In re Sanchez

• Citation: 372 B.R. 289
• Decision Date: 24 July 2007
• Docket Number: Adversary No. 06-3671.,Bankruptcy No. 02-45416.
• Parties: In re Lino SANCHEZ and Mary Sanchez, Debtors. Lino Sanchez and Mary Sanchez, Plaintiffs, v. Ameriquest Mortgage Company, Defendant.
• Court: United States Bankruptcy Courts. Fifth Circuit. U.S. Bankruptcy Court — Southern District of Texas

372 B.R. 289

In re Lino SANCHEZ and Mary Sanchez, Debtors Lino Sanchez and Mary Sanchez, Plaintiffs, v. Ameriquest Mortgage Company, Defendant.

Bankruptcy No. 02-45416.

Adversary No. 06-3671.

United States Bankruptcy Court, S.D. Texas, Houston Division.

July 24, 2007.

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Johnie J. Patterson, II, Walker & Patterson, P.C., Houston, TX, for Plaintiffs.

Heather Heath McIntyre, Hughes Watters Askanase, LLP, Houston, TX, for Defendant.

MEMORANDUM OPINION ON PLAINTIFFS' MOTION FOR PARTIAL SUMMARY JUDGMENT AND DEFENDANT'S MOTION FOR SUMMARY JUDGMENT

JEFF BOHM, Bankruptcy Judge.

I. Introduction

The American bankruptcy system is often described as having two primary objectives: first, ensuring the equitable and timely repayment of creditors with valid claims; and second, affording debtors a fresh start once they emerge from bankruptcy. In re Ortiz, No. 05-39982, 2006 WL 2946500, at *9 (Bankr.S.D.Tex. Oct 13, 2006) (quoting In re T-H New Orleans Ltd. P'ship, 188 B.R. 799, 807 (E.D.La. 1995), aff'd, 116 F.3d 790 (5th Cir.1997)). In order for these twin goals to be achieved — indeed, in order for the bankruptcy system to function — every entity involved in a bankruptcy proceeding must fully disclose all relevant facts. In re Coastal Plains, Inc., 179 F.3d 197, 208 (5th Cir.1999) ("The duty of disclosure in a bankruptcy proceeding is a continuing one."); In re Ramirez, No. 03-47872, 2006 WL 3838176, at "3 (Bankr.S.D.Tex. Dec. 29, 2006) ("[T]he broad policy of the Bankruptcy Code ... favors transparency and disclosure whenever possible."); In re eToys, Inc. 331 B.R. 176, 187 (Bankr. D.Del.2005) ("Disclosure `goes to the heart of the integrity of the bankruptcy system.'") (citing In re B.E.S. Concrete Products, Inc., 93 B.R. 228, 236 (Bankr. E.D.Cal.1988)); In re Century Plaza Assoc., 154 B.R. 349, 352 (Bankr.S.D.Fla. 1992) ("Disclosure of fees is a fundamental concept in bankruptcy.").

In the case at bar, Ameriquest Mortgage Company (the Defendant) had a security interest in the homestead owned by Chapter 13 debtors Lino and Mary Sanchez (the Plaintiffs), and charged them thousands of dollars in post-petition attorney's fees, costs, and property inspection fees without disclosing these charges to either the Plaintiffs or the Court. The Plaintiffs contend that such charges must be disclosed to the Court, and that the charges must be reasonable. The Defendant asserts that neither the security instrument signed by the Plaintiffs nor the Bankruptcy Code requires it to disclose these charges to the Plaintiffs or seek this Court's approval.

The chief question presented on the Motions for Summary Judgment filed by both parties, then, is this: may a creditor holding a lien on a debtor's homestead assess post-petition charges, without giving notice to the debtor and without seeking court approval, if those charges are specifically allowed under a pre-petition contract?

On April 3, 2007, this Court held a hearing on the Plaintiffs' Motion for Partial Summary Judgment and the Defendant's Motion for Summary Judgment. Counsel for both parties made oral arguments, and this Court took the matter under advisement. The Court now makes the following Findings of Fact and Conclusions of Law under Federal Rule of Civil Procedure 52 as incorporated into Federal Rule of Bankruptcy Procedure 7052. To the extent that any Finding of Fact is construed to be a Conclusion of Law, it is adopted as such. To the extent that any Conclusion of Law is construed to be a Finding of Fact, it is adopted as such. The Court reserves the right to make any additional Findings and Conclusions as may be necessary or as requested by any party.

II. Findings of Fact

The principal facts of this case are not in dispute. The parties disagree on both the applicable law and its application, however. The facts, as stipulated to or admitted by the parties, or as admitted in the briefs and filings, are as follows:

1. On May 23, 2001, the Plaintiffs executed a Texas Home Equity Adjustable Rate Note (the Note) payable to the Defendant in the principal amount of $116,000.00.

2. Concurrently, the Plaintiffs executed a Texas Home Equity Security Instrument (the Security Instrument) (collectively with the Note, the Loan Documents) granting the Defendant a security interest in the Plaintiffs' homestead located at 1745 Wakefield Dr., Houston, TX 77018 (the Sanchez Homestead) to secure the Plaintiffs' obligations pursuant to the Note.

3. The Plaintiffs' monthly mortgage payment, which did not include any escrow amounts for taxes or insurance, was $1,184.27.¹

4. On December 30, 2002, the Plaintiffs filed a voluntary Chapter 13 petition.²

5. The Plaintiffs did not make their January 2003 or February 2003 mortgage payments.

6. On February 21, 2003, the Defendant filed its proof of claim in the amount of $117,871.41.³ This claim included $2,417.35 in arrearages, calculated as follows:

a. $3,552.81 in delinquent pre-petition monthly (principal and interest) payments, reflecting unpaid mortgage payments from October, November, and December 2002;

b. $21.00 in property inspection fees;

c. $75.00 in insufficient funds (NSF) fees; and

d. a credit of $1,231.46 in Suspense Balance (a prepaid amount held by the Defendant).

The Defendant's proof of claim did not include any attorney fees or costs.

7. On March 11, 2003, the Defendant filed a motion for relief from stay. This motion alleged that the Plaintiffs owed the Defendant $115,454.06 in unpaid principal, plus $625.00 in attorney's fees and costs. [Docket No. 10.]⁴

8. On April 2, 2003, U.S. Bankruptcy Judge Karen Brown signed an Agreed Order between the Plaintiffs and the Defendant (the Agreed Order). [Docket No. 12.]⁵ The Agreed Order stated that on March 31, 2003, the Plaintiffs had paid the Defendant $1,200.00, which sum was to be applied to the mortgage payment for March 2003. Among other things, the Agreed Order required the Plaintiffs to:

a. amend their Chapter 13 Plan to include post-petition arrearages of $2,368.54, reflecting the unpaid monthly payments from January and February of 2003;

b. pay the Defendant $646.00, reflecting $625.00 in post-petition attorney's fees and costs and $21.00 in post-petition property inspection fees;⁶ and c. remain current in paying post-petition property taxes unless funds for such insurance and taxes were collected by the Defendant through Plaintiffs' escrow account.⁷

9. On May 5, 2003, the Plaintiffs filed their First Amended Chapter 13 Plan (the Amended Plan). [Docket No. 16.]

10. Between March 5, 2003 and November 25, 2003 — i.e., pre-confirmation — the Defendant charged the Plaintiffs for $1,675.00 in legal fees, $44:1.25 in legal costs, and $86.00 in property inspection fees. [Adversary Docket Nos. 13, 23.]⁸ The Defendant did not disclose any of these charges to the Plaintiffs or the Court.

11. On November 25, 2003, Judge Brown confirmed the Amended Plan. Section U of the Amended Plan set forth that "All property of Debtor's Estate shall vest in Debtor or upon Debtor receiving a discharge under 11 U.S.C. Sec. 1328 or Debtor's Case being dismissed." [Docket No. 41.]

12. Between November 25, 2003 and December 23, 2004 — post-confirmation — the Defendant charged the Plaintiffs $130.00 in property inspection fees. [Adversary Docket Nos. 13, 23.] The Defendant did not disclose any of these fees to the Plaintiffs or the Court.

13. Between April 2003 and December 2004, the Plaintiffs made a series of payments to the Defendant which, taken as a whole, were more than equal to the amounts of the monthly mortgage payments owed during this time. [Adversary Docket Nos. 13, 23.]

14. On December 30, 2004, the Defendant filed a Certificate of Default with the Court, alleging that the Plaintiffs had defaulted by not making the monthly payments due pursuant to the terms of the Agreed Order. [Docket No. 46.]

15. On January 18, 2005, the Defendant returned the Plaintiffs' December 2004 mortgage payment check, along with a letter stating: "We are returning your check No. 1472 in the amount of $1,200.00 as your loan is in default, and this amount will not bring your loan current." The Defendant did not send a copy of this letter to the Plaintiffs' counsel or the Court. [Adversary Docket Nos. 13, 23.]

16. In a letter dated January 27, 2005, the Defendant returned the Plaintiffs' January 2005 mortgage payment. [Adversary Docket Nos. 13, 23.]

17. On January 28, 2005, the Defendant mailed the Plaintiffs a letter offering them a "Forbearance Plan Agreement" (the Forbearance Agreement). The Defendant did not send a copy of this letter to the Plaintiffs' counsel or the Court. [Adversary Docket Nos. 13, 23.]⁹

18. On February 3, 2005, without having consulted their counsel, the Plaintiffs signed the Forbearance Agreement and, pursuant to its terms, sent $4,000.00 to the Defendant. The Defendant applied these monies as follows: $1,200.00 to "Additional Bankruptcy Fees," $516.25 to "Additional Bankruptcy Costs," $217.00 to "Property Inspections," and $2,270.47 to "Accrued Interest." [Adversary Docket Nos.13, 23.]

19. In March 2005, the Defendant paid delinquent property taxes on the Sanchez Property. [Adversary Docket Nos. 13, 23.] Specifically, in a letter dated May 9, 2005, the Plaintiffs were informed that with reference to the Sanchez Property, the Defendant had paid taxes of $9,540.32 (relating to Harris County) and $10,812.65 (relating to Houston ISD), and that both tax claims were from tax year 2001. The Defendant then added the amount of these taxes to the Plaintiffs' account, thereby increasing the claim held by the Defendant. The Defendant did not disclose its actions to the Court nor did the Defendant file a Transfer of Claim.

20. In February, March, and April 2005, the Defendant returned the payments it received from...