MICHELLE M. HARNER, Bankruptcy Judge.
An individual debtor often files a chapter 13 case to try to save a home from foreclosure. A debtor may accomplish this objective by, among other things, curing prepetition arrears on the mortgage through a confirmed chapter 13 repayment plan while making timely postpetition payments on the mortgage directly to the mortgage lender. This approach requires the debtor to make two different payments each month, namely one to the chapter 13 trustee for disbursement under the plan and the other to the mortgage lender. If a debtor cannot sustain these payments, the lender may seek relief from the automatic stay under section 362 of the Bankruptcy Code
These basic facts underlie the dispute before the Court. The above-captioned Debtor and Specialized Loan Servicing LLC (collectively with its assigns and successors, the "Lender") entered into a Consent Order Modifying the Automatic Stay in late January 2015 (the "Consent Order"). ECF 48. The Court entered the Consent Order on February 9, 2015. Id. By the Consent Order, the parties agreed to a payment schedule that allowed the Debtor to cure certain postpetition defaults and confirmed the Debtor's future payment obligations under the mortgage. The parties now dispute the interplay of the Consent Order with a Notice of Mortgage Payment Change filed with the Court on January 7, 2015 (the "2015 Notice"). For the reasons set forth below, the Court finds the Debtor's interpretation of the Consent Order more consistent with the language of the documents, applicable law (including Bankruptcy Rule 3002.1), and generally accepted rules of construction.
The Debtor filed this chapter 13 case on July 17, 2014. The Debtor filed all required documents and attended her meeting of creditors under section 341 of the Code on September 22, 2014. The Debtor submitted four different proposed repayment plans. ECF 19, 30, 34, 47. The Court confirmed the Debtor's Third Amended Chapter 13 Plan [ECF 47] on March 17, 2015.
The Lender initially filed a motion for relief from stay on January 5, 2015.
IT IS ALSO ORDERED that the above Order Modifying the Stay is stayed, provided the Debtor:
Consent Order, ECF 48, at 2. Under the Consent Order, the Debtor was given one opportunity to cure any defaults thereunder. The Consent Order also states that the Lender does not waive any of its rights by accepting partial payments during a cure period and that the automatic stay still terminates, despite such acceptance, unless the default is cured in full. Id. at 3.
The Lender filed an Affidavit of Default under the Consent Order on November 24, 2015. ECF 55. The Lender then filed an Affidavit of Foreclosure on June 17, 2016, which it subsequently withdrew. ECF 58, 59. The Lender's most recent Affidavit of Default, which is at issue in this contested matter, was filed on February 7, 2019 (the "2019 Affidavit of Default"). ECF 99. The Debtor filed an objection to the 2019 Affidavit of Default, primarily contesting the amount, and the Lender's calculation of, the asserted default under the mortgage and the Consent Order. ECF 100. The parties' dispute concerning the default amount stems from the Consent Order and the 2015 Notice, which was filed by the Lender prior to executing or filing the Consent Order.
The Court held a hearing on the 2019 Affidavit of Default and the related objection on March 21, 2019. That hearing was continued by the Court and then by the parties on several occasions, with the continued hearing being held on July 18, 2019. The Court has reviewed the docket in the Debtor's chapter 13 case, all relevant pleadings, and the contested 2015 Notice (as well as subsequent Notices of Mortgage Payment Change filed by the Lender). The Court also has considered the parties' arguments and the applicable provisions of the Code and the Bankruptcy Rules. This matter is now ripe for resolution.
The Court has jurisdiction over this contested matter pursuant to 28 U.S.C. § 1334, 28 U.S.C. § 157(a), and Local Rule 402 of the United States District Court for the District of Maryland. This matter is a "core proceeding" under 28 U.S.C. § 157(b)(2).
The Lender filed the 2015 Notice (and subsequent notices) in accordance with Bankruptcy Rule 3002.1. In January 2015, that rule provided, in pertinent part,
Fed. R. Bankr. P. 3002.1(b) (2015).
The primary issue before the Court is whether the Consent Order altered the monthly payment amount set forth in the 2015 Notice. Under the 2015 Notice, the Debtor's monthly payment was set at $944.74. Under the Consent Order, the Debtor's monthly payment was noted as $716.52. The Lender bases its calculation of the Debtor's alleged default under the mortgage documents and the Consent Order using the $944.74 monthly payment for the entirety of 2015, beginning on February 1, 2015. The Debtor bases her calculation of the alleged default using the $716.52 monthly payment for that same general period. Consequently, the Lender asserts that the Debtor owes $4,057.55, while the Debtor believes that she owes only $1,318.91.
The Lender does not dispute that the Debtor made all but two payments under the mortgage documents and the Consent Order. The difference between the parties' respective positions relates solely to the amount of the payments due for most of 2015. Despite that, the Lender apparently has not pressed the issue until now when the Debtor is ready to complete her chapter 13 repayment plan and receive her discharge. The Debtor has complied with all payment obligations under her chapter 13 repayment plan, and with all obligations (other than the disputed payments noted above) under the mortgage documents and the Consent Order, for almost five years.
The Court acknowledges that the Lender has the right to adjust payments due under the mortgage documents and to receive those payment from the Debtor in accordance with the parties' contract terms. That said, at least with respect to payment adjustments, the Lender also must comply with Bankruptcy Rule 3002.1, which in many ways was intended to address the kind of end of case surprise to a chapter 13 debtor evident in this case.
In this case, the Lender filed the 2015 Notice on January 7, 2015. This filing occurred just two days after the Lender filed its motion for relief from stay. Consequently, both the Lender and the Debtor were aware of the 2015 Notice when they were negotiating the Consent Order to resolve the Lender's motion for relief from stay. As noted above, the parties did not reach an agreement on the Consent Order until after January 7, 2015, and the Court did not enter the Consent Order until February 9, 2015.
The relevant language of the 2015 Notice provides that the new total payment (principal, interest, and escrow if any) of $944.74 was first due and effective on February 1, 2015. The Consent Order, which was negotiated and executed after the filing of the motion for relief from stay and the 2015 Notice, provides that the Debtor was to make "the regular monthly payment of $716.52, subject to change, on or before February 01, 2015." Consent Order, ECF 48, at 2. A straightforward reading of the Consent Order, which is subsequent in time to the 2015 Notice, is that the Consent Order supersedes the 2015 Notice and establishes a monthly payment of $716.52, starting on February 1, 2015.
The foregoing conclusion also is supported by the general principle that parties may consensually modify contractual terms, including payment adjustments in connection with a Rule 3002.1 notice or a motion for relief from stay, and a court may approve such an agreement.
The Lender argues for a result contrary to this reading, relying primarily on the language "subject to change" following the $716.52 reference in the Consent Order. According to the Lender, these three words indicate that the monthly payment could be something different than $716.52. The Court agrees with that general proposition but finds that the more plausible reading of the Consent Order is a prospective application of the "subject to change" language. In other words, the monthly payment under the Consent Order was set at $716.52 but could be changed by subsequent Notices of Mortgage Payment Change filed in accordance with Bankruptcy Rule 3002.1. In fact, the Lender did file subsequent Notices of Mortgage Payment Change, and the Debtor did comply with those notices.
The Lender also argues that because $716.52 was the Debtor's original monthly payment under the mortgage documents, setting that amount in the Consent Order would make little sense. The Debtor counters that the Consent Order was addressing both an outstanding default of $4,299.12, as well as the ongoing monthly payments so that the $716.52 payment amount, at least initially under the Consent Order, did make sense. The Court finds little value in entertaining this argument concerning the parties' intent, as the language of the Consent Order is clear and the Lender was the party who drafted the Consent Order.
For the reasons set forth above, and based on the language of the 2015 Notice and the Consent Order, the Court finds the Debtor's interpretation of the Consent Order supported by the documents themselves and a more plausible reading of the Debtor's obligations under the Consent Order.
Fed. R. Bankr. P. 3002.1(b) (2018).
