ERIC L. FRANK, U.S. BANKRUPTCY JUDGE.
On March 23, 2017, Wilmington Savings Fund Society FSB, as Trustee for RMAC Trust, Series 2015-5T ("WSFS") obtained a judgment in mortgage foreclosure in the amount of $49,516.62 against the residential real property of Debtor Lynnise D. Culler ("the Debtor"). On July 5, 2017, three and one-half (3 ½) months later, the Debtor commenced this chapter 13 bankruptcy case.
On August 29, 2017, WSFS filed a secured proof of claim in the amount of $59,280.00, which includes charges for interest, legal expenses and various disbursements WSFS made after the entry of the foreclosure judgment. The Debtor has filed a plan in which she proposes to pay off WSFS's entire residential mortgage claim pursuant to 11 U.S.C. § 1325(a).
On January 8, 2018, the Debtor filed an objection to WSFS's proof of claim ("the Objection"), relying largely on the doctrine of merger under Pennsylvania law.
A hearing on the Objection was held and concluded on February 13, 2018. The record consisted solely of argument, WSFS's proof of claim and the payment history attached to it. The parties filed memoranda of law in support of their respective positions on February 27, 2018.
Based on the merger doctrine under Pennsylvania law, the Debtor asserts that WSFS's claim should be disallowed in part because certain charges included in the claim are unenforceable due to the entry of the foreclosure judgment.
Under the doctrine of merger, as articulated by the Third Circuit in
In response, WSFS points to language from
For the reasons explained below, the Objection will be sustained in part and overruled in part.
To the extent that WSFS seeks to augment its pre-petition judgment by adding interest at the 11.25% contract rate, rather than the 6% legal rate, its claim will be allowed. However, to the extent that WSFS seeks to augment its claim by adding post-judgment legal expenses, its claim will be allowed only in part. Finally, the Objection will be sustained with respect to all of the remaining components of WSFS's claim.
As a result, WSFS's claim will be allowed in the amount of $51,719.13.
Last year, in
Fortunately, also as in
Following the Debtor's Objection to its proof of claim and WSFS employed the
interest @ 11.25% $ 1,602.51
satisfaction of a lien against the property 1,629.91
insurance 433.50
attorney's costs 152.79
attorney's fees 1,455.00
property preservation 141.00
corporate advances 10.05
__________
Total of Additional Amounts Sought $ 5,424.76
(See WSFS Memorandum at 4-6) (unpaginated).
In
571 B.R. at 676.
The Superior Court decision in
In
By comparison, however, the provision of the mortgage in
In
In support of its position, WSFS relies on the following three (3) provisions of the subject mortgage.
Paragraph 7 of the mortgage provides that if the borrower defaults on any of its obligations under the mortgage or any legal proceeding is instituted that materially affects WSFS's interest in the property, WSFS may "make such appearances, disburse such sums, including reasonable attorneys' fees, and take such action as is necessary to protect Lender's interest." It also provides that amounts disbursed pursuant to Paragraph 7 "shall become additional indebtedness of the Borrower secured by this Mortgage."
Paragraph 17 of the mortgage provides that if the borrower does not cure a default in the manner provided in the mortgage,
(emphasis added).
Paragraph 21 of the mortgage provides that the interest rate payable "after a judgment is entered on the Note or in an action in mortgage foreclosure shall be the rate state[d] in the Note." The rate stated in the Note is 11.25%.
With the exception of paragraph 21, the mortgage provisions WSFS relies upon in support of its position that the post-judgment advances may be allowed via the contract exception to the merger doctrine are indistinguishable from the mortgage provisions discussed in
Paragraph 21 authorizes WSFS to charge post-judgment interest at the 11.25% contract rate. This is sufficient to establish the parties' intent that the contract interest rate survives the merger of the mortgage into the judgment.
WSFS calculates the amount of post-judgment interest through the petition date to be $1,602.51. (WSFS Memorandum at 6). The Debtor has not questioned this calculation, so it will be allowed.
Next, I consider WSFS's entitlement to reimbursement of legal expenses.
As in
WSFS seeks allowance of attorney's costs of $152.79 and attorney's fees of $1,455.00.
There is nothing in the record regarding the costs expended. The documents attached to WSFS's proof of claim purport to show every charge against the Debtor's account up to the date the proof of claim was filed. There are two (2) post-judgment charges attributed to "Attorney Advance Disbursement": $1,155.00 on April 14, 2017, $300.00 on July 21, 2017. These charges laid out in the proof of claim are evidence that $1,455.00 was billed for legal expenses.
This is the only evidence in the record regarding post-judgment legal expenses. There is no evidence in the record that $152.79 in legal costs were actually incurred, and the proof of claim provides evidence that they were not. Every other charge against the Debtor's account is listed. If legal costs are not listed, then I can infer that such bills were not charged to the Debtor's account and are not owed by the Debtor. Therefore, the claimed legal costs will be disallowed.
As for the attorney's fees, even in the absence of a concrete record regarding the purpose and time spent by counsel, as in
The state court docket reflects that this bankruptcy case was filed six (6) days prior to a scheduled sheriff's sale.
As observed in
The question here is not the propriety of the procedure WSFS used to obtain post-ponements instead of staying the sheriff's sale under Pennsylvania law. Rather, the
At the outset of a chapter 13 bankruptcy case, depending upon the circumstances, it may be reasonable for a lender to postpone, rather than stay, a sheriff's sale in order to see if the debtor will follow through and file his or her bankruptcy schedules and a plausible plan, all of which should occur in the first thirty (30) days after the commencement of the case. As one goes deeper into the bankruptcy case, however, the burden of justifying the shifting to the debtor of the legal expenses incurred for the postponement of the sheriff's sale increases. Even so, I can even conceive of circumstances in which the viability of a chapter 13 bankruptcy case that has been pending for four (4) months (as was the case was when WSFS filed its first state court postponement motion prior to the November 2017 sale date) is sufficiently tenuous that it may continue to be reasonable for a creditor to file a state court postponement motion, rather than staying the sale and incurring all of the noticing costs of rescheduling.
In this case, however, WSFS made no record. It presented no factual or legal argument why it was reasonable to postpone the sheriff's sale beyond the November 10, 2017 sheriff's sale date that was obtained without the necessity of a motion, much less why it filed two (2) additional postponement motions. Evaluating whether the circumstances make it reasonable for a creditor to incur those expenses and shift them to the borrower is a fact intensive inquiry that requires an evidentiary record that is lacking here In these circumstances, I do not consider any of the legal expenses incurred for filing the sale postponement motions to be reasonable expenses of foreclosure under paragraph 17 of the mortgage or allowable in this bankruptcy case.
Nonetheless, I conclude that some portion of the requested attorney's fees are allowable.
As in
The next expense in WSFS's itemization is the $433.50 insurance charge. Presumably, this is a request for reimbursement of a disbursement made for hazard insurance.
The insurance charge is not allowable.
Finally, I consider together the charges for satisfaction of a lien against the property ($1,629.91), property preservation ($141.00) and corporate advances ($10.05).
All of these charges appear to be encompassed by paragraph 7 of the mortgage as disbursements designed to protect WSFS's mortgage position on the property. However, like the escrow payment duties of paragraph 2, nothing in the text of paragraph 7 suggests that the Debtor's obligation to reimburse WSFS for amounts disbursed by WSFS for any expense necessary to protect WSFS's mortgage position survived the entry of the foreclosure judgment.
Perhaps recognizing that paragraph 7 of the mortgage merged into the judgment, WSFS argues that these expenses are all "necessary to facilitate execution upon its... foreclosure judgment." (WSFS Memorandum at 5). I reject this weak argument.
Initially, with respect to the property preservation and corporate advances charges, WSFS has not even established the nature of these charges. Is property preservation an expense for some repair to the property? That is unlikely, considering that the property is the Debtor's residence. If not for repair, what was it for? Similarly, the corporate advance charge is a complete mystery. Even if the nature of these charges were better explained, WSFS has not identified any authority under Pennsylvania law that indicates the necessity of paying these expenses in order to conduct a mortgage foreclosure sale.
As for the "lien satisfaction advance," WSFS has not explained whose lien was satisfied. Considering WSFS's position as the Debtor's residential mortgage lender, I may infer that this charge was an advance to pay a real estate tax bill. If so, this disbursement is governed by paragraphs 2 and 7 of the mortgage, both of which merged into the judgment. Further, WSFS again has not identified any authority under Pennsylvania law requiring the payment of other liens on a property as a requirement of bringing the property to a foreclosure sale.
For these reasons, the three (3) final charges will be disallowed.
Based on the foregoing, I will sustain the Objection in part and deny it in part as follows:
judgment entered on March 23, 2017 $49,516.62 interest @ 11.25% 1,602.51 satisfaction of a lien against the property disallowed insurance charge disallowed attorney's costs disallowed attorney's fees 600.00 property preservation disallowed corporate advances disallowed __________Total $51,719.13
An order consistent with this Memorandum will be entered.
It is hereby
1. The Objection is
2. Claim No. 1 is
3. If necessary for confirmation of her chapter 13 plan, the Debtor shall file an amended chapter 13 plan
4. If the Debtor files an amended plan pursuant to Paragraph 3 above, the confirmation hearing presently scheduled on
Most bankruptcy debtors file to cure their arrears rather than pay off a foreclosure judgment in full, and so it makes sense, given the state of the Official Forms, that mortgage creditors that have reduced their mortgage to a judgment still file proofs of claims as though the account was in contractual arrears.
