In re Campbell, Bankruptcy No. 2-91-02483.

• Citation: 138 BR 184
• Decision Date: 18 November 1991
• Docket Number: Bankruptcy No. 2-91-02483.
• Parties: In re Lois H. CAMPBELL, aka Lois Henley Campbell, Debtor.
• Court: United States Bankruptcy Courts. Sixth Circuit. U.S. Bankruptcy Court — Southern District of Ohio

138 B.R. 184 (1991)

In re Lois H. CAMPBELL, aka Lois Henley Campbell, Debtor.

Bankruptcy No. 2-91-02483.

United States Bankruptcy Court, S.D. Ohio, E.D.

November 18, 1991.

Robert J. Morje, Columbus, Ohio, for debtor.

Charles R. Griffith, Reynoldsburg, Ohio, for Federal Nat. Mortg. Ass'n.

Frank M. Pees, Worthington, Ohio, Chapter 13 Trustee.

ORDER ON DEBTOR'S OBJECTION TO CLAIM

DONALD E. CALHOUN, Jr., Bankruptcy Judge.

This matter is before the Court upon the Objection to the Claim of Federal National Mortgage Association filed by Lois H. Campbell ("Debtor") and the Memorandum in Opposition to Debtors (sic) Objection to Claim and Request for Hearing filed by Federal National Mortgage Association ("Federal"). A hearing was held on September 16, 1991, at which time the parties were provided the opportunity to present evidence in support of their positions. The Court is vested with jurisdiction over this matter pursuant to 28 U.S.C. § 1334(b) and the General Order of Reference entered in this district. This is a core proceeding under 28 U.S.C. § 157(b)(2)(B).

I. Findings of Fact

On April 1, 1991, Debtor filed his petition under Chapter 13 of the Bankruptcy Code. The Debtor's schedules indicate that Federal has a first lien upon the Debtor's residence. Prior to the filing of the Debtor's petition, Federal had instituted a foreclosure action to liquidate its lien on the Debtor's real property.

The basis of the Debtor's Objection is a claim filed by Federal for "attorney's fees" in the amount of $1,463.83.¹ At the hearing to consider this matter, Federal itemized this figure as follows: $800.50 (court costs in foreclosure action); $600.00 (attorney's fees for the foreclosure representation); $250.00 (attorney's fees for the bankruptcy representation); $95.00 (title search fee), and $60.00 (filing fee for motion for relief from stay). Federal claims that it is entitled to recovery of these fees by virtue of the following provision contained in its mortgage with the Debtor:

11. Upon any default on the note secured hereby, or under this deed, foreclosure proceedings may be instituted, at the option of the Grantee. In any such action, the Grantee shall be entitled, without notice and without regard to the adequacy of the security of the debt, to the appointment of a receiver of the rents and profits of the mortgaged premises and in case of any other suit, or legal proceeding, wherein the Grantee shall be made a party thereto by reason of this mortgage, its costs and expenses, and the reasonable fees and charges of the attorneys or solicitors of the grantee, so made parties, for services in such suit or proceedings, shall be a further lien and charge upon the said premises under this mortgage, and all such expenses shall become so much additional indebtedness secured hereby and be allowed in any decree foreclosing this mortgage. (Emphasis added).

The Debtor contends that this provision only entitles Federal to recover attorney fees for suits other than Federal's own foreclosure. The Debtor further contends that even if such fees were recoverable from the Debtor, Federal is obligated to provide an accurate itemization of these fees so that the Debtor and the Court may determine whether the fees are reasonable.

The statements and schedules filed by the Debtor in this case indicate that the present market value of the real estate securing Federal's loan is $35,000.00. The mortgage document attached to the proof of claim filed on behalf of Federal indicates a principal loan amount of $12,500.00.

II. Conclusions of Law

Section 506(b) of the Bankruptcy Code identifies the fees and expenses which may properly be claimed by an oversecured creditor. Section 506(b) provides:

(b) To the extent that an allowed secured claim is secured by property, the value of which . . . is greater than the amount of such claim, there shall be allowed to the holder of such claim, interest on such claim, and any reasonable fees, costs, or charges provided for under the agreement under which such claim arose.

In order to satisfy the requirements of § 506(b), a creditor must demonstrate that: (1) the underlying security agreement or mortgage provides for such fees; (2) the value of the collateral exceeds the amount of the principal debt, accrued interest, and fees and costs sought; and (3) the fees are reasonable. In re B & W Management, Inc., 63 B.R. 395, 401 (Bankr.D.Dist.Col.1986) and In re Nordmann, 56 B.R. 634, 636 (Bankr.D.S.D. 1986). The secured creditor has the burden of establishing that the fees and costs are: (1) provided for under the parties' contractual agreements; (2) reasonable; and (3) allowable under applicable state law. In re Jablonski, 70 B.R. 381, 389 (Bankr.E.D.Pa. 1987).

There is a current split of authority regarding which body of law governs the enforceability of agreements allowing recovery for attorney's fees. At least one Ohio case has held that such agreements must be allowable under Ohio law to be enforceable. In re Bertsch, 17 B.R. 284, 288 (Bankr.N.D.Ohio 1982). The court in Bertsch concluded that attorney's fees incurred by the mortgagee are not proper costs in a mortgage foreclosure under Ohio law and that such a recovery is precluded as against public policy.

However, a more recent line of Ohio cases has permitted the recovery of attorney's fees pursuant to § 506(b) of the Bankruptcy Code, notwithstanding Ohio law to the contrary, when there is an agreement between the parties providing for recovery of such fees. Longwell v. Banco Mortgage Co., 38 B.R. 709, 711 (N.D.Ohio 1984); In re Bristol, 92 B.R. 276, 277-78 (Bankr.S.D.Ohio 1988); and In re CVC, Inc., 120 B.R. 877, 880 (Bankr. N.D.Ohio 1990). These more recent cases have reasoned that the legislative history of § 506(b) of the Bankruptcy Code indicates that the revisions to that section, resulting from the Bankruptcy Reform Act of 1978, implicitly direct courts to permit recovery of attorney's fees pursuant to the conditions set forth...