Ronald D. Reynolds

1
UNITED STATES BANKRUPTCY COURT
SOUTHERN DISTRICT OF OHIO
WESTERN DIVISION
In Re
Ronald D. Reynolds
Debtor
)
)
)
)
)
)
Case No. 06-11005
Chapter 13
Judge Burton Perlman
Order Denying Motion to Annul the Automatic Stay
Introduction
Presently 	before 	the 	Court 	is 	a 	Motion 	for 	Annulment 	of 	the
Automatic Stay ("Motion") (Doc. 21), filed by Mortgage Electronic
Registration 	Systems, 	Inc. 	("MERS"). 	In 	its 	Motion, 	MERS 	seeks
annulment of the automatic stay in order to validate a state court
This document has been electronically entered in the records of the United
States Bankruptcy Court for the Southern District of Ohio.
IT IS SO ORDERED.
Dated: August 10, 2006
____________________________________________________________
Case 1:06-bk-11005 Doc 63 Filed 08/10/06 Entered 08/10/06 17:10:35 Desc Main
Document Page 1 of 8

2
order 	reinstating 	a 	foreclosure 	sale 	that 	was 	entered 	after 	the
debtor 	filed 	for 	bankruptcy 	relief. 	In 	addition, 	MERS 	also
contends 	that 	the 	debtor 	is 	precluded 	from 	curing 	the 	mortgage
arrearage 	on 	his 	residence 	under 	11 	U.S.C. 	§1322(c). 	For 	the
foregoing reasons this Court denies the motion.
Statement of Jurisdiction
This 	Court 	has 	jurisdiction 	over 	the 	case 	pursuant 	to 	28
U.S.C. 	§§ 	157(a) 	& 	1334. 	This 	proceeding 	is 	a 	core 	proceeding
pursuant to 28 U.S.C. § 157(b)(2)(G).
Factual Background
On 	May 	2, 	2003, 	Ronald 	D. 	Reynolds 	("Debtor") 	executed 	and
delivered 	to 	MERS 	as 	Nominee 	for 	The 	Huntington 	National 	Bank 	a
promissory note ("Note"). 	The Note was a thirty-year variable rate
note 	in 	the 	amount 	of 	$75,000 	with 	an 	initial 	interest 	rate 	of
5.5%. 	The 	Note 	was 	secured 	by 	a 	mortgage 	on 	Debtor's 	residence
(“property”) 	at 	9569 	Union 	Cemetary 	Road, 	Loveland, 	Ohio, 	and
properly recorded.
On 	December 	28, 	2005, 	Debtor 	filed 	a 	Chapter 	13 	bankruptcy
case ("2005 Case") under Title 11 of the United States Code. 	A day
later, the real property was sold at a foreclosure sale to a third
party 	purchaser 	AK 	Capital 	Investments, 	LLC, 	for 	$84,0000. 	The
state 	court 	confirmed 	the 	sale 	on 	January 	13, 	2006. 	MERS
Case 1:06-bk-11005 Doc 63 Filed 08/10/06 Entered 08/10/06 17:10:35 Desc Main
Document Page 2 of 8

3
subsequently gained knowledge of the 2005 Case and filed a motion
to vacate the state court's confirmation of the foreclosure sale on
February 3, 2006. 	The state court entered an order on February 13,
2006 and set aside the sale.
On 	March 	15, 	2006, 	the 	bankruptcy 	court 	entered 	an 	order
striking 	the 	2005 	Case 	due 	to 	Debtor's 	failure 	to 	obtain 	credit
counseling per 11 U.S.C. §109(h). Following the entry of the order,
MERS, 	on 	April 	12, 	2006, 	filed 	a 	motion 	with 	the 	state 	court 	to
reinstate 	the 	sale. 	Debtor 	then 	filed 	a 	second 	Chapter 	13
Bankruptcy 	Case 	("2006 	Case") 	on 	April 	14, 	2006. 	A 	short 	time
after 	Debtor 	filed 	the 	2006 	Case 	the 	state 	court, 	on 	April 	25,
2006, granted the motion filed by MERS to reinstate the 	Sale.
Legal Analysis and Conclusions of Law
A. Annulment of the Stay
In its pleading MERS requested an annulment of the automatic
stay 	in 	the 	2006 	Case 	in 	order 	to 	validate 	the 	state 	court 	order
reaffirming the foreclosure sale. 	There are four types of relief
possible 	under 	11 	U.S.C. 	§ 	362(d), 	and 	among 	them 	annulment 	is
unique 	because 	it 	requests 	that 	a 	court 	retroactively 	allow 	an
action taken in violation of the stay. 	In re Elder-Beerman Stores
Corp., 195 B.R. 1012, 1017 (Bankr. S.D. Ohio 1996) (citing Schewe
v. Fairview Estates (In re Schewe), 94 B.R. 938, 951 (Bankr. W.D.
Case 1:06-bk-11005 Doc 63 Filed 08/10/06 Entered 08/10/06 17:10:35 Desc Main
Document Page 3 of 8

4
Mich. 1989)). 	The Eleventh Circuit has stated that "the important
congressional policy behind the automatic stay demands that courts
be 	especially 	hesitant 	to 	validate 	acts 	committed 	during 	the
pendency 	of 	the 	stay." 	Albany 	Partners, 	Ltd. 	v. 	Westbrook 	(In 	re
Albany 	Partners, 	Ltd.) 	749 	F.2d 	670, 	675 	(11th 	Cir. 	1984).
"Retroactive 	relief 	is 	only 	appropriate 	when 	a 	combination 	of
factors 	justify 	the 	exercise 	of 	discretion 	to 	take 	such
extraordinary action." In re Schewe, 94 B.R. at 951.
Factors typically considered include the "debtor's bad faith
in filing the bankruptcy petition and the moving party's knowledge
of 	the 	bankruptcy 	at 	the 	time 	of 	its 	action." 	In 	re 	Elder-Berman
Stores Corp., 195 B.R. at 1017. 	Bankruptcy courts typically view
serial 	filings 	to 	be 	indicative 	of 	bad 	faith 	on 	the 	part 	of 	a
debtor. In re Webb, 294 B.R. 850 (Bankr. E.D. Ark. 2003) (annulling
based upon commencement of ninth successive Chapter 13 filing); In
re Hall, 216 B.R. 702 (Bankr. E.D. N.Y. 1998) (annulling the stay
due to fourth filing by the debtor).
Here, 	there 	is 	no 	indication 	that 	the 	Debtor’s 	conduct 	in
filing 	the 	2006 	Case 	constituted 	bad 	faith. 	The 	sole 	reason 	the
Debtor was forced to file his 2006 Case was due to the fact that he
failed 	to 	receive 	pre-filing 	credit 	counseling 	as 	required 	by 	11
U.S.C. §109(h)(2006) prior to filing his 2005 Case. 	Thus, the only
means by which the Debtor could have received bankruptcy relief was
by 	filing 	his 	2006 	Case. 	Debtor’s 	failure 	to 	receive 	credit
Case 1:06-bk-11005 Doc 63 Filed 08/10/06 Entered 08/10/06 17:10:35 Desc Main
Document Page 4 of 8

1Under 11 U.S.C. §1322(c)(1), a debtor’s right to cure an arrearage on his
principal residence is cut off once the property is sold at a foreclosure sale.
5
counseling, 	absent 	other 	additional 	evidence 	of 	prior 	serial
filings or other inappropriate conduct simply does not rise to the
level of bad faith sufficient to grant a motion to annul the stay.
B. 11 U.S.C. §1322(c)(1)
The second issue is whether 11 U.S.C. § 1322(c)(1) 	prevents
the 	Debtor 	from 	curing 	his 	arrearage 	on 	the 	mortgage 	debt 	in 	the
2006 Case. 	MERS argues that the striking of the case essentially
validated the foreclosure sale by retroactively annulling the stay,
which under § 1322(c)(1) would then preclude the Debtor from curing
his 	arrearage. 1 	In 	other 	words, 	by 	striking 	the 	case, 	MERS
contends that the Court should treat the sale as if the 2005 Case
was never filed and the foreclosure sale was left unaffected by the
2005 	Case. 	In 	support 	of 	this 	theory, 	MERS 	cites 	to 	In 	re
Crawford, 	232 	B.R. 	92 	(Bankr. 	N.D. 	Ohio 	1999) 	(granting 	a
creditor’s 	motion 	for 	relief 	to 	pursue 	confirmation 	of 	a
foreclosure 	sale 	after 	finding 	that 	debtor’s 	right 	to 	cure 	her
arrearage through a Chapter 13 plan is cut off by completion of a
previous foreclosure sale under §1322(c)(1)).
In addressing the effect of the order striking the 2005 Case
and 	the 	application 	of 	the 	Crawford 	decision 	MERS 	fails 	to 	take
into 	account 	the 	effect 	of 	the 	state 	court 	order 	vacating 	the
Case 1:06-bk-11005 Doc 63 Filed 08/10/06 Entered 08/10/06 17:10:35 Desc Main
Document Page 5 of 8

2In 	addition, 	the 	MERS 	motion 	filed 	in 	state 	court 	to 	set 	aside 	the
foreclosure sale also indicated that the sale and confirmation order were void
due to the automatic stay resulting from the 2005 case.
6
foreclosure 	sale. 	The 	state 	court 	order 	vacating 	the 	foreclosure
sale states, ". . . it is, therefore, ordered adjudged and decreed
that the Foreclosure Sale held in this matter on December 29, 2005,
and 	the 	Decree 	of 	Confirmation, 	confirming 	the 	same 	filed 	on
January 	13, 	2006, 	are 	each 	hereby 	vacated 	and 	set 	aside." 2 	In
order to determine the effect of a court order, courts first look
to 	the 	plain 	language 	of 	the 	order. 	In 	re 	Highland 	Hills, 	Ltd.,
232 	B.R. 	868, 	869 	(N.D. 	Texas 	1999). 	Ohio 	law 	further 	provides
that reversal or setting aside a confirmation order has the effect
of creating a nullity, and 	". . . the case stands as though no
confirmation 	was 	ever 	made." 	McMahon 	v. 	Davis, 	10 	Ohio 	C.D. 	467
(Ohio C.C. 1899).
The 	fact 	that 	the 	state 	court 	vacated 	the 	foreclosure 	sale
distinguishes the instant case from Crawford. 	In Crawford 	a valid
foreclosure 	sale 	was 	completed, 	and 	the 	court 	found 	that 	the
completion of such sale eliminated the Crawford debtor’s right to
cure 	an 	arrearage 	under 	§1322(c)(1). 	In 	the 	instant 	case, 	the
state court vacated the foreclosure sale as evidenced by the plain
language contained in the state court order. 	After the state court
entered its order vacating the sale, the property in question was
treated 	as 	if 	the 	foreclosure 	sale 	never 	occurred. 	Therefore,
MERS 	cannot 	now 	rely 	on 	§1322(c)(1) 	to 	prevent 	the 	Debtor 	from
Case 1:06-bk-11005 Doc 63 Filed 08/10/06 Entered 08/10/06 17:10:35 Desc Main
Document Page 6 of 8

7
curing an arrearage in the 2006 case.
Conclusion
As a result of the foregoing analysis, the Court finds that
MERS 	motion 	for 	Annulment 	of 	the 	automatic 	stay 	in 	Debtor’s 	2006
case 	is 	denied. 	In 	addition, 	the 	Court 	finds 	that 	11 	U.S.C.
§1322(c)(1) 	does 	not 	prevent 	the 	Debtor 	from 	curing 	his 	mortgage
arrearage.
It is so ordered.
Copies to:
Ronald D. Reynolds
9569 Union Cemetery Road
Loveland, OH 45140
H Kevin Garrison
9200 Montgomery Road
Suite 4A
Cincinnati, OH 45242
Margaret A. Burks
36 East Fourth Street
Suite 900
Cincinnati, OH 45202
Case 1:06-bk-11005 Doc 63 Filed 08/10/06 Entered 08/10/06 17:10:35 Desc Main
Document Page 7 of 8

8
Christopher P. Kennedy
CARLISLE, McNELLIE, RINI,
KRAMER & ULRICH
MORTGAGE ELECTRONIC REGISTRATION
SYSTEMS, INC.
24755 Chagrin Blvd., Suite 200
Cleveland, Ohio 44122-5690
Office of the US Trustee
36 East Seventh Street
Suite 2050
Cincinnati, OH 45202
###
Case 1:06-bk-11005 Doc 63 Filed 08/10/06 Entered 08/10/06 17:10:35 Desc Main
Document Page 8 of 8