J. Michael Deasy, Bankruptcy Judge.
Randall and Sharon Todt (the "Debtors") filed for chapter 7 bankruptcy relief in 2011 and received their bankruptcy discharges in 2012. After their bankruptcy case was closed, the Debtors continued to receive monthly statements from their mortgage servicer indicating their mortgage was past due. The mortgage on their home was eventually foreclosed in 2013. The Debtors received several additional communications from the mortgage servicer in 2014. The Debtors reopened their bankruptcy case in 2015 and filed this adversary proceeding against Saxon Mortgage Services, Inc. ("Saxon"), Ocwen Loan Servicing, LLC ("Ocwen"), and The Bank of New York Mellon FKA The Bank of New York, as Successor Trustee for JPMorgan Chase Bank, N.A., as Trustee for Novastar Mortgage Funding Trust, Series 2005-3, Series 2005-3 Novastar Home Equity Loan Asset-Backed Certificates, Series 2005-3 ("BONY" and collectively with Ocwen, the "Defendants"), alleging they willfully violated the discharge injunction set forth in 11 U.S.C. § 524(a)(2). The Court entered a default against Saxon on August 4, 2015. On summary judgment, the Court ruled that certain actions taken by Ocwen violated the discharge injunction and did not fall within the safe harbor provision of 11 U.S.C. § 524(j). The Court held a trial on the outstanding issues on March 9, 2017, and took the matter under advisement. This Court has jurisdiction of the subject matter and the parties pursuant to 28 U.S.C. §§ 1334 and 157(a) and Local Rule 77.4(a) of the United States District Court for the District of New Hampshire. This is a core proceeding in accordance with 28 U.S.C. § 157(b).
The Debtors filed a chapter 7 bankruptcy petition on July 1, 2011. On Schedule A they listed their residence located at 136 Chauncey Street, Manchester, New Hampshire (the "Property") and indicated it was worth $250,000.00. On Schedule D they listed both BONY and Saxon as creditors holding a security interest in the Property with Saxon being owed $338,000.00 and BONY being owed $0. Saxon apparently serviced the loan held by BONY. The Debtors did not reaffirm the debt secured by the Property.
Mrs. Todt testified at trial that the Debtors had no intention of keeping their house. At the time of the Debtors' bankruptcy filing, Mr. Todt had been unemployed for ten years due to medical issues and Mrs. Todt had been re-employed only for a few months, having been laid off in 2010 from an administrative position with a financial services company. By 2011, the Debtors had been unable to keep up with their mortgage payments for several years. Back in 2007, the Debtors tried to sell the Property but Saxon would not agree to a sale. In 2008, they attempted to refinance their mortgage with a local bank but Saxon was unwilling to write-off $10,000.00 to permit the refinance to take place. In 2009, the Debtors attempted a short sale but Saxon ignored their requests for approval. Mrs. Todt testified that the Debtors repeatedly asked Saxon for help but they did not receive it. Instead, Saxon scheduled several foreclosure sales, which never took place.
The Debtors received bankruptcy discharges on January 26, 2012. The Court served Saxon and BONY
From April 12, 2012, through December 17, 2013, Ocwen sent the Debtors twenty-one monthly statements indicating their mortgage with BONY was past due. Exs. 15-24, 26, 29, 31, 34, 36, 39-41, 43, 45-46. The statements were nearly identical, except the total amount due increased from $140,574.80 on the first statement to $199,872.83 on the last statement. Each statement listed a "Current Amount Due," which consisted of principal, interest, and escrow for the current month and ranged from $2,745.91 on the first statement to $2,745.92 on the last statement. Each statement also listed "Past Due Amounts DUE IMMEDIATELY," which also consisted of principal, interest, and escrow and ranged from $118,074.13 on the first statement to $172,992.37 on the last statement. Each statement further contained an amount for "Total Fees/Expenses Outstanding," which consisted of late charges, prior servicer fees, property inspection fees, and foreclosure and other miscellaneous fees and ranged from $19,754.76 on the first statement to $24,134.54 on the last statement. Each statement also contained a detachable payment coupon that listed the "AMOUNT DUE" as the total amount due consisting of both the current amount due and the past amount due, which ranged from $140,574.80 to $199,872.83, as noted above.
Each of the statements contained bankruptcy disclaimer language on the front in a section labeled, "Important Messages," which provided:
On the back of the statement, in a section labeled, "IMPORTANT BANRKUPTCY INFORMATION," it provided:
Mrs. Todt testified that she called Ocwen to question why they were receiving monthly statements. A representative told her that he could see the Debtors' bankruptcy filing and the bankruptcy discharge in Ocwen's records; the representative told Mrs. Todt that the Debtors should "just ignore" the statements. Mrs. Todt testified that it was upsetting to receive these statements each month since Ocwen had "no right" to send them these bills. She stated that she was constantly worried whether Ocwen would come after them for money, including the difference between what was owed and what Ocwen might receive at a foreclosure sale. At trial, Mrs. Todt indicated that she never read the bankruptcy disclaimer language contained in the statements, focusing instead on the amounts set forth in the statements.
On March 16, 2013, the Debtors received a letter from Ocwen indicating a foreclosure sale had been scheduled on the Property. Ex. 27. It encouraged the Debtors to contact Ocwen to discuss possible alternatives to save their home. Shortly thereafter, the Debtors received an official "Notice of Mortgage Foreclosure Sale," from BONY's attorneys, which was sent in accordance with the provisions of NH RSA 479:25 and which advised the Debtors that their home would be sold at a public auction on April 10, 2013, at 3:00 p.m.
For reasons that are not clear from the record, the Property was not foreclosed on April 10, 2013. Instead, Ocwen continued to send the Debtors monthly statements showing more than $148,000.00 "past due" as well as letters indicating it "may not be too late to save [their home]," and notices advising the Debtors of an interest rate/payment change. Exs. 32-34, 36, 37, and 38-43. Mrs. Todt testified that she was worried that Ocwen would come after them for the money listed in the statements. She indicated her husband was just as upset as she was by the statements.
The Debtors were sent a second "Notice of Mortgage Foreclosure Sale" on or about November 14, 2013. Ex. 44. This notice informed the Debtors that a foreclosure auction would take place on December 16, 2013, at 12:00 p.m. Within a few days, on November 18, 2013, Ocwen sent the Debtors another monthly statement. Ex. 45.
The mortgage on the Debtors' home was foreclosed on December 16, 2013. Nonetheless, Ocwen sent the Debtors another monthly statement on December 17, 2013. Ex. 46. A foreclosure deed was executed on January 14, 2014; it shows that BONY bought the property for $285,000.00. Ex. 47. Another foreclosure deed was executed on March 26, 2014; it too indicates that BONY bought the property for $285,000.00. Ex. 50. A third foreclosure deed was executed on November 7, 2014, also showing a sale to BONY for $285,000.00. Ex. 58. This third foreclosure deed was the one recorded with the Hillsborough County Registry of Deeds on December 8, 2014.
On October 16, 2014, Ocwen sent the Debtors an annual escrow account disclosure statement detailing actual and scheduled activity in the Debtors' escrow account between October 2008 and November 2014. Ex. 55. This statement also indicated that "[t]his communication is from a debt collector attempting to collect a debt." The statement also included an "Escrow Shortage Payment" coupon seeking a payment of $2,435.66 from the Debtors. On October 26, 2014, Ocwen sent the Debtors a second letter informing them that if they failed to provide proof of insurance to Ocwen, it would purchase a policy and the Debtors would be responsible for reimbursing Ocwen for its cost, which Ocwen estimated to be $2,413.00. Ex. 56. On December 23, 2014, Ocwen sent another escrow analysis statement notification to the Debtors informing them that the earlier escrow analysis was sent in error and that "[c]urrent monthly payments should continue to be made until Ocwen provides a new escrow analysis." Ex. 59.
Apparently in an attempt to stop Ocwen's continuing communications and requests for payment, the Debtors reached out to the New Hampshire Banking Department, who in turn contacted Ocwen on their behalf. Ocwen acknowledged in a letter to the New Hampshire Banking Department dated November 17, 2014, that "[u]nfortunately, Ocwen inadvertently failed to update the loan records accordingly" after the foreclosure sale took place on December 16, 2013, "and as a result the loan was reflecting in active status, which in turn caused the system to issue modification solicitation letters to the Todt's." Ex. 57. It advised that "Ocwen has updated their records accordingly."
On April 24, 2014, Mrs. Todt obtained her credit report from two different credit reporting agencies. Both reports reflected a balance of $0 being owed on the mortgage and further indicated that the debt was "included in bankruptcy" and "Discharged through Bankruptcy Chapter 7." Exs. 51 and 52. On March 27, 2015, Mr. Todt obtained his credit report from a credit reporting agency and it reflected a balance of $0 on the mortgage. Ex. 60. On March 28, 2015, Mrs. Todt obtained a credit report from a personal finance website (not one of the three major credit reporting agencies, i.e., Equifax, Experian, and TransUnion), and it showed a balance of $313,432.00 being owed to Ocwen on the mortgage. Ex. 61.
On June 19, 2015, the Debtors reopened their bankruptcy case and filed this adversary
On June 8, 2016, the Court granted in part and denied in part the Debtors' motion for summary judgment, ruling specifically that the letters and statements sent between September 9, 2014, and December 23, 2014, described above, "violated the discharge injunction of 11 U.S.C. § 524(a)(2) and did not fall within the safe harbor provision of 11 U.S.C. § 524(j) as these actions all occurred after the mortgage on the Debtors' residence was foreclosed on December 16, 2013."
The Court held a trial on March 9, 2017, in order to determine whether any other actions by Ocwen and BONY violated the discharge injunction and whether the Debtors are entitled to damages. Mr. Todt was unable to testify due to his ongoing medical issues. Mrs. Todt testified as did one of her health care providers and a former co-worker.
The health care provider testified that she has seen Mrs. Todt on an annual basis since 2005 and that starting three or four years ago (so starting in 2013 or 2014) Mrs. Todt reported that she was feeling stressed, was teary, and was having difficulty sleeping. She further told her provider that her husband was ill, that she was the only one working, and that the Debtors were having financial issues and were concerned about losing their home and being out on the street.
Mrs. Todt's co-worker testified that she and the Debtor worked together, speaking on a daily basis, for a five-year period from 2011 through 2016. She observed that Mrs. Todt was emotionally upset and cried often at work. The co-worker indicated that the crying started gradually over time, probably starting in 2014 and 2015, and that she (and other co-workers) noticed it, with consistent crying occurring during the last six months of 2016. She testified that Mrs. Todt was often distraught at work and that her issues escalated over time. She indicated that Mrs. Todt informed her that she was experiencing financial difficulties, had filed bankruptcy, and was feeling pressure from her mortgagee. She testified that Mrs. Todt was afraid someone would come to her home and lock her out.
Ocwen and BONY did not present any witness testimony at trial, the Court having granted the Debtors' motion in limine prior to trial barring testimony by Ocwen's only proposed witness.
Generally a bankruptcy discharge relieves a debtor from all personal liability for prepetition debt.
"To prove a discharge injunction violation, a debtor must establish that the creditor `(1) has notice of the debtor's discharge...; (2) intends the actions which constituted the violation; and (3) acts in a way that improperly coerces or harasses the debtor.'"
When deciding whether the discharge injunction has been violated, courts must decide "whether conduct is improperly coercive or harassing under an objective standard — the debtor's subjective feeling of coercion or harassment is not enough."
It is worth noting that "the discharge injunction does not prohibit a secured creditor from enforcing a valid prepetition mortgage lien."
"In addition, § 524(j) [of the Bankruptcy Code] provides an exception to the discharge injunction for creditors who hold claims secured by the debtor's principal residence as long as the creditor's acts are in the ordinary course of business between the debtor and the creditor, and limited to seeking payments in lieu of in rem relief."
11 U.S.C. § 524(j). The requirements are conjunctive, meaning that all must be satisfied for the exception to apply.
Ocwen and BONY
Ocwen began sending the Debtors monthly statements in April 2012, a few months after the Debtors received their discharges. Unlike some statements sent by mortgage companies, Ocwen's statements clearly demand payment from the Debtors.
First, the monthly statements indicate, from the time that Ocwen first started sending statements in April 2012, that the Debtors' loan was "in foreclosure." For that reason, it would appear that Ocwen and BONY were pursuing in rem relief from as early as April 2012. There is no doubt that by March 2013, when BONY's attorneys sent the Debtors the statutorily required "Notice of Foreclosure Sale," Ex. 28, they were seeking in rem relief. Accordingly, the monthly statements could not have been sent in "in lieu of pursuit of in rem relief."
Second, the monthly statements do not show that Ocwen was seeking only "periodic payments" from the Debtors but instead they show that Ocwen was seeking payment of all past due amounts. Between April 12, 2012, and March 18, 2013, Ocwen sent the Debtors twelve monthly statements. Each of those statements was substantively identical except for the total
In addition, after Ocwen noticed the foreclosure sale in March 2013 (and clearly began pursuing in rem rights under BONY's mortgage), Ocwen continued to send the same form of notice demanding payment. After the foreclosure on December 16, 2013, Ocwen sent an additional monthly statement as well as letters regarding hazard insurance for the property, an offer to attempt to resolve mortgage problems, and annual escrow statements. Not all of the post-foreclosure communications contained prominent bankruptcy disclaimer language.
Ocwen defends its actions on the grounds that the monthly statements sent post-discharge include bankruptcy disclaimer language; however, this elevates form over substance. The totality of Ocwen's communications on and after April 12, 2012, with the exception of communications in connection with the enforcement of its in rem rights under the mortgage, reflected no recognition of the issuance of the bankruptcy discharge. All such communications expressly and implicitly reflect attempts to collect discharged obligations from the Debtors. No pro forma bankruptcy disclaimer can overcome the effects of repeated and continuous communications in which Ocwen took the position that these obligations were collectible. The use of a pro forma bankruptcy disclaimer is not a "get out of jail free" card that can absolve a creditor of liability for a pattern of conduct that is inconsistent with the terms of the disclaimer itself. Accordingly, the Court finds that the twenty-one monthly statements sent between April 2012 and December 2013 improperly coerced and harassed the Debtors in violation of the discharge injunction.
The Court previously ruled on summary judgment that Ocwen's post-foreclosure communications were not protected by § 524(j) and violated the discharge injunction. Thus, Ocwen's and BONY's argument in their post-trial memorandum that these communications were not coercive is misplaced; the Court has already concluded that they were coercive and harassing. The letters Ocwen sent to the Debtors informed them that (1) they needed to provide Ocwen with evidence of hazard insurance or they would be required to reimburse Ocwen approximately $2,413.00 for its purchase of a hazard insurance policy;
At the time Ocwen sent these five communications to the Debtors, the Debtors had no personal liability on the note, and BONY had already obtained ownership of the Property through foreclosure. The Bankruptcy Code prohibits a party that has "no contractual or in rem relationship with a discharged debtor" from sending the debtor letters based on a relationship that no longer exists.
"Reporting false or outdated information to a credit agency in an attempt to coerce payment on a discharged debt can violate the discharge injunction.... The reason: negative credit reports have consequences — like reducing creditworthiness, and with it the debtor's ability to get loans in the future — and so a false report might coerce a debtor into paying a discharged debt to avoid those consequences.... Evidence that a creditor refused to change a false or outdated report can give rise to an inference that the creditor intended to coerce the debtor into paying the discharged debt."
The Debtors state that the credit reporting on their mortgage was accurate in 2014, but in 2015, that reporting was negative. Upon review by the Court, it appears that Mr. Todt's credit report accurately reflected a balance of $0 being owed on the mortgage in 2015 but Mrs. Todt's report inaccurately reflected a balance of $313,432.00 being owed to Ocwen. The Court notes that the inaccurate report was not generated by one of the three major credit reporting agencies but instead by a different online company. The Debtors did not provide any evidence that would prove that Ocwen was the source of this inaccurate information. Furthermore, the Debtors have not demonstrated that false information was given in an attempt to coerce the Debtors into making payment on a discharged debt. For these reasons, the Court cannot find that negative credit reporting constituted a violation of the discharge injunction by the Defendants.
Sanctions for violating the discharge injunction may include the payment of actual damages, including those for emotional distress, attorney's fees, and punitive damages.
The Debtors did not present evidence that they suffered any out-of-pocket expenses related to Ocwen's violation of the discharge injunction. Instead, the Debtors focus on the emotional distress they suffered on account of their receipt of the
Mrs. Todt's testimony was corroborated by the testimony of her health care provider who indicated that Mrs. Todt was feeling stressed, was teary, and was having difficulty sleeping back in 2013 and 2014, which was during the time Ocwen improperly was sending the Debtors statements and letters concerning the debt on the Property. She testified that Mrs. Todt informed her that she was having financial issues and was concerned about losing her home and being out on the street.
Mrs. Todt's testimony was also corroborated by the testimony of a co-worker who also observed Mrs. Todt being upset at work during 2014. The co-worker testified that Mrs. Todt informed her that she was experiencing financial difficulties, had filed bankruptcy, and was feeling pressure from her mortgagee.
Emotional distress or anxiety arising from a debtor's financial condition, or the filing of a bankruptcy petition, is not grounds for an award of damages where there is a violation of the discharge injunction. "Damages for emotional distress are proper where the debtor clearly establishes that he or she suffered significant harm and demonstrates a causal connection between that significant harm and the willful violation of the discharge injunction."
The Debtors have presented sufficient evidence that they suffered severe emotional distress due to Ocwen's post-discharge coercion and harassment of them, seeking payments from the Debtors after their personal liability was discharged and their home was foreclosed. Accordingly, the Court will award $500.00 in damages for each violation of the discharge injunction to compensate the Debtors for the real emotional distress they suffered that negatively affected their quality of life from April 2012 through the date of their last communication with the Debtors in December 2014. Those communications include twenty-one monthly statements, the offer to solve "mortgage problems" dated September 9, 2014, the demand for insurance dated September 26, 2014, the annual escrow statement and "Escrow Shortage Payment" coupon dated
"Bankruptcy courts have routinely awarded attorneys' fees as a sanction against a party that violates the discharge injunction upon a finding of contempt."
The Debtors' law firm has performed services for the Debtors for a total fee of $45,254.75, which consists of 317.89 hours at an average rate of $142.36 per hour.
The Court finds that the rates charged by the Debtors' law firm are reasonable. However, the Court cannot find that all of the hours spent by Debtors' counsel to pursue this action were productive or reasonable. For example, upon a review of the invoice provided to the Court, it appears counsel spent nearly forty hours on the complaint in this adversary proceeding, both conferencing with the Debtors in connection with the complaint and preparing and filing the actual pleading. The Court finds those hours to be excessive. In addition, counsel spent nearly eight hours on a three page motion for default judgment, both discussing the matter with the Debtors and drafting and filing the motion. Again, the Court finds those hours to be excessive. Overall, counsel spent nearly forty hours conferencing with the Debtors, not including time spent preparing for depositions or trial testimony. The Court notes further that for most of these meetings both the Debtors' attorney and his paralegal attended, essentially duplicating effort.
Because the Court cannot assess the fees of substitute counsel under the lodestar method given the record before it and because, additionally, the Court finds that
The billing records reflect that $1,077.07 was incurred in expenses, mostly for photocopies and travel expenses. The Court finds this amount reasonable and necessary and will include it as part of the damage award for the Defendants' violation of the discharge injunction.
The Court has explained in the context of stay violation cases that an award of punitive damages is "within the sound discretion of the court" and may be awarded when a defendant's conduct is "malicious, wanton, or oppressive."
The Debtors deserved "a fresh start without being harassed by their former creditor."
Based on Ocwen's violations of the discharge injunction, for which BONY is also
