In re Rodriguez
| Decision Date | 23 December 2010 |
| Docket Number | No. 09-2724,09-2724 |
| Citation | 629 F.3d 136 |
| Parties | In re Francisco RODRIGUEZ; Anna Rodriguez, Appellants. |
| Court | U.S. Court of Appeals — Third Circuit |
Steven J. Abelson, Esq. (Argued), Freehold, NJ, for Appellants.
W. Scott Hastings, Esq. (Argued), Thomas A. Connop, Esq., Locke Lord Bissell & Liddell, Dallas, TX, Sarah M. Chen, Esq., Joseph N. Froehlich, Esq., Locke Lord Bissell & Liddell, New York, NY, for Appellee.
Before: SLOVITER, BARRY and SMITH, Circuit Judges.
In this appeal, we are called upon to determine whether the automatic stay provisions of the Bankruptcy Code prohibit a lender from seeking to recoup unpaid pre-petition escrow payments from a bankrupt debtor outside the confines of the bankruptcy proceeding. The Bankruptcy Court and the District Court found that Countrywide Home Loans, Inc. ("Countrywide") did not have a pre-petition claim against Francisco and Anna Rodriguez and thus did not violate the automatic stay when it recalculated the Rodriguezes' post-petition escrow payments on their mortgage account to include certain pre-petition escrow arrears. For the following reasons, we will vacate the order of the District Court and remand for further proceedings consistent with this Opinion.
The Rodriguezes financed the purchase of their home in Monmouth County, NewJersey, with a purchase-money mortgage from First Mutual Corp., with Countrywide acquiring the mortgage thereafter. Under the terms of the mortgage, the Rodriguezes' monthly payments consisted of (1) an amount to cover principal, interest, and any late fees, and (2) an amount to cover taxes, insurance, and "other charges." App. at 119-20. The second part of the monthly payment—for taxes, insurance, and other charges—was to be paid into an escrow account and used, as needed, by Countrywide to pay for those expenses as they became due.
As permitted by the Real Estate Settlement Procedures Act of 1974 ("RESPA"), 12 U.S.C. § 2601 et seq., Countrywide required the Rodriguezes to pay an amount into the escrow account that was higher than required to cover the actual cost of taxes, insurance, and other charges. RESPA permits a mortgagee to determine the amount of a debtor's monthly payment by estimating the property taxes and insurance that will be due over the ensuing twelve months and to add a reserve requirement equal to one-sixth of that total estimate. See 12 U.S.C. § 2609(a)(1).
The Rodriguezes fell behind on their mortgage payments and filed a voluntary petition for relief under Chapter 13 of the Bankruptcy Code on October 10, 2007. At the time of filing, they were $20,844.40 in arrears on eight months of mortgage payments, plus foreclosure fees and costs. While the bulk of the arrearage was for principal and interest payments, $5,657.60 1 was an escrow arrearage for taxes, insurance, and other charges. Of the $5,657.60 amount, $3,869.91 was attributable to payments which Countrywide had already made for taxes, insurance, and other charges. The remaining $1,787.69 was the amount for which Countrywide had not made corresponding payments for taxes, insurance, and other charges. In other words, the $1,787.69 amount was Countrywide's cushion. Despite this arrearage, at the time of the bankruptcy filing, the Rodriguezes' escrow account showed a projected surplus of $2,494.89, although the actual balance was a negative amount due to the missing escrow payments.
After the bankruptcy filing, Countrywide issued to the Rodriguezes a revised escrow analysis and demand for payment which indicated that Countrywide had boosted the monthly escrow payment amount to $947.77 from $707.20. The new $947.77 figure was comprised of $650.10 for the base escrow payment, $210.65 for the "[s]hortage payment," and $87.02 for the "[r]eserve requirement." App. at 64. The basis for the increased escrow amount was a post-petition escrow shortage.
Countrywide calculated the revised escrow payments by presuming that the escrow balance at the time of the bankruptcy filing was $0.00 because the Rodriguezes had not contributed any funds to the account. In other words, Countrywide did not treat the $1,787.69 cushion as funds that existed at the time of the bankruptcy filing. Instead, by starting with a balance of $0.00 in the escrow account, Countrywide calculated the post-petition escrow shortage as including the $1,787.69 cushion that the Rodriguezes had never, in fact, paid.
On December 2, 2007, the Rodriguezes filed a motion in the Bankruptcy Court to enforce the automatic stay pursuant to 11 U.S.C. § 362(a), compel Countrywide to"cease post[-]petition collection of pre-petition escrow claims," and award the Rodriguezes attorneys fees and costs. Id. at 1-10; id. at 4. The denial of that motion, affirmed by the District Court, is the subject of this appeal.
On January 15, 2007, Countrywide filed its proof of claim with the Bankruptcy Court. Countrywide sought a total of $21,283.71 in pre-petition arrears, including $3,869.91 for the pre-petition escrow deficiency, which was the amount that Countrywide actually had paid out for taxes, insurance, and other charges. In other words, Countrywide did not seek to recoup the $1,787.69 cushion via the bankruptcy process, but rather by assessing the Rodriguezes higher post-petition monthly escrow payments to make up for the shortfall.
The Rodriguezes argued to the Bankruptcy Court and then to the District Court that Countrywide was required to submit the entire escrow shortage as part of its proof of claim in the bankruptcy proceeding, and that the Bankruptcy Code's automatic stay forbids collecting any of the pre-petition shortfall by increasing the amount of the post-petition escrow payments. The Bankruptcy Court and District Court disagreed, holding that the amount by which a bankrupt homeowner is delinquent in monthly payments that would be maintained in escrow by the lender until the amount was due is not subject to the automatic stay. This appeal followed.
The District Court had jurisdiction under 28 U.S.C. § 158(a). We have jurisdiction under 28 U.S.C. §§ 158(d) and 1291 and "exercise the same standard of review as the District Court when it reviewed the original appeal from the Bankruptcy Court." In re Handel, 570 F.3d 140, 141 (3d Cir.2009). Thus, we review the Bankruptcy Court's findings of fact for clear error and exercise plenary review over that Court's legal determinations. Id.
The issue before us is whether the automatic stay prevents Countrywide from accounting for the pre-petition escrow shortage in its post-petition calculation of the Rodriguezes' future monthly escrow payments. The automatic stay, under section 362(a) of the Bankruptcy Code, is triggered upon the filing of a bankruptcy petition. That section provides that "any act to collect, assess, or recover a claim against the debtor that arose before the commencement of the case," outside the course of the bankruptcy proceeding, is stayed during the bankruptcy case. 11 U.S.C. § 362(a)(6). The automatic stay is applicable only to claims that arise pre-petition, and not to claims that arise post-petition. See In re Grossman's Inc., 607 F.3d 114, 122 (3d Cir.2010) (en banc).
Crucial to our determination of whether Countrywide violated the automatic stay is whether it had a "claim" against the Rodriguezes for the unpaid $1,787.69 prior to the Rodriguezes' bankruptcy filing. If Countrywide had no claim for the unpaid escrow amount until that amount was, in fact, needed to cover taxes, insurance, and other charges that were due, then Countrywide had no right to collect those monies pre-petition and it could not have violated the automatic stay.
The Bankruptcy Code defines "claim" very broadly to mean:
11 U.S.C. § 101(5).
In reviewing § 101(5), the Supreme Court observed that the language "right to payment" in the definition of "claim" meant "nothing more nor less than an enforceable obligation[.]" Johnson v. Home State Bank, 501 U.S. 78, 83, 111 S.Ct. 2150, 115 L.Ed.2d 66 (1991). It reiterated that "Congress intended by this language to adopt the broadest available definition of 'claim.' " Id; see also FCC v. NextWave Pers. Commc'ns Inc., 537 U.S. 293, 302, 123 S.Ct. 832, 154 L.Ed.2d 863 (2003).
In Grossman's, this Court, sitting en banc, endorsed this broad interpretation of the term "claim," overruling the narrow "accrual test" established in Avellino & Bienes v. M. Frenville Co., which focused on the phrase "right to payment" in § 101(5) and when the right arose. Grossman's, 607 F.3d at 121, overruling Frenville, 744 F.2d 332 (3d Cir.1984). We explained that this focus on the "right to payment" failed "to give sufficient weight" to the other words in the statutory definition that modified the term "claim," i.e., "contingent," "unmatured," and "unliquidated." 607 F.3d at 121. These modifiers, we concluded, mean that a " 'claim' can exist under the [Bankruptcy] Code [by virtue of the terms 'contingent,' 'unmatured,' and 'disputed,'] before a right to payment exists under state law." Id.
With this definition in mind, we turn to the terms of the mortgage. The mortgage held by Countrywide specified the Rodriguezes' required payments and Countrywide's right to accelerate the payment date and seek foreclosure in case of default:
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