State Bank of Florence v. Miller (In re Miller)

File name: 13a0134n.06; Case No. 11-2357
Unpublished opinion affirming the Sixth Circuit BAP, which affirmed bankruptcy court rulings denying bank's motion for relief from the automatic stay and its objection to confirmation of the debtor's Chapter 13 plan. By credit bidding the total amount of the debt owed by the Debtor at a Michigan foreclosure sale, the bank extinguished the debt, leaving it with no claim in the debtor's bankruptcy.
Procedural context:
The bankruptcy court found the bank did not have a claim and lifted the stay only to permit the bank to dismiss a second foreclosure action and release its mortgage. The bankruptcy court deferred ruling on the bank's objection to confirmation pending the outcome of the bank's appeal. The BAP affirmed and the bank appealed to the Sixth Circuit, which reviewed the bankruptcy court's decision independently.
Richard Miller ("Miller") obtained two loans from the State Bank of Florence ("Bank") in 2006 and 2007, secured by a home in Wisconsin and a second residence and raw land in Michigan. The Wisconsin mortgage also secured any existing or future debts of Miller. In April, 2008, after Miller defaulted, the Bank initiated a judicial foreclosure action in Wisconsin and a non-judicial foreclosure action in Michigan. Miller did not defend either and the Bank obtained a judgment in excess of $400,000 in the Wisconsin case. After discussions with counsel, the Bank credit bid the entire amount of Miller's debt at the Michigan foreclosure sale in August, 2008, but did not credit the amount against Miller's debt on its books. On appeal to the BAP, the Bank argued its claim should be allowed because Miller never objected under Bankruptcy Rule 3007. The BAP ruled that the BAP forfeited this argument by briefing and litigating the validity of its claim in the bankruptcy court. The Sixth Circuit affirmed on this point. The Court next examined the issue of whether Michigan or Wisconsin law controlled the impact of the Bank's credit bid. The Court of Appeals found the result was the same under the law of either state - by bidding the full amount of the debt at the foreclosure sale, the Bank extinguished Miller's debt. Finally, the Court of Appeals found the bankruptcy court properly refused to lift the stay and allow the Bank to attempt to have the Michigan foreclosure sale set aside. After reviewing Michigan and Wisconsin law on setting aside foreclosure sales, the Court of Appeals held that the bankruptcy court did not abuse its discretion in denying relief for this purpose.
Cook, Stranch and Stamp (Dist. Judge, N.D. WV); opinion by Stranch

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