In re: ARTHUR DANIEL MONROY; LAURA MONROY, Debtors, HOME FUNDS DIRECT, its assignees and/or successors in interest, Appellant, v. ARTHUR DANIEL MONROY; LAURA MONROY, Appellees. In re: CHRISTINE PAULETTE HANNON, Debtor, U.S. BANK, N.A., Appellant, v. CHRISTINE PAULETTE HANNON; ELIZABETH ROJAS, Chapter 13 Trustee, Appellees. In re: ANTHONY JOHN HERRERA, JR.; MARY ELLEN HERRERA, Debtors, GREENPOINT MORTGAGE FUNDING, INC., Appellant, v. ANTHONY JOHN HERRERA, JR.; MARY ELLEN HERRERA; ELIZABETH F. ROJAS, Appellees.
No. 10-60005, No. 10-60017, No. 10-60018
BAP No. 09-1175-PaHD, BAP No. 09-1184, BAP No. 09-1155
United States Court of Appeals for the Ninth Circuit
June 20, 2011
8271
UNITED STATES COURT OF APPEALS FOR THE NINTH CIRCUIT
Hollowell, Pappas, and Dunn, Bankruptcy Judges, Presiding
Argued and Submitted June 10, 2011—Pasadena, California
Filed June 20, 2011
Before: Stephen S. Trott and Pamela Ann Rymer, Circuit Judges, and Stephen M. McNamee, Senior District Judge.*
COUNSEL
Lee S. Raphael, Prober & Raphael, Woodland Hills, California, for the appellants.
*The Honorable Stephen M. McNamee, Senior District Judge for the U.S. District Court for Arizona, sitting by designation.
ORDER
The decisions of the Bankruptcy Courts are affirmed for the reasons given by the Bankruptcy Appellate Panel in its published opinion in In re Herrera, 422 B.R. 698 (B.A.P. 9th Cir. 2010), filed January 5, 2010 and attached as an appendix to this order.1
UNITED STATES BANKRUPTCY APPELLATE PANEL OF THE NINTH CIRCUIT
In re: ANTHONY JOHN HERRERA and MARY ELLEN HERRERA, Debtors.
In re: NORMAN LEFF and ROSITA BLONES LEFF, Debtors.
In re: CHRISTINE PAULETTE HANNON, Debtor.
In re: ARTHUR DANIEL MONROY and LAURA MONROY, Debtors.
GREENPOINT MORTGAGE FUNDING, INC., Appellant, v. ANTHONY JOHN HERRERA and MARY ELLEN HERRERA, Appellees.
BAP Nos. CC-09-1155-PaHD, CC-09-1162-PaHD, CC-09-1184-PaHD, CC-09-1175 PaHD (jointly briefed)
Bk. Nos. SV 08-13212-KT, SV 08-14725-GM, SV 09-11330-MT, LA 09-11321-VK
OPINION
U.S. BANK, N.A., Appellant, v. CHRISTINE PAULETTE HANNON, Appellee.
HOME FUNDS DIRECT, Appellant, v. ARTHUR DANIEL MONROY and LAURA MONROY, Appellees.
Argued and submitted on November 19, 2009 at Pasadena, California
Filed — January 5, 2010
Appeals from the United States Bankruptcy Court for the Central District of California
The Honorable Kathleen Thompson, Geraldine Mund, Maureen Tighe and Victoria Kaufman, United States Bankruptcy Judges, Presiding
Before: PAPPAS, HOLLOWELL and DUNN, Bankruptcy Judges.
In each of these four appeals, the creditor holding the mortgage on the debtors’ primary residence challenges the order of the bankruptcy court confirming the chapter 131 debt-repayment plan. In each case, the debtors incorporated in the plan several provisions taken from a form of optional provisions adopted by the bankruptcy judges of the Central District of California. The mortgage creditors presented common objections to those provisions, and continue those objections in these four appeals. Because the facts in each case are undisputed, and common legal issues are raised, we ordered that the appeals be jointly briefed and argued. This decision disposes of all four appeals. We AFFIRM the bankruptcy courts’ plan confirmation orders.
FACTS
We begin with a brief sketch of the relevant, undisputed facts and the procedural history of these four bankruptcy cases.
Herreras‘, Leffs’ and Hannon‘s Bankruptcy Cases
Anthony John Herrera and Mary Ellen Herrera (“Herreras“)2 filed a chapter 13 petition on May 16, 2008, and a First Amended Plan on July 8, 2008. The First Amended Plan provided that Herreras would directly pay the secured creditor, Greenpoint Savings (“Greenpoint“), all post-petition monthly payments on the
On July 9, 2008, Norman Leff and Rosita Blones Leff (“Leffs“)3 filed their chapter 13 petition and proposed plan. The plan provided that Leffs would directly pay Deutsche Bank National Trust Co. (“Deutsche Bank“) post-petition monthly mortgage payments on their residence, and would cure $23,555.00 in prepetition mortgage arrearages through the plan.
On February 6, 2009, Christine Paulette Hannon (“Hannon“)4 filed her chapter 13 petition and proposed plan. Hannon proposed to directly pay U.S. Bank Home Mortgage (“U.S. Bank“) post-petition monthly mortgage payments on her residence, and to cure $19,100.00 in prepetition mortgage arrearages through the plan.
Herreras, Leffs and Hannon each incorporated in their proposed plans an addendum known as “Local Form F 3015-1.1A” (the “Addendum“). The Addendum is a collection of chapter 13 plan provisions set forth in an optional form that had been approved by the bankruptcy judges of the Central District of California for use by debtors in chapter 13 cases who propose to repay debt secured by a mortgage on their residential real property, or by a lien on personal property the debtor occupies as the debtor‘s
Greenpoint objected to the First Amended Plan in Herreras’ case, Deutsche Bank objected to the plan in Leffs’ case, and U.S. Bank objected to the plan in Hannon‘s case. Although there were slight variations in the arguments in the separate cases, the mortgage creditors generally targeted the Addendum, arguing that its terms imposing post-confirmation reporting and other duties were inconsistent with the mortgage creditors’ contractual rights, violated federal law, and constituted an undue administrative burden. The debtors in each case disputed the mortgage creditors’ positions. The parties filed additional pleadings in each case regarding their positions on the Addendum.
On April 28, 2009, the presiding judges in the Herreras, Leff, and Hannon bankruptcy cases issued a Joint Memorandum of Opinion (the “Joint Memorandum“), together with an order implementing the Joint Memorandum, addressing the inclusion of the Addendum in the debtors’ chapter 13 bankruptcy plans, and the mortgage creditors’ objections to those plans. The Joint Memorandum generally overruled the creditors’ objections, except for the objection to one provision of the Addendum (known as “subsection A7“), a requirement that mortgage creditors provide advance notice to debtors before filing a motion for relief from stay. The Joint Memorandum concluded that this term was
Even though the Joint Memorandum did not purport to confirm the debtors’ plans,6 on May 8, 2009, the mortgage creditors each filed a notice of appeal in the respective bankruptcy cases from the “Order Confirming Chapter 13 plan entered on April 28, 2009.”7
As directed by the Joint Memorandum, Herreras, Leffs and Hannon each filed amended plans generally consistent with their original plans, but deleting subsection A7 of the Addendum. There were no hearings on plan confirmation. Herreras’ amended plan was confirmed in an order entered May 20, 2009; Leffs’ amended plan was confirmed in an order entered May 13, 2009; and Hannon‘s amended plan was confirmed in an order entered July 22, 2009.
On May 27, 2009, Greenpoint, Deutsche Bank and U.S. Bank filed amended notices of appeal, again designating the Joint Memorandum as the order on appeal in the three cases, instead of the confirmation order.
The Monroys’ Case8
The bankruptcy judge in Monroys’ case did not participate in the Joint Memorandum. However, the court came to similar
On January 22, 2009, Arthur Daniel Monroy and Laura Monroy (“Monroys“) filed their chapter 13 petition and plan. The plan provided that Monroys would directly pay the mortgage creditor Home Funds Direct (“HFD“) post-petition monthly mortgage payments, and would cure $454.08 in prepetition mortgage arrearages through the plan. Monroys’ plan incorporated the Addendum. HFD objected to the plan, challenging the Addendum.
The bankruptcy court conducted a confirmation hearing on March 18, 2009. At the conclusion of the hearing, the bankruptcy judge ruled on the record that “the Court agrees with the majority of courts as far as the notification provisions in [the Addendum] that those are procedural mechanisms that are consistent with the provisions of Chapter 13 and the Bankruptcy Code as a whole.” Hr‘g Tr. 8:12-17 (March 18, 2009). The court, however, did rule that subsection A7 impermissibly conflicted with
As permitted by the bankruptcy court‘s decision, Monroys submitted an amended plan on March 20, 2009, without subsection A7. Ruling on the record at the May 6 continued hearing on plan confirmation, the bankruptcy court confirmed the amended plan. The court entered its order confirming the amended plan on May 18, 2009.
HFD filed a timely notice of appeal of the confirmation order on May 21, 2009.
The Addendum
According to the chair of the ad hoc committee of Central District of California bankruptcy judges that apparently crafted
The Addendum was approved by majority vote of the bankruptcy judges of the Central District of California, and the judges’ decision was implemented via “Local Form F 3015-1.1A.” The Addendum provisions incorporated in each of the four confirmed plans and implicated in these appeals read as follows:10
A2. Except as provided in paragraphs (3) and (4) below, if the Mortgage Creditor provided monthly statements to the debtor pre-petition, the Mortgage creditor must provide monthly statements to the debtor. The monthly statements must contain at least the following information concerning post-petition payments to be made outside the Plan: (a) The date of the statement and the date of the next payment due; (b) The amount of the current monthly payment; (c) The portion of the payment attributable to escrow, if any; (d) The post-petition amount past due, if any, and from what date; (e) Any outstanding late charges; (f) The amount and date of receipt of all payments received since the date of the last statement; (g) A telephone number and contact information that the debtor or the debtor‘s attorney may use to obtain reasonably prompt information regarding the loan and recent transactions; and (h) The proper payment address.
A4. If, pre-petition, the Mortgage Creditor provided the debtor with “coupon books” or some other preprinted, bundled evidence of payments due, the Mortgage Creditor is not required to provide monthly statements under subsection (2) of this section. However, the Mortgage Creditor must supply the debtor with additional coupon books as needed or requested in writing by the debtor. If a Mortgage Creditor does send a monthly statement to the debtor or the chapter 13 trustee and the statement complies with subsection (B)(2) below, the Mortgage Creditor is entitled to the protections set out in such subsection.
A5. The Mortgage Creditor must provide the following information to the debtor upon reasonable written request of the debtor: (a) The principal balance of the loan; (b) The original maturity date; (c) The current interest rate; (d) The current escrow balance, if any; (e) the interest paid to date; and (f) The property taxes paid year to date, if any.
A6. The Mortgage Creditor must provide the following information to the debtor, the debtor‘s attorney and, when the debtor is making ongoing mortgage or arrearage payments through the chapter 13 trustee, the chapter 13 trustee, at least quarterly, and upon reasonable written request of the debtor or the chapter 13 trustee: (a) any
other amounts due or proposed changes in payments arising from an adjustable interest rate, charges paid by the Mortgage Creditor for taxes, insurance, attorney‘s fees or any other expenses or fees charged or incurred by the Mortgage Creditor, such as property inspection fees, servicing fees or appraisal fees; (b) the nature of the expense or charge; and (c) the date of the payment.
B1. As a result of a Mortgage Creditor‘s alleged non-compliance with this Addendum, the debtor may file a Motion for Order to Show Cause, in compliance with Local Bankruptcy Rule 9020-1 no earlier than sixty days after the Mortgage Creditor‘s failure to comply with sections (A) or (B). Before filing the motion, the debtor must make good faith efforts in writing to contact the Mortgage Creditor and to determine the cause of non-compliance, and must indicate in the Motion for Order to Show Cause the good faith steps taken, together with a cursory description of any response provided by the Mortgage Creditor.
B4. If a Mortgage Creditor‘s regular billing system can provide a statement to the debtor that substantially complies with this Addendum, but does not fully conform to all its requirements, the Mortgage Creditor may request that the debtor accept such statement. If the debtor declines to accept the non-conforming statement, a Mortgage Creditor may file a motion, on notice to the debtor, the debtor‘s attorney and the chapter 13 trustee, seeking a declaration of the court that cause exists to allow such non-conforming statements to satisfy the Mortgage Creditor‘s obligations under this Addendum. For good cause shown, the Court may grant a waiver for purposes of this case and for either a limited or unlimited period of time.
The Joint Memorandum
The Joint Memorandum addressed and rejected the primary objections raised by the objecting mortgage creditors in the Herreras, Leffs and Hannon bankruptcy cases: (1) that the Real Estate Settlement Procedures Act,
In overruling the mortgage creditors’ objections, the Joint Memorandum acknowledged that RESPA requires lenders to make certain disclosures to consumers in connection with mortgage loans. The Joint Memorandum, however, found that nothing in RESPA prohibited the bankruptcy court, through plan confirmation, from requiring lenders to make additional information available to debtors in chapter 13 cases. In short, the bankruptcy courts held that while RESPA provides minimum reporting requirements for mortgage lenders, it does not conflict with RESPA for a chapter 13 plan to require additional account reporting.
As to the
The Joint Memorandum (as well as the bankruptcy judge in the Monroys’ case) did note, though, that the Addendum‘s subsection
JURISDICTION
The bankruptcy courts had jurisdiction under
First, we must consider the manner in which the mortgage creditors attempted to perfect their appeals. In each of these cases, the original notice of appeal by the respective mortgage creditor was premature, having been filed after issuance of the April 28 Joint Memorandum, but prior to the debtors’ amendment of their chapter 13 plans as prescribed in the Joint Memorandum, and the bankruptcy courts’ entry of a final order confirming those amended plans. In other words, at the time the original notices of appeal were filed, no final order had been entered from which the mortgage creditors could appeal.
Even so, since the plan amendments in these cases were accomplished merely to comply with the bankruptcy courts’ orders, and the amended plans were confirmed shortly after they were filed, we think the creditors’ original notices of appeal of the plan confirmations were effective, albeit early. Rule 8002(a)
We also decline to reject these appeals because the amended notices of appeal, filed after the amended plans were confirmed in these three cases, purported to appeal not from the confirmation orders but from the orders entered implementing the Joint Memorandum. In our view, the orders implementing and entered at the same time as the Joint Memorandum were clearly interlocutory, and merged into the confirmation orders thereafter entered in each case after the debtors’ plans were amended. Any dispute the mortgage creditors have with the contents of the Joint Memorandum can be brought before us in our consideration of the four plan confirmations. In other words, we consider the amended notices of appeal to be superfluous.
The mortgage creditors, as appellants in the three cases covered by the Joint Memorandum, are not prejudiced by this decision. According to their statements of the issues on appeal, the creditors seek review of the Joint Memorandum‘s approval of the provisions in the Addendum incorporated in each plan, to which each creditor had objected. Their objections to those provisions are properly before us in the appeal of the confirmation orders. As explained in Munoz v. Small Bus. Admin., 644 F.2d 1361, 1364 (9th Cir. 1981):
[T]he rule is well settled that a mistake in designating the judgment appealed from [in a notice of appeal]
should not result in loss of the appeal as long as the intent to appeal from a specific judgment can be fairly inferred from the notice and the appellee is not misled by the mistake. 9 Moore‘s Federal Practice, para. 203.18, at 3-76-77 (2d ed. 1980). Furthermore, an appeal from the final judgment draws in question all earlier non-final orders and all rulings which produced the judgment. Id. at 3-80. See also United States v. Walker, 601 F.2d 1051, 1058 (9th Cir. 1979).
Here, the mortgage creditors have always made clear in their submissions to the Panel that they challenge the ruling in the Joint Memorandum approving the Addendum‘s provisions and overruling their objections, which decision ultimately resulted in the confirmation of the three plans. We therefore elect to overlook technical issues with the notices of appeal and consider the merits of these appeals.
A second procedural question is more problematic. For relief in all four appeals, the mortgage creditors ask the Panel either to direct the bankruptcy judges of the Central District of California to ban the use of the Addendum, or to direct those judges to adopt a plan form that permits continuation of prepetition accounting statements and compliance with RESPA. The creditors offer us no case law or statutory grounds to support this expansive view of the Panel‘s authority, and we know of no grounds for banning an optional form nor directing the District‘s bankruptcy judges to create a new one. Instead, our statutory role is limited to review of discrete orders as an appellate tribunal. See
However, again, we do not see how the creditors are prejudiced by our commitment to this restricted role. Were we to accept their arguments that incorporation of the provisions of the Addendum in these chapter 13 plans renders them unconfirmable as a matter of law, the bankruptcy judges of the Central District of California might well decide to abolish or modify this form. That we decline to direct the District‘s bankruptcy judges to “ban” or redraft its form does not mean that the mortgage creditors will not have had a full and fair opportunity to challenge the Addendum‘s provisions before the Panel.11
ISSUES
- Whether inclusion of the provisions of the Addendum in the debtors’ confirmed chapter 13 plans is inconsistent with the terms of RESPA, or violates separation of powers.
- Whether the provisions of the Addendum incorporated in the debtors’ confirmed plans impermissibly modify the mortgage creditors’ rights in violation of
§ 1322(b)(2) .
There are no issues of fact raised in these appeals. We review issues of federal statutory construction, including interpretation of provisions of the Bankruptcy Code, de novo. Einstein/Noah Bagel Corp. v. Smith (In re BCE W., L.P.), 319 F.3d 1166, 1170 (9th Cir. 2003); Mendez v. Salven (In re Mendez), 367 B.R. 109, 113 (9th Cir. BAP 2007).
DISCUSSION
I. Inclusion of the challenged Addendum provisions in the debtors’ confirmed plans does not conflict with RESPA.
A.
The mortgage creditors argue that Congress intended that RESPA occupy the field requiring reports from mortgage creditors to debtors regarding loans on primary residences, to the exclusion of the states and other branches of the federal government, including the courts. In their view,
RESPA‘s scheme is so pervasive as to make reasonable the inference that Congress has neither left room for the states, nor other branches of the Federal Government, to supplement it: Local Form F 3015-1.1A not only duplicates RESPA but is fatally inconsistent with the federal statute. . . . By enacting RESPA, Congress has acted to occupy the scope of the field in regards to real estate disclosures and a reasonable expectation is thus created that other Federal branches will not impose duplicative or inconsistent reporting requirements in violation of Bankruptcy Rule 9029 (a) (1). §§ (A)(4), (A)(5) and (A)(6) of Local Form F 3015-1.1A usurp Congress’ authority by legislating and mandating reporting requirements that not only duplicate Federal Law but are inconsistent, and more burdensome, than those created by RESPA.
Appellants’ Open. Br. at 20-22.
It is the creditors’ position that RESPA effectively prevents chapter 13 debtors from including provisions in their proposed
As discussed below, we conclude that the creditors’ argument is neither supported by the plain language of
B.
Only a brief comment is required to dispatch the mortgage creditors’ concerns that inclusion of the offensive provisions in the debtors’ confirmed chapter 13 plans somehow violates the doctrine of separation of powers. They apparently contend that when a majority of the Central District‘s bankruptcy judges approved an optional local form containing provisions that could be included in the District‘s chapter 13 plans, several of which provisions creditors contend run afoul of
The mortgage creditors’ argument is a non-starter because it ignores the bankruptcy judges’ decision to make use of the Addendum optional, such that the incorporation of its provisions in debtors’ plans was subject to review by bankruptcy courts on a case-by-case basis. Indeed, the instructions on Local Form
C.
A variation of the creditors’ separation of powers argument is that the provisions of the Addendum directly conflict with the intent of Congress that
In addition to mandatory plan provisions,
Here, the mortgage creditors challenge the debtors’ inclusion of the Addendum provisions in their plans, arguing that those provisions are in conflict with, and preempted by,
“The purpose of statutory construction is to discern the intent of Congress in enacting a particular statute.” United States v. Daas, 198 F.3d 1167, 1174 (9th Cir. 1999). “The first step in ascertaining congressional intent is to look to the plain language of the statute.” Id. “The plain meaning of the statute controls, and courts will look no further, unless its application leads to unreasonable or impracticable results.” Id. “In ascertaining the plain meaning of the statute, the court must look to the particular statutory language at issue, as well as the language and design of the statute as a whole.” K Mart Corp. v. Cartier, Inc., 486 U.S. 281, 291 (1988) (quoted in Nadarajah v. Gonzales, 443 F.3d 1069, 1076 (9th Cir. 2006)).
While divining the intent of Congress in enacting a statute can be a daunting task for courts,
The Congress finds that significant reforms in the real estate settlement process are needed to insure that consumers throughout the Nation are provided with greater and more timely information on the nature and costs of the settlement process and are protected from unnecessarily high settlement charges caused by certain abusive practices that have developed in some areas of the country.
It is the purpose of this chapter to effect certain changes in the settlement process for residential real estate that will result (1) in more effective advance disclosure to home buyers and sellers of settlement costs[.]
Although the “settlement process” referred to in
The term “servicing” means receiving any scheduled periodic payments from a borrower pursuant to the terms of any loan, including amounts for escrow accounts described in section 10 [12 U.S.C. § 2609], and making the payments of principal and interest and such other payments with respect to the amounts received from the borrower as may be required pursuant to the terms of the loan.
Courts analyzing this statute have found that “Congress intended
This congressional intent does not conflict, but instead is consistent, with the rationale expressed in the Joint Memorandum for approving the inclusion of the Addendum provisions in the debtors’ confirmed plans:
the Addendum seeks to address Chapter 13 issues, specifically the increasing problem of undisclosed and sometimes questionable post-petition mortgage charges assessed by lenders during the course of a chapter 13 proceeding, which are neither addressed nor remedied by the provisions of
RESPA .
Joint Memorandum at 2. Consistent with
The plain language of
This chapter does not annul, alter, or affect, or exempt any person subject to the provisions of this chapter from complying with, the laws of any State with respect to settlement practices, except to the extent that those laws are inconsistent with any provision of this chapter, and then only to the extent of the inconsistency. The Secretary is authorized to determine whether such inconsistencies exist. The Secretary [of HUD] may not determine that any State law is inconsistent with any provision of this chapter if the Secretary determines that such law gives greater protection to the consumer. In making these determinations, the Secretary shall consult with the appropriate Federal agencies.
Likewise,
The Board shares concerns about abusive servicing practices. Before securitization became commonplace, a lending institution would often act as both originator and collector—that is, it would service its own loans. Today, however, separate servicing companies play a key role: they are chiefly responsible for account maintenance activities, including collecting payments (and remitting amounts due to investors), handling interest rate adjustments, and managing delinquencies or foreclosures. Servicers also act as the primary point of contact for consumers.
A potential consequence . . . is the misalignment of incentives between consumers, servicers, and investors. Servicers contract directly with investors, and consumers are not a party to the contract. The investor is principally concerned with maximizing returns on the mortgage loans. So long as returns are maximized, the investor may be indifferent to the fees the servicer charges the borrower. Consumers do not have the ability to shop for servicers and have no ability to change servicers (without refinancing). As a result, servicers do not compete in any direct sense for consumers. Thus, there may not be sufficient market pressure on servicers to ensure competitive practices. . . . [S]ervicers may not timely credit, or may misapply, payments, resulting in improper late fees. Even where the first late fee is properly assessed, servicers may apply future payments to the late fee first, making it appear future payments are delinquent even though they are, in fact, paid in full within the required time period, and permitting the servicer to charge additional late fees—a practice commonly referred to as “pyramiding” of late fees. The Board is also concerned about the transparency of servicer fees and charges, especially because consumers may have no notices of such charges prior to their assessment. Consumers may be faced with charges that are confusing, excessive, or cannot easily be linked to a particular service. In addition, servicers may fail to provide payoff statements in a timely fashion, thus impeding consumers from refinancing existing loans.
73 FED. REG. 1672, 1702 (January 9, 2008). To remedy these abuses,
The Board published the Final Rule and Official Commentary on July 30, 2008. 73 FED. REG. 44522 (July 30, 2008). The Official Commentary acknowledged that the regulation was applicable in bankruptcy proceedings, and further stated that “reasonable time” in most cases would be five days to provide the information. Id. at 44573. The Official Commentary noted that the five-day deadline for providing the information was supported by national lenders, who argued during the comment period that the originally proposed three-day period for providing the requested report was not reasonable but that five days would be sufficient. Id.
As authorized by
(c) Servicing practices. (1) In connection with a consumer credit transaction secured by a consumer‘s principal dwelling, no servicer shall. . . (iii) Fail to provide, within a reasonable time after receiving a request from the consumer or any person acting on behalf of the consumer, an accurate statement of the total outstanding balance that would be required to satisfy the consumer‘s obligation in full as of a specified date.
As can be clearly seen, then,
There is nothing in
to bear unanticipated administrative and systematic costs of collecting, correctly monitoring for and differentiating pre-petition and post-petition payments, late charges and escrow balances on a monthly basis. Mandating that Appellants must develop a new system in order to abide by a local form clearly abridges Appellants’ substantive rights.
Appellants’ Opening Br. at 16.
Although the mortgage creditors insist that the Addendum‘s reporting requirements are unduly burdensome and expensive, they provided no evidence to the bankruptcy court (or to this Panel) to
Contrary to the mortgage creditors’ view, Regulation Z requires a mortgage creditor to be prepared to produce a payout report, which necessarily includes information about all costs and expenses related to the mortgage contract, on only five days’ notice. Although there may well be some expense to provide the detailed reports required by the Addendum, in the absence of any evidence from the mortgage creditors as to the extent of that expense and its corresponding burden, especially in light of Regulation Z‘s requirement that a payout report be available on five days’ notice, we decline to simply assume that the Addendum provisions adversely impact the mortgage creditors’ substantive rights.
We conclude that the mortgage creditors’ argument that
[n]otwithstanding paragraph (2) of this subsection, [the plan may] 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.
The bankruptcy court and debtors need the information targeted by the Addendum to implement
II. The provisions of the Addendum incorporated in the debtors’ confirmed plans do not violate § 1322(b)(2) .
A.
The mortgage creditors argue that the Addendum‘s subsections A2, A4, and A5 “ignore [the mortgage creditors‘] contractual rights by modifying the terms of the Deed of Trust and Note in violation of
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, or of holders of unsecured claims, or leave unaffected the rights of holders of any class of claims[.]
Ostensibly, the word “rights” has a plain meaning. For example, leading treatises on contract law define a right under contract law as the correlate of a duty.
When we say that one party has a “right” to performance which the other party has a duty to render, we mean that our organized society of people commands one party‘s performance for the benefit of the other party, and provides some remedy in accordance with a stated procedure in case of non-performance. This is the “legal relation” of right and duty.
8 CORBIN ON CONTRACTS § 30.4 at 4 (Joseph M. Perillo, ed., rev. ed. 1999). See also E. Allen Farnsworth, CONTRACTS § 3.4 at 114 n.3 (Foundation Press 3d ed. 1999) (“Right and duty are therefore correlatives, since in this sense there can never be a duty without a right.“).
California law also distinguishes between contractual rights and duties.
Counsel for the mortgage creditors was repeatedly asked at oral argument before the Panel to identify which “rights” under the mortgage instruments that the challenged Addendum provisions
Protection of Lender‘s Interest in the Property and Rights Under this Security Instrument. If (a) Borrower fails to perform the covenants and agreements contained in this Security Instrument, (b) there is a legal proceeding that may significantly affect Lender‘s interest in the Property and/or rights under this Security Instrument (such as a proceeding in bankruptcy, probate, for condemnation or forfeiture, for enforcement of a lien which may attain priority over this Security Instrument or to enforce laws or regulations), or (c) Borrower has abandoned the Property, then Lender may do and pay for whatever is reasonable or appropriate to protect Lender‘s interest in the Property and rights under this Security Instrument, including protecting and/or assessing the value of the Property, and securing and/or repairing the Property. Lender‘s actions can include, but are not limited to: (a) paying any sums secured by a lien that has priority over this Security Instrument; (b) appearing in court; and (c) paying reasonable attorneys’ fees to protect its interest in the Property and/or rights under this Security Instrument, including its secured position in a bankruptcy proceeding. Securing the Property includes, but is not limited to, entering the Property to make repairs, change locks, replace or board up doors and windows, drain water from pipes, eliminate building or other code violations or dangerous conditions, and have utilities turned on or off. Although Lender may take action under this Section 9, Lender does not have to do so and is not under any duty or obligations to do so; it is agreed that Lender incurs no liability for not taking any or all actions authorized under this Section 9.
Any amount disbursed by Lender under this Section 9 shall become additional debt of Borrower secured by this Security Instrument. These amounts shall bear interest at the Note rate from the date of disbursement and shall be payable, with such interest, upon notice from Lender to Borrower requesting payment.
Read fairly, this covenant purportedly grants a mortgage creditor rights designed to protect its security interest. In particular, it provides that additional disbursements made by the creditor become part of the secured debt which must be repaid by the debtor.
However, there is nothing in the Addendum that limits or
More significantly, our own review of the mortgage instruments in all four bankruptcy cases confirms there is no provision that grants the creditors a “right” to decline to provide accountings and reports to the debtors or a trustee beyond those prescribed by the mortgage contracts, or any sort of bargained for prohibition on modification of duties under the contract. On the other hand, the contracts do acknowledge that
In their briefs, the mortgage creditors appear to argue that
Dreyfuss does not stand for the proposition that a mortgage creditor has a right under state law not to have its duties modified. In Dreyfuss, a borrower defaulted on a loan secured by separate deeds of trust on three real estate parcels. The mortgage creditor conducted a nonjudicial foreclosure sale on one property, and then proceeded with serial foreclosure sales of the remaining properties. The borrowers argued on appeal that foreclosing on the second and third properties without a judicial determination of the fair market value of the first property, and crediting that amount to the secured debt, was “the functional equivalent of a deficiency judgment” in violation of
The nonjudicial foreclosure provisions evince the legislative intent to establish an equitable trade-off of protections and limitations affecting the defaulting borrower and his or her creditor. In a nonjudicial foreclosure, the borrower is protected, inter alia, by notice requirements and a right to postpone the sale, in order to avoid foreclosure either by redeeming the property from the lien before the sale or finding another [] purchaser. . . . For its part, the creditor gains the certainty of a “quick, inexpensive and efficient remedy.”
Id. at 390 (emphasis added). This is the only reference in Dreyfuss to legislative intent and clearly refers to the trade-off of protections and limitations following a foreclosure. Nothing in Dreyfuss or any California law argued to this Panel supports an argument that the California legislature intended as either law or public policy that a mortgage creditor‘s burdens outside the foreclosure process should not be modified.18
Even if by some creative route we could transform the mortgage creditors’ contractual and statutory duty to provide reports into a “right” not to have those duties modified, we conclude it is not the sort of right that Congress intended to protect under
More recently, the Fourth Circuit examined the meaning of “modification” in
The bankruptcy courts have consistently interpreted the nomodification provision of § 1322(b)(2) to prohibit any fundamental alteration in a debtor‘s obligations, e.g., lowering monthly payments, converting a variable interest rate to a fixed interest rate, or extending the repayment term of a note. See, e.g., In re Schum, 112 B.R. 159, 161-62 (Bankr. N.D. Tex. 1990) (concluding that plan was impermissible modification because it proposed to reduce monthly payments and secured valuation). In In re Gwinn, 34 B.R. 936, 944-45 (Bankr. S.D. Ohio 1983), the court approved a plan as a permissible cure under § 1322(b)(5), because the plan did not propose to lower monthly payments, extend the repayment period, or make the obligation conditional. It instead sought only to reinstate the original contract with a minor delay in payment. Id.; see also In re Cooper, 98 B.R. 294 (Bankr. W.D. Mich. 1989) (finding impermissible modification where plan proposed new payment schedule). Along similar lines, another bankruptcy court concluded that confirmation of a Chapter 13 plan would have constituted an impermissible modification because the plan proposed to alter fundamental aspects of the debtor‘s obligations, i.e., the nature and rate of interest, and the maturity features of the loan. In re Coffey, 52 B.R. 54, 55 (Bankr. D.N.H. 1985). As these decisions have emphasized, § 1322(b)(2) prohibits modifications that would alter at least one fundamental aspect of a claim.
Litton v. Wachovia Bank (In re Litton), 330 F.3d 636, 643-44 (4th Cir. 2003) (emphasis added).
The approach taken in Grubbs and Litton appears consistent with the Supreme Court‘s analysis in Nobelman v. Am. Sav. Bank, 508 U.S. 324 (1993):
The term “rights” is nowhere defined in the Bankruptcy Code. In the absence of a controlling federal rule, we generally assume that Congress has “left the determination of property rights in the assets of a bankrupt‘s estate to state law,” since such “property interests are created and defined by state law.” Butner v. United States, 440 U.S. 48, 54-55 (1979). See also Barnhill v. Johnson, 503 U.S. 393, 398 (1992). Moreover, we have specifically recognized that “the justifications for application of state law are not limited to ownership interests,” but “apply with equal force to security interests, including the interest of a mortgagee.” Butner, supra, at 55. The bank‘s “rights,” therefore, are reflected in the relevant mortgage instruments which are enforceable under [state] law. They include the right to repayment of the principal in monthly installments over a fixed term at specified adjustable rates of interest, the right to retain the lien until the debt is paid off, the right to accelerate the loan upon default and to proceed against petitioners’ residence by foreclosure and public sale, and the right to bring an action to recover any deficiency remaining after foreclosure. See Record 135-140 (deed of trust); id., at 147-151 (promissory note); [state statutes]. These are the rights that were “bargained for by the mortgagor and the mortgagee,” Dewsnup v. Timm, 502 U.S. 410, 417 (1992), and are rights protected from modification by § 1322(b)(2).
Nobelman, 508 U.S. at 329-30 (emphasis added).
Nobelman states that the rights referenced in
At the end of the quoted material from Nobelman, the Supreme Court provides an explanation for the list, stating that “these are the rights that were ‘bargained for by the mortgagor and the mortgagee,’ Dewsnup v. Timm, 502 U.S. 410, 417 (1992), and are rights protected from modification by § 1322(b)(2).” The Supreme Court links the rights protected from modification to those rights bargained for by the mortgagor and the mortgagee. In other words, only those rights that were “bargained for” by the mortgage creditors are protected from modification by
There is no indication in the record that the reporting provisions in the mortgage instruments were ever specifically bargained for. Indeed, California law recognizes that mortgage deeds of trust (the documents which here include the covenants) are generally adhesion contracts. Fischer v. First Int‘l Bank, 109 Cal. App. 4th 1433, 1446 (Cal. Ct. App. 2003) (“Standardized deeds of trust are contracts of adhesion.“).
Moreover, the explicit language of Covenant 3 of the mortgage instruments indicates that, not only were the notice provisions not bargained for, they were imposed by external law,
Lender shall give to Borrower, without charge, an annual accounting of the [escrow] funds as required by
RESPA . If there is a surplus of Funds held in escrow, as defined underRESPA , Lender shall account to Borrower for excess funds in accordance withRESPA . If there is a shortage of funds in escrow, as defined underRESPA , Lender shall notify Borrower as required byRESPA , and Borrower shall pay to Lender the amount necessary to make up the shortage in accordance withRESPA . . . If there is a deficiency of Funds held in escrow, asdefined under RESPA , Lender shall notify Borrower as required byRESPA , and Borrower shall pay to Lender the amount necessary to make up the deficiency in accordance withRESPA .
(Emphasis added).
In short, the principal reporting requirement19 in the mortgage instruments was not a bargained for element of the contracts. It was imposed on the parties to the contract by federal law. It neither added, enlarged nor reduced the respective rights and duties bargained for by the parties to the contract and, in fact, neither party had the power to change the annual reporting provision.
As explained by the Supreme Court and courts of appeal, the mortgage creditors’ rights protected by
In Ameriquest Mortg. Co. v. Nosek (In re Nosek), 544 F.3d 34 (1st Cir. 2008), the First Circuit admonished the bankruptcy court for failing to require additional accounting and reporting by the creditor and that such additional reporting would not have been a
[E]ven if the Payment History could somehow be construed as a threat to her right to cure, the proper response of the bankruptcy court would have been an amendment to the Plan specifying the accounting practices necessary to eliminate that threat. See In re Watson, 384 B.R. 697, 705 (Bankr. D. Del. 2008) (holding that Chapter 13 plans “containing procedures for timely notice of fees and charges, proper allocation of payments and adjudication by [the bankruptcy court] of disputes over assessed fees, costs and charges under a mortgage may be confirmed without running afoul of section 1322(b)(2)); see also In re Collins, No. 07-30454, 2007 Bankr. LEXIS 2487, 2007 WL 2116416, at *11 (Bankr. E.D. Tenn. July 19, 2007) (“[L]anguage in a Chapter 13 plan burdening mortgagees with procedural obligations over the life of the plan does not, per se, violate § 1322(b)(2)‘s anti-modification provision and is permissible and even desirable.“). Only with such an Amendment in place would the Plan support the imposition of remedies pursuant to § 105(a) if Ameriquest failed to comply with its terms. Absent that specificity, the court had no authority to order the award it did.
The mortgage creditors cite to Nosek for support of their position that a bankruptcy court should not require the mortgage creditor to change its accounting practices:
In saying that the Plan would have to be amended to prescribe the accounting practices necessary to protect Nosek‘s right to cure before Ameriquest could be sanctioned for a violation of an order of the bankruptcy court, we do not suggest that the bankruptcy court should have engaged in a company-wide revision of Ameriquest‘s corporate accounting practices. Under the facts of this case, a simple amendment to the Plan clarifying how Ameriquest must account for short, late, or missed pre- and post-petition payments from Nosek or the trustee during the course of the repayment period would have sufficed.
In re Nosek, 544 F.3d at 50 n.16. The mortgage creditors are correct that the First Circuit cautioned that its position was not a license to the bankruptcy courts to require a mortgage creditor to implement company-wide revised accounting procedures. The
Several bankruptcy courts have also approved enhanced creditor account reporting requirements, rejecting the creditors’ contention that such provisions violated
As discussed in In re Nosek, the bankruptcy court in In re Collins ruled that “language in a Chapter 13 plan burdening mortgagees with procedural obligations over the life of the plan does not, per se, violate § 1322(b)(2)‘s anti-modification provision and is permissible and even desirable.” 2007 WL 2116416 at *11. The Collins court endorsed reporting requirements beyond those required in the mortgage instruments, including notification
to the trustee, the Debtors, and the attorney for the Debtors in writing of any changes in the interest rate for any non-fixed rate or any adjustable rate mortgages and the effective date of any such adjustment or adjustments not less than 60 days in advance of such change or at such time as the change becomes known to the holder if the change is to be implemented in less than 60 days [and] [t]o notify the trustee, the Debtors, and the attorney for the Debtors in writing of any change in the property taxes and/or the property insurance premiums that would either increase or reduce the escrow portion, if any, of the monthly mortgage payments and the effective date of any such adjustment or adjustments not less than 60 days in advance of such change or at such time as the change becomes known to the holder if the change is to be implemented in less than 60 days.
Id.21
In In re Watson, 384 B.R. 697, 705 (Bankr. D. Del. 2008), the
In In re Anderson, 382 B.R. 496 (Bankr. D. Ore. 2008), the bankruptcy court considered the application of its General Order requiring changes in some reporting requirements during a chapter 13 bankruptcy. One particular provision was hotly contested. The creditor‘s trust deed required that notice of changes in escrow accounts be sent to the debtor. However, the chapter 13 plan provision changed this requirement to dictate that the debtor‘s attorney and the trustee also receive the notice. The creditor challenged the provision on grounds that it was not required in the deed of trust. The bankruptcy court ruled that “additional notice is more in the nature of a procedural requirement to aid Chapter 13 administration, than a modification and is therefore permissible.” Id. at 504.
Subsections A2, A4, A5 and A6 of the Addendum are all designed to provide necessary information concerning the status of, and any additional charges to, the debtors’ mortgage loans during the term of their plan. The basis for inclusion of such provisions in the plans is justified by the need for chapter 13 debtors to emerge from bankruptcy with their mortgage loans
B.
The mortgage creditors’ objections to inclusion of the provisions of subsections B3 and B4 of the Addendum in the debtors’ plans are also without merit.
These two provisions impose no particular obligations on the mortgage creditors. As the debtors point out, if the provisions of section A of the Addendum are appropriate, subsection B3 simply provides a procedure for enforcement of those provisions. In other words, if a plan is confirmed that includes the subsection A reporting provisions, under subsection B3, a violation of those plan provision can be enforced via issuance of an order to show cause by the bankruptcy court.22 Moreover, subsection B3 provides a noncomplying creditor with significant due process rights before it can be found to have violated the plan, something that hardly amounts to a prohibited modification of any of its contract rights.
Similarly, subsection B4 does not modify a mortgage creditors’ rights in violation of
C.
None of the challenged provisions of the Addendum incorporated in the debtors’ chapter 13 plans amount to prohibited modifications to the creditors’ contractual rights in violation of
The provisions of subsections B3 and B4 also do not modify the creditors’ rights — indeed, in some respects, these provisions provide additional rights and protections to them.
CONCLUSION
The mortgage creditors’ challenges to the provisions of the Addendum incorporated in the debtors’ confirmed chapter 13 plans lack merit. We therefore AFFIRM the bankruptcy courts’ orders confirming the plans.
The summary, which does not constitute a part of the opinion of the court, is copyrighted 2011 Thomson Reuters.