Bankruptcy – Foreclosure

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7^th Circuit Court of Appeals

Case Name: BMO Harris Bank, N.A.

Case No.: 17-3073

Officials: EASTERBROOK, KANNE, and BRENNAN, Circuit Judges.

Focus: Bankruptcy – Foreclosure

Mark Anderson and Walter Kaiser jointly borrowed about $700,000 from BMO Harris Bank; the loan was secured by a mortgage. They did not pay, and the Bank filed a foreclosure action in state court. That action was put on hold when Anderson and his wife (who need not be mentioned again) commenced a bankruptcy proceeding. After the Bank asked Bankruptcy Judge Cox to lift the automatic stay under 11 U.S.C. §362 she entered an order granting “full and complete relief from the Automatic Stay of Section 362 to permit BMO HARRIS BANK to proceed with the pending State Court foreclosure litigation with respect to the property commonly known as 151 W. Wing St., Unit 905, Arlington Heights, Illinois 60005 as more particularly described in the Motion for Relief.”

Allowing the state judiciary to enter a deficiency judgment in a foreclosure proceeding does not undermine any function of bankruptcy law. If the state judge had held that Kaiser and Anderson are jointly and severally liable for the $650,000 deficiency, the Bank’s claim still would have re turned to the bankruptcy court for it to resolve any disputes about the priority of competing claims against Anderson’s assets and whether any particular debt should be discharged. Trying to get around the application of §1738 or reading Judge Cox’s order narrowly to compel the sort of claim spliking forbidden by state law would not serve any goal of federal bankruptcy policy. It would simply prolong litigation. (Indeed, on the Bank’s current understanding the state court could and perhaps should have left the foreclosure proceeding in stasis until it had indubitable authority to resolve the whole case. That would not have served either the Bank’s interests or Anderson’s.)

The Bank had its chance in state court and did not use it. It is too late to hold Anderson liable for a deficiency judgment. The Bank must be content with what it can collect from Kaiser.

Affirmed

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Derek A Hawkins is trademark corporate counsel for Harley-Davidson. Hawkins oversees the prosecution and maintenance of the Harley-Davidson’s international trademark portfolio in emerging markets.