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Snowden v. Litton Loan Servicing Inc.

December 1, 2006

NEIL SNOWDEN, APPELLANT,
v.
LITTON LOAN SERVICING INC., APPELLEE.



The opinion of the court was delivered by: Matthew F. Kennelly, District Judge

MEMORANDUM OPINION AND ORDER

On October 14, 2005, Neil Snowden filed a Chapter 13 bankruptcy petition, hoping to forestall the loss of his home, which a few days earlier had been sold at a foreclosure sale resulting from a mortgage foreclosure suit instituted in state court by Litton Loan Servicing, Inc. On November 28, 2005, the bankruptcy court granted Litton's motion to lift the automatic stay of proceedings imposed by 11 U.S.C. § 362(a). On March 9, 2006, Snowden moved to vacate the bankruptcy court's order, alleging that Litton had procured the order via misrepresentation. The bankruptcy court denied Snowden's motion, and Snowden appealed.

For the reasons discussed below, the Court reverses the bankruptcy court's decision and remands for further proceedings.

Facts

Snowden was the defendant in a mortgage foreclosure suit brought by Litton in state court. After obtaining a judgment of foreclosure on September 9, 2005, Litton purchased the foreclosed property at a judicial sale for an amount less than the balance due on Snowden's mortgage note. A state court confirmed the sale on October 5, 2005 pursuant to the Illinois Mortgage Foreclosure Law. See 735 ILCS 5/15-1508.

On October 15, 2005, Snowden filed a voluntary Chapter 13 petition in which he listed the full amount of his arrearage with Litton as one of his debts. R. 1. On November 8, 2005, Litton moved to lift the automatic stay imposed by reason of Snowden's bankruptcy filing. In its motion, Litton asserted, incorrectly, that "[a] third party was the sole successful bidder" at the foreclosure sale of Snowden's property. R. 3. Litton argued that the property was not part of Snowden's bankruptcy estate and that the court should lift the automatic stay, because otherwise Litton would not be "adequately protected." Id. The bankruptcy court granted Litton's motion on November 23, 2005. R. 4.

Snowden subsequently learned of the error in Litton's representation to the bankruptcy court and, on March 9, 2006, filed a motion to vacate the court's order lifting the automatic stay.

R. 5. Snowden's motion cited Federal Rule of Civil Procedure 60(b), which is incorporated in Bankruptcy Rule 9024. Snowden argued that Litton's representation to the bankruptcy court regarding who purchased the property was incorrect and that his counsel had learned from a representative of Litton that Litton had purchased the property for less than the balance due on Snowden's loan. Id. Snowden argued that for these reasons, at the time of his bankruptcy filing he held a "special right to redeem" under 735 ILCS 5/15-1604(a) that allowed him to cure the default on the mortgage note. Snowden characterized his redemption right as "an interest in the real estate that was protected as part of the bankruptcy estate." Id. In response, Litton did not take issue with Snowden's right to raise the issue under Rule 60(b). It argued only that Snowden retained no interest in the real estate but rather had only the redemption right, which he had forfeited by failing to exercise it in timely fashion. R. 9.

The bankruptcy court heard oral argument on Snowden's motion to vacate. The court thereafter issued a written decision denying Snowden's motion. R. 10. The court concluded that the only right Snowden retained at the time of his bankruptcy filing was a redemption right, and that because he did not exercise that right within the time limits imposed by 11 U.S.C. §108(b), the right had expired long before Snowden had filed his motion to vacate the order lifting the automatic stay. Id. at 8-10. It rejected Snowden's argument that he was entitled to cure the default on the note over the course of the bankruptcy proceeding. Id. at 9. The court also concluded that in any event, Snowden's Rule 60(b) motion, which the court characterized as based on Rule 60(b)(2), was lacking in merit. Specifically, it ruled that the evidence Snowden had presented in his motion was not "newly discovered evidence" within the meaning of Rule 60(b)(2) because Snowden could have discovered it before the order lifting the stay was entered. Id. at 10-11.

Discussion

"A motion to vacate a judgment pursuant to Rule 60(b) is addressed to the sound discretion of [the lower] court and a denial of a 60(b) motion will not be overturned on appeal in the absence of an abuse of discretion." McKnight v. United States Steel Corp., 726 F.2d 333, 335 (7th Cir. 1984). A court "necessarily abuses its discretion when it bases its decision on an erroneous view of the law." Cooter & Gell v. Hartmarx Corp., 496 U.S. 384, 405 (1990).

Although the bankruptcy court addressed it last, the question whether Snowden's motion met the threshold requirements of Federal Rule of Civil Procedure 60(b) is, logically, the first issue to be considered. Rule 60(b) states:

On motion and upon such terms as are just, the court may relieve a party or a party's legal representative from a final judgment, order, or proceeding for the following reasons: (1) mistake, inadvertence, surprise, or excusable neglect; (2) newly discovered evidence which by due diligence could not have been discovered in time to move for a new trial under Rule 59(b); (3) fraud (whether heretofore denominated intrinsic or extrinsic), misrepresentation, or other misconduct of an adverse party;. . . or (6) any other reason justifying relief from the operation of the judgment. The motion shall ...


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