Blanco v. Bayview Loan Servicing LLC (In re Blanco)

• Decision Date: 14 September 2021
• Docket Number: CASE NO: 20-10078,ADVERSARY NO. 20-1005
• Parties: IN RE: Ramon BLANCO and Maria P Blanco, Debtors. Ramon Blanco and Maria P Blanco, Plaintiffs, v. Bayview Loan Servicing LLC, Defendant.
• Court: United States Bankruptcy Courts. Fifth Circuit. U.S. Bankruptcy Court — Southern District of Texas

633 B.R. 714

IN RE: Ramon BLANCO and Maria P Blanco, Debtors.Ramon Blanco and Maria P Blanco, Plaintiffs,

v.Bayview Loan Servicing LLC, Defendant.

CASE NO: 20-10078

ADVERSARY NO. 20-1005

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

Signed September 14, 2021

Karen L. Kellett, Kellett & Bartholow PLLC, Dallas, TX, Abelardo Limon, Jr., Limon Law Office PC, Brownsville, TX, for Plaintiffs.

Andrew Paul Barber, Daniel Francis Patton, Michael W. Twomey, Scott Patton PC, Michael L. Weems, Hughes Watters Askanase, Houston, TX, for Defendant.

MEMORANDUM OPINION

Eduardo Rodriguez, United States Bankruptcy Judge

Plaintiffs Ramon and Maria P. Blanco filed an adversary proceeding, incorporating their previously filed claim objection, and asserting core bankruptcy claims such as lien avoidance and violations of Rule 3002.1, the automatic stay, and the discharge injunction, to name a few. The target of the complaint is Defendant Community Loan Servicing, LLC f/k/a Bayview Loan Servicing, LLC who responded with a motion seeking partial dismissal of Plaintiffs' complaint for failure to state a claim. Not to be outdone, Plaintiffs filed their own motion seeking dismissal of Defendant's counterclaims and for entry of a judgment on the pleadings.

On September 7, 2021, the Court held a hearing on the competing motions and for the reasons set forth herein, Ramon and Maria P. Blanco's Counts I and II are dismissed with prejudice, their motion for judgment on the pleadings is denied and their request for leave to amend their complaint is denied. Community Loan Servicing, LLC f/k/a Bayview Loan Servicing, LLC's Count II is dismissed, and their request for leave to amend its answer and counterclaims is denied.

I. BACKGROUND

A. Procedural History

In Ramon and Maria P. Blanco's ("Plaintiff s' ") underlying bankruptcy case, Community Loan Servicing, LLC f/k/a Bayview Loan Servicing, LLC ("Defendant ") filed a proof of claim. As discussed below, that proof of claim has been amended twice. Plaintiffs filed an objection to Defendant's proof of claim, later incorporating that objection into an original complaint, and asserting several claims ("Complaint ").¹

Plaintiffs' Complaint sets forth nine causes of action: (i) Defendant's lien is void under Texas law; (ii) avoidance of loan and lien; (iii) violations of Federal Rule of Bankruptcy Procedure 3002.1 ; (iv) objection to Defendant's proof of claim; (v) violation of the plan and the order confirming the plan; (vi) willful violation of the automatic stay pursuant to 11 U.S.C. § 362(a)(3) ; (vii) violation of the discharge injunction pursuant to 11 U.S.C. § 524(i) ; (viii) contempt, and (ix) breach of contract Plaintiffs also seek injunctive relief and request actual, statutory, and punitive damages, plus attorney's fees and sanctions.² Plaintiffs' claims against Defendant arise from a prior bankruptcy case, 11-70475, that was discharged by this Court in 2018 ("2011 Case ") and the instant bankruptcy proceeding.

Defendant filed an answer to Plaintiffs' Complaint and alleged two counterclaims for breach of contract and declaratory judgment.³ Defendant then filed, and later amended, a partial motion to dismiss Plaintiffs' Complaint for failure to state a claim ("Motion to Dismiss ").⁴ Plaintiffs filed their competing "Motion to Dismiss Defendant's Counterclaims for Failure to State a Claim and Motion for Judgment on the Pleadings" ("Plaintiffs' Motion ").⁵ Each party timely filed the appropriate responses and replies to the cross-motions to dismiss.⁶ On September 7, 2021, the Court held a hearing on the Motions.

B. Factual Background

1. The $68,000 Note and accompanying Deed of Trust

The factual background in this case spans two decades and is highly contested. In this section, the Court details undisputed facts, unless otherwise noted.

Plaintiffs own the real property at issue in this case, 4015 E. Expressway 83, Weslaco, Texas 78596 having a legal description of: Lot Seven (7), Dellinger Subdivision, an Addition to the City of Mercedes, Hidalgo County, Texas, as per map or plat thereof recorded in Volume 22, Page 39, Map Records, Hidalgo County, Texas ("Property ").⁷ In 2001, Plaintiffs took out a loan on the Property from InterBay Funding, LLC ("InterBay "), executing a note for $68,000 ("Note ") and a corresponding deed of trust ("Deed of Trust ").⁸ Through a series of assignments that Plaintiffs allege were defective, InterBay's interest in the Note and Deed of Trust was purportedly transferred to Defendant.⁹

On January 25, 2010, Plaintiff Ramon Blanco and Defendant executed a Modification Agreement of the Note and Deed of Trust ("Modification Agreement "). The Modification Agreement restructured the Note and raised it to an unpaid principal balance due of $115,340.64 and provided for monthly payments of $1,197.40.¹⁰

2. Plaintiffs' 2011 bankruptcy case

On August 1, 2011, Plaintiffs filed a bankruptcy petition, initiating the 2011 Case. Cindy Boudloche was the chapter 13 trustee ("Trustee ").¹¹ Defendant filed a proof of claim ("2011 POC ") in the 2011 Case for $124,157.54 and listed $16,052.69 in arrears and an on-going mortgage payment of $1,197.40.¹² Plaintiffs' reorganization plan proposed to pay the $1,197.00 through the Trustee. The plan also proposed to pay the arrears with 5.252% interest.¹³ That plan was confirmed.¹⁴

On November 30, 2011, Defendant filed a Notice of Mortgage Payment Adjustment ("NPC "), notifying all parties that the monthly payment would increase to $1,251.57 effective January 1, 2012. Plaintiffs did not object to the NPC.¹⁵ On December 21, 2011, Defendant filed a Motion to Lift Stay, wherein it represented that the on-going monthly mortgage payments were $1,197.40.¹⁶ On January 27, 2012, this Court entered an Agreed Order resolving the Lift Stay motion.¹⁷ The Agreed Order stated that Plaintiffs were to continue paying $1,197.40, not the amount reflected in the November 30, 2011 NPC.¹⁸ On December 29, 2011, the Trustee filed a Trustee's Report,¹⁹ notifying Defendant that:

According to the Trustee's records, the current monthly mortgage payment is $1,197.40. Written notice of changes in the monthly payment must be provided to the Trustee, the Debtor and Debtor's counsel 21 days prior to the effective date of the mortgage payment change, pursuant to Bankruptcy Rule 3002.1(b).²⁰

Four years later, Plaintiffs filed an Amended Motion to Modify their chapter 13 plan ("2011 Plan ") to allow for the claim of a non-related creditor; however, therein, Plaintiffs proposed to continue paying Defendant on its claim the amount of $1,197.40 until the end of the plan. Defendant did not object to the Modification.²¹ The Court granted Plaintiffs' Amended Motion to Modify. The Trustee made all the mortgage payments to Defendant in the amount of $1,197.40, totaling $71,898.17 over the sixty months of the 2011 Plan. The Trustee also paid all the pre-petition arrearage.²²

On September 29, 2016, the Trustee filed a Motion to Deem the Mortgage Current under Federal Rule of Bankruptcy Procedure 3002.1(f). In it, the Trustee stated that the monthly mortgage payment in her books and records as of that date was $1,197.40. The Trustee also stated that the "Next Payment Due Date" was September 2016.²³ On October 5, 2016, Defendant filed a Form 4100R Response to Notice of Final Cure Payment under Federal Rule of Bankruptcy Procedure 3002.1(g).²⁴ Therein, Defendant agreed with the Trustee that: (1) Plaintiffs cured the pre-petition default on Defendant's claim; (2) "[Plaintiffs] are current with all post-petition payments consistent with § 1322(b)(5) of the Bankruptcy Code, including all fees, charges, expenses, escrow, and costs;" and (3) the next payment due date was September 1, 2016. Defendant did not object to the monthly payment amount of $1,197.40.²⁵

On October 11, 2016, this Court signed an Order Deeming Mortgage Current and Directing Debtors to Resume Payments ("Deem Current Order "). In that order, this Court found that all payments to Defendant under the confirmed plan were completed and that "(i) the claims of the above-listed creditor(s) (Community) are deemed current; (ii) all escrow deficiencies, if any, are deemed cured; and (iii) all legal fees, inspection fees and other charges imposed by the creditor, if any, are deemed satisfied in full as of the next payment due date set forth below and that the creditor shall be solely responsible for any shortfall or failure to respond to the Trustee's notice and motion."²⁶ Further, the Order directed Plaintiffs pay $1,197.40 directly to Defendant beginning September 2016.²⁷

On October 20, 2016, the Trustee filed a Notice of Plan Completion.²⁸ Despite that Notice and this Court's Deem Current Order, Defendant filed an NPC under Official Form 410S1, after the 2011 Plan had been completed and was no longer in effect.²⁹ The NPC indicated that the mortgage payment would increase to $2,012.00 effective March 1, 2017 based on an alleged increase in the escrow payment from $627.69 to $1,185.69. Plaintiffs did not object to the NPC, allegedly because the 2011 Plan had been completed and was no longer in effect.³⁰

On May 31, 2017, the Trustee withdrew her Notice of Plan Completion.³¹ Thereafter, the Trustee filed an updated Notice, stating that all "plan payments were properly adjusted to reflect any change in mortgage payments after confirmation or the last approved modification." Defendant did not object to the Trustee's updated Notice.³² On September 13, 2018, this Court granted Plaintiffs a discharge and entered a Final Decree.³³

3. Defendant's attempt to foreclose

Plaintiffs admit that they stopped making payments to Defendant in November 2018, allegedly because they grew frustrated with Defendant's post-discharge activities, recounted throughout this Memorandum Opinion.³⁴ Defendant notified Plaintiffs of its intent to foreclose on the Property and scheduled a foreclosure sale for August 6, 2019.³⁵ Plaintiffs filed a state court...