In re Dewitt

Decision Date19 May 2023
Docket Number11-36341
PartiesIn re: CONSTANCE E. DEWITT, Debtor.
CourtU.S. Bankruptcy Court — Southern District of Ohio
Chapter 13

Default List Plus - Stefanie L. Deka (Counsel for HSBC, USA Bank, N.A., PHH Mortgage Corporation, Ocwen Loan Servicing LLC)


Guy R Humphrey United States Bankruptcy Judge

I. Factual and Procedural Background

In November 2011 Constance Dewitt ("Dewitt") filed a petition for bankruptcy relief under Chapter 13 and listed her primary residence as an asset. Doc. 114, ¶¶ 1-3. Dewitt's property was subject to a mortgage held by HSBC and serviced by Ocwen Loan Servicing LLC ("Ocwen") and later PHH Mortgage Corporation ("PHH") (collectively, "the Mortgagee"). Id. at ¶¶ 4-6, 8. This Decision follows an earlier decision in this case, 644 B.R. 385 (Bankr. S.D. Ohio 2022) ("Dewitt I"), in which this court found that the Mortgagee violated Federal Rule of Bankruptcy Procedure 3002.1(g) when it, following the closing of the case, sought to collect from Dewitt real estate taxes which it advanced during Dewitt's bankruptcy case and which it failed to disclose as outstanding in its response to the Chapter 13 Trustee's Notice of Final Cure Payment. See Fed.R.Bankr.P. 3002.1(f).

As this court detailed in Dewitt I, Dewitt's Chapter 13 Plan (the "Plan") required the Trustee to pay the Mortgagee "(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 also required Dewitt to directly pay post-petition property taxes to Clark County. Id. at ¶¶ 10, 13. After she failed to do so, the Mortgagee paid the property taxes on her behalf on three occasions. While the Mortgagee waived the first tax payment and properly noticed the second under Rule 3002.1(c), which was paid through the Plan, the Mortgagee did not notice the third tax payment of $4,155.91 made on April 26, 2017 (the "Third Advance"). Id. at ¶¶ 11-12, 14.[1] The Mortgagee did not seek to collect the Third Advance during the bankruptcy case but later attempted to do so. Id., ¶ 26.

The Trustee served a Notice of Final Cure (doc. 55) pursuant to Rule 3002.1(f) in May 2017. Id., ¶ 18. In its Rule 3002.1(g) Response to Notice of Final Cure (doc. 56), the Mortgagee "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. Subsequently, the Trustee 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. Dewitt continued to make monthly mortgage payments of principal and interest after her bankruptcy case concluded. Debtor Affidavit, Doc. 72.

In May 2018 the Mortgagee began attempts to collect the Third Advance through an escrow payment change. Doc. 114, ¶ 25. Dewitt did not pay the monthly escrow amount and continued to make only her monthly principal and interest payments. Doc. 118 at 3-4. The Mortgagee continued attempts to collect the Third Advance by contacting Dewitt, returning her monthly mortgage payments, and ultimately filing a foreclosure complaint. Doc. 114 at ¶ 28.

After failed settlement attempts, 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. In accordance with the court's scheduling order which bifurcated the issues of whether a violation of Rule 3002.1 occurred and any remedies (doc. 112), both Dewitt and the Mortgagee filed cross-motions for summary judgment as to the Rule 3002.1 violation issues. Docs. 118, 121. On September 30, 2022 the court entered its decision in Dewitt I determining that the Mortgagee violated Rule 3002.1(g) but did not violate the discharge injunction. After a status conference, the parties briefed the bifurcated issues relating to available damages and remedies. Docs. 147-49.

II. Jurisdiction

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. See Waldman v. Stone, 698 F.3d 910, 920 (6th Cir. 2012) (bankruptcy courts may enter final judgment for matters "part and parcel of the claims allowance process in bankruptcy.").

III. Summary Judgment Standard

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) (made applicable in this contested matter by Federal Rule of Bankruptcy Procedure 7056). 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).

IV. Statement of the Parties' Positions

Dewitt argues that Rule 3002.1(i) allows the court to award attorney fees and costs; other compensatory damages, including damages for emotional distress; and punitive damages. If the court declines to award punitive damages under Rule 3002.1, Dewitt asks the court to do so under Bankruptcy Code § 105 and the court's general powers or, in the alternative, to make punitive damage recommendations to the district court so that it could enter such damages against the Mortgagee. Dewitt also asks the court to enjoin the Mortgagee from presenting evidence concerning or otherwise referencing the Third Advance as a basis for default under Dewitt's mortgage contract in any court or proceeding, including in the state court foreclosure. Finally, Dewitt asks the court to permit discovery into the Mortgagee's other alleged violations of Rule 3002.1 in other cases across the country and to consider such evidence when determining the amount of any punitive damages to be awarded in this case.

The Mortgagee argues that no damages should be awarded because its actions were harmless. The Mortgagee asserts that unless Dewitt can establish that she would have paid the Third Advance and avoided default had the charge been properly disclosed during the case, the court cannot find harm to Dewitt as a result of the Mortgagee's violation. The Mortgagee urges the court to adopt the Second Circuit's reasoning in In re Gravel and find that Rule 3002.1(i) does not authorize the award of punitive damages. The Mortgagee also asserts that the court should limit any attorney fee award to legal fees incurred in reopening the bankruptcy case and pursuing the present contempt action, eliminating Dewitt's recovery of attorney fees she incurred in the foreclosure proceeding. Finally, the Mortgagee contends that compensatory damages for emotional and mental distress are likewise unavailable under Rule 3002.1.

V. Legal Analysis
A. Chapter 13 and Bankruptcy Code § 1322(b)(5)

Chapter 13 of the Bankruptcy Code allows individuals with regular income to retain their primary residence and other real or personal property by proposing a plan which provides for the payment of their creditors over a three or five-year period. The plan is funded through the debtors' income and must be confirmed by the bankruptcy court. See 11 U.S.C. §§ 1322 and 1325; see also Seafort v. Burden (In re Seafort), 669 F.3d 662, 663 (6th Cir. 2012) ("Chapter 13 of the Bankruptcy Code permits 'individual[s] with regular income' whose debt falls within statutory limits . . . to keep their property if they agree to a court-approved plan to pay creditors out of their future 'disposable income.'"). Frequently a debtor files a Chapter 13 case to hold onto their residence after they have defaulted on their mortgage loans. Chapter 13 permits debtors to cure arrearages on those loans and continue to make their regular mortgage payments through their Chapter 13 plans. See 11 U.S.C. § 1322(b)(5) and (e); Fed. Land Bank of Louisville v. Glenn (In re Glenn), 760 F.2d 1428, 1442 (6th Cir. 1985) (holding that a Chapter 13 debtor may cure a mortgage loan default on their principal residence even after the debt has been accelerated and a foreclosure judgment has been granted, unless the foreclosure sale has occurred).

B. Background of Bankruptcy Rule 3002.1

Rule 3002.1 was implemented in response to widespread challenges faced by debtors and Chapter 13 trustees in obtaining accurate information from mortgagees and mortgage servicers. See In re Gordon, No. 10-13885 EEB, 2011 Bankr LEXIS 3848, at *9 (Bankr. D. Colo. Mar. 25, 2011) (noting that debtors sometimes struggle to ascertain the amount of a mortgage arrearage because "the mortgage holder . . . fails to adequately...

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