Judge Nugent

12-13337 Hildyard (Doc. # 172) - Document Text

SIGNED this 17th day of January, 2014.




IN RE: )
BRENDA KAY HILDYARD, ) Case No. 12-13337
) Chapter 13
Debtor. )




Brenda Hildyard objects to the claim filed in this case by Western State Bank.1

She also objects to the Bank’s motion for stay relief.2 Her claim objection contains two

contentions: (1) that the Bank’s deed of trust on her home in Colorado only secures

1 Dkt. 74, 146.
2 Dkt. 56.


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the repayment of one of two separate promissory notes; and (2) that she has an
equitable right to direct how the Bank should have applied the proceeds of a term life
insurance policy her late husband assigned as collateral on his debts to the Bank.

Whether the Bank’s deed of trust secures more than one note turns on whether
it contains a “future advance” clause and whether the notes it is supposed to secure
either (a) reference the mortgage as part of their collateral; or (b) are of a similar kind
or character as the note or notes to which the mortgage or deed of trust of trust
specifically refers. These principles are clearly established in Kansas by a
combination of case law and statutory references; they are similarly clear under
Colorado law. Here, Brenda Hildyard executed a deed of trust (DOT) covering a home
in Colorado.3 The DOT states that it was given to secure “a promissory note or notes”
dated July 16, 2009 in an amount in excess of $175,000 and an additionally typed-in
term provides that the DOT was given “to secure all present and future indebtedness
of the undersigned as set forth on separate page attached hereto as Exhibit B.” But
there was no Exhibit B, opening to question the extent to which the DOT secures
notes other than the one made on July 16. After careful consideration of the language
of the DOT as well as the loan agreements and notes that were executed
contemporaneously and afterwards, I conclude that the deed of trust on the Colorado
property adequately references future debt and therefore secures both promissory

3 Ex. 8.


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As to her second contention, Brenda asserts that she should have been given
the opportunity to direct the manner in which her husband’s life insurance proceeds
were applied to the Bank’s claims. But, the terms of the collateral assignment
expressly grant the Bank the right to apply the proceeds as it deems fit.4 Moreover,
Brenda made no attempt to direct their application and, as a matter of common law,
when no directions are given, a creditor is free to apply payments to multiple debts
of the debtor in any order.

The final question here is how to resolve the Bank’s motion for stay relief. The
Bank only sought relief to enforce its liens on a condominium on Hill Street in Colby,
Kansas (the Hill Street Condo), and a home in Broomfield, Colorado (the Broomfield
Property).5 After the Bank filed its motion, Brenda sold the Hill Street Condo free
and clear of liens under 11 U.S.C. § 363(f).6 The stay may be lifted for lack of adequate
protection or if the debtor lacks equity in the property and it is unnecessary to an
effective reorganization. While the Bank showed that Brenda lacks equity in the
Broomfield Property, that property is necessary to an effective reorganization.
Brenda has made provisions to adequately protect the Bank’s interest in that
property. The continuation of the stay as to that property may be conditioned upon
the Bank being required to realize upon its other available security before foreclosing
upon and selling the Broomfield Property so long as Brenda adequately protects the

4 Ex. 11, ¶ I.
5 Dkt. 53.
6 See Dkt. 76 and 103. The Bank consented to the sale of the condo.


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Bank’s interest by paying property taxes and debt service on the senior liens and
proposes a chapter 13 plan that contains a confirmable treatment of the Bank’s claim.


Motions for stay relief and objections to claims are core proceedings under 28

U.S.C. § 157(b)(2)(B) and (G), for which this Court may exercise subject matter

Brenda Hildyard filed this chapter 13 case on December 12, 2012. According to
her petition and schedules, she resides at 1005 W. 7th Street in Colby, Kansas and
claims the 7th Street property exempt as her homestead.8 She was married for 32
years to Dr. Victor Hildyard, a physician in Colby. He died in July of 2012. Victor’s
practice was organized in partnership with Dr. Ladonna Regier as Colby Medical &
Surgery Center (CMS). He also operated Medical Arts, Inc., another health care
provider. The Bank had long been one of Dr. Hildyard’s lenders. By February of 2008,
the medical entities, Dr. Regier, and he personally owed the Bank over $1.476 million
secured by the entities’ and personal assets. When Victor, Regier, and the entities
defaulted on their debt, the Bank foreclosed.9 In an effort to resolve that case and to
preserve what they could of Victor’s practice, Victor, Brenda, and Dr. Regier entered
into workout agreements with the Bank, beginning in June of 2009. Regier left the

7 See 28 U.S.C. § 157(b)(1) and § 1334.

8 Dkt. 33. The Bank claims no interest in the 7th Street property. Under Brenda’s current
proposed plan, she proposes to sell her homestead, secured to Sunflower Bank, and reinvest the
equity in a future homestead – at trial identified as the Broomfield Property. Dkt. 35.

9 Ex. B, Foreclosure Petition filed April 16, 2009 in the District Court of Thomas County,
Kansas. Brenda was not a party to the foreclosure action.


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partnership and made her separate peace with the Bank, agreeing on June 26, 2009
to pay it $140,000 cash in full satisfaction of its claims against her.10 Victor did not
consent to this agreement and, specifically, to the Bank releasing her. On July 16,
Medical Arts, CMS, Victor, and Brenda signed the first of two workout agreements
with the Bank.11 By this time, Regier had left the CMS partnership. Brenda was not
personally liable for any of Victor’s individual or business debts, though she was
personally liable on a $35,000 note that was secured to the Bank by a mortgage on
the couple’s Hill Street Condo. Nothing in the July 16 agreement referred to that
debt; nor was it included in the Bank’s foreclosure action.

The July 16 agreement provided for the entities and Hildyard to make two
notes to pay the remaining balance of the February 2008 obligation after Dr. Regier’s
$140,000 was applied and to provide additional collateral to secure the debt.12 Note 1
was to be for $960,000, bearing interest at 5.25% and payable in 60 monthly
instalments of $6,000 with a balloon payment for the remaining balance due thirty
days after the 60th monthly payment. Note 2 was in the amount of $498,174.17, due
on demand at any time after 60 months from its making or upon any default under
Note 1. As partial security for the repayment of these obligations, Victor agreed to
assign a $500,000 term life insurance policy owned by Medical Arts. Regier agreed to
assign a similar insurance policy, also owned by Medical Arts (though Regier did not

10 Ex. D. The Bank also retained a 2008 assignment of life insurance on the life of Dr.

11 Ex. 1, Loan Agreement of July 16, 2009 and Ex. 3, Loan Agreement of September 1, 2009.
12 Ex. 1.


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sign this workout agreement or a later one).13 The debtors all agreed that the Bank’s
liens under any pre-existing security agreements and mortgages would continue to
secure its claims.14 In addition, Victor and Brenda agreed “to execute a Deed of Trust
granting the Lender a third lien in the amount of $175,000 on their Colorado home .
. .” in Broomfield, Colorado.15 The Bank would accept these two notes as full payment
of the February, 2008 note and, if the monthly payments on Note 1 were timely paid,
Note 2 would be forgiven after 60 months.

The Hildyards signed the deed of trust on the Broomfield Property on July 16,
2009.16 Victor signed Note 2 on that date, both for himself and for his entities.17 For
reasons that are not clear in the record, Note 1 was not signed that day, inadvertently
creating an issue about the intent of the parties with respect to what the DOT was
intended to secure. On September 1, 2009, the same parties signed another loan
agreement that was substantially identical to the July loan agreement, except that
the amount of Note 1 had increased to $1.102 million and monthly payments
increased to $7,000.18 On the same date, Victor signed the revised Note 1 for himself

13 Id. at ¶ 2. See Ex. 10, Security Agreement dated July 16, 2009 executed by Victor for
Medical Arts, Inc. describing the insurance assignments as collateral. It appears that the life
insurance assignments had been previously given by Drs. Regier and Hildyard in October 2008. See

e.g. Ex. 11. The Court construes the workout agreements as acknowledging the assignments would
continue to secure Victor’s debt, Notes 1 and 2.

14 Ex. 1, ¶ 4.

15 Id. at ¶ 3. The DOT executed by the Hildyards is somewhat clumsily worded “for the
principal sum of in excess of One Hundred Seventy Five Thousand . . .” referring to the promissory
notes dated July 16, 2009. The Court acknowledges that Note 2 dated July 16, 2009 is in excess of
$175,000 and interprets the DOT to be limited to the amount of $175,000. See Ex. 8.

16 Ex. 8. It was recorded on August 10, 2009.

17 Ex. 2.

18 Ex. 3.


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and his entities.19 Note 1 is identical in form to Note 2. Brenda did not sign either
note. The collateral description in both Note 1 and Note 2 specifically describes a “3rd
DOT dated 7-16-09.”

The parties agree that when Note 1 was finally signed in September, both it
and Note 2 were secured by the three commercial mortgages covering commercial
property in Colby, along with a security agreements dated February 27, 2002, another
dated July 16, 2009, and collateral assignments of the Hildyard and Regier insurance
policies. The parties also agree that Note 2, signed on July 16, 2009, was secured by
the DOT. Brenda Hildyard disputes that the DOT secures Note 1. That is the thrust
of her objection to the Bank’s claim.

Dr. Hildyard lost his admitting privileges at the Colby hospital, severely
curtailing his practice and income. In October of 2011, he and Brenda filed a chapter
11 case in Topeka after he failed to comply with the terms of the two workout
agreements.20 Then, Dr. Hildyard became gravely ill and was unable to complete the
chapter 11. That case was dismissed on May 25, 2012. In July of 2012, Dr. Hildyard
died intestate. Brenda is his only heir and is the administratrix of his probate estate.
The Bank realized on the life insurance policy on his life and applied the $500,000 it
received to Note 1. It continues to pay the premiums on the Regier policy. Victor’s
estate remains in probate in Thomas County District Court. After Brenda filed this
chapter 13 in December of 2012, she proposed a plan under which Victor’s property

19 Ex. 4.
20 Case No. 11-41646 (Bankr. D. Kan.).


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would be sold in this case under §363 or in the probate proceedings. The Court has
approved her motion to sell the Hill Street Condo. She intends to move to Colorado
and live in the Broomfield Property at some point in the future after selling her
current homestead at 1005 West 7th Street in Colby. The Broomfield Property is
encumbered by three DOTs, the first and second in priority being in favor of Wells
Fargo. The Bank’s deed of trust is third. There are several Notices of Federal Tax
Lien of record against the Broomfield Property as well, but they are junior in priority
to the lenders’ deeds of trust.

Brenda objects to the Bank’s secured claim, specifically contending that the
DOT does not secure Note 1 and further arguing that she was entitled to direct the
Bank to apply the $500,000 life insurance benefit to pay off Note 2, which she believes
would render the Broomfield house free and clear of the Bank’s liens. Pursuant to an
adequate protection agreement that is outlined in an agreed Scheduling Order filed
in this case, Brenda has agreed to maintain current both the property taxes on the
Broomfield home as well as debt service on the two senior liens.21

Both Brenda’s objection to claim and the Bank’s motion for relief from the stay
were tried on October 22, 2013.22 Confirmation of her chapter 13 plan was deferred
until the claim objection could be determined.

Brenda’s Objections to the Bank’s Claim

21 Dkt. 106.

22 The debtor Brenda Hildyard appeared in person and by her attorney Elizabeth A. Carson.
Creditor Western State Bank appeared by its attorney Justin Whitney. The chapter 13 trustee
Laurie B. Williams appeared in person.


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The Deed of Trust on the Broomfield Property Secures Both Notes.

Both Notes 1 and 2 are on an identical printed form that reference the July 16,
2009 DOT under the section titled “Collateral Description.” Both Notes also contain
a printed clause that reads:

Collateral. This Note is secured by real property and the debt evidence by
this Note and all other obligations of Debtor to Lender . . . are secured by all
collateral securing this Note and by all other security interests and mortgages
previously or later granted to Lender as more specifically described [in those
documents] . . . .23

The Deed of Trust is not so straightforward. It provides that Victor and Brenda
“executed a promissory note or notes hereinafter referred to in the singular, dated
July 16, 2009, for the principal sum of in excess of One Hundred Seventy Five
thousand and no/100- Dollars . . . .”24 Victor signed the notes for himself and his
entities. He executed Note 2 and the DOT on July 16, 2009, but did not sign Note 1
until September. Nowhere in the printed language of the DOT is there a future
advance provision. But someone typed verbiage into a blank area on page 2 that

This mortgage is made to secure all present and future indebtedness of theundersigned as set forth on separate page attached hereto as Exhibit B and
made a part hereof by reference.”25

This language was inserted in a space left for the notation of any exceptions to
the grantors’ covenant of title. The Bank concedes that there is no Exhibit B. This
document’s absence further fuels Brenda’s objection to the reach of the DOT lien.

23 Ex. 2 and 4.
24 Ex. 8.
25 Id.


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Brenda testified that she did not intend to be personally liable for any of
Victor’s debts, including those incurred or restated under the Loan Agreements. But
she admits signing the agreements, both of which clearly contemplate that all of the
collateral described in them would secure both Notes. The Loan Agreements express
the purpose of renegotiation of the 2008 loan so that “the Lender can receive
additional collateral to secure the debt.”26 The July 16, 2009 DOT is the additional
collateral and is expressly agreed to by Victor and Brenda in the Loan Agreements.27

The Bank’s DOT secures the repayment of Note 1 if the DOT, by its terms,
secures future advances and Note 1 references it, or if Note 1 evidences an obligation
of similar character to Note 2. The parties assume that Kansas law governs here. The
Loan Agreements, Notes and the DOT were all executed in Kansas, but because title
to Colorado property is affected, we should consider which state’s law applies in
interpreting the DOT. As explained below, I reach the same conclusion whether
Kansas or Colorado law is applied.

Federal courts apply the choice of law principles employed by the courts of the
state in which they sit when adjudicating state law issues.28 The meaning of the Loan
Agreements, Notes, and DOT implicate state law issues; they are contracts between
the parties and the rules of construction applicable to contracts apply.29 Kansas state

26 Ex. 1 and 3.

27 Id. at ¶ 3.

28 Dang v. UNUM Life Ins. Co. of America, 175 F.3d 1186, 1190 (10th Cir. 1999); In re
Patterson, 375 B.R. 652, (Bankr. D. Kan. 2007) (While dischargeability of debt is a bankruptcy issue,
whether debt was owed was a state law issue requiring Kansas bankruptcy court to apply Kansas
choice of law principles.).

29 Mark Twain Kansas City Bank v. Cates, 248 Kan. 700, 709-10, 810 P.2d 1154 (1991).


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courts traditionally apply choice of law principles as reflected in the original

Restatement of Conflict of Laws.30 Section 8(1) of the original Restatement provides

that “all questions of title to land are decided in accordance with the law of the state

where the land is, including the Conflict of Laws rules of that state.”31 Consistent

with § 8(1) and specific to mortgages, the Restatement (Second) of Conflict of Laws, §

228(1) provides that “whether a mortgage creates an interest in land and the nature

of the interest created are determined by the law that would be applied by the courts

of the situs.” But Kansas also recognizes in the Restatement (Second) an exception to

this choice of law rule if there is an enforceable choice of law provision in the

documents.32 In Mark Twain Kansas City Bank v. Cates, the Kansas Supreme Court

applied Missouri law to determine whether a future advance clause in a mortgage on

Kansas property secured the lender’s loan, citing § 187 of the Restatement (Second)

and reasoning:

It is not unusual for commercial transactions to traverse state
lines. Although the Uniform Commercial Code . . . does not apply to
mortgages, it does state our legislature’s intent that territorialrestrictions should not hinder commerce. . . . when a transaction
bears a reasonable relation to Kansas and also to another state, the
parties are allowed to contract that the laws of Kansas or the other
state will govern the rights and the duties of the parties. K.S.A. 84-1

30 See Raskin v. Allison, 30 Kan. App. 2d 1240, 1242, 57 P.3d 30 (2002).
31 Restatement (First) of Conflict of Laws § 8 (1934); see also, Restatement (Second) of
Conflict of Laws §§ 223 and 228 (1969).

32 See Restatement (Second) of Conflict of Laws, § 187 (1969) (law of the state chosen by the
parties to govern their contractual rights and duties); Mark Twain Kansas City Bank v. Cates, 248
Kan. 700, 705-07, 810 P.2d 1154 (1991) (applying Missouri law to a mortgage executed in Missouri
on Kansas property where the mortgage contained a Missouri choice of law provision to determine
whether the bank’s loan was secured by the future advance clause of the mortgage).


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105. The same public policy applies to a loan and mortgage executed
in Missouri on land located in Kansas.33
In our case, the Loan Agreements contain a Kansas choice of law provision and
are governed by Kansas law, even if one of the parties may in the future become a
resident of another state.34 The Notes also provide for application of Kansas law:
“ADDITIONAL PROVISIONS. . . . (3) This Note and the obligations evidenced by
it are to be construed and governed by the laws of the state indicated in Lender’s
address [Kansas] shown in this Note.”35 The DOT does not contain its own choice of
law provision, but arguably, Kansas law governs it as well where the Note references
the DOT, if it is considered an “obligation[ ] evidenced by” the Note. All of these
documents [Loan Agreements, Notes, and DOT] were part of the same basic loan
workout transaction in 2009 and must be considered together.36 All of the documents
were executed in Kansas. All the parties to the transaction were Kansas parties.
Except for the Broomfield Property, all of the other property securing the loans is
located in Kansas. Thus, the transaction bears a reasonable relation to Kansas and
the parties’ choice of Kansas law may apply.

Under Kansas law, future advance clauses or dragnet clauses in a real estate
mortgage are permitted and enforceable.37 In First Nat’l Bank & Trust Co. v. Lygrisse
the Kansas Supreme Court stated that subsequent debts may be secured under the

33 248 Kan. 700, 706-07.

34 Ex. 1 and 3, ¶ 10.

35 Ex. 2 and 4 (Emphasis added).

36 Carpenter v. Riley, 234 Kan. 758, 763, 675 P.2d 900 (1984).

37 See KAN. STAT. ANN. § 58-2336 (2005); Potwin State Bank v. Ward, 183 Kan. 475, 491, 327
P.2d 1091 (1958).


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dragnet clause of a real estate mortgage in one of two ways: (1) by specifically
referencing the mortgage on the face of the new note that it is secured by the prior
mortgage; or (2) by showing that the subsequent debt is of the same kind or character
as, or part of the same transaction or series of transactions with, that originally
secured by the mortgage.38 Both of these methods for securing Note 1 are satisfied
here. On the face of Note 1 dated September 1, 2009 the DOT is referenced in the
collateral description as “3rd DOT DATED 7-16-09.” There was no evidence presented
at trial that more than one deed of trust on the Broomfield Property was executed on
July 16, 2009 and it was undisputed that the Bank’s DOT dated July 16, 2009 was in
a third position behind Wells Fargo. Both Notes referenced the Bank’s 3rd DOT of
July 16, 2009 as securing the indebtedness.

Reading the “all present and future indebtedness” language in the context of
the July and September Loan Agreements makes clear that both Notes were intended
to be signed simultaneously and be secured by the DOT. Even though they weren’t,
it is also clear from the identical language of the Loan Agreements that the parties
intended that all of the security granted or retained pursuant to those agreements,
including the Broomfield Property DOT, would secure both Notes. If I consider all of
the documents pertaining to the workout agreement together, as I must, I can readily
conclude that the July and September 2009 Loan Agreements, Notes, and the DOT
are all related and part of a series of transactions to effectuate the terms of the loan

38 First Nat’l Bank & Trust Co. v. Lygrisse, 231 Kan. 595, Syl. ¶ 1, 647 P.2d 1268 (1982). See
also, Mark Twain Kansas City Bank v. Cates, 248 Kan. at 712.


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workout of Victor’s defaulted 2008 loan. The Loan Agreements clearly contemplated
renewal of the 2008 loan balance by dividing the principal balance between Notes 1
and 2. The principal amounts of those Notes correspond with the two Loan
Agreements. The date of Note 2 corresponds with the July 16, 2009 Loan Agreement.
The date of Note 1 corresponds to the September 1, 2009 revised Loan Agreement.
Both Loan Agreements expressly recite Brenda’s agreement to grant the Bank a third
lien on the Broomfield Property in the amount of $175,000 by executing a DOT –
additional collateral to secure the debt. The Loan Agreements did not limit the DOT
to securing only Note 2. And while the typed-in clause in the DOT was somewhat
incomplete by the omission of Exhibit B describing the “present and future
indebtedness of the undersigned,” there is little doubt from the Loan Agreements and
the Notes that the parties intended the DOT to secure Victor’s, Medical Arts, and
CMS’s present and future indebtedness, including the outstanding balance of Victor’s
2008 defaulted note – to be allocated between Note 1 and Note 2. Reading these
contracts together, Note 1 was part of the 2008 loan workout transaction and was
secured by the DOT on the Broomfield Property.

Even if the choice of Kansas law designation is inapplicable or unenforceable
and we default to Colorado law as the situs of the Broomfield Property subject to the
DOT by applying Restatement (Second) of Conflict of Laws, § 228, the same result
obtains. Colorado case law on future advance clauses is similar to Kansas law. “[A]
trust deed or a mortgage given to secure payment of an indebtedness may include


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advances to be made in the future.”39 In order for a debt to be secured by a deed of
trust containing a dragnet clause, the parties must have intended the deed of trust
to secure the debt at the time the deed of trust was executed.40 The court should
examine whether the parties reasonably contemplated the obligation at the time of
the agreement.41 As discussed and applied above, the facts and documents here
readily demonstrate that the DOT was intended to secure both Note 1 and Note 2,
that both Notes were contemplated by the workout agreement, and that Note 1,
executed less than two months after Note 2, was related to Note 2 and was of the
same nature. Accordingly, under Colorado law, Note 1 was secured by the DOT
granted by Brenda.

Brenda had the burden to meet the presumed validity of the Bank’s claim on
this point and, had she succeeded in doing that, the burden of proof would have
shifted to the Bank to demonstrate its claim’s validity on the merits. She failed to
present sufficient evidence to meet the presumption that the Bank’s claim on this
point is valid. This portion of her objection must be overruled.42

The Bank Could Apply Victor’s Life Insurance Proceeds to Any of His

39 Kimmel v. Ratty, 168 Colo. 431, 435, 451 P.2d 751, 753 (1969). See also COLO. REV. STAT. §
4-9-204(c) (2001) (Colorado version of UCC recognizing and allowing future advance and dragnet

40 Mohler v. Buena Vista Bank and Trust Co., 42 Colo. App. 4, 7, 588 P.2d 894 (1978) (deed of
trust dragnet clause unenforceable where there was no evidence of intent to secure the collateralindebtedness).

41 In re Grizaffi, 23 B.R. 137, 139 (Bankr. D. Colo. 1982) (construing dragnet clause in context
of loans secured by personal property; intent cannot be inferred where the debt transaction is
unrelated to the original financing or is not of the same nature).

42 Fed. R. Bankr. P. 3007.


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Brenda also claims that the Bank should have applied Victor’s $500,000 death
benefit to Note 2, instead of Note 1. If only Note 2 was secured by the deed of trust,
and if the death benefit were first applied to that note, it would be paid in full and
the Bank would be required to release the deed of trust.43 Her second contention fails
because Brenda offered no evidence that she attempted to direct the payment of the
proceeds to one note or the other. Even if she had, the express terms of the insurance
assignment allow the Bank to apply the benefit as it sees fit.

Longtime Kansas precedent holds that if a debtor owes a creditor more than
one debt, in the absence of the debtor’s directing the creditor to apply a payment to a
particular debt, the creditor may apply the debt as it sees fit.44 In addition, the
insurance assignment expressly authorized the Bank to apply the proceeds of the
policy to any of the liabilities it secured. 45 The Bank had a contractual right to apply
the death benefit to Note 1, first to accrued interest, and then to reduce principal.
Brenda again failed to meet the presumption of validity of this aspect of the Bank’s
claim and her second objection must be overruled.46

43 The assignment of the insurance policy on Victor’s life expressly provides that it is security
“for any and all liabilities of the undersigned, or any of them, to [Western State Bank], either now
existing or that may hereafter arise between [them] with respect to the above policy . . .”. See Ex. 11,
¶ D. At the time of the assignment dated October 27, 2008, CMS, Medical Arts, and Victor wereindebted to the Bank under the February 2008 Note.

44 Aetna Cas. and Surety Co. v. Hepler State Bank, 6 Kan. App. 2d 543, 554-55, 630 P.2d 721

45 Ex. 11, ¶ I.

46 Brenda raised a third contention at trial, that when the Bank entered into a separate
agreement with Regier, that agreement released Victor. But Regier’s release came prior to the Loan
Agreements with Victor and Brenda and, in any event, both Notes contain clauses that provide for
each maker to waive various suretyship defenses including the release of any other debtor. Victor
therefore waived that defense.


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The Bank’s Stay Relief Motion is Denied, but Continuation of the

Stay is Conditioned.

Western State Bank sought relief from the automatic stay to foreclose its
interests in the Broomfield Property and the Hill Street Condo in Colby. Brenda has
obtained an order approving the sale of the Hill Street Condo, with the Bank’s
consent.47 This leaves the Broomfield Property. The Bank proceeds on both grounds
under § 362(d), that it lacks adequate protection of its interests under (d)(1) and that
Brenda lacks equity in the property and that it is not necessary to her effective
reorganization under (d)(2). Brenda has agreed to pay the real estate taxes and the
debt service on the senior liens on the Broomfield Property. The Bank has agreed to
accept assurances of payment as adequate protection of its interests.

Concerning the Bank’s claim that Brenda lacks equity in the property, the
Bank’s deed of trust is a third priority lien that is junior to first and second deeds of
trust securing, respectively, debts of $296,334 and $37,000 payable to Wells Fargo.
The Bank’s total claim, after application of the life insurance proceeds, is
approximately $1.1 million. That claim is secured by, among other things, the
Broomfield third deed of trust that, per its terms, secures up to $175,000 in debt.
Brenda values the Broomfield Property at $365,000. The Bank has demonstrated
that Brenda lacks equity in the Broomfield Property. The first two liens encumber
$333,334 of its value and the Bank’s $175,000 lien more than consumes the rest of it.

47 Dkt. 103.


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The Bank also has mortgages in the Hildyard entities’ real estate and security
interests in their personal property. The medical buildings have values that range
between their scheduled value of $500,000 and the $585,000 to which the debtor
testified at trial. In addition, the Bank has an assignment of Dr. Regier’s $500,000
life insurance policy. The Bank is paying the premiums on that policy. But, no one
can predict when that policy might pay out and there is no actuarial evidence in the
record to support such a prediction. Plus, the policy is for term insurance and only
remains in force as long as the Bank pays the premiums. It has no cash surrender
value. For the purpose of this Order, I conclude that its value is zero.

Summarizing, the Bank’s collateral consists of its small equity position in the
Broomfield Property by virtue of its third lien, its mortgages on the commercial
properties valued at between $500,000 and $585,000, and Victor Hildyard’s furniture,
fixtures, and equipment of undetermined value, and the Regier insurance policy that
has no present value.

Section § 362(d) provides that the stay may be modified or conditioned upon a
finding that the Bank lacks adequate protection of its collateral, or that the debtor
lacks equity in the property in question and that the property is unnecessary to an
effective reorganization.48 The creditor has the burden of proof on the question of
lack of equity; the debtor has the burden on all other issues.49 As noted above, Brenda
has no equity in the Broomfield Property. But, she is planning to sell her 7th Street

48 11 U.S.C. § 362(d)(2).
49 § 362(g).


Case 12-13337 Doc# 172 Filed 01/17/14 Page 18 of 20

home in Colby and intends to live in the home in Broomfield. It is necessary to her
effectively reorganizing. Because she is adequately protecting the Bank’s interest in
the Broomfield Property as required by §362(d)(1) by maintaining debt service on the
senior liens and keeping her property taxes current, there is no cause for relief from
the stay under that subsection. Because she requires the home to effectively
reorganize in chapter 13, the stay should not be lifted under § 362(d)(2).

Continuation of the stay in this case shall be conditioned upon Brenda
maintaining current the ad valorem taxes and debt service on the senior liens owed
to Wells Fargo on the Broomfield Property. The Bank shall realize upon all of its other
collateral. If Brenda continues to adequately protect the Bank’s interest in the
Broomfield Property, the stay will remain in effect as to that property. If the Bank’s
claim is not satisfied in full by the liquidation of other property, the Bank may renew
this motion for leave to foreclose the deed of trust on the Broomfield Property, but it
shall not proceed against that property before obtaining the further order of this


Brenda’s objections to Western State Bank’s claim are OVERRULED and the
Bank’s claim is allowed. Western State Bank’s motion for relief from the automatic
stay is DENIED, but the continuation of the stay as to the Broomfield Property is
CONDITIONED as set forth above.


Case 12-13337 Doc# 172 Filed 01/17/14 Page 19 of 20

The confirmation hearing on debtor’s chapter 13 plan (dkt. 35) scheduled for
February 12, 2014 at 1:30 is passed to February 20, 2014 at 11:00 a.m. for a final
pretrial conference on confirmation.

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Case 12-13337 Doc# 172 Filed 01/17/14 Page 20 of 20

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