Carrington Mortgage Services, LLC ("Carrington") holds a mortgage (the "Mortgage") on the Debtor's residence (the "Mortgaged Property").
I - Background
The Debtor filed two back-to-back cases for relief under chapter 13 of the Bankruptcy Code
Pursuant to Rules 3001 and 3002 of the Federal Rules of Bankruptcy Procedure,
II - Legal Services Performed by Carrington's Attorney
At the evidentiary hearing Carrington's attorneys, through testimony and proffer, described the legal services they and their law firm performed with respect to the Debtor's bankruptcy case. Immediately after being retained by Carrington, they accessed the Debtor's case through PACER
III - Jurisdiction
This is a contested matter under Rule 9014 to determine whether attorney's fees incurred postpetition in a chapter 13 case by a creditor holding a claim secured by a mortgage encumbering a debtor's principal residence are allowable under Rule 3002.1(e). Thus, this is a core proceeding under
IV - Rule 3002.1
Rule 3002.1 was added to the Rules by the 2011 Amendments and provides a procedure for notice of payment changes in residential mortgage claims during the pendency of a chapter 13 case, and important to the court's decision in this matter, it also prescribes the procedure for a mortgage creditor to augment its claim to include the fees, expenses, and other charges incurred postpetition. As it pertains to the matter now before the court, Rule 3002.1 reads as follows:
(a) In General. This rule applies in a chapter 13 case to claims (1) that are secured by a security interest in the debtor's principal residence, and (2) for which the plan provides that either the trustee or the debtor will make contractual installment payments....
* * * *
(c) Notice of Fees, Expenses, and Charges. The holder of the claim shall file and serve on the debtor, debtor's counsel, and the trustee a notice itemizing all fees, expenses, or charges (1) that were incurred in connection with the claim after the bankruptcy case was filed, and (2) that the holder asserts are recoverable against the debtor or against the debtor's principal residence. The notice shall be served within 180 days after the date on which the fees, expenses, or charges are incurred.
* * * *
(e) Determination of Fees, Expenses, or Charges. On motion of the debtor or trustee filed within one year after service of a notice under subdivision (c) of this rule, the court shall, after notice and hearing, determine whether payment of any claimed fee, expense, or charge is required by the underlying agreement and applicable nonbankruptcy law to cure a default or maintain payments in accordance with § 1322(b)(5) of the Code.
Rule 3002.1 (emphasis added).
"Upon a debtor filing a motion to determine mortgage fees, expenses, and charges pursuant to § 1322(e), the Court must look to the underlying agreement and applicable nonbankruptcy law to determine if the amounts are permissible. The 'reasonableness standard' applied under § 506(b) challenges does not apply to postpetition fees, expenses, and charges necessary to cure a default as § 1322(e) explicitly excepts § 506(b) from consideration. Instead, the underlying agreement and applicable nonbankruptcy law are determinative. Fed. R. Bankr. P. 3002.1(e)." In re England ,
V - Alabama Law
The decisions by the Supreme Court of Alabama are long-standing and unequivocal: Provisions in mortgages that allow a mortgagee to recover attorney's fees incurred in connection with, inter alia , collecting the mortgage debt, foreclosure proceedings, and actions taken to protect the mortgagee's interest in the mortgaged property are valid and binding, and if the mortgage so provides, such fees are additional obligations secured by the mortgage. Johnson v. U.S. Mortg. Co. ,
VI - Mortgage Provisions Allowing Recovery of Mortgagee's Expenses
The Note and Mortgage are on preprinted, fill-in-the-blank forms containing terms that apparently are prescribed by the Secretary of Housing and Urban Development ("HUD") for mortgages intended to be insured by the Federal Housing Administration ("FHA").
7. Charges to Borrower and Protection of Lender's Rights in the Property. Borrower shall pay all governmental or municipal charges, fines and impositions that are not included in paragraph 2. Borrower shall pay these obligations on time directly to the entity which is owed the payment. If failure to pay would adversely affect Lender's interest in the Property, upon Lender's request Borrower shall promptly furnish to Lender receipts evidencing those payments.[12 ]
If Borrower fails to make ... the payments required by paragraph 2, orfails to perform any other covenants and agreements contained in this [Mortgage] or there is a legal proceeding that may significantly affect Lender's rights in the Property (such as a proceeding in bankruptcy , for condemnation or to enforce laws or regulations), then Lender may do and pay whatever is necessary to protect the value of the Property and Lender's rights in the Property [emphasis added]....
Any amounts disbursed by Lender under this paragraph shall become an additional debt of Borrower and be secured by this [Mortgage]. These amounts shall bear interest from the date of disbursement at the Note rate, and at the option of the Lender shall be immediately due and payable ....
8. Fees. Lender may collect fees and charges authorized by [HUD].
VII - HUD Authorized Fees and Charges
Congress directed HUD to promulgate rules and regulations pertaining to federally-insured mortgages. 12 U.S.C. § 1715b. And as quoted above, paragraph 8 of the Mortgage provides that "Lender may collect fees and charges authorized by [HUD]." "Where HUD rules and regulations are incorporated into an insured mortgage, they are binding upon both the mortgagor and mortgagee." In re Ruiz ,
The latest HUD authorization regarding the collection of fees and charges for FHA-insured mortgages is found in HUD's Mortgagee Letter 2016-03 dated February 5, 2016 (Doc. 80 and herein, the "2016 HUD Letter"), addressed to "All Approved Mortgagees."
When a mortgagor files for bankruptcy after the initiation of foreclosure, an automatic extension of the Reasonable Diligence timeframe [2016 HUD Letter p. 2] for foreclosure and acquisition of the property are granted provided:
- The mortgagee ensures that all necessary bankruptcy -related legal actions are handled in a timely and effective manner;
- The case is promptly referred to a bankruptcy attorney after the bankruptcy is filed ; and
- The mortgagee monitors the action to ensure that the case is timely resolved.
The timeframe allowed for recommencing foreclosure will vary based on the Chapter under which the bankruptcy is filed as provided below:
- For Chapter 7 bankruptcy, HUD automatically grants an extension through the date that is 90 days after the date of the release of stay;
- For Chapter 11, 12, or 13 bankruptcies , HUD automatically grants an extension through the date that is 90 days from the date that the payments under the Bankruptcy Plan become 60 days delinquent.
For bankruptcy delays beyond the automatic extensions granted above, the mortgagee may request an additional extension of time from HUD via EVARS. In its request, the mortgagee must include documentation that delay was not due to: (1) the mortgagee's failure to timely notify its bankruptcy attorney; or (2) any failure of the mortgagee's attorney.
2016 HUD Letter, p.3 (emphasis added).
Under the heading, "Schedule of Attorney Fees," the 2016 HUD Letter stated that:
HUD has updated its Schedule of Attorney Fees for the purpose of calculating the maximum amount that may be reimbursed in an FHA insurance claim for a foreclosure attorney fee, bankruptcy clearance fee, possessory action fee, and completion of a deed-in-lieu fee (See Attachment 3). The Schedule of Attorney Fees reflects the customary legal services pertinent to mortgage defaults. Please note that each amount on the schedule is the total maximum reimbursable amount, instead of an hourly rate. The amount claimed for attorney fees cannot exceed the fees charged for work actually performed. Though actual costs for these legal services may potentially exceed fee amounts in the attached schedule, HUD will only reimburse mortgagees up to the amounts on the schedule.
2016 HUD Letter, p. 4 (emphasis added).
Attachment 3 to the 2016 HUD Letter is the "HUD Schedule of Standard Attorney Fees - Effective 1/1/2016," and footnote 13 thereto, to the extent it is applicable, reads as follows:
(13) This fee assumes that all required procedural steps have been completed. The maximum attorney fee varies based on the chapter under which the bankruptcy action is filed.....
- For Chapter 13 bankruptcies , the maximum allowable fee is $2,850
1. Proof of Claim Preparation & Plan Review is $650
2. Objection to Plan is $500
3. Motion for Relief is $850
4. Payment Change Notification (if needed) is $50
5. Notice of Fees, Expenses, and Charges is $100
6. Post-Stipulation Default / Stay Termination is $50/$200
7. Response to Final Cure Payment Notice is $50 (agreed)/$500 (objection)
2016 HUD Letter, Att. 3 n.13 (emphasis added).
VIII - Analysis and Conclusions
(a) The Mortgage allows Carrington to charge the Debtor for reasonable, necessary attorney's fees incurred in connection with the Debtor's bankruptcy case.
As previously discussed, Alabama law recognizes the enforceability of provisions in mortgages that obligate a mortgagor to pay for the attorney's fees incurred by her mortgagee in connection with, inter alia , collecting the mortgage debt, foreclosure, and protecting the mortgagee's interest under the mortgage. Similarly, Alabama law recognizes that, if the mortgage contract so provides, the mortgagor's obligation to pay a mortgagee's attorney's fees may be treated as an obligation secured by the mortgage. In paragraph 7 of the Mortgage, the Debtor agreed that if "there is a legal proceeding that may significantly affect [Carrington's] rights in the [Mortgaged] Property (such as bankruptcy ...), then [Carrington] may do and pay whatever is necessary to protect ... [Carrington's] rights in the [Mortgaged] Property." (emphasis added.) Paragraph 7 goes on to state that "amounts disbursed by [Carrington] under this paragraph shall become an additional debt of [Debtor] and secured by this [Mortgage]."
A chapter 13 bankruptcy case is a "legal proceeding" and as discussed below, has the potential to significantly and adversely affect a mortgagee's interest in mortgaged property. As a creditor, a debtor's mortgagee is a party to her chapter 13 bankruptcy proceedings, especially, as in this case, when it is scheduled as a creditor who is to be paid under a debtor's plan. Although "attorney's fees" or the like are not specifically listed in paragraph 7 of the Mortgage as expenses Carrington may incur and pass on to the Debtor for reimbursement, there are, in fact, no specific descriptions of expenses enumerated under the "may do and pay" language of paragraph 7. According to the Debtor's interpretation, the failure to specifically include attorney's fees under paragraph 7 should result in attorney's fees for bankruptcy representation never being considered expenses covered by paragraph 7. The court disagrees. Paragraph 7, which authorizes the "Lender [to] do and pay whatever is necessary to protect the ... Lender's rights in the Property" is sufficient to include a mortgagee's attorney's fees incurred in connection with a mortgagor's bankruptcy case. Incurring such fees is reasonable and necessary to protect both the mortgagee's interest in the mortgaged property and, in this case, its FHA insured status.
As mentioned, paragraph 8 of the Mortgage explicitly authorized Carrington to collect HUD-authorized fees and charges. HUD's regulations provide that mortgagees may collect their "attorney's fees and expenses actually incurred in defense of any suit or legal proceeding wherein the mortgagee shall be made a party thereto by reason of the mortgage ...."
The Debtor urges this court to follow decisions by other courts which characterized the review of a proposed chapter 13 plan, and the preparation and filing of a proof of claim, as ministerial tasks and hold that it is per se unreasonable for a long-term residential mortgage creditor to charge a debtor for its attorney's fees incurred for those services. See, e.g., England ,
In practice, the Debtor's argument could be applied to many legal matters. Anyone with basic reading and writing skills may be capable of following instructions and completing a form, but it may be unwise to do so when the consequences of noncompliance are significant, and the risks may not be fully understood by a layman. Nonetheless, although the Mortgage authorized Carrington to hire an attorney to represent its interest in the Debtor's bankruptcy case, the court agrees with the Debtor that if the services associated with the attorney's charges required no legal expertise to protect Carrington's interest, the Debtor should not be responsible for those charges. Hence, the issue becomes whether the Debtor's bankruptcy posed a significant risk to Carrington's interest under the Mortgage, and if so, was that risk allayed as a result of the services performed by Carrington's attorney-reviewing the petition, schedules, and proposed plan; reviewing the Mortgage and Note; reviewing the loan history and accounting; and preparing or inspecting, signing and filing the proof of claim-rather than those same tasks being performed by a non-lawyer.
The risks and penalties associated with a flawed proof of claim are not insignificant, particularly for a residential mortgage creditor. Preparing, signing, and filing a proof of claim may not be complicated-the
First, with few exceptions, if a creditor wants its claim allowed and paid through a chapter 13 plan, it must file a timely proof of claim. Rule 3002(a). A proof of claim filed by a residential mortgage claimant must include detailed information: an itemization of the interest, fees, expenses and other charges, and the amount necessary to cure any default, and should attach copies of the note and mortgage that evidence the debt and security. Rule 3001(c), (d). A mortgage creditor holding an escrow account, such as Carrington in this case, must also file an escrow analysis prepared as of the petition date. Rule 3001(c)(2)(C). If a proof of claim is executed and filed in accordance with the Rules, it constitutes prima facie evidence of the validity and amount of the claim. Rule 3001(f). However, a residential mortgage creditor who fails to follow the mandates of Rule 3001(c) may suffer significant detrimental consequences.
A noncompliant proof of claim is not entitled to a prima facia evidentiary presumption of its validity or amount, but more importantly, a court may:
(i) Preclude the holder from presenting the omitted information, in any form, as evidence in any contested matter or adversary proceeding in the case, unless the court determines that the failure was substantially justified or is harmless; or
(ii) Award other appropriate relief, including reasonable expenses and attorney's fees caused by the failure.
Rule 3001(c)(2)(D) ; see also Rule 3002.1(i) which sets out identical sanctions for a creditor's failure to provide information required by that Rule. Thus, in a contested matter or adversary proceeding challenging a residential mortgagee's secured claim after it filed a deficient proof of claim, the claim may not be presumed valid or its amount accurate, and potentially the creditor may be precluded from offering evidence to prove the amount of its claim or the existence and perfection of its security interest, or both, and be required to pay the debtor's attorney's fees. See, e.g., In re Milliman ,
Before the penalties imposed under Rule 3001(c)(2)(D) were added to the Rules, an Alabama bankruptcy judge had the following to say about a secured lender's right to recover its attorney's fees:
[P]reparing and filing a proof of claim is not a simple task. In many instances legal issues need to be considered at that time. Is the creditor oversecured? Is there a co-debtor? What is the district's policy on the proper manner to file a proof of claim? Are there prepetition fees or costs and, if so, should some or all of them be added to the claim? The act of filing a proof of claim is not always a ministerial act. If a creditor does not intend to ever claim any fees or costs and wishes to only claim the prepetition principal balance and accrued interest, the preparation and filing of the claim might be as [sic] ministerial and no counsel needed. In most situations, however, any attorney may properly be used to file a proof of claim if a reasonable fee is charged.
In re Powe ,
The court considered the authorities on both sides of this issue, as well as its own experience in administering chapter 13 cases that involve residential mortgage claims and concludes that preparing, signing, and filing a proof of claim for a residential mortgage creditor is not an inconsequential ministerial task. A residential mortgagee's claim must comply with the mandates of the Code and Rules to avoid significant consequences and may have repercussions not readily apparent to a layman. Accordingly, employing an experienced bankruptcy lawyer for that purpose is not only reasonable but is prudent.
(c) The expenses incurred for an attorney to review the petition, schedules, plan, and other bankruptcy documents were authorized by the Mortgage.
As discussed above, the fees charged by Carrington's attorneys were
In an utopian bankruptcy world in which no proposed plan ever violated § 1322(b)(2), or in which no court would dare confirm such a plan, or where if confirmed without the creditor's express approval, such a plan would be unenforceable in any event, the argument that § 1322(b)(2) eliminated any need for a creditor to employ legal counsel to review a proposed plan might be persuasive. But Code § 1327 and binding Eleventh Circuit authority highlight the danger of a naïve reliance on § 1322(b)(2) or any other Code provision that purports to protect a creditor's rights. The Eleventh Circuit's decision in American Mortgage Co. v. Bateman (In re Bateman) ,
These cases illustrate a creditor must be vigilant in examining a proposed chapter 13 plan, and a creditor ignores a plan's provisions that are contrary to the Code at its peril. Mortgage creditors cannot expect bankruptcy judges to be their guardian angels. Bateman stands as a stark reminder that chapter 13 plans are in fact filed and confirmed that violate the Code, including the non-modification provisions of § 1322(b)(2). When creditors raise noncompliance with the Code as a defense postconfirmation, the offending debtors can be expected to respond that pursuant to Code § 1327(a), even if the plan violated Code requirements, "[t]he provisions of a confirmed plan bind the debtor and each creditor, whether or not the claim of such creditor is provided for by the plan, and whether or not such creditor has objected to, has accepted, or has rejected the plan."
This court is not willing to say that because a plan should not violate the Code, it is unnecessary, and thus unreasonable, for a creditor to employ an attorney to review a proposed plan and determine whether it nonetheless violates the intended protection afforded by the Code. As Bateman demonstrates, the confirmation process can trump the Code. Accordingly, as with preparing and filing the POC, it was reasonable and necessary for Carrington to employ an attorney to review the Debtor's plan and other bankruptcy related documents and to consider their proposed treatment of Carrington's interest in the Mortgaged Property.
(d) The fees charged for bankruptcy-related work were reasonable.
The Debtor challenges the reasonableness of the amount of the fees charged
(e) Fees for the First Case may not be included in the Postpetition Fee Notice.
Finally, there is an issue-not specifically raised by the Debtor-regarding the $300 included in the Postpetition Fee Notice for attorney's fees incurred with respect to the First Case. Rule 3002.1 allows a holder of a residential mortgage claim to seek the recovery of its "fees, expenses, and charges (1) that were incurred in connection with the claim after the bankruptcy case was filed [emphasis added] ...." Fees charged in the First Case were necessarily incurred before the instant case was filed and should not have been included in the Postpetition Fee Notice. It would have been appropriate for the attorney's fees incurred in the First Case to be included in the prepetition fees, expenses, and charges itemized in the POC, but not in the Postpetition Fee Notice.
IX - Order
For the reasons stated above, it is hereby ORDERED that the attorney's fees included in Carrington's Postpetition Fee Notice (doc. filed 8-31-17, claim 8) incurred in respect to the instant case, are allowed as proper postpetition expenses to the extent of $300; all amounts claimed in the Postpetition Fee Notice exceeding $300 are disallowed.
So done and ordered this 28th day of January 2019.
Notes
According to the attachments to Carrington's proof of claim, the Mortgage was originally made in favor of MERS as nominee for Taylor, Bean & Whitaker Mortgage Corp. The Mortgage was assigned to Bank of America, N.A. and thereafter to Carrington, its present holder.
The Account Activity Description (column E) attached to Carrington's Proof of Claim (identified infra ) listed numerous foreclosure-related events occurring during the months immediately preceding the Debtor's bankruptcy filings: 10/7/2016 Fcl Attorney Fees; 11/3/2016 Fcl Title Fees; 11/9/2016 Fcl Proceedings Costs; 11/16/2016 Fcl Certified Mail; 1/18/17 Fcl Certified Mail; 1/25/2017 Fcl Posting of Sale. The court assumed "Fcl" was an abbreviation for foreclosure.
Together referred to as the "Rules" and individually as a "Rule."
Respondent's (Carrington's) Exhibit 2.
Public Access to Court Electronic Records.
Either the POC was initially drafted in-house by Carrington and then sent to its attorneys who reviewed it for accuracy and compliance with the Code and Rules, or the POC was prepared from scratch by the attorneys. Regardless, the POC was signed by the attorneys and their address was shown as that for notices to Carrington. Significantly, when the attorneys signed the POC, they made the following representations under Part 3:
I understand that an authorized signature on this Proof of Claim serves as an acknowledgement that when calculating the amount of the claim, the creditor gave the debtor credit for any payments received toward the debt.
I have examined the information in this Proof of Claim and have a reasonable belief that the information is true and correct.
I declare under penalty of perjury that the foregoing is true and correct.
See also Rule 9011(b).
Whether additional attorney's fees may be charged for preparing, filing, and defending the Postpetition Fee Notice pursuant to Rule 3002.1(c) is not an issue before the court.
Factors for consideration under Alabama Rules of Professional Conduct Rule 1.5 are:
(1) The time and labor required, the novelty and difficulty of the questions involved, and the skill requisite to perform the legal service properly;
(2) The likelihood, if apparent to the client, that the acceptance of the particular employment will preclude other employment by the lawyer;
(3) The fee customarily charged in the locality for similar legal services;
(4) The amount involved and the results obtained;
(5) The time limitations imposed by the client or by the circumstances;
(6) The nature and length of the professional relationship with the client;
(7) The experience, reputation, and ability of the lawyer or lawyers performing the services;
(8) Whether the fee is fixed or contingent; and
(9) Whether there is a written fee agreement signed by the client.
Ala. R. Prof. Conduct 1.5.
In Bonner v. City of Prichard ,
See, e.g., Mortgage ?? 2, 3, 8, 9(b), 9(d), 9(e), 18. "Alabama FHA Mortgage" is printed at the lower left-hand corner on each page of the Mortgage, and "Multistate FHA Fixed Rate Note" is printed and at the same location on each page of the Note. Paragraph 9(e) of the Mortgage provides that if the "[Mortgage] and the Note are not determined to be eligible for insurance under the National Housing Act within eight months ... the Lender may, at its option, require immediate payment in full of all sums secured by the [Mortgage]."
Paragraph 2 of the Mortgage, entitled "Monthly Payment of Taxes, Insurance, and Other Charges," describes the Debtor's obligations to pay the monthly principal and interest installments, taxes, late charges, casualty insurance and mortgage insurance, and maintain an escrow account to pay taxes and insurance.
https://www.hud.gov/program_offices/administration/hudclips/letters/mortgagee/2016 (last visited Jan. 28, 2019). The parties referred to the 2016 HUD Letter at the hearing, and at the court's request Carrington submitted it for the court's consideration via email, with a copy to the Debtor's attorney. The trustee agreed at the hearing that the HUD guidance was used routinely by creditor firms in setting fees and agreed that the letter should be made part of the record. The Debtor objected to the court's consideration of the 2016 HUD Letter for any purpose other than as establishing HUD's maximum allowable fee and argued that nothing in the 2016 HUD Letter actually authorized the collection of attorney's fees in this case. The court agrees that it is the Mortgage and applicable nonbankruptcy law, not the 2016 HUD Letter in isolation, that controls whether the fees are properly added to the Mortgage debt. The Mortgage, however, specifically incorporated the fees authorized by HUD, which are set out in detail in the 2016 HUD Letter. To the extent the Debtor argues that the court should not consider the 2016 HUD Letter despite its being explicitly made part of the parties' contract under paragraph 8 of the Mortgage, the court overrules that objection. The 2016 HUD Letter was filed in this case as Doc. 80 together with the related email exchange between the parties' attorneys.
Another bankruptcy court examined almost identical language in a reverse mortgage under Oregon law and noted the following:
Debtor also alleges in the Complaint that Nationstar is continuing to charge her account for attorney fees postpetition, allegedly in violation of unidentified court orders. The Loan Documents appear to allow Nationstar to add postpetition attorney fees. Paragraph 5 of the DOT provides that if "there is a legal proceeding that may significantly affect the Lender's rights in the Property (such as a proceeding in bankruptcy ...), then Lender may do and pay whatever is necessary to protect the value of the Property and Lender's rights in the Property ...." Any amounts paid under Paragraph 5 "shall become an additional debt of Borrower as provided for in the Loan Agreement and shall be secured by this Security Instrument." DOT, ¶ 5. Moreover, I am not aware of, and Debtor does not identify, any court order preventing Nationstar from adding postpetition attorney fees to her loan balance.
Lee v. Nationstar Mortg., LLC , No. AP 16-3156-PCM,
Attorneys' fees may only be awarded if the right to attorneys' fees is established by statute or contract. Wells Fargo Bank contends section 7 of the deed of trust creates a right to attorneys' fees. The Bobbitts do not contest section 7 creates a right to attorneys' fees. Section 7 of the deed of trust states that if "there is a legal proceeding that may significantly affect Lender's rights in the Property (such as a proceeding in bankruptcy, for condemnation or to enforce laws or regulations), then Lender may do and pay whatever is necessary to protect the value of the Property and Lender's rights in the Property, including payment of taxes, hazard insurance and other items mentioned in paragraph 2. Any amounts disbursed by Lender under this paragraph shall become an additional debt of Borrower ...." Although this language does not mention attorneys' fees specifically, this language broadly establishes an obligation for the Bobbitts, as Borrower, to reimburse Wells Fargo, as Lender, for monies paid by Wells Fargo in legal proceedings to necessarily protect its rights in the Property. This suit affects Wells Fargo's rights in the Property. Accordingly, the Court finds section 7 of the deed of trust creates a right to attorneys' fees.
Rose Bobbitt v. Wells Fargo Bank, N.A. , No. CV H-14-387,
The Complaint, in part, alleges that Defendants breached the contract by charging Plaintiff unauthorized fees and expenses, such as attorney's fees in connection with the bankruptcy proceeding and property inspection fees. Plaintiff merely identifies various charges and brazenly asserts that these charges are in violation of the contract. This manner of pleading is unacceptably conclusory. In the Amended Complaint, Plaintiff should-if permitted by Rule 11-articulate how these charges constitute a breach of the contract. Plaintiff should consider whether the terms of the Security Deed contradict Plaintiff's allegations. For example:
If Borrower [fails to make certain payments, breaches the agreement,] or there is a legal proceeding that may significantly affect Lender's rights in the Property (such as a proceeding in bankruptcy ...), then Lender may do and pay whatever is necessary to protect the value of the Property and Lender's rights in the Property .... Any amounts disbursed by Lender under this paragraph shall become an additional debt of Borrower and be secured by this Security Instrument. These amounts shall bear interest from the date of disbursement at the Note rate, and at the option of Lender shall be immediately due and payable.
According to this term, the Security Deed expressly allows Defendants to charge Plaintiff fees in order to protect their interests in a bankruptcy action.
Hand v. ABN AMRO Mortg. Grp., Inc. , No. CV 112-176,
If Borrower fails to make these payments or the payments required by paragraph 2, or fails to perform any other covenants and agreements contained in this Security Instrument, or there is a legal proceeding that may significantly affect Lender's rights in the Property (such as a proceeding in bankruptcy, for condemnation or to enforce laws or regulations), then lender may do and pay whatever is necessary to protect the value of the Property and Lender's rights in the Property, including payment of taxes, hazard insurance and other items mentioned in paragraph 2.
Any amounts disbursed by Lender under this paragraph shall become an additional debt of Borrower and be secured by this Security Instrument. These amounts shall bear interest from the date of disbursement, at the Note rate, and at the option of Lender, shall be immediately due and payable
In re Scott ,
In support of her position that it is unreasonable to hire an attorney to prepare and file a proof of claim or to review and advise about the consequences of a chapter 13 plan when the residential mortgage is long-term and not subject to cramdown, the Debtor cites In re England,
Mortgage creditors are rarely individuals, and they must appear through legal counsel in federal court if they insist upon the treatment the Code anticipates. Palazzo v. Gulf Oil Corp. ,
Code §§ 1322(b)(2) and (e), when considered together, allow attorney's fees to be added to the mortgage debt if the contract so provides, even if the claim is not oversecured. As the court in Rangel,
Creditors with claims secured solely by the debtor's principal residence may recover fees and costs provided for under their loan documents even if they are not oversecured. This right derives from the language of11 U.S.C. § 1322 (b)(2), which allows a Chapter 13 debtor to modify the rights of all secured creditors except for home lenders. Specifically, § 1322(b)(2) provides that a Chapter 13 plan may "modify the rights of holders of secured claims, other than a claim secured only by a security interest in real property that is the debtor's principal residence." Courts have construed this language to mean that Chapter 13 debtors may not alter the rights of home lenders. See, e.g., Rake v. Wade,, 464, 508 U.S. 464 , 113 S.Ct. 2187 (1993) ("Section 1322(b)(2) prohibits debtors from modifying the rights of home mortgage lenders ..."). 124 L.Ed.2d 424
Section 1322(b)(2)'s anti-modification provision is tempered by § 1322(b)(5), which provides that a Chapter 13 plan must "provide for the curing of any default within a reasonable time and maintenance of payments while the case is pending on any unsecured claim or secured claim on which the last payment is due after the date on which the final payment under the plan is due." 11 U.S.C § 1322(b)(5). Taken together, these two provisions preserve a home lender's contract rights-including any right to collect fees and costs-during the pendency of the bankruptcy case while simultaneously permitting the debtor to cure prepetition arrearages under the plan.
Rangel ,
At the evidentiary hearing, the standing chapter 13 trustee for this division stated her preference for mortgage creditors to be represented by counsel because bankruptcy is not merely an administrative process but is instead a judicial process. Participation by attorneys representing mortgage lenders is beneficial to the overall chapter 13 process, not the least of which is providing her with a readily available contact source for information regarding the mortgage debt, which often is the most critical aspect of a debtor's plan. She also stated that she agreed with the Debtor that the language of paragraph 7 of the Mortgage was ambiguous.
If the Debtor's argument were expanded, an equally compelling argument could be made that filling out a petition, schedules, and chapter 13 plan require nothing more than taking numbers provided by the debtor and inserting them into forms and computer programs, for which no legal expertise is needed. The flaw in that argument is patently clear when viewed from the point of view of debtors' counsel. It is the legal analysis and advice underlying the "filling out of the forms" together with the consequences that flow from filing the petition, schedules, and plan that justify the employment of debtors' counsel and the payment of their fees. The same logic applies to residential mortgage lenders' use of counsel to prepare, sign, and file proofs of claim and review and analyze a plan's treatment for their clients.
Neither party raised the issue of whether the attorney's fees incurred by Carrington with respect to the First Case, although not allowed under the Postpetition Fee Notice, may nonetheless be included in the sums claimed in the POC. Since Carrington included the fees associated with the First Case in the Postpetition Fee Notice, the court assumes those same fees were not included in the amounts claimed in the POC. Assuming they were not included in the POC, this Opinion and Order does not decide the issue of whether they may be added via amendment to the POC.