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    Home Mortgages in Chapter 13 Cases

    Andrea E. CelliChapter 13 Standing Trustee

    7 Southwoods BoulevardAlbany, New York 12207


    Special thanks to the NACTT Academy for Consumer Bankruptcy Education for contributions to these materials


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    1. Undisclosed Fees and Post-Confirmation Charges 3

    2. Proper Application of Payments 8

    3. Allowable Fees and Costs and Proper Procedure for Compliance 14

    4. Effect of Changes in Payment Amounts 18

    5. Curing Mortgage Arrearage and Reinstatement at Conclusion of Case 19

    6. Remedies Ensuring Compliance With Plan 21

    7. Best Practices for Trustees and Mortgage Servicers in Chapter 13 26

    Undisclosed Fees and Post-Confirmation Charges

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    The purpose of a bankruptcy case is to provide the debtor with a fresh start. Vital

    to this fresh start is a clear understanding of which debts are being brought into the case

    and the status of those debts and claims once the discharge is granted and the case is

    closed. Communication between debtors, creditors, the Trustee and the Court is

    imperative for this goal to be achieved. There are instances where a creditor has not

    provided a debtor with notices of fees or charges during the pendency of the bankruptcy

    case. Most often these fees are associated with late charges, inspection fees, and escrow


    In re Placidi, 2008 WL 474239, 2008 Bankr. Lexis 629 (Bankr. M.D.Pa. 2008)

    Summary: Oversecured mortgagee holding mortgage on debtors residence objected to confirmation of Debtors plan as impermissibly including a cure of postpetition arrears and impermissibly requiring an application under Fed. R. Bankr. P. 2016 before the mortgagee may assess postpetition fees and costs.

    Holding: Applying the analysis from the 11th Circuits decision in In re Hoggle, 12 F.3d 1008 (11th Cir. 1994), the Court held that permitting postconfirmation defaults best accords with Congressional intent to permit homeowners to utilize [Chapter 13s] flexible provisions for debt relief without sacrificing their homes. The Court permitted the postconfirmation modification. The Court sustained the mortgagees objection to the proposed requirement that the creditor file a 2016 statement prior to the assessment of postpetition fees and costs and, agreeing with the 9th Circuit B.A.P. in In re Atwood, 293 B.R. 227 (9th Cir. B.A.P. 2003), held that a fee application is not necessarily required and,to confirm the debtors plan with this language would impermissibly limit the procedural mechanisms available to the mortgagee, such as filing the 2016 statement, filing an amended proof of claim or filing a motion for relief from the automatic stay as an oversecured creditor and request fees as a part of the motion.

    What this case means to debtors: There is room for creativity in plans, however

    proper notice must be provided to all parties and the provisions must not limit procedural

    mechanisms otherwise available to the parties in a case.

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    What this case means to creditors: Review plan language carefully! Increasingly

    creative provisions are being added to plans that affect parties rights. Each plan must be

    reviewed thoroughly for additional provisions that may alter your clients rights.

    What this case means to Trustees: Trustees should verify that the proposed plan

    provisions are compliant with the Bankruptcy Code and do not interfere with case


    In re Dominique, 368 B.R. 913, 20 Fla. L. Weekly Fed. B 423 (S.D. Fla. 2007)

    Summary: At the time of Debtors bankruptcy filing in 2002 Debtors had a mortgage and promissory note with Countrywide. Pursuant to Debtors plan, Countrywide was paid a monthly scheduled payment amount for ongoing debt service together with a separate monthly amount necessary to cure prepetition arrearages. Prior to the scheduled plan completion date of August, 2007, on November 20, 2006 Countrywide for the first time provided Debtors with an escrow account review which reflected an escrow shortage of $6,397.45. The escrow shortage accrued post-petition over a period of several years. Debtors filed a modified plan seeking to modify payments to Countrywide to pay the increased escrow payments and adjustments for the current escrow year and further filed a motion seeking a discharge upon plan completion of the existing escrow shortage based on an estoppel theory since Countrywide did not object to the original plan and since Countrywide accepted monthly payments consistent with the original plan amounts. Countrywide asserted that it was not estopped from seeking payment of the arrearage and that the escrow shortage would continue to be secured by the home and would not be discharged upon plan completion.

    Holding: The Court held that Countrywide failed to comply with the Real Estate Settlement and Procedures Act (RESPA) and Florida law by failing to complete an annual escrow analysis and provide at least annual notice to Debtors. The mortgagees failure to do so resulted in a waiver of its right to recover any escrow shortage except that for the current year. In addition, the Court noted that providing notice of an escrow deficiency is not a violation of the automatic stay.

    What this case means to debtors: Ensure that, at a minimum, on an annual basis a

    review of the escrow analysis is completed. Discrepancies should be noted and reviewed

    immediately with the lender to ensure that escrow shortages are addressed.

    What this case means to creditors: Compliance with applicable federal and state law

    is critical when seeking to enforce your rights. Where providing a notice that is required

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    by law or is otherwise informational to a debtor, send the notice and communicate. The

    effect of a failure to comply may constitute a waiver of rights.

    What this case means to Trustees: Proper and full case administration is dependent

    upon full and ongoing disclosure. Failure to have same will only result in prompt

    refilings after completion of 60 month plans to address accrued, undisclosed fees and


    In re Padilla, 379 B.R. 643 (Bankr. S.D.Tex. 2007)

    Summary: Chapter 13 Debtors in separate cases brought challenges to the manner in which mortgagees had applied their mortgage payments. The debtors alleged that the mortgagees had violated the Rule 2016 for failure to submit reimbursement applications for fees and costs and that the mortgagees had violated the terms of the confirmed plans.The mortgagees argued that 1322(b)(2) preserved their contractual rights through the case and that charging for costs and fees without court authorization was appropriate. The debtors argued that the contract rights, although preserved under 1322(b)(2), are governed by specific Code provisions and the Bankruptcy Rules, in particular, 506(b) [oversecured creditor may obtain attorney fees and costs] and Rule 2016 [application for reimbursement].

    Holding: A court has authority under 105(a) to order disgorgement of postconfirmation fees charged where there is not a proper 2016 application or where the creditor has violated the plan.

    What this case means to debtors: Civil contempt is not the appropriate remedy for

    alleged violation of the discharge injunction. Civil contempt is available where there is a

    violation of a court order requiring, in specific and definite language, that a party do or

    refrain from doing something. The Court may however, exercise its equitable powers

    under 105 where appropriate.

    What this case means to creditors: Case law is evolving regarding whether a

    creditor is required to submit a 2016 statement in relation to recovery of postpetition fees

    and costs. Several procedural mechanisms, including amended proofs of claim and

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    motions for relief from stay, exist to provide a vehicle for creditors to make all parties

    aware of an assertion of a contractual right to reimbursement.

    What this case means to Trustees: Increasingly courts are addressing in a more

    proactive manner issues arising in the arena of mortgage lending and mortgage servicing,

    particularly in relation to fees and undisclosed charges. This is certain to continue as

    mortgage foreclosure rates continue to rise. See e.g. In re Scheussler, 386 B.R. 458

    (Bankr. S.D.N.Y. 2008)(Rule 9011 sanctions were warranted where mortgagee filed

    motion for relief from stay without regard to past payment history and equity in the

    property); In re Stewart, Slip Copy, 2008 WL 5096011 (Bankr. E.D. La. 2008)(Court

    ordered audits of all proofs of claim in the District pursuant to 105(a) where it was

    determined that payments had been misapplied); In re Parsley, 384 B.R. 138 (Bankr.

    E.D. Tex. 2008)(U.S. Trustee was within its authority to investigate activities of a loan

    servicer and its local and national counsel where flawed motion for relief from stay gave

    rise to questionable conduct associated with same).

    In re Johnson, 384 B.R. 763 (Bankr. E.D. Mich. 2008)

    Summary: Mortgagee filed a proof of claim in Debtors Chapter 13 case listing an arrearage claim of $20,214.34 on the attached worksheet. The arrearage claim was included in the larger claim of $111,374.70. Also attac