MIKE K. NAKAGAWA, Bankruptcy Judge.
On March 16, 2016, the court heard the Debtors' Motion to Clarify and Enforce Loan Modification Agreement ("Clarification Motion"). The appearances of counsel were noted on the record. After arguments were presented, the matter was taken under submission.
On August 20, 2013, a voluntary Chapter 13 petition was filed by Mark Madmon and Sheri Madmon ("Debtors"). (ECF No. 1). The case was assigned to Kathleen Leavitt as Chapter 13 trustee ("Trustee").
On September 4, 2012, Debtors filed their real property Schedule "A" listing a residence located at 3640 Thom Boulevard, Las Vegas, Nevada ("Residence"), having a value of $181,115.00. (ECF No. 16). Debtors' Schedule "D" lists America's Servicing Company ("ASC") as having a first mortgage against the Residence securing a claim in the amount of $359,650. Schedule "F" lists Bank of America (BOA") as having an unsecured claim based on a secured credit line, but does not identify the collateral. On the same date, Debtors also filed a proposed Chapter 13 plan. (ECF No. 18).
On September 11, 2013, a request for special notice was filed on behalf of ASC. (ECF No. 20). The request indicated that ASC is the loan servicer for U.S. Bank National Association, as Trustee for Credit Suisse First Boston Mortgage Securities Corp., CSFB Mortgage-Backed Pass-Through.
On June 2, 2014, Debtors filed a motion to value the Residence ("Valuation Motion"). (ECF No. 37). Notice of the hearing on the motion was given to ASC through their counsel of record, as well as to BOA. (ECF No. 38).
On September 30, 2014, an order was entered granting the Valuation Motion ("Valuation Order"). (ECF No. 44). Based on a valuation of the Residence at $203,004.00, the Valuation Order indicates that BOA, as the holder of a second lien against the property, has a wholly-unsecured claim that is to be classified as a general unsecured claim.
On December 9, 2014, Debtors filed a motion for authorization to modify their loan agreement with ASC ("Modification Motion"). (ECF No. 46). ASC had offered to modify its loan on favorable terms ("First Loan Modification"), but required BOA to execute a subordination agreement as a condition to such a modification.
On December 31, 2014, an order was entered granting the Modification Motion ("Modification Order"). (ECF No. 52). A copy of the First Loan Modification is attached as Exhibit "A" to the Modification Order. No opposition had been filed nor did any party in interest or their counsel appear at the hearing to object to the relief requested. The Modification Order provides in pertinent part that "
On February 2, 2015, Debtors filed proposed Chapter 13 Plan #4 ("Plan"). (ECF No. 55). Section 2.14 of the Plan is entitled "Class 4 — Secured Claims Paid Directly by Debtor or a Third Party." ASC is listed with a reference to Section 6.02 of the Plan, and Section 2.14 provides for ASC to receive an installment payment amount of $1,582.90.
On March 16, 2015, an order was entered confirming the Debtors' Chapter 13 plan ("Plan Confirmation Order"). (ECF No. 63). Debtors' confirmed Chapter 13 plan had a 3-year applicable commitment period and a $23,120 liquidation value. Debtors elected to pay 100% of their non-priority unsecured claims. No appeal was taken from the Plan Confirmation Order.
On July 24, 2015, the Trustee filed a Final Account and Report certifying that the Debtor had paid $33,552.33 into their plan, thereby exceeding liquidation value of their assets, with all allowed priority and nonpriority unsecured claims being paid in full. (ECF No. 64).
On July 27, 2015, the Debtors filed a certificate of compliance with the conditions required for entry of a Chapter 13 discharge, including a notice giving any creditors or parties in interest 21 days to object. (ECF No. 65). The certificate was served on all creditors, including ASC. (ECF No. 66).
On August 28, 2015, a Discharge of Debtor After Completion of Chapter 13 Plan was entered. (ECF No. 67).
On October 9, 2015, a final decree was entered closing the Chapter 13 case. (ECF No. 70).
On January 4, 2016, Debtors filed an ex parte motion to reopen the case. (ECF No. 72).
On January 13, 2016, Debtors filed the instant Clarification Motion (ECF No. 74), accompanied by the declaration of their counsel, Samuel A. Schwartz ("Schwartz Declaration"). (ECF No. 75). The motion was noticed to be heard on February 18, 2016. (ECF No. 76).
On January 26, 2016, an order was entered reopening the case. (ECF No. 79).
On February 4, 2016, ASC filed opposition to the Clarification Motion. (ECF No. 80).
On February 17, 2016, Debtors filed a reply. (ECF No. 82).
On February 18, 2016, at the scheduled hearing, the court directed the parties to submit supplemental briefing.
On March 9, 2016, Debtors filed their brief ("Debtors Supp. Br.") (ECF No. 85) and on March 11, 2016, ASC filed its supplemental brief ("ASC Supp. Br."). (ECF No. 88).
On March 16, 2015, Debtors filed a supplemental declaration ("Debtors Declaration") attesting that they have made all required loan modification payments. (ECF No. 90).
The Clarification Motion is brought under Section 105(a)
(emphasis added). Although the language required the Debtors to obtain the subordination agreement from BOA, ASC undertook or joined in efforts to obtain the subordination agreement from BOA in November 2014. See Schwartz Declaration at ¶ 6. Unfortunately, BOA transferred the loan to United Guaranty shortly after the Modification Motion was filed.
Debtors ultimately received their Chapter 13 discharge on August 28, 2015, but by then ASC had closed their loan file.
A copy of a Second Loan Modification is attached as Exhibit "A" to ASC's Opposition.
In comparing the First Loan Modification and the Second Loan Modification, the difference in the amount of the monthly payments is approximately $140.00. The Second Loan Modification offers a more favorable 2.000% interest rate while the First Loan Modification was at a 4.375% estimated rate. The Second Loan Modification, however, does not appear to offer the same principal forgiveness of $83,981.26 that was included the First Loan Modification. Instead, the Second Loan Modification includes a "pay-for-performance" formula for incentives that do not appear to approach the principal forgiveness available under the First Loan Modification. There is no apparent dispute that the Debtors have made all of the TPP payments required under both the First Loan Modification and the Second Loan Modification. See Debtors Declaration at ¶ 2 and Exhibit "1" attached thereto.
At the court's direction, the parties submitted supplemental briefs concerning the applicability of the Ninth Circuit's decision in
Debtors argue that
As
As a threshold matter, the language of the Modification Order does not eliminate the requirement for a subordination agreement. Rather, the salient provision merely states that the First Loan Modification "is approved without further authorization from Bank of America, N.A., its successors or assigns . . ." On its face, the First Loan Modification does not require any authorization from BOA at all. Instead, the subordination agreement from BOA was a condition for final approval of a loan modification. ASC could have waived the condition, but it did not do so because of its concern that BOA's junior lien would prime ASC's priority position as a result of a loan modification. The situation did not change after BOA's junior lien (and presumably the Debtors' obligation to BOA) was transferred to United Guaranty. Moreover, no argument is made nor has evidence been presented that BOA ever would have executed a subordination agreement after the Valuation Order was obtained. Under the circumstances, BOA had little to gain after the Valuation Order was entered and the same was true for United Guaranty.
The conduct of the parties also suggests that the Modification Order did not eliminate the requirement of a subordination agreement. The Modification Order was entered on December 31, 2014. The time to appeal the Modification Order under FRBP 8002(a)(1) expired on January 14, 2015. In spite of the language of the Modification Order, the parties were still pursuing a subordination agreement from United Guaranty until March 3, 2015, when ASC was informed that no such agreement would be provided.
Confirmation of the Plan also does not change this result. Treatment of ASC's claim in Section 2.14 of the Plan is subject to the Modification Order referenced in Section 6.02. The Plan Confirmation Order is a final order and no appeal was taken. While plan confirmation orders typically have issue preclusive and claim preclusive effect on parties who receive notice, those effects are limited by the express provisions applicable to a particular creditor's claim. In this instance, the First Loan Modification approved by the Modification Order included the subordination agreement as a condition to a final modification. Because that condition was not met, nor was it eliminated by the language of the Modification Order, the confirmed Plan also does not require a different result.
Under these circumstances, the record does not support the request that the Debtors seek under Section 105(a). The court expresses no view on whether the Debtors have any other bases for claims against ASC in connection with its withdrawal of the First Loan Modification.
