In the appellate brief, the McCulloghs asserted that the foreclosure was
improper due to the fact that they no longer owed any debt to CitiMortgage
by the time it initiated the foreclosure action. The McCulloghs based
their argument on (1) documentation showing they paid $122,007.21 in principal
to CitiMortgage during their three bankruptcies; (2) their assertion that
CitiMortgage did not properly apply the McCulloghs’ payments; and
(3) their assertion the mortgage was paid in full when the Trustee’s
Final Report in third bankruptcy showed the McCulloghs had been “discharged.”
However, the Supreme Court determined that the McCulloghs lacked any admissible
evidence that they had paid over $120,000.00 in mortgage payments and
had provided no proof that the payments were improperly applied.
The Supreme Court also found that the McCulloghs’ debts discharged
in the bankruptcy court were done so under Chapter 7 and
not Chapter 13. Under Chapter 7, debts that are discharged are typically unsecured
debt. Therefore a secured debt, such as the McCulloghs’ mortgage,
would not be discharged under a Chapter 7 bankruptcy filing.
The Supreme Court further clarified that under Chapter 7, only the McCulloghs’
personal obligations were extinguished by a “discharge” and
that CitiMortgage’s lien on the property survived the bankruptcy.
“[A] bankruptcy discharge removes the ability of creditors to seek
to collect against the debtor individually (known as
in personam liability). Liens, on the other hand are
in rem meaning they are rights against the property which are enforceable.”
In its ruling, the Supreme Court affirmed the granting of summary judgment
for CitiMortgage because the Chapter 7 bankruptcy only protected the McCulloghs
from personal liability, and because CitiMortgage only sought an
in rem order against the property and not an
in personam judgment.