In re Burwell
| Citation | 107 BR 62 |
| Decision Date | 01 November 1989 |
| Docket Number | Bankruptcy No. 89-10479S. |
| Parties | In re Marvin BURWELL, a/k/a Marvin D. Burwell, Debtor. |
| Court | United States Bankruptcy Courts. Third Circuit. U.S. Bankruptcy Court — Eastern District of Pennsylvania |
Roderick Mathewson, Norristown, Pa., for debtor.
William Meehan, Philadelphia, Pa., for FNMA.
Edward Sparkman, Philadelphia, Pa., Standing Chapter 13 Trustee.
Resolving the merits of the instant Objections of the Debtor to the Proof of Claim of the Debtor's mortgagee, the Federal National Mortgage Association (hereinafter "FNMA"), requires us to address one issue we had not considered heretofore: the right of a mortgagee to impose fees for performing inspections of the mortgaged premises upon a debtor-mortgagor. We hold that such fees are not as inherently reasonable or necessary to foreclosure as the mortgagee's cost of obtaining a title report of the property in foreclosure, and that, if challenged, such inspection fees cannot be recovered from the mortgagor unless the mortgagee meets its burden of proving such charges are both permissible under the mortgage documents, reasonable, and allowable under state law. In the instant controversy, while we reaffirm our holding in In re Garnett, 99 B.R. 293 (Bankr.E.D.Pa.1989), that a title report cost of $156 included in FNMA's claim can be imposed upon the Debtor, we shall disallow the inspection fees of $60, as well as disallowing unauthorized additional charges totalling $90, and reduce FNMA's "claim" for arrearages to $4,597.06.
The Debtor, MARVIN BURWELL, a/k/a MARVIN D. BURWELL, filed the instant Chapter 13 bankruptcy case on February 2, 1989. The initial Confirmation hearing, scheduled on October 19, 1989, was continued to October 26, 1989, the date of the hearing on this contested matter. On the latter date, the Confirmation hearing was further continued until December 5, 1989. Herein, we postpone it slightly, in order to avoid a further continuance, until December 7, 1989.
FNMA filed a secured Proof of Claim in this case on July 18, 1989, setting forth therein the Debtor's alleged arrearages of $4,747.06.1 At the hearing of October 26, 1989, the only witness, Joseph O'Connor, foreclosure manager of Boulevard Mortgage Co., apparently the servicing agent in this transaction for FNMA, testified that the components of this figure were as follows:
Principal, computed for nine months
at the rate of the payment due of
$428, plus $10 monthly as a cushion
for future tax and insurance
escrow increases $3,942.00
Late charges 154.08
Attorneys' fees 200.00
Court costs to file a foreclosure action
which was pending at the time
of the bankruptcy filing 127.50
Title Search performed in connection
with the above foreclosure action 156.00
8 property inspections at $7.50 each 60.00
Accumulated late charges 107.48
_________
$4,747.06
On September 7, 1989, the Debtor filed Objections to FNMA's Proof of Claim, which, by the hearing date, were confined to the following: (1) The $10 monthly increment to the Principal; (2) The title search charge; and (3) the inspection fees.2 At the hearing, Mr. O'Connor was unable to muster any logical basis for making the $10 monthly increment to the payments, claiming that his company was making these charges simply as a favor to the Debtor to cushion later tax increases and would agree to deduct the total of $90 of extra charges from the Claim if the Debtor renounced this alleged beneficence.3
Although the Debtor's counsel argued warmly that the mortgage documents did not authorize the title search charge, we note that the clauses of the instant mortgage document which allegedly permit this charge are precisely the same as those which were contained in the mortgage in issue in Garnett, supra. Accord, In re Herbert, Bankr. No. 88-10767F (Bankr.E. D.Pa. April 5, 1989) (FOX, J.). The charge of $156.00 is precisely the same as that allowed to the mortgagee in Garnett. Since we choose not to reconsider our result in Garnett, this aspect of the Debtor's Objections must fail.
However, FNMA's ability to pass through its inspection fee charges presents an issue we have not considered previously. Our examination of our previous decisions indicates that such charges have not typically been requested by mortgagees in the cases in which we considered the issue of permissible cost pass-throughs to debtor-mortgagors. See Vitelli, supra, 93 B.R. at 899-900; and In re Smith, 92 B.R. 127, 132-33 (Bankr.E.D.Pa.1988), rev'd in part on other grounds sub nom. Smith v. Kissell Co., 98 B.R. 708 (E.D.Pa.1989). We note that, in Vitelli, we disallowed the mortgagees' attempt to impose charges for undesignated "praecipes and motions," postage, telephone, and duplicating, 93 B.R. at 899-900, while, in Smith, we excised a charge for "notaries." 92 B.R. at 133. In both cases, however, we allowed the mortgagees to pass through title search charges without extensive discussion of the issue. In Garnett, we reasoned that title search charges were permissible because title reports were, for a variety of reasons, essential to a mortgagee before it could properly commence a foreclosure action. 99 B.R. at 297. Also, the state courts interpreting the applicable state law had determined such costs to be reasonably imposed upon mortgagors. Id. at 297-98.
Slip op. at 3. Judge Fox also notes that he had disallowed inspection fees in a previous case in which the mortgage documents did not authorize same, In re Rorie, 98 B.R. 215, 221 (Bankr.E.D.Pa.1989), but that his predecessor, former Chief Judge Goldhaber, had allowed such fees as a component of "foreclosure costs" in In re Cervantes, 67 B.R. 816, 821 (Bankr.E.D.Pa. 1986). Judge Fox noted that a clause permitting "foreclosure costs" as a reimbursable item probably exists in all mortgages, Davis, supra, Slip op. at 4, and he disapproved of the reasoning of Cervantes in a footnote. Id. at 4 n. 4. Therein Judge Fox observed that, unlike title report charges, inspection fees are not logically necessary to comply with the Pennsylvania procedural rules governing foreclosures.
In Garnett, supra, 99 B.R. at 295 & n. 2, and elsewhere, see, e.g., In re Orsa Associates, Inc., 106 B.R. 418, 425 (Bankr. E.D.Pa.1989); Vitelli, supra, 93 B.R. at 894; and In re Tashjian, 72 B.R. 968, 974 (Bankr.E.D.Pa.1987), we have developed the following four-prong test, all of the prongs of which must be satisfied by a secured creditor before it is permitted to pass charges for costs or attorneys' fees through to the debtor-obligor in a proof of claim:
"such fees must be (1) allowable under the terms of § 506(b); (2) provided for in the parties\' agreement; (3) reasonable; and (4) allowable under pertinent state law."
Here, the first prong, i.e., establishing that the claim is oversecured, is inapplicable, because we are dealing with a demand for arrearages, not a "true" secured proof of claim. See Vitelli, supra, 93 B.R. at 894-95, 899-900, and page 64 n. 1 supra. Therefore, FNMA need only satisfy the second, third, and fourth prongs of this test to impose any particular charge upon the Debtor in the instant setting.
The second prong of this test requires us, as Judge Fox suggested in Davis, supra, to carefully examine the mortgage document. Here, FNMA contended, at the hearing, that the following clause of the instant mortgage authorized the pass-through of inspection fees:
6. . . . the Mortgagor will pay all ground rents, taxes, assessments, water rates, and other governmental or municipal charges, fines or impositions, for which provision has not been made hereinbefore and that he will promptly deliver the official receipts therefor to the Mortgagee, and in default thereof the Mortgagee shall have the right to pay same. The Mortgagee shall have the right to make any payment which the Mortgagor should have made, and the Mortgagee may also pay any other sum that is necessary to protect the security of this instrument. All such sums, as well as all costs, paid by the Mortgagee pursuant to this instrument, shall be secured hereby and shall bear interest at the rate set forth in the note secured hereby from the date when such sums are paid.
FNMA apparently reasons that the inspection fee is an investment "necessary to protect the security of the instrument."
The difficulty with FNMA's reasoning is that it ignores the context in which this language appears in the above clause. Paragraph 6 addresses governmental fees which may encumber the property, and, if the mortgagor fails to pay same, gives the mortgagee a right to pay them and then pass these payment obligations along to the mortgagor. It is not addressing any sort of fees to discover or remedy conditions extant on the property which could deflate its value as security, which presumably the inspections are performed to uncover....
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