ERIC L. FRANK, Bankruptcy Judge.
Shirlene R. Wells ("the Debtor") is the owner of her residence, the real property located at 180 Walton Drive, Morrisville, PA ("the Property"). The Debtor commenced the above chapter 13 bankruptcy case on September 8, 2010. On February 16, 2011, PE-NC, LLC ("PE-NC") filed a secured proof of claim ("the PE-NC Proof of Claim"), asserting that it is the holder of a note secured by a mortgage on the Property with an unpaid balance of $309,714.99 and pre-petition arrears of $137,529.12.
Presently before the court is the Debtor's objection to the PE-NC Proof of Claim ("the Objection"), filed on March 2, 2011. (See Bky. No. 10-17593, Doc. # 21). An evidentiary hearing on the Objection was held on July 6, 2011 and September 20, 2011 (together, "the Hearing"). At the court's request, the parties submitted post-hearing memoranda, the last of which was filed on October 24, 2011.
For the reasons set forth below, the Objection will be sustained in part, resulting in a partial disallowance of the arrears claim.
1. Since approximately 1980, the Debtor has owned the Property.
2. On August 10, 2002, the Debtor entered into a mortgage loan transaction with Cresleigh Financial Services, Inc. ("Cresleigh").
3. In the mortgage loan transaction, the Debtor executed a thirty (30) year, adjustable rate note ("the Note") in the amount of $166,000.00, repayable at an initial yearly interest rate of 6.9% and an initial monthly instalment of $1,093.28.
5. In the transaction, the Debtor also executed a mortgage on the Property ("the Mortgage") in favor of Cresleigh.
6. The Mortgage provides that, absent a waiver, the Debtor must make "escrow" payments to the lender for annual real estate taxes and property insurance and that the lender shall administer the escrow account in accordance with "RESPA,"
7. The Mortgage also includes an "adjustable rate rider," with terms consistent with those of the Note.
8. On or about January 23, 2004, Cresleigh assigned the Mortgage to MorEquity, Inc. ("MorEquity"). (See Bky. No. 10-17953, Attachment to Proof of Claim No. 7).
9. On September 30, 2005 MorEquity instituted a mortgage foreclosure action against the Debtor in the Court of Common Pleas, Bucks County ("the Foreclosure Action"). The action was docketed as No. 2005-06462.
10. MorEquity obtained a judgment by default in the Foreclosure Action on December 13, 2005 and took steps to schedule a sheriff's sale of the Property.
11. On March 6, 2006, the Debtor filed a chapter 13 bankruptcy case in this court, docketed at Bky. No. 06-10850 ("the 2006 Case").
12. The filing stayed a sheriff's sale of the Property scheduled in the Foreclosure Action.
13. In her initial chapter 13 plan, the Debtor proposed to pay pre-petition mortgage arrears to MorEquity and identified that amount as being $40,270.71. (See Bky. No. 06-10850, Doc. # 3).
14. On March 15, 2006, MorEquity filed a proof of claim ("the MorEquity 2006 Proof of Claim"), asserting that the Debtor owed pre-petition arrears of $43,432.74. (Bky. No. 06-10850, Claim No. 2).
16. By order dated August 10, 2006, about five months after the filing, the court dismissed the 2006 Case.
17. When the 2006 Case was dismissed, the Debtor had paid a total of $1,120.00 to the Trustee. (See Bky. No. 06-10850, Doc. #25, Chapter 13 Trustee's Final Report).
18. By assignment dated March 16, 2006 (the day after it filed its proof of claim in the 2006 Case), MorEquity assigned the Mortgage to Private Capital Group, LLC ("PCG"). (See Bky. No. 10-17593, Claim No. 7).
19. On October 10, 2007, the Debtor filed another chapter 13 bankruptcy case, docketed at Bky. No. 07-15925 ("the 2007 Case").
20. The filing stayed a sheriff's sale of the Property scheduled in the Foreclosure Action.
21. In her initial chapter 13 plan, filed on the same day as her bankruptcy petition, the Debtor proposed to pay a total of $47,040.00 under the Plan (twelve (12) payments of $400.00, followed by forty-eight (48) payments of $880.00). (See Bky. No. 07-15925, Doc. # 5).
22. In the Plan, the Debtor proposed to pay the pre-petition mortgage arrears to MorEquity and again identified that amount as being $43,432.74 (the same amount set forth in the MorEquity 2006 Proof of Claim filed nineteen (19) months earlier).
23. In her bankruptcy Schedule D, however, while the Debtor listed MorEquity as the holder of a mortgage, she also listed "Plaza Equities" as an "assignee" of MorEquity. (Bky. No. 07-15925, Doc. # 1).
24. In her bankruptcy Schedule J and Amended Schedule J, the Debtor represented that her ongoing monthly mortgage payment was $1,611.00 per month.
25. For reasons not explained, on May 21, 2008, more than two (2) years after assigning the Mortgage to PCG and seven (7) months after the commencement of the Debtor's 2007 bankruptcy case, MorEquity filed a proof of claim ("the MorEquity 2007 Proof of Claim"). The MorEquity 2007 Proof of Claim was based upon the Mortgage and the Note, but stated that there were $0.00 in arrears and that "the Account is paid in full." (See Bky. No. 07-15925, Claim No. 8).
26. Thereafter, on June 11, 2008, the Debtor filed an amended chapter 13
27. On the next day, however, June 12, 2008, the court dismissed the 2007 Case on motion of the Chapter 13 Trustee. (Bky. No. 07-15925, Doc. # 31).
28. By assignment dated July 30, 2010, PCG assigned the Mortgage to Plaza Equities, LLC ("Plaza"). (See Bky. No. 10-17593, Claim No. 7).
29. On September 8, 2010, the Debtor filed her current chapter 13 bankruptcy case ("the Present Case").
30. The filing stayed a sheriff's sale of the Property scheduled in the Foreclosure Action.
31. In her bankruptcy Schedule D, the Debtor listed North Shore Investment, LLC ("North Shore") as the holder of a mortgage on the Property with an unpaid balance of $296,357.00 and the Tax Claim Bureau as holding a secured claim of $15,337.74.
32. North Shore is an entity that has some sort of business relationship with Plaza. (Testimony of Michael Bode).
33. In her Schedules I & J, filed on September 21, 2010, the Debtor represented that her monthly income is $3,697.00, her monthly expenses are $2,893.00 and that her monthly expenses include a monthly mortgage payment of $1,611.00. (See Bky. No. 10-17593, Doc. #8, Schedules I & J).
34. On September 21, 2010, the Debtor filed a chapter 13 plan which proposed plan payments totaling $48,000.00 ($800.00/month x 60 mos.) for payment of the secured claims of the Tax Claim Bureau (estimated in the Plan to be $15,337.74)
35. By assignment dated November 10, 2010, Plaza assigned the Mortgage to PE-NC. (See Bky. No. 10-17593, Claim No. 7).
36. PE-NC is another entity that is related Plaza. It "manages" and "works out" assets acquired by Plaza. (Testimony of Michael Bode).
37. On February 16, 2011, PE-NC, LLC filed a secured proof of claim (again, "the PE-NC Proof of Claim") asserting that it is the holder of the Note, that the
38. Although PE-NC's Proof of Claim does not separately itemize the arrears, its itemization of the entire claim ($309,714.99) includes the following charges allegedly due on the account as of the commencement of this bankruptcy case:
late charges ("accrued from prior
servicer") 7,980.94
taxes paid 10,210.00
FIP insurance 9,546.6213
IOA 6,971.1614
corporate advances 18.00
BPO/Inspections 835.00
paid legal fees 11,170.2015
39. The arrears claimed in the PE-NC Proof of Claim do not account for $20,000.00 that PE-NC is presently holding in "suspense."
40. The $20,000.00 is derived from insurance proceeds arising from a claim under a property insurance policy on the Property.
A proof of claim is deemed allowed unless a party in interest objects. 11 U.S.C. § 502(a). If properly filed, see Fed. R. Bankr.P. 3001(c),
In connection with an objection to a proof of claim for mortgage arrears, which commonly includes numerous itemized components, I have previously held that:
Sacko, 394 B.R. at 100.
In this contested matter, the Debtor has not questioned the prima facie validity of PE-NC's proof of claim.
In her post-trial submission, the Debtor's primary argument is that PE-NC's proof of claim provides "no credible and definitive breakdown of the unpaid mortgage payment, late charges, taxes paid, legal fees, FIP insurance or IOA." (Debtor Memorandum at 2 (unpaginated)).
I begin my analysis by determining the amount of the pre-petition arrears attributable to delinquent monthly instalments in repayment of principal, interest and late charges.
The attachment to PE-NC's Proof of Claim indicates the mortgage account is delinquent from December 2004. At the Hearing, the Debtor testified that when she filed the 2006 Case in March 2006, she may have been as much as eighteen (18) months behind in her mortgage payments,
I find that the Morequity 2006 Proof of Claim is likely more accurate than either the Debtor's recollection in 2011 of the state of her delinquency in 2006 or the claim of MorEquity's successor in interest, PE-NC. Consequently, when the Present Case was filed in September 2010, this account was delinquent for sixty-nine (69) months, from December 2004 through September 2010.
Because the interest rate on the Note is variable and PE-NC has not presented evidence regarding all of the interest rate and monthly instalment changes since December 2004, it is not possible to calculate precisely the additional arrears attributable to the unpaid monthly instalments in this time period. However, I am able to make a reasonable approximation of the amount of the arrears which is sufficient for present purposes.
In the absence of any evidence from the claimant regarding the application of the variable rate provision of the Note and because the claimant bears the burden of proof, I will make the assumption most favorable to the Debtor—that interest rates dropped during the period in question sufficient to lower the Debtor's monthly instalment to the "floor level" of the Note: $1,093.28.
The next component of the arrears claim is for "unpaid taxes." In support of this charge, PE-NC produced documentary evidence showing payments made by its predecessor in interest, PCG, to various taxing authorities totaling $10,209.70 for 2008 real estate taxes on the Property. (Ex. C-9). The Debtor introduced no convincing evidence to the contrary.
PE-NC includes a charge for FIP Insurance of $9,546.62. The Debtor introduced evidence to refute the allowability of this charge. She testified that, at all times, she has maintained property insurance on
In response, PE-NC introduced into evidence a series of Certificates of Insurance (which include the premium amounts) issued to its predecessor, PCG, for policy periods running from May 2006 through March 2010. (See Exs. C-7 and C-8). The evidence also demonstrates that the Debtor received a credit in 2010 when the Debtor provided Plaza with evidence that the Debtor had herself procured a homeowner's insurance policy on the Property.
After considering all of the sparse evidence presented on this topic, I consider it more likely than not that the Debtor had property insurance in place in or around 2010 and that policy resulted in the $20,000.00 insurance claim presently being held in suspense by PE-NC. However, without some further documentation verifying that the Debtor had maintained the insurance in place back to May 2006, I am not convinced, based on her testimony alone, that she had such insurance prior to 2010. Accordingly, I find that PE-NC has sustained its burden of proof and the charges for forced placed insurance will be allowed.
The last component of the arrears that I will address is the claim for "paid legal fees."
The documentation submitted by PE-NC indicates that the law firm of Mancini and Associates ("Mancini") handled the foreclosure through August 2010, after which Hoegen & Associates ("Hoegen") took over the representation.
PE-NC's documentary evidence establishes that PE-NC and its predecessor, PCG, paid Mancini a total of $7,356.85 for services rendered and costs incurred in the Foreclosure Action docketed as MorEquity, Inc. v. Wells, No. 2005-06462 (C.P. Bucks). First, on October 30, 2007, PCG paid Mancini $4,523.50. Subsequently, in October and November 2010, PE-NC made payments to Mancini totaling $2,833.35.
The PCG payment to Mancini of $4,523.50 in October 2007 was made after the stay of the second sheriff's sale. The records submitted as part of Ex. C-6 do not include any itemization of the services rendered or costs incurred in support of this payment. However, the docket in the Foreclosure Action, see n.5, supra, reflects that before each of two sheriff's sales that were scheduled on Mancini's "watch," Mancini advanced a $2,000.00 deposit, but later received a refund of approximately $1,200.00 after each sale was stayed. Thus, Mancini expended a net amount of $1,600.00 in out-of-pocket expenses relating to the two sheriff's sales. I estimate that Mancini advanced approximately $400.00 additional in costs related to the entry of judgment and the scheduling of the two (2) sheriff's sales, resulting in a total expenditure of $2,000.00 in costs. Consequently, the balance of the $4,523.50 payment to Mancini (i.e., $2,523.50) represents attorney's fees, as opposed to costs. I find this fee to be reasonable for the services rendered in initiating the Foreclosure Action, obtaining a judgment by default, scheduling two (2) sheriff's sales and staying the sales after the Debtor's bankruptcy cases were filed.
Thus, the entire first payment to Mancini of $4,523.50 is allowable.
In October and November 2010 PE-NC two (2) payments to Mancini, the first for $2,674.19 and the second for $159.16, for a total of $2,833.35. These payments fall into two categories: (1) $250.00 in attorney's fees and $2,583.35 in reimbursement of Mancini's out-of-pocket expenses incurred in connection with the third sheriff's sale (scheduled to be held in September 2010 and stayed by the current bankruptcy case).
I find the $250.00 expense for attorney's fees to be reasonable. That amount will allowed.
As for the expenses, only some of the expenses are allowable. The allowable expenses total $1,229.30:
The balance of the claimed expenses (totaling $1,354.05) will be disallowed, either because they were not actually incurred, the Debtor is not obligated to pay them under the Mortgage or they are not adequately explained or supported.
The allowable legal expenses attributable to the October and November 2010 payments to Mancini total $1,479.30 ($250.00 legal fees + $1,229.30 in expenses).
The balance of the legal fee component of PE-NC's claim is for $3,999.77 in fees and expenses paid to Hoegen. All of these expenses were incurred post-petition and, therefore, are not part of the pre-petition arrears. However, under the Debtor's plan, and in order to satisfy the "maintenance of payments" requirement of 11 U.S.C. § 1322(b)(5), the Debtor must pay those legal expenses that the loan documents authorize the lender to shift to her. See In re Padilla, 389 B.R. 409, 438-39 & n. 52 (2008). It is more favorable to the Debtor to pay such post-petition legal expenses over the life of a chapter 13 plan rather than in a lump sum, as is arguably required by the Mortgage. By including the expenses in its Proof of Claim, PE-NC appears willing to accommodate the Debtor in this regard. Therefore, I will evaluate the allowability of this component of the PE-NC Proof of Claim.
My review of Hoegen's itemized bills included as part of Ex. C-6 suggests that the legal services Hoegen provided to PE-NC involved representation in connection with: (1) the Foreclosure Action and the stayed sheriff's sale; (2) the Debtor's insurance claim; (3) PE-NC's Proof of Claim; (4) the Debtor's § 341 hearing; (5) title issues with respect to the Property; (6) the assignment of the Mortgage to PE-NC; and (7) defending PE-NC's Proof of Claim against the Debtor's Objection.
On the whole, I find Hoegen's legal expenses reasonable and assessable against the Debtor under the terms of the Mortgage. I take exception only to one (1) time entry referencing work on the stayed Foreclosure Action and the time spent and costs incurred relating to the assignment of the Mortgage to PE-NC. I fail to see the necessity of spending time working on a foreclosure action that is subject to the automatic stay, and PE-NC has not pointed to any provision of the Mortgage that provides for expenses related to the assignment of the mortgage to be passed on to the mortgagor. These non-compensable matters cause me to disallow $100.00 in legal fees and $52.50 in costs. After such deductions are made, $3,847.27 in Hoegen legal expenses are allowable.
Based on the allowances and disallowances stated above, the total allowable legal expenses are $9,850.07.
At the Hearing, PE-NC's witness conceded that it is holding $20,000.00 in suspense that is not reflected in its Proof of Claim. Therefore, the arrears claim will be reduced by $20,000.00.
For the reasons explained above, the Objection will be sustained in part and overruled in part. PE-NC's Proof of Claim for pre-petition mortgage arrears will be allowed in the amount of $92,586.34, calculated as follows:
delinquent monthly instalments and
late charges $82,979.95
unpaid real estate taxes 10,209.70
forced placed insurance 9,546.62
legal expenses 9,850.07
(suspense account) ($20,000.00)
_____________
Total Arrears $92,586.34
The outcome of this contested matter makes it highly unlikely that the Debtor
A hearing is presently scheduled on January 10, 2012 to consider confirmation of the Debtor's (presently unconfirmable) chapter 13 plan and the Chapter 13 Trustee's Motion to Dismiss this case. In order to avoid dismissal at that hearing, the Debtor will need to make a showing that she is able to propose a feasible chapter 13 plan that is confirmable in the immediate future.
It is hereby
1. The Objection is
2. PE-NC LLC's Proof of Claim (Claim No. 7) is
delinquent monthly instalments $20,238.16
late charges 1,894.04
foreclosure attorney's fees 6,448.75
delinquent real estate taxes 14,551.55
"APPR/BPO" and "accrued late fees" 300.24
__________
Total $43,432.74
The delinquent monthly instalments ran from February 2005 to March 2006. The amount of the monthly instalment ranged from $1,297.40 to $1,528.62. It is not clear whether the changes in the monthly payment were caused entirely by the variable interest rate or whether there were escrow increases based on property insurance increases or real estate tax increases. It is possible that the itemized monthly instalments were based solely on principal and interest payments. It is also possible that the monthly amount included escrow amounts for insurance and real estate taxes, in which case the arrears attributable to the unpaid real estate taxes may have been overstated.
This contention does not aid the Objection. The Debtor does not suggest that the creditor's failure to provide her with account status information excuses her obligation to make the instalment payments required by the Note and Mortgage. Nor does she cite any authority supporting such a proposition. Further, I do not find credible the Debtor's testimony that her ongoing default was caused by an uncertainty as to whom and what amount she should pay. Had the Debtor held back her monthly payments for an extended period of time for this reason, I would expect her to have segregated and saved the money for later payment to the proper holder of the mortgage. Yet, in her bankruptcy Schedule B, filed on September 21, 2011, the Debtor disclosed no savings and "cash on hand" of only $25.00. I infer that the failure to make monthly mortgage payments was caused by financial hardship rather than an intentional withholding of payment due to faulty mortgage servicing.
Mancini (2007 payment) $4,523.50
Mancini (2010 payments) 1,479.30
_________
Total $6,002.80
Mancini $6,002.80
Hoegen 3,847.27
_________
Total $9,850.07
