JAMES J. ROBINSON, Bankruptcy Judge.
The Debtor's chapter 13 plan (Doc. 29 and herein the "Plan") came before the Court for confirmation, and although the Plan was confirmed, the Confirmation Order (Doc. 52) reserved ruling on whether confirmation should include the atypical provisions in the Plan that purported to apply to mortgage creditors (the "Mortgage Provisions"). The Standing Chapter 13 Trustee for this Division, Linda B. Gore, supported the inclusion of the Mortgage Provisions in the Plan and their confirmation. Unlike counsel for the Debtor, the Trustee filed a Brief supporting her position.
The eight-paragraph Mortgage Provisions are attached as Addendum-1 to this Opinion.
This Court has jurisdiction to hear this matter pursuant to 28 U.S.C. §§ 157 and 1334, and the General Order of Reference, as amended, entered by the United States District Court for the Northern District of Alabama. This is a core proceeding pursuant to 28 U.S.C. § 157(b)(2)(L); therefore, the Court has authority to enter a final order. In compliance with Rule 7052(a) of the Federal Rules of Bankruptcy Procedure, the following shall constitute the Court's findings of fact and conclusions
As mentioned above, the Mortgage Provisions in the Debtor's Plan are purported to apply to mortgage creditors: "holders and/or servicers of mortgage claims." No creditor holding or servicing a mortgage claim was specifically identified by name in the Mortgage Provisions. Nonetheless, in her schedules the Debtor disclosed that her real-property homestead was encumbered by a mortgage held by the First National Bank of Scottsboro (the "Bank"). The Plan described the Bank as the holder of a long-term secured debt in the amount of $21,200.17, and stated the prepetition arrears on that debt were $833.00. The Plan proposed that the Trustee would pay the postpetition monthly installments that will become due on the Bank's mortgage as well as the prepetition arrears. The Plan also proposed to pay administrative expenses, including the Debtor's attorney, and a nominal dividend to unsecured creditors.
The Bank made no objection to confirmation of the Plan, with or without the Mortgage Provisions. After the Confirmation Order was entered (reserving further consideration of the Mortgage Provisions) the Bank filed two proofs of claim—one for its total mortgage debt and the other for the prepetition arrears—but still made no mention of the Mortgage Provisions.
In all likelihood the Bank has not focused on the Mortgage Provisions and their potential impact on its claims. Notwithstanding the Bank's apparent lack of attention to, or interest in the Mortgage Provisions, decisions by the Supreme Court and Eleventh Circuit suggest, indeed require that bankruptcy courts, sua sponte, deny confirmation of chapter 13 plans that are found to be inconsistent with the Bankruptcy Code. These decisions admonished bankruptcy judges that they have an affirmative duty not to confirm plans which do not comply with the Code, even when a creditor fails to object to confirmation of an offending plan.
In ruling on the propriety of bankruptcy courts confirming chapter 13 plans that purported to discharge student loans by plan-declaration rather than through an adversary proceeding as contemplated by the Code and Bankruptcy Rules, the Supreme Court recently held that "contrary to the [Ninth Circuit] Court of Appeals' assertion, the Code makes plain that bankruptcy courts have the authority—indeed, the obligation — to direct a debtor to conform his plan to the requirements of §§ 1328(a)(2) and 523(a)(8)." Espinosa, 130 S.Ct. at 1381 (emphasis added).
Id. at 1381 n. 14 (citations omitted). See also, In re Booth, 399 B.R. 316, 328 (Bankr.E.D.Ark.2009) ("Taylor Mortgage did not object to these two provisions [in the proposed chapter 13 plan]. The court, however, is entitled to note that these provisions, on their face, are contrary to the Bankruptcy Code."); Beskin v. Maupin (In re Maupin), 384 B.R. 421, 425 (Bankr.W.D.Va.2007) ("In addition, the court has, on its own motion, raised other objections to the Debtor's plan.").
The Bankruptcy Code does not specifically address the propriety of plan declarations that have the import of those now under scrutiny in this opinion. Nonetheless, the starting point for this analysis will be Bankruptcy Code Sections 1322(b), 1325(a) and 1327(a). Paragraphs 1-10 of Section 1322(b) delineate what provisions are appropriate for inclusion in a plan, and the eleventh and final paragraph of that Section is a catch-all provision that states a plan may "include any other appropriate provision not inconsistent with this title." Section 1322(b)(11) (emphasis added). Sections 1325(a)(1) and (3) read that "[e]xcept as provided in subsection (b), the court shall confirm a plan if . . . the plan
Paragraphs 1 and 4 of the Mortgage Provisions are, to a large extent, an attempt to restate or perhaps summarize the mechanics of the treatment of mortgage claims under chapter 13—in particular treatment under Section 1322(b). Section 1322(b)(2) prohibits a chapter 13 plan from modifying "a claim secured only by a security interest in real property that is the debtor's principal residence . . ." (e.g. the Bank's claim in this case), but Section 1322(b)(5) carves out an exception. It states that "notwithstanding [Section 1322(b)(2) the plan may] provide for the curing of any default within a reasonable time and maintenance of payments while the case is pending. . . ." In other words, Section 1322(b)(5) allows a chapter 13 debtor to bifurcate payment of his home mortgage. First, the plan may provide for payment of the on-going, postpetition installments as they become due under the mortgage contract, and those installments are to be treated and applied as if there were no default and no arrears. Second, the plan may provide for the cure of the prepetition arrears by spreading their payment over a reasonable time, which is usually the life of the plan. "The effect of 1322(b)(2) and (5) is to potentially split the treatment of mortgagee's secured claim by the plan—one secured claim for the mortgage going forward and one secured claim for the arrearage—but it does not compromise the amount of the aggregate secured claim or the rights of the secured creditor to recover the arrearage." Bateman, 331 F.3d at 821 n. 5 (citing Nobelman v. Am. Savs. Bank, 508 U.S. 324, 331-32, 113 S.Ct. 2106, 124 L.Ed.2d 228 (1993)).
Confirmation of a chapter 13 plan which proposes to pay both prepetition arrears and postpetition mortgage installments temporarily usurps the amortization otherwise applicable under the mortgage contract until the arrears are fully paid, or the case is dismissed.
This Court concludes that when a plan provides for the payment of both prepetition arrears and on-going postpetition mortgage payments—as does the Debtor's Plan in this case—an attempt in the plan to recapitulate in detail the manner in which the payments are to be applied adds nothing but clutter, creates ambiguity and uncertainty with regard to whether something more or less than what the Code allows was intended, and otherwise enhances the opportunity for mischief and fosters litigation. Historically, at least in this Court, the treatment of mortgage claims in chapter 13 cases, and the application of plan payments to those claims, have worked as intended under Section 1322(b)(5) without attempts at fine-tuning by way of excess plan verbiage of uncertain consequences. This Court adopts the conclusions reached by the court in In re Maupin, supra, with regard to crowding chapter 13 plans with extraordinary provisions that include questionable interpretations of the Code: "[I]f Paragraph 11L is an accurate statement of law, then it is unnecessary. If it is not an accurate statement of law, then it violates the implied statutory prohibition against including any provision that is not consistent with the Bankruptcy Code. See 11 U.S.C. § 1322(b)(11). . . . As such it must be deleted from the plan before it may be confirmed."
Thus, assuming Paragraphs 1 and 4 are accurate reiterations of the Code, and especially how Section 1322(b)(5) works in practice, they are unnecessary, or if they are not accurate, they are inconsistent with the Code and violate Section 1322(b)(11)—in either case they do not belong in the Plan. As mentioned earlier, Paragraph 8 is an improper attempt to prospectively condone tardy payment of postpetition mortgage installments and likewise should not be confirmed as part of
Paragraph 2 requires the mortgage creditor to, inter alia, perform an annual escrow analysis consistent with the Real Estate Settlement Procedures Act ("RESPA").
As a mortgage borrower, and now as a debtor in a chapter 13 case, the Debtor had, and continues to have certain duties and responsibilities. Before filing for relief she had the responsibility to timely pay the Bank the installments due on her mortgage loan; that responsibility continues, although she is now expected to pay the Trustee who will disburse payments to the Bank. The Debtor had the prepetition responsibility to maintain insurance coverage on the mortgaged property and pay the premiums, and if there was an escrow account, make sufficient deposits into escrow to pay the premiums when they become due; her responsibility was the same with respect to taxes on the mortgaged property. Those responsibilities continue postpetition. If there is a change in the amount of insurance premiums or taxes, and the mortgage provides for an escrow account, or the Debtor's monthly installment changes due to an adjustable interest rate, the amount of the postpetition mortgage installments will be adjusted accordingly. Once the appropriate notice is given by the Bank to the Debtor, she has the responsibility to make the adjusted payment or suffer the consequences. However, under Paragraphs 2, 5 and 6, the Debtor would impose a duty on the Bank that goes beyond those required by the mortgage contract or RESPA. These Paragraphs would required the Bank to file—presumably with the Court and at the Bank's expense—the RESPA escrow report and notice of any change in the monthly mortgage installments. Why should this become the duty of the Bank? Why should not the Debtor and her attorney be responsible for seeking a modification of her Plan under Code Section 1329(a)(1) if payments change during the course of the Plan? Mortgage creditors
In a case before the Bankruptcy Court for the East District of Arkansas a mortgage creditor objected to plan provisions— not unlike those proposed by the Debtor in this case—which purported to impose a duty on the creditor to notify the trustee and the debtor's attorney of changes in mortgage payments. The court sustained the objection, and gave the following reasons for doing so:
Booth, 399 B.R. at 327-28. See also Maupin, 384 B.R. at 429 (Rejecting plan provision requiring expanded notice of changes in mortgage payments, noting, "[i]f a creditor does not inform the payor, whether it be the debtor or the trustee, then the creditor cannot expect to be paid the increased (or decreased) amount. The creditor will have an incentive to give such notice even without the provision in the plan.").
If the Mortgage Provisions are confirmed as part of the Plan, the Bank will be required to keep up with the Debtor's business even if the Bank fully complies with its noticing requirements under RESPA and the mortgage contract.
RESPA requires a mortgage creditor to respond in writing within 60 days after receipt of a written request from a borrower or her agent (e.g. attorney) for information regarding the borrower's account. 12 U.S.C. § 2605(e). Thus, if mortgage payments change due to an increase in escrow deposits or interest, or because reimbursable expenses are incurred by the mortgage creditor, or if the debtor simply wants to confirm there are no outstanding late penalties, advances, expenses, interest or other sums of which she is unaware, RESPA provides the means for discovery and requires an explanation from the mortgage creditor. If the debtor is not satisfied with the explanation, she may challenge the amounts claimed by the mortgage creditor by filing an adversary proceeding or contested matter and conducting discovery; however, there is no authority for imposing on the mortgage creditor the obligation to file periodic notices, tantamount to proofs of claim, to preserve its claims, whether those claims are pre- or postpetition.
At the end of Paragraph 2 is the following statement: "The monthly mortgage payment is a pass through payment that shall be made at a higher priority than other secured fixed monthly payments." The inclusion of this statement confirms the Mortgage Provisions were not tailor-made for the Debtor's Plan because her Plan does not propose to pay any secured claim other than the Bank's claim.
Paragraph 3 attempts to accomplish two things. First it requires a mortgage creditor to file a notice with the court if it makes a protective advance, and as examples mentions insurance and taxes which the debtor fails to pay during the term of the plan. In other words, protective
Claims for protective advances are relegated, not elevated, because priority claims by definition are unsecured claims.
Moreover—and perhaps most critical—Paragraph 3 implicitly excuses a postpetition default and forces the mortgage creditor to finance the debtor's reimbursement obligation over the remaining life of the plan. For example, failure to insure mortgaged property or pay taxes is usually grounds for stay relief due to lack
The Eleventh Circuit has held that secured creditors are not required to file proofs of claim to preserve their security interests in property of the bankruptcy estate:
Bateman, 331 F.3d at 827. See also Cen-Pen Corp. v. Hanson, 58 F.3d 89, 94 (4th Cir.1995) ("Nor does the combination of Cen-Pen's [specious] treatment as an unsecured creditor plus its failure to file a proof of claim avoid its liens."). Bankruptcy Rule 3002(a) requires that "[a]n unsecured creditor or an equity security holder must file a proof of claim or interest for the claim or interest to be allowed. . . ." Secured creditors are conspicuously absent from that requirement.
Paragraph 4 of the Mortgage Provisions contemplates arrears will be paid by the trustee and "shall consist of amounts listed on the allowed proof of claim."
Paragraph 5 requires mortgage creditors to file an annual notice of all postpetition fees, costs and other charges assessed under the mortgage documents ("expenses"). Failure to file the notice of expenses is deemed a waiver of any claim for reimbursement. If a notice is timely filed, and no objection is lodged, the expenses are deemed allowed as an administrative expense and paid pro rata with priority claims. In other words, under the Mortgage Provisions the postpetition expenses are treated like protective advances discussed earlier, except they are deemed waived if they are not included in an annual
Under Section 1328(a) when a debtor completes all the payments under the plan (and satisfies certain other requirements) the court will grant a discharge of all debts provided for by the plan or disallowed under Section 502. Paragraph 7 of the Mortgage Provisions attempts to expand the ramifications of the discharge. That Paragraph states that "an order granting a discharge in this case shall be a determination [i.e. declaration] that all prepetition and postpetition defaults with respect to the debtors' [sic] mortgage have been cured, and the debtors' [sic] mortgage account is deemed [i.e. declared] current and reinstated. . . ." An order granting a discharge at the end of a chapter 13 case cannot be used as a substitute for a declaratory judgment. Bankruptcy Rule 7001 provides in clause (2) that a proceeding to determine the validity, priority, or extent of a lien or other interest in property is an adversary proceeding; in clause (6) that a proceeding to determine the dischargeability of a debt is an adversary proceeding; and in clause (9) that a proceeding to obtain a declaratory judgment relating to any of the foregoing, including clauses (2) and (6), is an adversary proceeding. Converting the discharge order into a decree that finds the mortgage is current and all defaults have been cured is an attempt to furtively obtain a declaratory judgment holding all mortgage-default claims, whether pre- or postpetition, have been discharged and the mortgage lien no longer secures such claims, regardless of whether they were actually paid. Such relief cannot be granted under the Bankruptcy Rules except through an adversary proceeding with its attendant procedural safeguards. Moreover, so extending the reach of the discharge order requires this Court to render a blanket advisory opinion regarding matters that have not been litigated. "This the Court cannot do." Maupin, 384 B.R. at 429 (disallowing plan provision that caused confirmation to constitute a finding that debtor and trustee did not waive certain pre- and post petition causes of action).
Section 1322(b)(2) prohibits the modification of "a claim secured only by a security interest in real property that is the debtor's principal residence. . . ." Some courts have held that requiring a mortgage creditor to give notice of postpetition advances and expenses is not necessarily an improper modification prohibited under Section 1322(b)(2). See e.g., In re Watson, 384 B.R. 697 (Bankr.D.Del.2008); In re Collins, No. 07-30454, 2007 WL 2116416 (Bankr.E.D.Tenn. July 19, 2007). However, the decisions of these courts do not address what is this Court's primary objection to the Mortgage Provisions: discharge of secured claims by plan declaration. If failure of a mortgage creditor to jump through hoops imposed, not by the Bankruptcy Code and Bankruptcy Rules, but by mandates in the plan results in an
In Bateman the chapter 13 debtor's amended plan significantly understated the prepetition arrearage owing on the debtor's mortgage, and described the arrearage as "disputed." The plan was confirmed without objection by the mortgage creditor. The creditor timely filed a proof of claim for the full amount of the arrearage, but no objection was filed to the claim until the trustee notified the debtor, who then filed an objection approximately 14 months after confirmation. The mortgage creditor responded by seeking dismissal of the debtor's case. The bankruptcy court refused to dismiss the case, and sustained the debtor's objection. The court gave res judicata effect to the confirmed plan, and held that the amount of arrearage stated in the plan, albeit understated, was binding on the mortgage creditor. Bateman, 331 F.3d at 822-23. On appeal, the district court affirmed the bankruptcy court. The creditor then appealed to the Eleventh Circuit, which held that although the creditor could not collaterally attack the confirmed plan after it failed to object to confirmation or appeal the confirmation order, it reversed the two lower courts' rulings with regard to the arrearage, and in so doing stated:
Id. at 822, 824-25, 835. The court further concluded:
Id. at 834 n. 12.
If, as in Bateman, a confirmed plan that understated the amount due on a residential mortgage would not extinguish the shortfall and the mortgage lien that secured
Section 524(i), added to the Code as part of the much maligned Bankruptcy Abuse Prevention and Consumer Protection Act of 2005, reads as follows:
And Section 524(a)(2) provides:
The Trustee argues Section 524(i) authorizes plan provisions that mandate a specific manner in which payments are to be credited to claims of mortgage creditors, and apparently some courts have agreed with the Trustee's position. See e.g., In re Booth, 399 B.R. 316 (Bankr. E.D.Ark.2009) (concluding that Section 524 is express recognition that a plan may permissibly outline a "manner" for addressing payments); In re Emery, 387 B.R. 721 (Bankr.E.D.Ky.2008) (determining that Section 524 allows a debtor to direct the application of plan payments).
Nonetheless, this Court is not prepared to join the avant-garde and adopt the Trustee's and the authorities' she cited interpretation of Section 524(i). Section 524(i) provides that a creditor's willful misapplication of payments received during the term of the plan constitutes a violation of the discharge injunction imposed under Section 524(a)(2); that injunction does not arise until after the plan is completed and the debtor receives a discharge. According to its plain meaning, Section 544(i) provides a post-discharge remedy for debtors, but has no pre-petition application. In re Patton, No. 08-23038, 2008 WL 5130096, at *2 (Bankr.E.D.Wis. Nov.19, 2008) ("I am not persuaded that [§ 524(i)]
The Trustee emphasized that the Mortgage Provisions are similar to the "best practices" endorsed by the National Association of Chapter Thirteen Trustees ("NACTT"). She stressed that the NACTT's best practices include provisions that were unanimously approved by a committee composed of chapter 13 trustees, mortgage servicers, mortgagees and creditors' counselors. A copy of NACTT's best practices was attached to the Trustee's brief, and they can be found in Addendum-2 to this Opinion. Many of the same issues covered by the Mortgage Provisions are addressed in NACTT's best practices, but there is one major and conspicuous difference: The NACTT's best practices do not summarily penalize mortgage creditors with forfeiture of their claims or security for non-compliance. It is doubtful that mortgage servicers and mortgagees would have considered such provisions as "best practices" if failure to comply resulted in summary loss of their claims.
Probably the most compelling argument (if the Bank had chosen to argue) against confirmation of the Mortgage Provisions is the countless variations among similar provisions that inevitably will be scripted into chapter 13 plans by a bevy of debtors' attorneys in different bankruptcy courts throughout the country. Each attorney will attempt to rectify what he or she views as the most egregious conduct of the mortgage industry that imperils chapter 13 debtors.
This Court is aware of anecdotal evidence of abuses practiced by mortgage creditors against chapter 13 debtors; however, there are a miniscule number of adversary proceedings filed in this Court in which debtors allege violations by mortgage creditors of the automatic stay or the discharge injunction. Admittedly, there are more objections by debtors and trustees directed at the legitimacy and reasonableness of postpetition advances and expenses charged by mortgage creditors, but most are settled or withdrawn after discovery; and, at least in this Court, their numbers do not support a finding of systemic abuse by the mortgage industry. Perhaps abuses are more prevalent in other districts, but the solution is not an assortment of plan-imposed controls that will vary from district to district, and perhaps from judge to judge within the same district.
An amendment to Bankruptcy Rule 3001 and a new Bankruptcy Rule 3002.1, both of which address many of same notice-issues covered by the Mortgage Provision, were published for comment and approved for adoption by the Standing Committee on Rules of Practice and Procedure.
Accordingly, pursuant to Bankruptcy Rule 9021 a separate Order will be entered in conformity with this Opinion denying approval and confirmation of the Mortgage Provisions.
1. Postpetition Mortgage Payments. Payments received by holders and/or servicers of mortgage claims for ongoing postpetition installment payments shall be applied and credited to the debtors' mortgage account as if the account were current and no prepetition default existed on the petition date in the order of priority specified in the note and security agreement and applicable nonbankruptcy law. Postpetition installment payments made in a timely manner under the terms of the note shall be applied and credited without penalty.
2. Duty of Mortgage Servicer to file Notice of Payment Change due to escrow analysis: The Mortgage Servicer shall perform an annual escrow analysis and shall file yearly a Notice of Payment Change with a copy of the escrow analysis showing the taxes and insurance paid for the prior year consistent with 12 U.S.C. § 2609(c)(2)(A) and (B). Absent objection, the fixed monthly payment is adjusted in accordance with the Notice provided and the Trustee shall file a Notice of the increase or decrease in the debtor's plan payment due to the change in the fixed payment. Absent objection, the debtor's payment becomes the amount in the Trustee's Notice. The monthly mortgage payment is a pass through payment that shall be made at a higher priority than other secured fixed monthly payments.
3. Duty of Mortgage Servicer to file Notice of Protective Advances: The Mortgage Servicer shall timely file a Notice with the Court if the servicer advances funds under the terms of the mortgage as a protective advance e.g. forced placed insurance or advance of taxes due to non payment. Absent objection, those amounts advanced are deemed allowed as an administrative expense and paid through the estate as an allowed claim pro rata with Priority Claims. The Trustee shall file a Notice of the increase in the debtor's plan payment resulting from this additional administrative expense. Absent objection, the debtor's payment becomes the amount in the Trustee's Notice.
4. Prepetition Arrearages. Payments disbursed by the trustee to holders and/or servicers of mortgage claims shall be applied and credited only to the prepetition arrearages necessary to cure the default, which shall consist of amounts listed on the allowed proof of claim and authorized by the note and security agreement and applicable nonbankruptcy law. Holders and/or servicers of mortgage claims shall deem the prepetition arrearages as contractually current upon confirmation of the plan.
5. Duty of Mortgage Service to file Notice of Post Petition Fees and Costs Assessed pursuant to the Mortgage. The Mortgage Servicer shall file yearly a Notice of all Post-Petition fees, costs of collection, and all other contract charges assessed under the mortgage document, including attorney's fees. The notice shall be filed annually, beginning within 30 days of the date one year after entry of the initial plan confirmation order, and each year thereafter during the pendency of the case, with a final notice filed within 30 days of the filing of the
6. Duty of Mortgage Servicer to file Notice of Payment Change due to interest and ARM changes: The Mortgage Servicer shall timely file a Notice of Payment Change that contains the calculation of the new payment, the new interest rate and the date of the payment change. Absent objection, the Trustee shall adjust the fixed monthly payment in accordance with this Notice and shall file a Notice of the new debtor payment resulting from the change in this fixed monthly payment. Absent objection, the debtor's payment becomes the amount in the Trustee Notice.
7. Mortgage Current upon Discharge. Unless the Court orders otherwise, an order granting a discharge in this case shall be a determination that all prepetition and postpetition defaults with respect to the debtors' mortgage have been cured, and that the debtors' mortgage account is deemed current and reinstated on the original payment schedule under the note and security agreement as if no default had ever occurred.
8. No late charges, fees or other monetary amounts shall be assessed based on the timing of any payments made by the Trustee under the provisions of the Plan, unless allowed by Order of the Court.
If servicers/mortgagees include a flat fee cost in the proof of claim for review of the Chapter 13 plan prior to confirmation and for the preparation of the proof of claim, it should be reasonable and fairly reflect the attorney's fee incurred.
If Servicers/mortgagees include attorney fees for pursuing relief from stay, such fees should be clearly identified as well as how such fees are to be paid in any agreed order resolving a Motion for Relief from Stay or any other matter before the court.
Servicers/mortgagees should analyze the loan for escrow changes upon the filing of a bankruptcy case and each year thereafter. A copy of the escrow analysis should be provided to the debtor and filed with the Bankruptcy Court by the servicers/mortgagee or their representative each year.
Servicers/mortgagees should not include any pre petition cost or fees or pre petition negative escrow in any post petition escrow analysis. These amounts should be
Servicers/mortgagees should attach a statement to a formal notice of payment change outlining all post petition contractual costs and fees not previously approved by the court and due and owing since the prior escrow analysis or date of filing whichever is later. This statement need not contain fees, costs, charges and expenses that are awarded or approved by the Bankruptcy Court order. In absence of any objection or challenge to such fees, the trustee should take appropriate steps to cause such fees to be paid as part of Debtor's Chapter 13 plan.
Servicers/mortgagees should supply and maintain a contact for debtor's counsel and trustee's for the purpose of restructuring, modifying a mortgage, or other loss mitigation assistance including a short sale or deed In lieu of foreclosure. The contact should be an individual or group with the ability to implement or assess with objective criteria a loss mitigation modification after filing of a chapter 13 petition with the goal of keeping the Debtor in the house and the success of the bankruptcy.
Mortgage servicers should provide a dedicated phone line and contact for Chapter 13 Trustee inquiry use only.
Mortgage servicers should monitor post petition payments. If the mortgage is paid post petition current then the servicers/mortgagees should not seek to recover late fees. No late fees should be recovered or demanded for systemic delay but should be limited to actual debtor default.
Pre petition payments should be tracked as applied to pre petition arrears, post petition payments should be tracked as applied to post petition ongoing mortgage payments.
Servicers/mortgagees should file a notice and reason of any payment change with the court and provide same to the Debtor.
Servicers are required to file a notice of any protective advances made in reference to a mortgage claim, such as non escrow insurance premiums or taxes. Such notice should be provided to the debtors and filed with the court.
Servicers/mortgagees should clearly identify if the loan is an escrowed or escrowed loan and break out the monthly payment consisting of Principal, Interest, Escrow and PMI components.
Servicers/mortgagees should identify nontraditional mortgage loans in their proof of claims. Loans with options should identify on the proof of claim the type of loan as well as the various contractual payment options available during the bankruptcy to the borrower/Debtor.
Trustees should initiate a communication with mortgage servicers when questions arise in a review of a post petition escrow analysis.
United States Trustees and Trustee Education Network should modify the requirements of the financial management class regarding adjustable rate mortgages, the calculation of mortgage escrows and, in particular, the potential of increased mortgage payments resulting from increased taxes, interest rate hikes and/or mortgage premiums.
Trustee voucher checks, check stubs or vouchers provided with any other form of payment contain the following information, except to the extent prevented from doing so by local rule:
There is a movement among servicers to redact all but the last four numbers of the mortgagors' loan numbers on proofs of claim, because those claims are public records. While mortgage servicers in general want as much information as possible on the vouchers, the mortgage servicers on the Working Group felt that if the voucher had the bankruptcy case number, the name of the debtor and the redacted loan number from their filed claim, they would be able to post the payment. Using the account number to the extent provided in a filed proof of claim also insures that trustees are not disclosing information on their website that is not already disclosed in the public record.
In this Court's opinion, a bankruptcy court's consideration of whether to confirm an uncontested chapter 13 plan is not unlike the consideration that should be given to whether it is appropriate to enter a judgment by default in an adversary proceeding. In those adversaries where the defendant has failed to timely respond to the complaint, unless the plaintiff proves liability and, if applicable, damages, no judgment should be entered. Perhaps it is acceptable to relax rules of evidence, but requiring proof of liability and damages in default situations will often avoid miscarriages of justice. Likewise, when a creditor fails to object to the treatment of its claim under a proposed chapter 13 plan, if that treatment is inconsistent with the Code, confirmation should be denied. Denial of confirmation is more appropriate when the proposed treatment of a claim is out of the ordinary, particularly onerous, or will deprive the creditor of its claim and security without procedural safeguards required by the Code and Bankruptcy Rules.
As mentioned early in this Opinion, debtor's counsel did not file a brief or memorandum supporting the Mortgage Provisions. If he had, he might have argued that Paragraph 3 was not intended to deprive a mortgage creditor of its security or interest for protective advances, but only specifies the manner in which the advance will be paid under the Plan. But the mortgage creditor, Trustee and Court should not have to guess what was intended. The ambiguity in what was intended by Paragraph 3, without more, is sufficient grounds to strike it from the Plan.
Amendments to Bankruptcy Code that, to a lesser extent, would address some of the same issues covered by the pending amended and new Bankruptcy Rules were proposed in the House and Senate. S. 61, 896; H.R. 200, 225, 1106; 111th Cong. (2009). In light of the pending new and amended Bankruptcy Rules it is unlikely the proposed Code amendments will be enacted.
