In Re Alex Zotow

• Decision Date: 18 June 2010
• Docket Number: BAP No. EC-09-1409-JuPaKw.,Bankruptcy No. 09-20504.
• Parties: In re Alex ZOTOW and Theresa Zotow, Debtors.Alex Zotow; Theresa Zotow, Appellants,v.Jan P. Johnson; Bac Home Loans Servicing, LP, formerly known as Countrywide Home Loans Servicing, LP, Appellees.
• Court: Bankruptcy Appellate Panels. U.S. Bankruptcy Appellate Panel, Ninth Circuit

432 B.R. 252

10 Cal. Daily Op. Serv. 9335

2010 Daily Journal D.A.R. 11

of the Ninth Circuit.

In re Alex ZOTOW and Theresa Zotow, Debtors.Alex Zotow; Theresa Zotow, Appellants,v.Jan P. Johnson; Bac Home Loans Servicing, LP, formerly known as Countrywide Home Loans Servicing, LP, Appellees.

BAP No. EC-09-1409-JuPaKw.

Bankruptcy No. 09-20504.

United States Bankruptcy Appellate Panel

Argued and Submitted on May 18, 2010.

Filed June 18, 2010.

COPYRIGHT MATERIAL OMITTED

Mark A. Wolff, Elk Grove, CA, for Alex Zotow, Jr., Theresa Zotow.

Jan P. Johnson, Sacramento, CA, for Trustee.

Brian C. Walsh, Bryan Cave LLP, St. Louis, MO, Katherine M. Windler, Sheri Kanesaka, Bryan Cave LLP, Santa Monica, CA, for BAC Home Loans Servicing, LP.

Before: JURY, KWAN ¹, and PAPPAS, Bankruptcy Judges.

OPINION

JURY, Bankruptcy Judge.

Alex and Theresa Zotow (“Debtors”) appeal the bankruptcy court's order which determined that BAC Home Loans Servicing, LP (“BAC”), f/k/a Countrywide Home Loans Servicing, LP, did not violate the automatic stay.

The matter arose in connection with Debtors' objection to BAC's proof of claim. Debtors objected on the ground that their prepetition escrow arrearages on their mortgage should have been included in BAC's proof of claim. Instead, postpetition, BAC provided notice to Debtors showing an increase to their postpetition mortgage payments which, Debtors argued, improperly included their prepetition escrow arrears in violation of § 362(a)(6).² Debtors further alleged that BAC received several increased postpetition mortgage payments from the Chapter 13 trustee and applied those payments to their prepetition debt, also in violation of the stay.

On appeal, Debtors assert that the bankruptcy court erred, as a matter of law, by concluding that BAC's acts did not violate the automatic stay. We disagree with Debtors and, for the reasons set forth below, we AFFIRM.

I. FACTS

On January 13, 2009, Debtors filed their Chapter 13 bankruptcy petition. Jan P Johnson was appointed to serve as Chapter 13 trustee.³

Debtors' home, listed with a value of $120,000 in their Schedule A, was encumbered by two mortgages serviced by BAC, each based on separate notes and deeds of trust. This appeal relates only to the first position note and deed of trust.⁴

The terms of Debtors' mortgage required them to make monthly payments of principal, interest and escrow items. BAC held the escrow items, which included taxes and homeowners' insurance, in an escrow account until those items became due, at which point BAC distributed the funds. In the year preceding their Chapter 13 filing, BAC charged Debtors $186.38 a month for escrow items, bringing their total monthly payment under the note to $1,915.37. When Debtors filed their petition, they were four payments in arrears to BAC, including $745.52 in escrow payments.

Debtors' Chapter 13 plan, dated January 13, 2009, classified BAC as a Class 1 Secured Creditor and provided that Debtors would maintain their monthly postpetition payments of $1,918.00 ⁵ to BAC though the Chapter 13 trustee and cure prepetition arrears scheduled at $5,000 with monthly payments of $238.10 beginning in the 15th month of the plan.

When notified of Debtors' bankruptcy, BAC performed an escrow analysis in accordance with its regular procedures. The “Escrow Account Review” statement dated January 20, 2009, indicated an escrow shortage of $660.12. Due to this shortage, BAC recalculated Debtors' monthly escrow payment at $311.58, which consisted of $220.04 for insurance and taxes, $55.01 in “shortage payment”-the monthly amount needed to keep the escrow account from falling below zero, and $36.53 for a “reserve requirement” allowed by federal regulations to cover unexpected increases in taxes or insurance.

On February 19, 2009, BAC sent a Payment Change Notification (the “Notice”) to debtor Alex Zotow, his bankruptcy counsel and the Chapter 13 trustee. The Notice showed that due to the new escrow payment of $311.58, Debtors' monthly payment to BAC would increase from $1,915.37 to $2,040.57, effective March 1, 2009. The statement contained the following disclaimer:

This statement is being furnished for informational purposes only and should not be construed as an attempt to collect against you personally. While in the future, your obligation to Countrywide may or may not be discharged by operation of law, Countrywide will retain the ability to enforce its rights against the property securing this loan should there be a default.

If you are presently involved in a Chapter 13 proceeding, please be advised that should this amount conflict with any order or requirement of the Court, you are required to obey all orders of the Court.

(Emphasis in original.) On February 24, 2009, the trustee objected to the confirmation of Debtors' plan on the ground that their proposed monthly plan payment of $2,665 was inadequate due to the increase in their monthly mortgage payment.

On February 27, 2009, BAC filed its proof of claim, asserting a secured claim for the principal balance due on Debtors' mortgage of $156,785.36, prepetition arrears of $6,328.76, an escrow shortage of $197.43, and attorneys' fees of $300.

On March 17, 2009, Debtors objected to BAC's claim, contending that the $197.43 for escrow shortage undervalued the amount of their prepetition escrow arrears. Debtors maintained that $745.52 for escrow items-the amount they calculated for their prepetition escrow shortage-should have been included in the claim. They further alleged that BAC was collecting prepetition escrow arrears, through increased postpetition escrow deposits added to their monthly payment, in violation of § 362.

On November 18, 2009, the bankruptcy court held an evidentiary hearing on Debtors' claim objection, including their allegations regarding BAC's alleged stay violation. The bulk of the evidence concerned the proper method for calculating pre- and postpetition escrow arrears, with live testimony from Debtors' expert and BAC's witness.

Debtors also presented evidence regarding their damages for BAC's alleged stay violation. Debtors maintained they suffered emotional distress damages because Mrs. Zotow suffered from migraine headaches after learning that BAC had increased their monthly mortgage payments, which resulted in hospitalization expenses ⁶ and lost income. Debtors argued they also suffered damages based on increased attorneys' and expert fees as a consequence of the trustee's objection to their plan and their having to object to BAC's incorrect claim.

The bankruptcy court made oral findings of fact and conclusions of law, sustaining Debtors' objection by disallowing BAC's proof of claim as filed, but allowing the claim without prepetition and pre-confirmation attorney's fees and a corrected escrow shortage. The court adopted Debtors' expert's report for its findings of fact. Relying on the Fifth Circuit's decision in Campbell v. Countrywide Home Loans Inc., 545 F.3d 348 (5th Cir.2008) ⁷, the bankruptcy court stated its conclusions of law on the record, agreeing with Debtors that their prepetition escrow arrears should have been included in BAC's proof of claim. The court also concluded that BAC did not violate the automatic stay. In addition, the court found the evidence insufficient to support a finding of emotional distress or punitive damages. However, the court awarded Debtors' attorneys' fees in the amount of $1,250.⁸ The court's ruling was reflected in a Civil Minute Order filed December 10, 2009. Debtors timely appealed the order.

On March 4, 2010, Debtors' Chapter 13 plan was confirmed.⁹

II. JURISDICTION

The bankruptcy court had jurisdiction under 28 U.S.C. §§ 1334 and 157(b)(2)(A) and (B). We have jurisdiction under 28 U.S.C. § 158(a).

III. ISSUE

Whether the bankruptcy court erred in deciding that BAC's acts did not violate the automatic stay under § 362.

IV. STANDARD OF REVIEW

We review the issue of whether a creditor has violated the automatic stay de novo. Sternberg v. Johnston, 595 F.3d 937, 943 (9th Cir.2010).

V. DISCUSSION

Since the bankruptcy court primarily relied on the Fifth Circuit's decision in Campbell for its ruling, it is beneficial to briefly review the case before addressing the merits of this appeal.

In Campbell, the lender (coincidentally Countrywide), filed a proof of claim that did not include unpaid escrow payments that accrued prepetition. Campbell, 545 F.3d at 351. Instead, the lender included language in its proof of claim which indicated that it intended to increase the debtors' postpetition monthly mortgage payments to recover an escrow shortage. Id.

The debtors filed an adversary proceeding against the lender, alleging that it was attempting to collect a prepetition debt (property taxes) by increasing their postpetition mortgage payments. At issue was (1) whether the debtors' unpaid prepetition escrow arrears for property taxes constituted a prepetition claim subject to the automatic stay under § 362 and (2) whether the lender's statement in a proof of claim about increased monthly mortgage payments, which included the debtors' missed prepetition escrow payments, violated the automatic stay.

In answering the first question, the bankruptcy court held that the lender had a prepetition claim for unpaid escrow arrears, based on the underlying loan documents, which was subject to the automatic stay. The Fifth Circuit affirmed this holding ¹⁰, noting that “[t]here was a right to the prepetition escrow payments-which matured into a claim on behalf of Countrywide-each time the [debtors] failed to make the payment.” Id. at 354. The Fifth Circuit concluded that the debtors' unpaid escrow at the time of their petition constituted “a ‘claim’ for purposes of § 362, a holding that does not limit Countrywide's rights under RESPA or the Bankruptcy Code.” Id. The appellate court further explained that the “automatic stay operates to halt collection of pre-petition claims, even those claims held by a creditor protected by the...