In re Dewitt
| Decision Date | 29 September 2022 |
| Docket Number | 11-36341 |
| Parties | In re: CONSTANCE E. DEWITT, Debtor. |
| Court | U.S. Bankruptcy Court — Southern District of Ohio |
DECISION GRANTING IN PART AND DENYING IN PART DEBTOR'S MOTION FOR SUMMARY JUDGMENT AND HSBC BANK USA, NA, AS INDENTURE TRUSTEE FOR THE REGISTERED HOLDERS OF THE RENAISSANCE HOME EQUITY LOAN ASSET-BACKED CERTIFICATES, SERIES 2005-1, PHH MORTGAGE CORPORATION AND OCWEN LOAN SERVICING, LLC'S CROSS-MOTION FOR SUMMARY JUDGMENT (DOCS. 117 & 118)
When a person files a bankruptcy petition under Chapter 13, they hope to receive what Congress intended - an opportunity to rehabilitate long-term debt, repay creditors to the best of their ability, and obtain a fresh financial start. Because of this, "a central purpose of the Code is to provide a procedure by which certain insolvent debtors can reorder their affairs, make peace with their creditors, and enjoy a new opportunity in life with a clear field for future effort unhampered by the pressure and discouragement of preexisting debt." Grogan v. Garner, 498 U.S. 279, 286-87 (1991) (quoting Local Loan Co. v. Hunt, 292 U.S. 234, 244 (1934)) (internal quotation marks omitted). The present circumstances were less utopian.
When Constance Dewitt ("Dewitt") filed under Chapter 13, she owed a substantial arrearage on her home mortgage. She proposed to cure the arrearage through her Chapter 13 plan. Dewitt experienced several missteps during her case - specifically, she repeatedly failed to pay property taxes for her primary residence, despite agreeing in her Chapter 13 plan to do so. As a result, her mortgage creditor, HSBC Bank USA, NA, as Indenture Trustee for the registered holders of the Renaissance Home Equity Loan Asset-Backed Certificates, Series 2005-1 ("HSBC"), found it necessary to advance the funds to pay those taxes on her behalf on three separate occasions ("the First, Second, and Third Advances"). HSBC waived the First Advance and submitted a Rule 3002.1(c) notice for the Second Advance, which in effect served as a claim for that advance. However, HSBC did not file a Rule 3002.1(c) notice for the Third Advance. At the conclusion of the case, the Chapter 13 Trustee ("the Trustee") filed a Notice of Final Cure Payment showing the mortgage as current. In its Rule 3002.1(g) Response, HSBC agreed that Dewitt had paid the prepetition arrearage in full and was otherwise current on all post-petition payments. Nearly a year after entry of the discharge order, HSBC, through its mortgage servicer, notified Dewitt that she still owed the Third Advance. After other collection efforts, HSBC proceeded with a foreclosure action on Dewitt's home. Upon HSBC's proceeding with the foreclosure, Dewitt moved this court to reopen her bankruptcy and find HSBC and its two loan servicers in contempt for violations of Rule 3002.1 and the discharge injunction. The court will refer to HSBC and the servicers collectively as "the Mortgagee." The court reopened Dewitt's bankruptcy case and both parties have filed cross-motions for summary judgment on Dewitt's contempt motion.
This court has jurisdiction pursuant to 28 U.S.C. § 1334(b) and the Standing Order of Reference (Amended General Order 05-02) of the District Court for the Southern District of Ohio in accordance with 28 U.S.C. § 157(a). This is a core proceeding pursuant to 28 U.S.C. § 157(b)(2)(B), and this court has constitutional authority to enter a final judgment. Stern v. Marshall, 564 U.S. 462, 499 (2011).
A court "shall grant summary judgment if the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law." Fed.R.Civ.P. 56(a) (). A factual disagreement is genuine if "a rational trier of fact could find in favor of either party on the issue." SPC Plastics Corp. v. Griffith (In re Structurlite Plastics Corp.), 224 B.R. 27, 30 (B.A.P. 6th Cir. 1998) (citing Schaffer v. A.O. Smith Harverstone Prods., Inc., 74 F.3d 722, 727 (6th Cir. 1996)). A fact is material if it might affect the outcome of the suit under substantive law. Niecko v. Emro Mktg. Co., 973 F.2d 1296, 1304 (6th Cir. 1992) (citing Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986)). When reviewing a motion for summary judgment, a court views all evidence and draws all inferences in the light most favorable to the nonmoving party. Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 587 (1986).
Dewitt filed a petition for bankruptcy relief under Chapter 13 in November 2011. Doc. 114, ¶ 1. She listed her primary residence, a property located at 5250 Stoneridge Drive, Springfield, OH 45503 (the "Property"), as an asset. Id. at ¶¶ 2-3. Dewitt's property was subject to a mortgage lien held by HSBC. Id. at ¶¶ 4-6. While PHH Mortgage Corporation ("PHH") now services the loan, Ocwen Loan Servicing LLC ("Ocwen"), the original loan servicer, serviced the loan until May 2019. Id. at ¶ 8.
Dewitt's Chapter 13 Plan (the "Plan") required the Trustee to pay Ocwen "(1) the full amount of the pre-petition arrearages in the amount of $19,543.56; (2) the on-going, post-bankruptcy monthly payments due on the loan through May 2017; and (3) a post-petition fee that Ocwen incurred for paying the 2014 installment of real estate taxes in the amount of $1,655.63 (the Second Advance) . . . ." Id. at ¶ 11. The Plan required Dewitt to directly pay post-petition property taxes to Clark County, but she did not do so. Id. at ¶¶ 10, 13. Instead, Ocwen paid the property taxes on three occasions: (1) $6,097.95 on August 11, 2014 (the "First Advance"), (2) $1,655.63 on August 31, 2015 (the "Second Advance"), and (3) $4,155.91 on April 26, 2017 (the "Third Advance"). Id. at ¶¶ 11-12, 14. While HSBC filed a Notice of Post-Petition Escrow Advances for the Second Advance (doc. 46), it did not file notices for the First Advance or the Third Advance. Id. at ¶¶ 11, 16. HSBC never attempted to recover the First Advance from Dewitt. Id. at ¶ 15, 27. Ocwen paid the Third Advance shortly after the Clark County Treasurer filed a tax foreclosure against the Property for unpaid, past-due taxes. Id. at ¶ 14, 17; Doc. 97, Ex. I. Neither HSBC nor Ocwen sought to collect the Third Advance during the pendency of the bankruptcy case or at any time before August 1, 2018. Doc. 114, ¶ 26.
In May 2017 the Trustee filed a Notice of Final Cure (doc. 55). Doc. 114, ¶ 18. In its Response to Notice of Final Cure (doc. 56), HSBC "agreed that Debtor was current on all postpetition payments due, including all fees, charges, escrow and costs, and stating that the next postpetition payment was due June 1, 2017." Id. at ¶ 19. The Trustee subsequently filed a Certification of Final Payment and Case History (doc. 58) to which HSBC did not object. Id. at ¶ 20. This court entered an order granting Dewitt's discharge in June 2017. Doc. 60; Id. at ¶ 24.
Despite HSBC's statements, in August 2017, Ocwen's records showed that Dewitt's escrow balance had been reduced by $6,097.95 (reflective of Ocwen's waiver of the First Advance) but was still $4,155.91 in arrears. Id. at 22; Doc. 116, Ex. K at 64. Dewitt's bankruptcy case was closed on October 17, 2017. She continued to make monthly mortgage payments after her bankruptcy case concluded. Debtor Affidavit, Doc. 72.
In May 2018, nearly a year after receiving her discharge, Ocwen advised Dewitt via letter "that the Loan would be escrowed in the amount of $346.32 per month beginning on August 1, 2018, for taxes that Ocwen advanced on behalf of the Debtor." Doc. 114, ¶ 25. Dewitt did not begin paying the monthly escrow amount and continued to make only her monthly principal and interest payments. Doc. 118 at 7. Ocwen avers that she did not respond to multiple notices indicating that the monthly escrow amounts were also due. Id. at 7-8. Ocwen sent a notice of mortgage default on December 4, 2018. Feezer Affidavit, Doc. 69 at 34-37. Subsequently, in February 2019, Ocwen began returning Dewitt's monthly mortgage payments. Debtor Affidavit, Doc. 72. Despite this, Dewitt continued to make the monthly payments by bank transfer from her personal account. Id. Dewitt contacted Ocwen repeatedly but was unable to learn why these payments were returned. Id. In September 2019, HSBC filed a foreclosure complaint (the "Complaint") in the Clark County, Ohio, Common Pleas Court seeking to foreclose on the mortgage secured by Dewitt's Property. Doc. 114 at ¶ 28. Dewitt, through her attorney, disputed the amount due on the Note and requested "documentation relating to the amount due on the Loan, including an explanation as to any escrow payments that were due." Id. at ¶ 32; Doc. 97, Ex. J; Doc. 118 at 4. In February 2020 Dewitt filed an answer to the Complaint along with counterclaims against HSBC alleging "wrongful foreclosure, attempted wrongful foreclosure, breach of contract, and breach of good faith and fair dealing." Doc. 114, ¶ 34. After an unsuccessful settlement attempt, HSBC indicated a desire to proceed in its foreclosure suit. In response, on May 11, 2021, Dewitt filed a motion to reopen the present bankruptcy case (doc. 64). Id. at ¶ 36-37; Doc. 118 at 5. The court granted the motion to reopen the case to resolve this contested matter (doc. 75). Id. at ¶ 37.
After a failed mediation conference (doc. 84), Dewitt filed a motion to show cause why the Mortgagee should not be held in contempt for violation of the discharge order and other actions and seeking sanctions. Doc. 89. The Mortgagee filed a brief in opposition to which Dewitt replied. Docs. 97, 103. In...
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