In re Bristol
| Decision Date | 28 September 1988 |
| Docket Number | Bankruptcy No. 2-88-00535. |
| Parties | In re Jeffrey A. (Alexander) BRISTOL, Debtor. |
| Court | United States Bankruptcy Courts. Sixth Circuit. U.S. Bankruptcy Court — Southern District of Ohio |
Charles R. Griffith, Reynoldsburg, Ohio, for claimant, First Inv. Co.
Mitchel D. Cohen, Columbus, Ohio, for debtor.
Frank M. Pees, Worthington, Ohio, Chapter 13 Trustee.
ORDER ON OBJECTION TO CLAIM OF FIRST INVESTMENT COMPANY
Chapter 13 debtor Jeffrey A. Bristol, through his attorney, has objected to the allowance of a portion of claim # 8, filed by First Investment Company ("Investment"). Investment opposed the objection and the matter was heard by the Court.
The Court has jurisdiction in this contested matter under 28 U.S.C. § 1334(b) and the General Order of Reference entered in this district. This is a core proceeding pursuant to 28 U.S.C. § 157(b)(2)(B) in which this bankruptcy judge may enter a final order.
The debtor opposes the allowance of Investment's claim only to the extent it includes charges for the services of an attorney in connection with a foreclosure action which was pending when this bankruptcy case was filed. In support of that objection the debtor asserts that Ohio law does not permit assessment of a creditor's attorney fees against a debtor absent a showing of bad faith and, even if such fees are allowed, there has been no showing that the fees were necessary or reasonable as required under 11 U.S.C. § 506(b).
In response, Investment states that the disputed charges include $350 for attorney fees, $250 for a title insurance policy and $60 in court costs. Those charges arise from a pending foreclosure action against real property owned by the debtor which serves as security for the obligation to Investment. Investment contends that such fees are allowable because the note evidencing the debtor's obligation is insured under the provisions of the National Housing Act ("FHA") and the regulations and guidelines of the Department of Housing and Urban Development, which govern indebtedness insured by FHA, permit the assessment of such fees despite any prohibition of such assessments under otherwise applicable state law. The attorney for Investment also indicated that his contract with Investment calls for a standard fee of $350 for the initiation and prosecution of a foreclosure action against residential real property securing an FHA insured loan.
This Court is not deciding whether the attorney for Investment is entitled to be paid by Investment for his services in the foreclosure proceeding on its behalf. Rather, the issue before the Court is whether Investment may pass its costs for such services on to a debtor in a reorganization proceeding under Chapter 13 of the Bankruptcy Code by the inclusion of such fees in a claim against the bankruptcy estate where the claim is based upon an FHA insured note secured by a mortgage against the debtor's residential real property.
The Court finds that the mortgage deed executed by the debtor grants a further lien for any costs and expenses of Investment as mortgagee, including reasonable fees and charges of its attorneys, caused by the debtor's default in the note which results in the institution of legal proceedings. Such provisions are not generally enforceable in Ohio courts. Leavans v. Ohio Nat'l Bank, 50 Ohio St. 591, 34 N.E. 1089 (1893); Swing v. Swing, 24 Ohio App. 464, 158 N.E. 194 (Ct.App.1925). The issue then is whether the provisions of 11 U.S.C. § 506(b), which permit inclusion in a secured claim of "reasonable fees, costs or charges provided for under the agreement under which such claim arose", are overridden by state law. If such fees are permitted as part of an allowed secured claim, a further question exists as to the...
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