THOMAS J. CATLIOTA, Bankruptcy Judge.
In this adversary proceeding, plaintiff Kevin K. Newcomer ("Plaintiff"), a former chapter 13 debtor, seeks damages against Litton Loan Servicing, LP ("Defendant"), alleging violations of the confirmed plan and various Bankruptcy Code provisions. Specifically, Plaintiff asserts that Defendant, which services a loan secured by a deed of trust on Plaintiff's residence, violated the automatic stay of the Bankruptcy Code as well as the confirmed chapter 13 plan and other bankruptcy provisions by, among other things, misapplying loan and plan payments during the term of the chapter 13 plan.
Following this Court's ruling on summary judgment,
However, Plaintiff has settled his dispute with Homecomings and it is no longer a party to this action. The Court does conclude, though, that Plaintiff is entitled to a recalculation of the correct amount due on the Loan. The Court will require Defendant to recalculate the amount due on the loan by removing any post-petition obligation to pay the prepetition escrow deficiency, as provided more fully herein and in the order that accompanies this opinion. The Court will also allow Plaintiff to file a petition for attorney's fees and costs, focusing specifically on Defendant's, rather than Homecomings', conduct.
The Court has jurisdiction over this matter pursuant to 28 U.S.C. §§ 1334, 157(a), and Local Rule 402 of the United States District Court for the District of Maryland. This is a core proceeding pursuant to 28 U.S.C. § 157(b)(2)(A) & (O). The following constitutes the Court's findings of fact and conclusions of law.
On March 13, 2002, Plaintiff filed for Chapter 13 relief in this Court, initiating Case No. 02-13178. Plaintiff's wife, Louise Newcomer ("Mrs. Newcomer"), did not join in the petition and was not a debtor in bankruptcy at any time after Plaintiff commenced his case. Mrs. Newcomer was a debtor in two previous bankruptcy cases which were closed before Plaintiff commenced his bankruptcy case.
On or about May 20, 1996, Mrs. Newcomer entered into a residential real estate loan (the "Loan") pursuant to which she executed a promissory note (the "Note") in favor of First Savings Mortgage Corporation in the principal amount of $89,350, secured by a deed of trust (the "Deed of Trust") against 2617 Newton Street, Wheaton, MD (the "Property").
At the time Mrs. Newcomer entered into the Loan, Plaintiff did not own an interest in the Property. He is not and has never been a party to the Note or the Deed of Trust.
Plaintiff acquired an interest in the Property in 2000. Mrs. Newcomer executed and had recorded a quitclaim deed dated June 2, 2000, transferring her interest in the Property to herself and Plaintiff, as tenants by the entirety. Plaintiff made a handwritten notation on the quitclaim deed stating that "Kevin and Louise have made all mortgage payments and will continue to make all mortgage payments in the future. No Grantor or grantee is assuming liability for a debt or is being relieved of liability for debt in this transaction."
The precipitating cause of Plaintiff's bankruptcy filing was that the Note was in default. At that time, the Note and Deed of Trust were serviced by Homecomings Financial, LLC ("Homecomings"). Homecomings filed a proof of claim in the case for arrears under the Loan in the amount of $12,683.07, consisting of missed monthly mortgage payments of $9,735.32, late charges of $389.92, foreclosure fees of $1,275.00, foreclosure costs of $1,172.83 and trustee sale advertising of $110.00.
Plaintiff filed a Chapter 13 Plan (the "Plan") on March 28, 2002. The Plan required Plaintiff to make sixty payments to the trustee in the amount of $592.00 (the "Plan Payments"). The Plan provided, in relevant part, that "the trustee will cure all pre-petition arrears, costs, and fees in full (100%), required by 11 USC § 1325(a)(5) on the following claim[ ] ... Homecomings Financial Network." The Plan also provided that "the debtor shall maintain post-petition payments directly while the case is pending." The Plan was confirmed by Order Confirming Plan entered on October 22, 2002.
On October 19, 2006, the chapter 13 trustee filed the Notice of Plan Completion. Plaintiff received his discharge that same day. The chapter 13 trustee filed the Final Report and Account on January 10, 2007. The Final Report and Account reflects that the chapter 13 trustee paid Homecomings and Defendant $12,683.07, the full amount of the arrearage claim as set forth in the proof of claim, from Plan Payments. The bankruptcy case was closed on January 16, 2007.
On February 28, 2007, Plaintiff filed a motion to reopen the bankruptcy case in order to file a motion to hold Defendant in contempt for violating the discharge injunction of § 524. The Court reopened the bankruptcy case on March 12, 2007, and Plaintiff filed the contempt motion the next day. The contempt motion asserted that Plaintiff made all of his payments under the Plan and kept the Note payments current post-petition, but nevertheless Defendant, in violation of the
On June 19, 2007, Plaintiff withdrew the contempt motion and filed this adversary proceeding.
Plaintiff managed the household finances. He opened the mail and paid the bills. During his bankruptcy case, Plaintiff had the family responsibility for mailing the Plan Payments to the trustee. He also had the family responsibility for mailing the post-petition Loan payments (the "Loan Payments") directly to Homecomings or Defendant, as the case may be.
There is no dispute between the parties, and the Court finds, that Plaintiff completed his Plan Payments, and the trustee paid to Homecomings and Defendant the total amount of the prepetition arrears set forth in Homecomings' proof of claim: $12,683.07. The Court further finds that the prepetition default on the Loan was cured during the course of the Plan.
As stated above, at the time the case was filed, the Loan was being serviced by Homecomings. The servicing rights on the Loan were transferred from Homecomings to Defendant in February 2004. Defendant services the Loan; it does not own, nor has it ever owned, the Loan.
At trial, the parties stated that there was no dispute between them over the date or amount of the Newcomers' Loan Payments. The statement proved not to be accurate, as a comparison of the primary exhibits the parties relied on to establish the amount and date of the Loan Payments did not agree. Compare Ex. C to the Report of Kevin P. Byers, CPA. (Pl. Ex. 29) with Def. Ex. 21.
The parties differed on two payments. Plaintiff's records reflect that he made a Loan Payment of $849.70 on May 13, 2003. Defendant's summary chart of Loan Payments does not show that this payment was made. See Def. Ex. 21, p. 1 (not showing a payment on May 13, 2003). However, Homecomings' internal detailed financial transaction report shows that this payment was in fact received by Homecomings. See Def. Ex. 18 at p. HFN043, transaction #213 (dated May 13, 2003). The Court finds that Plaintiff made a Loan Payment of $849.70 on May 13, 2003.
Defendant's records reflect that Plaintiff made a Loan Payment on November 10, 2004 in the amount of $764.07. Neither the Plaintiff nor his expert contended that this payment was made. The timing and amount of Loan Payments from December 1, 2004 onward point to the conclusion that Plaintiff made Loan Payments each month as if he had not made a Loan Payment of $764.07 on or about November 10, 2004. The Court finds and concludes that Plaintiff did not make a Loan Payment of $764.07 on November 10, 2004.
Appendix A to this opinion sets forth the Court's findings on the Loan transaction details while Homecomings serviced the Loan (i.e., from the petition date in March 2002 until February 2004). It lists the monthly amounts due on the Loan according to Homecomings' records, broken down by principal, interest and escrow. Appendix A also shows the date and
Appendix B to this opinion sets forth the Court's findings on the Loan transaction details while Defendant serviced the Loan (i.e., from February 2004 until the Plan completion in October 2006). It lists the monthly amounts due on the Loan according to Defendant's records, broken down by principal, interest and escrow. Appendix B also shows the date and amount of the Loan Payments made by Plaintiff during that period. It shows, and the Court finds, that during the period in which Defendant serviced the Loan, Defendant's records reflect that a total of $26,691.67 was due on the Loan, including principal, interest and escrow. Appendix B further shows that, during that period, Plaintiff made a total of $27,039.94 in Loan Payments. Thus, during the period in which Defendant serviced the Loan, Plaintiff's total Loan Payments were $348.27 more than Defendant's records reflected was due.
During the entire Plan term, the total Loan Payments made by Plaintiff were $2,212.00 less than the principal, interest and escrow due on the Loan according to Homecomings' and Defendant's records ($2,560.27 shortage while Homecomings serviced the Loan minus $348.27 overage while Defendant serviced the Loan).
As Appendix A shows, of the nine payments due during the period April 1, 2002 through December 1, 2002, the Newcomers made five of those payments after the fifteen-day grace period allowed under the Loan documents (April 1, June 1, August 1, September 1, and November 1).
That is not to say, however, that Plaintiff made all Loan Payments for the full amount due according to Homecomings' records. Each Loan Payment included a component for principal and interest and a component for escrow for property taxes. There is no material dispute between the parties as to the amount of principal and interest that was due on the Loan for any month during the Plan term.
The same is not true when the escrow component of the monthly amount due is taken into account. As shown on Appendix A, during the period from April 1, 2002 through July 1, 2003, every Loan Payment
By letter dated August 8, 2002, Homecomings sent to Mrs. Newcomer an escrow account analysis (the "August 2002 Escrow Analysis") (Def. Ex. 4). The August 2002 Escrow Analysis was addressed to Mrs. Newcomer. Plaintiff initially could not recall seeing the August 2002 Escrow Analysis. At trial, Defendant produced a second copy of the August 2002 Escrow Analysis with a cover page addressed directly to Plaintiff showing it was sent by facsimile to him at the Newcomer's home fax number. The Court finds that Homecomings both mailed the August 2002 Escrow Analysis to Mrs. Newcomer and sent a copy by facsimile to Plaintiff at his home, and that Plaintiff received the August 2002 Escrow Analysis.
Although dated August 8, 2002, the August 2002 Escrow Analysis states that its "effective date" is November 1, 2001 through October 2002. It states that the "[f]ollowing is an analysis of your escrow account in accordance with the Real Estate Settlement Procedures Act (RESPA). The analysis calculates your new escrow payment based on the projected escrow activity for the coming period." It states the previous payment due on the loan was $1,149.91, comprised of principal and interest of $910.74 and escrow of $239.17. The letter states that the new monthly principal and interest payment on the Loan is $974.74 and the new monthly escrow payment is $61.16 (comprised of an anticipated property tax payment of $733.91 divided by 12 months). Finally, it identifies an escrow shortage on the Loan of $2,709.82, and therefore adds to the monthly payment a "shortage spread" of $225.82 (or $2,709.82 divided by 12). The "new monthly payment effective on 11/01/01" is $1,261.72 (or $974.74 principal and interest plus $61.16 tax escrow plus $225.82 for the escrow shortage).
The August 2002 Escrow Analysis is defective in several respects. It was dated and sent on August 8, 2002, but it sets forth a "new monthly payment" to be effective on November 1, 2001. Obviously, the Newcomers could not retroactively alter their past Loan Payments to that date.
Further, the amount of the new monthly payment set forth in it—$1,261.72—is not the amount that Homecomings' records reflect was due for any month during the post-petition period beginning April 1, 2002. See Appendix A; see also Def. Ex. 21. Homecomings' records reflect that the monthly amount for the payments due on April 1, May 1 and June 1, 2002 was $1,197.72, and for the payments due on July 1, August 1, September 1 and October 1, 2002 was $1,135.58. See id. These amounts were consistent with the deposition testimony of Homecomings' Rule 30(b)(6)
Thus, the new monthly amount due set forth in the August 2002 Escrow Analysis was $64 greater than the amount Homecomings' representative testified was the correct amount due for the period of April 2002 through June 2002. The new monthly
Finally, the August 2002 Escrow Analysis required Mrs. Newcomer to pay, through post-petition Loan Payments, the escrow deficiency due at the time Plaintiff filed his bankruptcy case. At that time, there was an escrow deficiency of $2,823.83 (the "Prepetition Escrow Deficiency"). This is shown on the face of the August 2002 Escrow Analysis, which states the starting escrow deficiency balance as of April 1, 2002 was $2,823.83. Def. Ex. 4, p. 1. It is also shown in Plaintiff's expert's report. See Pl. Ex. 29, Ex. B, line 4, under the heading "Combined Escrow Balance." In the August 2002 Escrow Analysis, Homecomings included the Prepetition Escrow Deficiency in its calculation of the new monthly payment due on the Loan. However, in its proof of claim, Homecomings included eight unpaid prepetition monthly payments. See Pl. Ex. 5, p. 2. These eight unpaid payments included unpaid escrow payments of $2,129.40. Pl. Ex. 29, p. 3. Thus, Homecomings included at least $2,129.40
Homecomings sent to Mrs. Newcomer a second escrow analysis dated May 21, 2003 (the "May 2003 Escrow Analysis") (Def. Ex. 5). The May 2003 Escrow Analysis stated that the monthly amount due on the Loan would be reduced to $791.93 from $1,261.72 beginning on August 1, 2003. The reduction was due primarily to the elimination of the escrow shortage that Homecomings previously included in the monthly amount due, thereby reducing the escrow component of the amount due to $61.15.
Once Homecomings reduced the monthly amount due as of August 1, 2003, Plaintiff made all Loan Payments on time and at least in the amounts asserted by Homecomings or Defendant, as the case may be, as being due on the Loan. This is shown on Appendices A and B, by comparing the column "Total Payment Due [Homecomings/Defendant]" with the column "Amount of Payment." Thus, during the entire time Defendant serviced the Loan during the Plan term, the Newcomers made Loan Payments on time and in an amount at least equal to the amount that was due on the Loan.
As stated above, however, each of the Newcomers' monthly Loan Payments was considerably less than the amount Homecomings contended was due each month from the beginning of the Plan until the August 1, 2003 payment. See Appendix A (compare the column "Total Payment Due
After Defendant began servicing the Loan, it twice filed motions for relief from the automatic stay alleging the Loan was in post-petition default. On each occasion, it withdrew the motion after Plaintiff submitted proof of post-petition Loan Payments.
Homecomings transferred the servicing rights on the Loan to Defendant in February 2004. In the process of transferring information concerning the Loan, Defendant uploaded loan servicing comments from a Homecomings' tape. The comments are set forth in Defendant's "Composite Report: Comments-Loan# xxxx6428 Borrower Name: Louise Newcomer" (the "Composite Report") (Pl. Ex. 25). The Composite Report contains the following notes, dated February 13, 2004:
• 2/13/2004 Prev servicer—plan confirmed 20021022
• 2/13/2004 Prev servicer—prelim hearing/relief
20040301
• 2/13/2004 Prev servicer—POC filed 20020801
• 2/13/2004 Prev servicer—copy of plan requested
20020716
• 2/13/2004 Prev servicer—FC suspended 20020313
• 2/13/2004 Prev servicer notified of the Bk filing
20020318
• 2/13/2004 Prev servicer timeline—Ch 13 Bankruptcy
filed 20020313
The numbers at the end of each note represent a date in a YearMonthDate format. There is no dispute between the parties that the notes mean the following (in the same order in which they are listed above):
Thus, Defendant received from Homecomings the above information concerning the existence and status of Plaintiff's bankruptcy case on or about February 4, 2004.
The above excerpts from the Composite Report are included among 42 entries dated February 13, 2004. Four of these entries state "Prev servicer—Ch 13 Bankruptcy filed," each with a different date, as follows:
The Court takes judicial notice that Mrs. Newcomer filed chapter 13 bankruptcy petitions on October 3, 2000, and December 1, 1999.
Shortly after Defendant began servicing the Loan, an employee of Defendant read the notes and sought to obtain information from PACER about a bankruptcy case. The notes did not identify a particular
Defendant sent a "Validation of Debt Notice" to Mrs. Newcomer, dated February 23, 2004. It also sent to Mrs. Newcomer a "Notice of Default and Intent to Accelerate" dated March 11, 2004, and a "Notice of Default and Intent to Accelerate" dated March 12, 2004 (collectively the "March 11 and 12 Letters"). The March 11 and 12 Letters are identical with the exception of the amount necessary to bring the loan current: the amounts are $7173.17 and $6381.24, respectively.
In addition, after Defendant began servicing the Loan, it placed numerous automatic phone calls to the Newcomers' home for about a two-week period from early- to mid-March 2004. Defendant's records reflect that none of these calls were answered, and neither Plaintiff nor Mrs. Newcomer received any of these calls. Plaintiff was not even aware that these calls were made until he learned of them from documents obtained in discovery.
When Plaintiff received the March 11 and 12 Letters, he called Defendant on March 17, 2004 to inform it that he was a debtor in a bankruptcy case and the Property was subject to the automatic stay. Insofar as the record established, this was the first time Defendant had actual knowledge of the existence of Plaintiff or that he had any connection to the Loan or the Property.
Plaintiff contends that Defendant violated the automatic stay of § 362, the effect of confirmation under § 1327, and the discharge provision of § 1328. The Court will address each in turn.
Plaintiff contends that Defendant violated the automatic stay of § 362 by sending the March 11 and 12 Letters and by placing numerous automatic calls to the Newcomer household in early- to mid-March 2004. The Court addressed these issues in part in its summary judgment decision, entered at Docket No. 186 (the "Memorandum Opinion"), and begins with a review of that decision and its effect on the trial.
In the Memorandum Opinion, the Court ruled that Defendant violated the automatic
McNaulty Deposition (January 22, 2009), p. 9. The deposition testimony was based on the February 13, 2004 notes in the Composite Report, as addressed in the Findings of Fact.
The Court concluded that the violation was willful because, in its opposition to Plaintiff's summary judgment motion, Defendant did not dispute that it was aware of Plaintiff's bankruptcy case before it sent the March 11 and 12 Letters.
Defendant filed a Motion for Reconsideration (Docket No. 214) arguing, in relevant part, that the material issue of when Defendant first became aware of Plaintiff's bankruptcy case was in dispute. Defendant asks the Court to reconsider its ruling that the March 11 and 12 Letters violated the automatic stay, or, in the alternative, to reconsider its ruling that any such violation was willful. See Motion for Reconsideration, pp. 3, 5. The Motion for Reconsideration is based on Defendant's response to an additional Interrogatory propounded orally by Plaintiff at the summary judgment hearing, which response was filed after the Court issued the Memorandum Opinion.
At trial, notwithstanding the ruling on summary judgment that Defendant willfully violated the automatic stay by sending the March 11 and 12 Letters, the Court allowed the testimony concerning Defendant's employee's action in checking PACER for a bankruptcy case for Mrs. Newcomer. This testimony is relevant on the question of damages, as Plaintiff seeks both actual damages, including damages
The testimony established that Defendant was "aware" of Plaintiff's bankruptcy case before it sent the March 11 and 12 Letters only to the extent of the existence of the notes in the Composite Report. However, as stated in the Findings of Fact, when the employee read the notes and performed a PACER search, the employee found no open bankruptcy case for Mrs. Newcomer, the sole obligor on the Loan. The employee concluded that no applicable bankruptcy case was open and did not refer the Loan to Defendant's bankruptcy group for servicing. Thus, Defendant proceeded to service the Loan as if no automatic stay applied to it until Plaintiff called Defendant on March 17, 2004 to inform it of his bankruptcy case and co-ownership of the Property.
These facts, as opposed to those before the Court when it issued the Memorandum Opinion, do not support the conclusion that Defendant willfully violated the automatic stay. Accordingly, the Court will grant Defendant's Motion for Reconsideration. Further, as discussed below, even if the Court were to deny reconsideration of its ruling on summary judgment, the Court would not award damages for such a violation under these circumstances.
For the reasons set forth in the Memorandum Opinion, the March 11 and 12 Letters violated the automatic stay. See Memorandum Opinion, pp. 18-19. The violation, however, was not willful. The evidence established that at the time Defendant sent the March 11 and 12 Letters, it believed no bankruptcy case applied to the Loan. This belief was not unwarranted. The only obligor on the Loan was Mrs. Newcomer, and Defendant knew nothing of Plaintiff or his ownership interest in the Property. Further, the evidence established that had Defendant been aware of the existence of Plaintiff's bankruptcy case and his interest in the Property, it would not have sent the March 11 and 12 Letters. Rather, it would have referred the Loan to its bankruptcy servicing group, as it did once it was informed of Plaintiff's case in the March 17 phone call. Finally, Defendant's employee's actions were taken in a good faith attempt to determine if a bankruptcy case applied to the Loan.
To be sure, as a result of the notes in the Composite Report, Defendant initially had constructive knowledge of Plaintiff's bankruptcy case, and constructive knowledge may be sufficient for a determination that a violation of the stay is "willful." See In re Skinner, 90 B.R. 470, 479-480 (D.Utah 1988) (constructive knowledge sufficient to establish willful violation of stay); In re Withrow, 93 B.R. 436, 437 (Bankr.W.D.N.C.1988) (same). See also In re Crawford, 388 B.R. 506, 519 (Bankr. S.D.N.Y.2008) (knowledge of agent imputed to principal, constituting sufficient basis for finding willful violation). However,
Further, there is no evidence that Plaintiff suffered any damages as a result of receiving the March 11 and 12 Letters. After receiving the letters, Plaintiff called Defendant and Defendant quickly classified the Loan as one subject to bankruptcy after it understood Plaintiff's role. He was not required to take any further action with respect to the letters. Plaintiff did not seek damages for the March 11 and 12 Letters until he filed the complaint in this adversary proceeding more than three years after he received them. By that time, the error concerning the existence of Plaintiff's bankruptcy case and its applicability to the Loan had long since been resolved.
Plaintiff also contends that Defendant's automated phone calls made in early- to mid-March 2004 constituted violations of the automatic stay for which he should be compensated. The Court disagrees for numerous reasons, including: (1) for the reasons stated above, Defendant was not aware of Plaintiff's bankruptcy case when it made the calls, and therefore any violation was not willful; (2) the evidence established that the calls were an attempt to collect a debt from Mrs. Newcomer, who was not in bankruptcy, and therefore they did not violate the automatic stay; (3) neither Plaintiff nor Mrs. Newcomer even knew the calls were made until they learned of them in discovery; and (4) Plaintiff suffered no damages as a result of the calls being made.
As stated in the Findings of Fact, at the time Plaintiff filed his bankruptcy case, the Prepetition Escrow Deficiency existed in the amount of $2,823.83. This constituted a prepetition amount owed on the Loan and therefore was included in the amount secured by the Property. Homecomings included it, at least to the extent of $2,129.40,
Homecomings' action raises two issues: First, in doing so, did Homecomings violate Debtor's cure rights under the Plan, and if so, to what extent is Defendant responsible? This issue is addressed in the subsequent section of this opinion. Here, the Court addresses whether Homecomings violated the automatic stay by seeking to collect a prepetition Loan obligation through post-petition Loan Payments, and, again, if so, to what extent is Defendant responsible?
Section 362(a)(6), prohibits a creditor from taking "any act to collect ... or recover a claim against the debtor that arose before the commencement of the case....." 11 U.S.C. § 362(a)(6). Homecomings itself included at least $2,129.40 of the Prepetition Escrow Deficiency in its proof of claim, thereby acknowledging under oath that this amount was a prepetition
Here, of course, Plaintiff is not obligated on the Loan. Nevertheless, the Bankruptcy Code defines "claim against the debtor" to include "claim against property of the debtor." 11 U.S.C. § 102(2). Thus, Homecomings' effort to collect the Prepetition Escrow Deficiency through post-petition Loan Payments was an "act to collect. . . or recover a claim against the debtor that arose before the commencement of the case" in violation of § 362(a)(6). 11 U.S.C. § 362(a)(6) (emphasis added).
However, it was Homecomings, not Defendant, that included the Prepetition Escrow Deficiency in the post-petition Loan obligation calculation and collected it through post-petition Loan Payments. Plaintiff named Homecomings as a defendant in this action but settled with it, and Homecomings is no longer a party. By the time Defendant took over servicing the Loan, these amounts were no longer included in the post-petition amounts due on the Loan, as shown by the May 2003 Escrow Analysis, and were not collected by Defendant in any Loan Payment. See Appendix B. Accordingly, the Court concludes that Plaintiff is not entitled to relief against Defendant for the violation of the automatic stay resulting from Homecomings' post-petition collection of the Prepetition Escrow Deficiency.
Plaintiff contends that Defendant violated § 1327 by misapplying Plan Payments and Loan Payments during the Plan term. Specifically, Plaintiff contends that Defendant violated § 1327 because, during the Plan term, it did not apply Plan Payments strictly to the prepetition arrears or Loan Payments strictly to post-petition Loan payments. Plaintiff also contends that Defendant's accounting system, which did not differentiate between Plan Payments and Loan Payments, violated § 1327. Defendant does not dispute the factual underpinnings of these contentions, but argues that these contentions do not constitute a violation of § 1327 because, among other reasons, Defendant conducted a bankruptcy audit of the Loan and ultimately sorted out the proper application of the payments to prepetition arrears and post-petition Loan obligations. Defendant also raises numerous other defenses, which the Court addresses as appropriate.
Section 1327 provides that "[t]he provisions of a confirmed plan bind the debtor and each creditor, whether or not the claim of such creditor is provided for by the plan, and whether or not such creditor has objected to, has accepted, or rejected the plan." 11 U.S.C. § 1327(a). As noted in the Findings of Fact, the Plan provided, in relevant part, that "the trustee will cure all pre-petition arrears, costs and fees in full (100%), required by 11 USC § 1325(a)(5) on the following claim . . . Homecomings Financial Network." Pl. Ex. 2, p. 1. The Plan also provided, in the section titled "11 USC 1322(b)(5) Claims," that "the debtor shall maintain post-petition payments directly while the case is pending." Id. Accordingly, under the Plan and § 1325(a)(5), Plaintiff was obligated to make monthly Plan Payments, from which the chapter 13 trustee paid Homecomings, and later Defendant, in order to cure the pre-petition default on the Loan, while the Newcomers kept the Loan current on a post-petition basis.
The in rem interest in the Property resulting from the Deed of Trust constituted a "claim" in Plaintiff's bankruptcy case. See Johnson v. Home State Bank, 501 U.S. 78, 111 S.Ct. 2150, 115 L.Ed.2d 66 (1991)(in rem mortgage lien as to which debtor's personal liability on the loan was previously discharged is a "claim" in a chapter 13 bankruptcy case). Accordingly, it was proper and appropriate for Homecomings to file a proof of claim.
With respect to the prepetition Loan default, neither party disputes that Plaintiff made all Plan Payments, and the prepetition default has been cured. Thus, Plaintiff has obtained one of the primary benefits of a chapter 13 plan—he has cured the prepetition default on the Loan.
The same cannot be said with respect to post-petition Loan Payments. As set forth in the Findings of Fact, while Homecomings serviced the Loan post-petition its records show Plaintiff's total Loan Payments were $2,560.27 less than Homecomings' records reflected was due. See Findings of Fact, § A.2; see also Appendix A. While Defendant serviced the Loan until Plan completion, its records show that Plaintiff's total Loan Payments were $348.27 more than Defendant's records reflected
The shortfall primarily results from the fact that for every month for the period April 1, 2002 through July 1, 2003, the amount of Plaintiff's monthly Loan Payment was considerably less than the amount due per Homecomings' records. See Appendix A.
As the August 2002 Escrow Analysis shows, Homecomings anticipated the annual property tax obligation to be $733.91, and it included 1/12 of that amount ($61.16) in the escrow component of the new monthly amount due on the Loan. See Def. Ex. 4, pp. 2, 3. In addition, Homecomings then simply applied the Prepetition Escrow Deficiency as the "escrow shortage" component in the new monthly amount due on the Loan, thereby seeking to recover it from post-petition Loan Payments. But Homecomings also included at least $2,129.40 of the Prepetition Escrow Deficiency in the proof of claim and therefore recovered that amount through the Plan. Homecomings plainly sought to recover the Prepetition Escrow Deficiency twice. It also plainly required Plaintiff (and Mrs. Newcomer) to pay a prepetition obligation in order to keep the Loan current on a post-petition basis.
Homecomings' actions violated the Plan. A chapter 13 plan is a "new and binding contract, sanctioned by the court, between the debtors and their pre-confirmation creditors." In re Murphy, 474 F.3d 143, 148 (4th Cir.2007) (citations omitted).
Homecomings violated the Plan in a second way. Leaving aside the Prepetition Escrow Deficiency, the August 2002 Escrow Analysis required the Newcomers to pay a monthly amount on the Loan that even Homecomings and Defendant now concede was not the correct amount due. As set forth in the Findings of Fact, the
Plaintiff seeks from Defendant emotional distress damages and punitive damages, and damages for his alleged inability to refinance the Loan. However, it was Homecomings, not Defendant, that sought to double collect the Prepetition Escrow Deficiency, to collect a prepetition obligation post-petition and that notified the Newcomers of the incorrect amount due on the Loan. As stated above, Plaintiff settled its dispute with Homecomings. By the time Defendant began servicing the Loan, the monthly Loan obligation no longer included a component for the Prepetition Escrow Deficiency. See generally Appendix B.
There is no basis to impose such liability on Defendant, as a subsequent loan servicer, for Homecomings' actions. Assuming the types of damages Plaintiff seeks are available for a violation of a Plan, they would have to be imposed based on Defendant's, not Homecomings', actions. Here, however, it is sufficient to state that the testimony concerning Plaintiff's frustration with Defendant's Loan servicing does not come close to the level of emotional distress that is necessary to be compensable. Further, Plaintiff alleges that because of Defendant's actions he was unable to refinance the Loan at a lower interest rate. However, there is no evidence that Plaintiff applied for a refinance loan or even asked for a post-petition Loan history.
However, the Court ruled on summary judgment that § 105 of the Bankruptcy Code empowers the Court to enforce a party's substantive rights under § 1327. Memorandum Opinion, pp. 22-24. Here, while Plaintiff is not entitled to the broad affirmative relief he seeks, he is entitled to some relief. It is apparent from the record that the amount Defendant currently contends is due on the Loan is incorrect, due to Homecomings' improper inclusion of the Prepetition Escrow Deficiency as a post-petition obligation. Defendant currently services the Loan, and collects and applies Loan Payments against the amounts due. The Court will enter an order requiring Defendant to recalculate the amount due on the Loan by eliminating any prior obligation to repay the Prepetition Escrow Deficiency from Loan Payments after April 1, 2002. In doing so, Defendant also shall reverse any late charges imposed by it or Homecomings for late payments resulting from the Newcomers' failure to pay a Loan Payment in full where the shortage is attributable to the Prepetition Escrow Deficiency. By way of example, the line entry for 4/01/02 on Appendix A shall include only $61.16 in the "Amount of Escrow . . ." column, rather than $286.98.
Finally, the Court addresses whether Plaintiff should receive an award of attorney fees from Defendant. In his proposed findings of fact, Plaintiff stated that "[s]hould the Court enter a verdict in his favor, [he] intends to file a petition for fees and costs." Docket No. 220, p. 33. Accordingly, the Court will allow Plaintiff to file a petition seeking attorney's fees and costs, focusing specifically on Defendant's, rather than Homecomings', conduct. In this regard, the Court notes that
Plaintiff contends that Defendant's accounting system violates § 1327. Defendant uses an accounting software system known as LSAMS to account for transaction activities on the loans it services. According to Defendant, this system is used by many loan servicers and was one of the three primary residential mortgage accounting systems available on the market to residential mortgage servicing companies and residential mortgage companies.
The LSAMS accounting software system is not capable of distinguishing between payments received from a trustee under a plan and payments received from a borrower outside of the bankruptcy case. Thus, generally speaking, it applies all payments received on a loan against the earliest contractual obligation.
Defendant maintains a bankruptcy department that services loans which are the subject of a bankruptcy case. Once a bankruptcy case is filed and Defendant is notified, the servicing for that loan is transferred to the bankruptcy department. The bankruptcy department performs a "bankruptcy audit" that consists of a manual accounting process intended to reconcile and track payments received from a chapter 13 trustee and apply such payments to prepetition amounts, and to reconcile and track payments received from the borrower and apply such payments to post-petition amounts.
Defendant's accounting system, and the application of Plan Payments and Loan Payments during the Plan term, was a central issue throughout the trial. The parties cited numerous cases addressing the application of plan payments and loan payments under chapter 13. The Court finds, however, that the dispute between the parties concerning whether the Loan is current post-petition has little, if anything, to do with Defendant's accounting system or how it applied the Plan Payments and Loan Payments. As the Court noted in the Findings of Fact and as addressed at length above, the dispute between the parties stems from the fact that the amount of the Loan Payments made by Plaintiff (and Mrs. Newcomer) was less than the amount Homecomings' records showed was due for the period April 1, 2002 through July 1, 2003. See Appendix A. That, in turn, implicates the appropriateness of including the Prepetition Escrow Deficiency in post-petition payments, all as addressed above. Even if Defendant's accounting system allowed it to apply Plan Payments against the prepetition default and Loan Payments directly against the corresponding Loan obligation immediately upon receipt, as Plaintiff contends should have been done and as shown on Appendices A and B, Defendant's records would still reflect that Plaintiff failed to keep the Loan current post-petition because of the payment issues from April 1, 2002 through July 1,
Plaintiff contends that Defendant violated the discharge injunction of § 1328(a)
The chapter 13 trustee filed the Notice of Completion of Chapter 13 Plan on October 19, 2006. The Plaintiff received his discharge by order entered that same date. Thus, any violation of § 1328(a) must have occurred, if at all, after October 19, 2006.
A bankruptcy discharge extinguishes "the personal liability of the debtor with respect to any debt." 11 U.S.C. § 524(a)(1). Under § 524(e), aside from an exception not relevant here, the "discharge of a debt of the debtor does not affect the liability of any entity on . . . such debt."
Here, because the Loan was solely in Mrs. Newcomer's name, Defendant took no actions in the name of Plaintiff outside of the bankruptcy case unless specifically requested to do so by Mrs. Newcomer. Defendant's internal records reflected that only Mrs. Newcomer was the obligor on the Loan. Defendant addressed letters to Mrs. Newcomer and reported the status of the Loan to the credit agencies in the name of Mrs. Newcomer only. Compare Def. Ex. 27 (April 3, 2007 credit report of Mrs. Newcomer showing reporting by Defendant) with Defendant's Exhibit 28 (May 2, 2007 credit report of Plaintiff showing no reporting by Defendant). All letters or correspondence in the record sent by Defendant after October 19, 2006 and until February 2007 were addressed to Mrs. Newcomer, not Plaintiff. See Pl. Ex. 38, 40 and 52 (correspondence by Defendant after the date of discharge addressed solely to Mrs. Newcomer).
Indeed, because Plaintiff was not an obligor on the Loan, Defendant would not discuss the Loan with Plaintiff. On February 13, 2007, Mrs. Newcomer sent a letter to Defendant in which she authorized Plaintiff "to speak on [her] behalf" regarding the Loan. Pl. Ex. 40, p. 7. She further authorized Plaintiff to "obtain any
Plaintiff relies on In re Rizzo-Cheverier, 364 B.R. 532 (Bankr.S.D.N.Y.2007), for the proposition that a lender's failure to apply plan payments in accordance with a plan can serve as a basis for a claim of discharge violation. But in that case, the debtor was personally obligated on the loan, and, as Plaintiff expressly recognizes, "[a]fter the debtor received her discharge, the lender reported her account as late to the credit reporting agencies and threatened to foreclose on her home." Docket No. 222, p. 18. Defendant took no such action against Plaintiff here. Accordingly, the case provides no support for Plaintiff.
Plaintiff also refers generally to the "repeated letters and calls to the Newcomers' home" that the Court "pointed out in its memorandum on summary judgment" as violations of § 1328(a). Docket No. 222, p. 19. In the Memorandum Opinion, however, the Court addressed (1) letters to Mrs. Newcomer in February and March 2004, which could not violate § 1328(a) because they were pre-discharge; and (2) a call between Mrs. Newcomer and Defendant in March 2007, which could not violate § 1328(a) because it was between Mrs. Newcomer, not Plaintiff, and Defendant. See Memorandum Opinion, pp. 17-20. The Court also pointed out that the deposition transcripts referred to "numerous conversations" between Plaintiff and Defendant's representatives, but stated that the nature and content of the calls were not clear from the record and held that issue over for trial. Id. at 20-21. The evidence at trial failed to establish that any such letters or calls were directed to Plaintiff after October 19, 2006.
Finally, the Court has serious misgivings that the discharge provision of § 1328(a) even applies to the Loan. Plaintiff was not an obligor on the Loan. He did not sign the Note or the Deed of Trust. See Findings of Fact, § A. He acquired his interest in the Property well after the Loan was made and the Property was subject to the Deed of Trust. When he acquired his interest in the Property, it was with the express statement that "no grantee is assuming liability for a debt . . . in this transaction." Id. As stated above, the discharge in bankruptcy discharges the personal liability of a debtor for a debt. See § 524(a)(1). Here, although the Deed of Trust interest was an in rem claim against the estate, Plaintiff never had any "personal liability" for the Loan that was subject to being discharged.
The Court will enter an order consistent with this opinion.
Amount of Amount of Total
Date Princ & Int Escrow Payment Date Amount of
Payment Due Per Due per Due per Payment Loan
Due Homecomings Homecomings Homecomings Made Payment
-----------------------------------------------------------------------------
4/01/02 $ 910.74 $ 286.98 $ 1,197.72 4/17/02 $ 1,149.91
-----------------------------------------------------------------------------
5/01/02 $ 910.74 $ 286.98 $ 1,197.72 5/16/02 $ 1,149.91
-----------------------------------------------------------------------------
6/01/02 $ 910.74 $2 86.98 $ 1,197.72 6/18/02 $ 1,149.91
-----------------------------------------------------------------------------
7/01/02 $ 848.60 $ 286.98 $ 1,135.58 7/16/02 $ 737.43
-----------------------------------------------------------------------------
8/01/02 $ 848.60 $ 286.98 $ 1,135.58 8/20/02 $ 1,035.90
-----------------------------------------------------------------------------
9/01/02 $ 848.60 $ 286.98 $ 1,135.58 9/17/02 $ 1,035.90
-----------------------------------------------------------------------------
10/01/02 $ 848.60 $ 286.98 $ 1,135.58 10/15/02 $ 1,035.90
-----------------------------------------------------------------------------
11/01/02 $ 848.60 $ 286.98 $ 1,135.58 11/18/02 $ 1,035.90
-----------------------------------------------------------------------------
12/01/02 $ 848.60 $ 286.98 $ 1,135.58 12/16/02 $ 1,035.90
-----------------------------------------------------------------------------
1/01/03 $ 788.54 $ 286.98 $ 1,075.52 1/03/03 $ 849.70
-----------------------------------------------------------------------------
2/01/03 $ 788.54 $ 286.98 $ 1,075.52 1/29/03 $ 849.70
-----------------------------------------------------------------------------
3/01/03 $ 788.54 $ 286.98 $ 1,075.52 2/28/03 $ 849.70
-----------------------------------------------------------------------------
4/01/03 $ 788.54 $ 286.98 $ 1,075.52 3/26/03 $ 849.70
-----------------------------------------------------------------------------
5/01/03 $ 788.54 $ 286.98 $ 1,075.52 4/28/03 $ 849.70
-----------------------------------------------------------------------------
6/01/03 $ 788.54 $ 286.98 $ 1,075.52 5/13/0321 $ 849.70
-----------------------------------------------------------------------------
7/01/03 $ 730.78 $ 286.98 $ 1,017.76 5/28/03 $ 849.70
-----------------------------------------------------------------------------
8/01/03 $ 730.78 $ 61.15 $ 791.93 6/16/03 $ 791.94
-----------------------------------------------------------------------------
9/01/03 $ 730.78 $ 61.15 $ 791.93 7/18/03 $ 791.94
-----------------------------------------------------------------------------
10/01/03 $ 730.78 $ 61.15 $ 791.93 8/14/03 $ 791.94
-----------------------------------------------------------------------------
11/01/03 $ 730.78 $ 61.15 $ 791.93 9/11/03 $ 791.94
-----------------------------------------------------------------------------
12/01/03 $ 730.78 $ 61.15 $ 791.93 11/06/03 $ 791.94
-----------------------------------------------------------------------------
1/01/04 $ 702.97 $ 61.15 $ 764.12 12/03/03 $ 765.00
-----------------------------------------------------------------------------
2/01/04 $ 702.97 $ 61.15 $ 764.12 1/04/04 $ 765.00
-----------------------------------------------------------------------------
3/01/04 $ 702.97 $ 61.15 $ 764.12 1/27/04 $ 765.00
_____________________________________________________________________________
TOTALS $19,048.65 $5,080.88 $24,129.53 $21,569.26
----------------------------------------------------------------------------- Total Payments Due per Homecomings: $24,129.53 Total Loan Payments made by Newcomers: $21,569.26 Total Loan Payment Shortage while Homecomings serviced: ($ 2,560.27)
-----------------------------------------------------------------------------
Amount of Total
Date Princ & Int Amount of Payment Date
Payment Due Per Escrow Due Due per Payment Amount of
Due Litton per Litton Litton Made Payment
-----------------------------------------------------------------------------
4/01/04 $ 702.97 $ 61.15 $ 764.07 3/11/04 $ 791.93
-----------------------------------------------------------------------------
5/01/04 $ 702.97 $ 61.15 $ 764.07 4/26/04 $ 764.07
-----------------------------------------------------------------------------
6/01/04 $ 702.97 $ 61.15 $ 764.07 5/26/04 $ 764.07
-----------------------------------------------------------------------------
7/01/04 $ 709.75 $ 61.15 $ 770.90 6/09/04 $ 770.90
-----------------------------------------------------------------------------
8/01/04 $ 709.75 $ 61.15 $ 770.90 8/04/04 $ 770.90
-----------------------------------------------------------------------------
9/01/04 $ 709.75 $ 61.15 $ 770.90 9/02/04 $ 770.90
-----------------------------------------------------------------------------
10/01/04 $ 709.75 $ 61.15 $ 770.90 10/04/04 $ 770.90
-----------------------------------------------------------------------------
11/01/04 $ 709.75 $ 61.15 $ 770.90 10/22/04 $ 770.90
-----------------------------------------------------------------------------
12/01/04 $ 709.75 $ 61.15 $ 770.90 12/02/0422 $ 770.90
-----------------------------------------------------------------------------
1/01/05 $ 764.56 $ 61.15 $ 825.71 1/04/05 $ 825.71
-----------------------------------------------------------------------------
2/01/05 $ 764.56 $ 61.15 $ 825.71 1/29/05 $ 825.71
-----------------------------------------------------------------------------
3/01/05 $ 764.56 $ 61.15 $ 825.71 3/01/05 $ 825.71
-----------------------------------------------------------------------------
4/01/05 $ 764.56 $ 61.15 $ 825.71 3/28/05 $ 825.71
-----------------------------------------------------------------------------
5/01/05 $ 764.56 $ 61.15 $ 825.71 4/29/05 $ 825.71
-----------------------------------------------------------------------------
6/01/05 $ 764.56 $ 61.15 $ 825.71 5/28/05 $ 825.71
-----------------------------------------------------------------------------
7/01/05 $ 820.22 $ 61.15 $ 881.37 2/20/05 $ 881.37
-----------------------------------------------------------------------------
8/01/05 $ 820.22 $ 61.15 $ 881.37 7/29/05 $ 881.37
-----------------------------------------------------------------------------
9/01/05 $ 820.22 $ 61.15 $ 881.37 8/30/05 $ 881.37
-----------------------------------------------------------------------------
10/01/05 $ 820.22 $ 61.15 $ 881.37 9/29/05 $ 881.37
-----------------------------------------------------------------------------
11/01/05 $ 820.22 $ 61.15 $ 881.37 10/29/05 $ 881.37
-----------------------------------------------------------------------------
12/01/05 $ 820.22 $ 61.15 $ 881.37 12/01/05 $ 881.37
-----------------------------------------------------------------------------
1/01/06 $ 869.28 $ 61.15 $ 930.43 1/04/06 $ 998.91
-----------------------------------------------------------------------------
2/01/06 $ 869.28 $ 61.15 $ 930.43 1/30/06 $ 998.91
-----------------------------------------------------------------------------
3/01/06 $ 869.28 $ 61.15 $ 930.43 2/27/06 $ 991.58
-----------------------------------------------------------------------------
4/01/06 $ 869.28 $ 61.15 $ 930.43 3/28/06 $ 991.58
----------------------------------------------------------------------------- 5/01/06 $ 869.28 $ 61.15 $ 930.43 4/25/06 $ 991.58 ----------------------------------------------------------------------------- 6/01/06 $ 869.28 $ 61.15 $ 930.43 5/30/06 $ 930.43 ----------------------------------------------------------------------------- 7/01/06 $ 926.10 $ 61.15 $ 987.25 7/03/06 $ 987.25 ----------------------------------------------------------------------------- 8/01/06 $ 926.10 $ 61.15 $ 987.25 7/29/06 $ 987.25 ----------------------------------------------------------------------------- 9/01/06 $ 926.10 $ 61.15 $ 987.25 8/30/06 $ 987.25 ----------------------------------------------------------------------------- 10/01/06 $ 926.10 $ 61.15 $ 987.25 9/27/06 $ 987.25 _____________________________________________________________________________ TOTAL $24,796.17 $1,895.65 $26,691.67 $27,039.94 _____________________________________________________________________________Total Payments Due per Defendant: $26,691.67 Total Loan Payments made by Newcomers: $27,039.94 Total Loan Payment overage while Defendant service the Loan: ($ 348.27)
Id. at 318. (The 2005 amendments to the Bankruptcy Code redesignated § 362(h) as § 362(k). See Pub. L. No. 109-8 (2005)). Accordingly, the facts that led to Defendant sending the letters and the efforts Defendant undertook to determine if a bankruptcy case applied are relevant to Plaintiff's claim for damages.
