501 B.R. 76
Bankr. E.D. Pa.2013Background
- Debtor filed an objection to RBS Citizens, N.A.’s secured Proof of Claim arising from an FHA-insured mortgage on the debtor’s principal residence; total claim $52,818.96, with $13,176.26 in arrearages.
- Debtor’s Chapter 13 plan proposes reinstatement/cure of the mortgage arrearage and ongoing payments (unmodifiable because the mortgage secures the principal residence).
- Debtor expressly objected to three components of the arrearages: foreclosure fees and costs ($2,282.48), late charges ($372.67), and property inspection fees ($203.50); parties submitted briefs and litigated at hearing.
- FHA/HUD rules (24 C.F.R. § 203.552, § 203.377, § 203.608) are incorporated into FHA-insured mortgages and constrain what fees a mortgagee may assess.
- Disputes centered on (a) whether RBS prematurely accrued foreclosure costs because of defective pre-foreclosure notice under Pennsylvania law, (b) whether late charges were barred by alleged acceleration, and (c) whether inspection fees were permitted absent vacancy or an attempt to confirm occupancy.
Issues
| Issue | Debtor's Argument | RBS's Argument | Held |
|---|---|---|---|
| Validity of foreclosure fees/costs | Notice of intent to foreclose was defective (incorrect cure amount), so lender had no right to commence foreclosure and accrue fees | Defective notice is procedural and does not divest court of jurisdiction; fees allowable | Foreclosure fees/costs disallowed: notice failed to clearly state cure sum under PA law, so fees ($2,282.48) disallowed |
| Late charges | Acceleration (or prepetition actions) preclude assessing late charges | Debtor is proposing to cure and reinstate the loan, so reinstatement permits recovery of due late charges | Late charges allowed in full ($372.67) because reinstatement requires payment of missed payments and contractually permitted late fees |
| Property inspection fees | Debtor occupied property; no grounds for inspections under HUD rules (vacancy or attempted occupancy confirmation required) | Mortgage permits inspection on default; fees collectible under mortgage terms | Inspection fees disallowed ($203.50); HUD regulation controls and RBS offered no proof of vacancy or attempts to confirm occupancy |
| Burden of proof on claim components | Debtor challenges specific charges to negate prima facie validity | RBS must prove disputed charges by preponderance after debtor rebuts prima facie claim | Standard applied: claim prima facie valid; debtor produced evidence to negate some charges; RBS failed to carry burden for foreclosure and inspection fees |
Key Cases Cited
- In re Allegheny Intern., Inc., 954 F.2d 167 (3d Cir.) (allocation of burdens in claim objections)
- Matter of Roach, 824 F.2d 1370 (3d Cir.) (effect of reinstatement/deacceleration of mortgage)
- In re Galloway, 220 B.R. 236 (Bankr. E.D. Pa.) (reinstatement requires payment of missed payments plus late charges)
- In re Rorie, 98 B.R. 215 (Bankr. E.D. Pa.) (same—cure requires missed payments and permitted charges)
- Main Line Federal Sav. & Loan Assoc. v. Joyce, 632 F. Supp. 9 (E.D. Pa.) (notice-of-foreclosure defects may warrant dismissal — cited by debtor)
- Beneficial Consumer Discount Co. v. Vukman, 77 A.3d 547 (Pa.) (defective notice is procedural and does not strip subject-matter jurisdiction)