27 28

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