Rebecca Votaw

OCR transcription for search; preserved printed pages are authoritative

The court incorporates by reference in this paragraph and adopts as the findings and orders
of this court the document set forth below.

[S| RUSS KENDIG

Russ Kendig
United States Bankruptcy Judge

UNITED STATES BANKRUPTCY COURT
NORTHERN DISTRICT OF OHIO
EASTERN DIVISION

CHAPTER 7

IN RE:

CASE NO. 10-63744

REBECCA VOTAW,
(Jointly Administered)

Debtor. JUDGE RUSS KENDIG

MEMORANDUM OF OPINION
(NOT INTENDED FOR
PUBLICATION)

Noe Nee ee” ee ee ee ee ae es

Ocwen Loan Servicing, LLC (“Ocwen”) filed an amended motion for relief from stay
and abandonment on May 19, 2011' under 11 U.S.C. § 362. The chapter 7 trustee, Josiah
L. Mason, (“Trustee”) opposes the relief. The court held a hearing on October 31, 2011.
William Drown, attorney for Trustee, and LeeAnn Covey, attorney for Ocwen, participated

in the hearing.

The court has jurisdiction of this matter pursuant to 28 U.S.C. §§ 1334 and the
general order of reference entered in this district on July 16, 1984. Venue in this district and
division is proper pursuant to 28 U.S.C. § 1409.

' The motion was filed in the case of debtor’s husband, Robert Richard Votaw, prior to
the order for joint administration. Ocwen also filed a motion for relief from stay in
Debtor’s case on September 3, 2010. On January 24, 2011, the court granted relief but
not abandonment of Trustee’s interest in the property in Debtor’s case.

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This opinion is not intended for publication or citation. The availability of this
opinion, in electronic or printed form, is not the result of a direct submission by the court.

BACKGROUND

On April 20, 2006, Debtor and Robert Richard Votaw obtained a loan from
Taylor, Bean & Whitaker Mortgage Corp. (“Taylor Bean”) in the amount of $232,000.
The loan was purportedly secured by a mortgage on 1576 State Route 602, Galion, Ohio.
Mortgage Electronic Registration Systems, Inc. (““(MERS”) was named nominee for
Taylor Bean in the mortgage instrument. Ocwen now services the loan.

Prior to the bankruptcy filing, Ocwen had commenced a foreclosure action in
Crawford County and obtained a judgment. The judgment included reformation of the
mortgage which altered the property description of the real estate securing the loan. A
foreclosure sale was set for September 10, 2010 but cancelled when the bankruptcy case

was filed.

Ocwen alleges that they are entitled to relief under § 362(d) on various theories.
First, Ocwen claims a lack of adequate protection from the absence of payments and the
property’s vacancy. Ocwen continues to insure the property and pay the real estate taxes.
Second, the property is not necessary for reorganization. Third, the loan is in default.
Unpaid payments totaled in excess of $11,000 through May 2011. Fourth, there is no
equity in the collateral. The value of the property is $191,170 and Ocwen is owed
approximately $280,000, without consideration of other liens and interests in the

property.

Trustee objected to the amended motion on July 5, 2011, prior to the 341 meeting
of creditors, claiming that there may be equity to benefit the unsecured creditors. After
the 341 meeting, the trustee identified several potential issues with the mortgage and
maintains Ocwen is not entitled to relief. As the result of those issues, Trustee filed a
motion to vacate the foreclosure judgment in the state court action. That motion is
pending and was stayed as the result of the bankruptcy filing. Trustee has now also filed

an adversary complaint related to the mortgage.

LAW AND ANALYSIS

Ocwen’s primary argument in the amended motion is that its interest in the
property is not adequately protected, creating cause for relief from the automatic stay
under 11 U.S.C. § 362(d)(1). Because the bankruptcy code provides no specific
definition of cause, courts employ their discretion based on the facts of each individual
case. Laguna Assoc. Ltd. P’ship v. Aetna Cas. & Surety Co. (In re Laguna Assoc. Ltd.
P’ship), 30 F.3d 734 (6" Cir. 1994). The movant bears the initial burden of demonstrating
the requisite cause for relief. See, e.g., U.S. v. Shultz (In re Shultz), 347 B.R. 115 (B.A.P.
6" Cir. 2006) (citations omitted); In re Poissant, 405 B.R. 267 (Bankr. N.D. Ohio 2009).
Ocwen must therefore demonstrate a basic foundation for its lack of adequate protection
argument. Once movant meets its initial burden, the burden shifts to the non-movant on

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all issues except proof of equity in the property. 11 U.S.C. § 362(g).

“Adequate protection is designed to protect a secured creditor . . . against any
decrease in the value of its collateral which may result from depreciation, destruction, or
the debtor’s use of the collateral.” Volvo Commercial Fin. LLC v. Gasel Transp. Lines,
Inc, (In re Gasel Transp. Lines, Inc.), 326 B.R. 683, 691-92 (B.A.P. 6" Cir. 2005)
(citations omitted). It may be demonstrated “through evidence of diminution of property
values, a continual increase in the amount of the secured debt through interest accruals or
otherwise, the failure to pay taxes, the failure to maintain insurance on the property, the
failure to maintain the property, or other factors that may jeopardize the creditor’s present
position.” In re Wensons Prop. Mgmt., 2010 WL 3239275, *5 (Bankr. M.D. Tenn. 2010)
(citing J & M Salupo Dev. Co., Inc., 388 B.R. 809, 812 (Bankr. N.D. Ohio 2008) (citation

omitted)).

The court finds that Ocwen met its initial burden, demonstrating cause for relief in
the lack of adequate protection. The grounds cited included the payment default, lack of
continued payments, and the vacancy of the property. Not only is Ocwen not receiving
any compensation on its interest, but it is paying money to keep the taxes current and the
property insured. Although what constitutes adequate protection is fluid, 11 U.S.C.

§ 361, these undisputed facts clearly demonstrate a lack of adequate protection. The

burden now shifts to Trustee.

Trustee’s arguments do not contest Ocwen’s claim of inadequate protection.
Instead, Trustee’s arguments focus on challenging Ocwen’s purported interest in the real
estate. Trustee never directly addresses how this ties to the motion for relief from stay
but the court interprets it to be an objection to Ocwen’s right to pursue relief. To be
entitled to relief from stay, Ocwen, as a party in interest, must have a qualifying interest
in the subject property. See 11 U.S.C. § 362(a) and (d). Trustee suggests Ocwen does

not.

First, there was a misidentification of the property in the original mortgage. The
legal description in the original mortgage was for parcels that Debtor and her husband
sold before the mortgage was granted. Although the foreclosure judgment permitted
reformation of the mortgage to match the parties’ alleged intent, Trustee has filed a
motion in the state court foreclosure action to set aside the judgment.” To the extent he is
unsuccessful in that attempt, his adversary complaint contains a count alleging that
reformation of the mortgage constitutes a preferential transfer in favor of Ocwen and is
avoidable. Second, Trustee claims alleged deficiencies in the assignment of the mortgage
between holders. If true, Ocwen may not be a holder-in-due-course.

The grant or denial of a motion for relief from stay is not a determination of the
validity of underlying lien or interest. See In re Escobar, 2011 WL 3667550, *5 (Bankr.
E.D.N.Y. 2011) (reporter citation not yet available); Grella v. Salem Five Cent. Sav.
Bank, 42 F.3d 26, 31 (1* Cir. 1994); In re Vitreous Steel Prods., 911 F.2d 1223, 1232 (7"

2 Ocwen opposes this relief.

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Cir. 1990).
Congress intended that stay relief litigation be summary

in fashion and expeditious in time. This is due in part to
the stay being an injunction imposed by the mere filing

of a bankruptcy case, and the recognition that granting
stay relief returns the parties to the auspices of a court

of competent jurisdiction to determine, on the merits, the
relative rights, liabilities and responsibilities of the parties.

Escobar, 2011 WL 3667550, *5. Consequently,

the evidence necessary to establish standing to seek stay
relief to commence or continue a foreclosure action should
include a demonstration that the movant has the right under
applicable state law to enforce the mortgage; however,
standing should not require evidence which would be
necessary to prevail in an adversary proceeding asserting
that the claimant does not hold a valid, perfected and
enforceable lien.

Id. *8. Ocwen met this burden.

On June 28, 2010, prior to the filing of either Debtor or her husband’s bankruptcy
cases, Ocwen obtained a foreclosure judgment in state court which reformed the
mortgage. That judgment was the result of a contested proceeding in which Debtor and
her husband participated. The judgment contains a finding of fact that states “it was the
intention of the parties at the time of execution . . . to transfer all interest that the
Defendant had in and to the aforesaid described real property, but that, through a
scrivener’s error, the legal description was not entirely and properly placed in the
mortgage deed and deed of conveyance.” (Brief in Support of M. Relief from Stay, Ex.
A, p. 3) Accepting Trustee’s argument requires this court to ignore Ocwen’s interest as
determined by the state court, which the court is not willing to do. To the extent Trustee
argues that Ocwen is not entitled to relief from stay because it does not hold an interest in

the property, this position is rejected.

In addition, granting relief will allow some of the issues between Ocwen and
Trustee to progress. Trustee filed an adversary to determine the validity, extent and
priority of the mortgage and to recover a preference. The relief sought in the adversary is
dependent on the outcome of Trustee’s motion to set aside the foreclosure judgment in
state court. For example, the preference count depends on whether the state court
upholds reformation. If the state court dismantles the reformation, then there would be no
preference. A contrary result would make the preference count all the more important.
Relief from stay will allow the state court case to proceed. The state court is more
familiar with the facts and parties and has knowledge of the case. Allowing it to review
Trustee’s motion and its judgment promotes judicial economy. This is one of the
considerations a court can take in deciding whether to permit the foreclosure case to
proceed in state court. As this court previously noted in a case involving non-foreclosure

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civil litigation:

When determining whether to allow a lawsuit to move
forward in state court, bankruptcy courts have considered
(1) whether prejudice to the bankruptcy estate would result;
(2) whether the hardship to the plaintiff caused by the con-
tinuation of the stay outweighs the hardship to the debtor;
and (3) whether the plaintiff is likely to prevail on the merits
of the case. In re Bock Laundry Mach. Co., 37 B.R. 564,
566 (Bankr. N.D. Ohio 1984). Other courts have considered
factors such as judicial economy, prejudice to third parties,
and other equitable considerations. In re Wintroub, 283 B.R.
743, 745 (B.A.P. 8" Cir. 2002). Ultimately, the determina-
tion as to whether “cause” to lift the stay exists is within

the discretion of the bankruptcy court. Id.

In re Northeastern Real Prop., Ltd., Case No. 09-62467 (Bankr. N.D. Ohio January 15,
2010).

The court finds cause to lift the stay. Since the property is vacant, the expedient
course of action is to resolve the issues standing in the way ofa sale. A delay benefits
neither the estate nor Ocwen. Not only does a delay harm these two parties, but it also
places the second mortgage holder, Seven Seventeen Credit Union, in a state of flux.
Further, a decision as to whether the mortgage has been reformed is necessary to
determine the course of action of Trustee’s adversary proceeding.

The court will limit relief from the stay. Ocwen can resume the foreclosure case
and have the motion to set aside the judgment determined. Abandonment of the estate’s
interest is not authorized or directed. In the interim, Trustee shall proceed with the
adversary proceeding. The parties are free to reach an accord allowing for the sale of the

property free and clear of liens.
An order in accordance with this opinion will be issued immediately.

# # #

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Service List:

Rebecca Votaw
59 Almond Pass Dr
Ocala, FL 34472

Josiah L Mason

153 W Main St

PO Box 345

Ashland, OH 44805-2219

Edwin H Breyfogle
108 Third St NE
Massillon, OH 44646

William Todd Drown
112 N. Main St.
Mt. Vernon, OH 43050

LeAnn E. Covey
4500 Courthouse Blvd., Suite 400
Stow, OH 44224

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