BRUCE A. HARWOOD, Chief Bankruptcy Judge.
On November 21, 2016, Nationstar Mortgage ("Nationstar") filed a proof of claim in this case (POC 2-1) on behalf of Federal National Mortgage Association ("FNMA") asserting that Joanne C. Evarts (the "Debtor") owed FNMA a total of $237,948.91 as of July 19, 2016 (the "Petition Date"). POC 2-1 indicated the Debtor's prepetition default totaled $24,449.62. On April 26, 2017, the Debtor filed an objection to POC 2-1 (Doc. No. 41) (the "Objection") contending that the documentation supporting FNMA's claim was incomplete, inaccurate, and incomprehensible, and raising issues about charges for escrow, hazard insurance, and the proper amount of outstanding principal. FNMA filed a response to the Objection on May 30, 2017 (Doc. No. 43) disputing the Debtor's contentions. At the parties' request, the hearing on the Objection was continued several times while the parties pursued settlement discussions. When it became clear the matter would not settle, the Court scheduled an evidentiary hearing. Before the hearing was held, FNMA transferred its claim to U.S. Bank Trust National Association, as Trustee of the Bungalow Series III Trust ("U.S. Bank") (Doc. No. 100); thus, U.S. Bank now holds the claim to which the Debtor objects, and is the real party in interest.
The Court held an evidentiary hearing on the Objection on September 13, 2018, at which the Debtor and a representative of U.S. Bank's servicer, BSI Financial Services, testified. After the hearing, the parties submitted memoranda of law (Doc. Nos. 116 and 117). The Court took the Objection 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).
By way of background, the Court notes that the Debtor, along with her (now deceased) husband, previously filed a chapter 7 bankruptcy petition with this Court on July 8, 2005 (Bk. No. 05-12681-JMD, Doc. No. 1).
That funding never came to fruition. Instead, on August 28, 2011, while the Debtor's chapter 13 case remained pending, the mortgagee amended its claim (POC 5-2). POC 5-2 reduced the prepetition mortgage arrearage claim to $143.46 and increased the total claim to $235,932.74. The itemization attached to POC 5-2 gave the Debtor a postpetition credit of $9,148.60 toward the previously disclosed prepetition arrearage of $9,292.06 on account of a "Loan Modification Adjustment." Attached to POC 5-2 was a copy of a "Home Affordable Modification Agreement," bearing the signatures of the Debtor and her husband in May 2010, and showing on page 3 a "Deferred Principal Balance" of $54,267.14 and a "New Principal Balance" of $235,932.74 on their mortgage loan (the "May Loan Modification Agreement"). The same page 3 of the May Loan Modification Agreement contained a handwritten note initialed by "JCE" stating the first loan modification payment would be due "June 1, 2010 per loan modification department." The Debtor never challenged POC 5-2 during the course of her 2005 bankruptcy case. The Debtor received her discharge in the chapter 13 case on February 11, 2013 (Bk. No. 05-12681-JMD, Doc. No. 334). Ultimately, the mortgagee received $143.46 through the Debtor's plan (Bk. No. 05-12681-JMD, Doc. No. 372), which amount was in accord with POC 5-2.
The Debtor filed a second bankruptcy case on July 19, 2016 (Doc. No. 1). On Schedule D, she listed the claim of her mortgagee as totaling $236,232.14, and indicated this claim was disputed. In the chapter 13 plan that the Debtor filed with the petition (Doc. No. 2), the Debtor stated her mortgage was not current. She proposed paying Nationstar $19,750.00 on account of a prepetition mortgage arrearage. The Debtor amended her plan on September 9, 2016 (Doc. No. 13); it continued to provide the same treatment of the mortgagee's prepetition mortgage arrearage claim. This plan was confirmed by the Court on October 12, 2016 (Doc. No. 19).
On November 21, 2016, after the plan was confirmed, Nationstar filed POC 2-1 on behalf of FNMA. POC 2-1 indicated that the claim was based upon a promissory note and mortgage dated June 19, 2002. It did not refer to the modification of the Debtor's loan that took place in 2010. No loan modification agreement was attached to the claim form. The Mortgage Proof of Claim Attachment to POC 2-1 reflects the following debt calculation in Part 2:
It also contained the following prepetition arrearage calculation in Part 3:
The Debtor filed the Objection in response to POC 2-1.
At an evidentiary hearing held on September 13, 2018, the Debtor testified at length concerning the history of the mortgage and its restructuring. She stated that she and her husband initially applied for a modification of their mortgage loan in 2009. She stated that they were offered a trial period plan pursuant to which they were required to make payments of $1,066.34 per month for January, February, and March 2010. Ex. 13. The Debtor and her husband successfully completed the trial period plan, and in March they received a "Home Affordable Modification Agreement," which they executed on March 30, 2010 (the "March Loan Modification Agreement"). Ex. 1. The March Loan Modification Agreement indicated the "New Principal Balance" on the loan was $181,665.60; it did not reflect any "Deferred Principal Balance."
The Debtor further testified that the mortgagee contacted her in May 2010 and informed her that there was an error with the March Loan Modification Agreement as it had not been signed by a representative of the mortgagee within the time permitted. According to the Debtor, the mortgagee indicated that it just needed the Debtors to re-sign the signature pages. Upon questioning by the Debtor, the mortgagee indicated that the agreement would not be different from the March Loan Modification Agreement; it would be the same document. The Debtor testified that she only received the signature pages for the agreement and did not see the entire May Loan Modification Agreement until sometime in 2015.
While the Debtor testified that the only portion of the May Loan Modification Agreement that she received in 2010 was the signature pages, the Court has discovered a document in the written record that belies that testimony. Interspersed with U.S. Bank's copy of the May Loan Modification Agreement (Ex. 106) is a letter the Debtor sent to Nationstar dated May 10, 2010, which states in full:
Ex. 106. A copy of the May Loan Modification Agreement containing the Debtor's handwritten changes on page 3 of the agreement, noted above in the Debtor's May 10, 2010, letter, was filed with the Court on August 28, 2011, in the Debtor's prior bankruptcy case as part of POC 5-2:
POC 5-2; Ex. 109. The Debtor and her husband separately signed the signature page now affixed to the May Loan Modification Agreement just a couple of days after the date of the May 10, 2010 letter:
As the Court notes above, the new provisions concerning the "Deferred Principal Balance" of $54,267.14 and the "New Principal Balance" of $235,932.74 appear on page 3, just below the Debtor's handwritten notes, making it unlikely that she was unaware until years later that the May Loan Modification Agreement was capitalizing all of the then-existing contractual mortgage arrearages and deferring their payment until a later date, rather than (as she contends) forgiving the entire amount of the Deferred Principal Balance. Thus, it would appear that the Debtor did in fact have a copy of the full May Loan Modification Agreement at the time she and her husband signed it in May 2010. There is no other explanation in the record for the Debtor's handwritten notes appearing on the very same page of the agreement that contains the Deferred Principal Balance, which Nationstar attached as an exhibit to POC 5-2 filed in the Debtor's prior bankruptcy case on August 28, 2011.
The filing and allowance of creditor claims in bankruptcy are governed by 11 U.S.C. §§ 501 and 502.
Official Form 410 instructs claimants to "[a]ttach redacted copies of any documents that support the claim, such as promissory notes, purchase orders, invoices, itemized statements of running accounts, contracts, judgments, mortgages, and security agreements." Official Form 410;
In a case in which the debtor is an individual:
Fed. R. Bankr. P. 3001(c)(2).
U.S. Bank's predecessor in interest filed POC 2-1 in this case on November 21, 2016. As explained above, POC 2-1 is deemed allowed unless a party in interest objects. The Debtor did object to POC 2-1. However, even though the Debtor objected, the Court must allow POC 2-1 unless one of the nine exceptions set forth in § 502(b) applies. The Debtor has not identified, in either the Objection or her post-trial memorandum, under what subsection of § 502(b) she seeks disallowance of U.S. Bank's claim. Presumably, the Debtor seeks to disallow the claim under § 502(b)(1) on the theory that the claim is "unenforceable against the debtor and property of the debtor, under any agreement or applicable law." 11 U.S.C. § 502(b)(1). Specifically, the Debtor raises three issues with U.S. Bank's claim. First, she objects to U.S. Bank's inclusion of $54,267.14 of deferred principal which she contends improperly inflated the New Principal Balance of her loan in the May Loan Modification Agreement to $235,932.74. Second, she objects to U.S. Bank's inclusion of $8,400.00 in charges for forced placed insurance during 2013. Third, she objects to U.S. Bank purportedly overcharging the escrow account $15,588.00 from February 2009, through the Petition Date.
The Debtor has not articulated any legal basis for challenging the validity of the May Loan Modification Agreement that she signed, which sets forth that $54,267.14 would be treated as deferred principal to be paid later according to the terms of the agreement. It appears that the Debtor may be arguing that there was "no meeting of the minds"
The Court notes further that a provision in the March Loan Modification Agreement (which is also contained in the May Loan Modification Agreement) required the Debtor and her husband to re-execute the agreement under the following conditions:
Ex. 107 at ¶ 4(K) (emphasis added); see also Ex. 106 at ¶ 4(K). Further, paragraph 2(B) of the March Loan Modification Agreement provided in relevant part:
Ex. 106 at ¶ 4(B).
Given that the Debtor was required to execute the May Loan Modification Agreement per the March Loan Modification Agreement, and given that the Debtor failed to timely challenge the legal effect of that May Loan Modification Agreement, or to explain why she is not bound by the terms of that contract, the Court finds that the Debtor has not met her burden of coming forward with "substantial evidence" that would rebut U.S. Bank's prima facie case regarding the validity and amount of the Deferred Principal Balance contained in POC 2-1. While the Debtor spent a great deal of time at the hearing and in her post-trial memorandum challenging the basis for the Deferred Principal Balance figure, the time to question the elements of the $54,267.14 figure was before she signed the May Loan Modification Agreement and agreed to repay it, not seven years later in her second bankruptcy filing.
Accordingly, the Court overrules the Objection to the extent the Debtor challenges the Deferred Principal Balance component. The Deferred Principal Balance remains collectible in accordance with the terms of the May Loan Modification Agreement and is a proper component of U.S. Bank's total claim in POC 2-1.
The Debtor has also raised an issue regarding "serious overcharging for forced placed insurance during the year 2013." The Debtor does not point to any evidence of overcharging in the itemization attached to POC 2-1, i.e., the Mortgage Proof of Claim Attachment, but rather she directs the Court's attention to Nationstar's "detail transaction history" dated May 10, 2017, showing transactions between November 29, 2012, and September 26, 2013. Ex. 10. This report purportedly shows advances and disbursements for hazard insurance totaling $9,807.00,
Further, as U.S. Bank points out, none of the insurance charges about which the Debtor complains are reflected in the documentation attached to the claim at issue, i.e., POC 2-1. The itemization attached to POC 2-1 begins on October 1, 2013, a few days after the "detail transaction history" ends. U.S. Bank explains that the itemization begins on the October date because the Debtor's first delinquency occurred on October 1, 2013, and Part 5 of the Mortgage Proof of Claim Attachment form indicates that the loan payment history should be "from the First Date of Default." POC 2-1 at 4.
Despite the Debtor's request that the Court consider the "detail transaction history" as evidence of the mortgagee's overcharging the Debtor, she herself is unsure that this purported overcharging is even reflected in U.S. Bank's bankruptcy claim. Doc. No. 116 at 5 ("
The itemization attached to POC 2-1 begins on October 1, 2013, and thus does not reflect any of the purported charges for "duplicate" or "forced placed" insurance identified by the Debtor. All of the "duplicate" or "forced placed" insurance charges predate the itemization attached to POC 2-1. U.S. Bank further explains that as of October 1, 2013, the itemization reflects that the Debtor had a
The Debtor contends that her escrow account was overcharged $15,588.00 from February 2009, through July 2016 (the month the Debtor filed bankruptcy), as detailed in Exhibit 15. The Court has reviewed Exhibit 15. The Debtor's analysis of her escrow account begins in February 2009. As noted above, U.S. Bank's itemization begins on October 1, 2013, since that date is the date of the Debtor's first delinquency under the May Loan Modification Agreement according to U.S. Bank. Thus, there is nothing for the Court to compare with regard to the pre-delinquency charges. As also noted above, as of October 1, 2013, the Debtor's escrow account had a positive balance of $3,350.76. If U.S. Bank's predecessor in interest had overcharged the Debtor before this date, the Court would expect to see a negative escrow account balance, but it does not.
The Court is able to compare the escrow entries on Exhibit 15 with U.S. Bank's itemization attached to POC 2-1, for the dates between October 7, 2013, and July 1, 2016. The Debtor's analysis shows that U.S. Bank disbursed a total of $33,550.00 from October 2013, through July 2016, for escrow items, i.e., insurance and real estate taxes. This matches the itemization attached to POC 2-1 almost exactly. U.S. Bank's itemization shows that U.S. Bank disbursed $33,500.00 since October 1, 2013. The small discrepancy between the two accountings relates to the insurance charge for November 2015. The Debtor's analysis shows that $1,871.00 was disbursed while the mortgagee shows that $1,821.00 was disbursed.
The Debtor's analysis further shows that she made payments to the escrow account totaling $20,876.00 from October 2013, through July 2016. Thus, by the Debtor's own analysis, there was an escrow shortage of $12,674.00 ($33,550.00 less $20,876.00), between October 2013, and July 2016. POC 2-1 sets forth an escrow deficiency of only $10,629.48, so less than what the Debtor asserts for the same time frame (by $2,044.52). Given that, the Court cannot find that the Debtor has presented "substantial evidence" that would rebut the prima facie evidence presented in U.S. Bank's claim regarding the outstanding escrow amount due as of the petition date. Thus, the Court finds no basis to reduce the arrearage amount in POC 2-1.
Accordingly, the Court overrules the Objection to the extent the Debtor challenges the escrow deficiency set forth in U.S. Bank's claim. For that reason, the $10,829.48 for "escrow deficiency for funds advanced" set forth in POC 2-1 remains collectible and is a proper component of U.S. Bank's prepetition mortgage arrearage claim of $24,449.62.
For the reasons outlined above, the Court finds that the Debtor has not established grounds for disallowing U.S. Bank's claim pursuant to § 502(b). Accordingly, the Objection is overruled. POC 2-1 is allowed in the total amount of $237,948.91, with a prepetition mortgage arrearage claim of $24,449.62. This opinion constitutes the Court's findings of fact and conclusions of law in accordance with Federal Rule of Bankruptcy Procedure 7052. The Court will issue a separate order consistent with this opinion.
The Debtor contends the charge on January 4, 2013, for $1,399.00 was for payment of hazard insurance obtained by the Debtor. She contends the other six charges were for unnecessary "duplicate" or "forced placed" insurance.
