In re Ditech Holding Corp.
| Docket Number | 19-10412 (JLG) |
| Decision Date | 03 October 2021 |
| Parties | In re: Ditech Holding Corporation, et al., Debtors. [1] |
| Court | U.S. Bankruptcy Court — Southern District of New York |
NOT FOR PUBLICATION
WEIL GOTSHAL & MANGES LLP
Attorneys for the Plan Administrator
Ray C Schrock, P.C.
Richard W. Slack, Esq.
Sunny Singh, Esq.
JENNER & BLOCK LLP
Attorneys for the Consumer Claims Representative
Ms. Suzanne Roberts
Introduction[2]
Suzanne E. Roberts ("Ms. Roberts") filed Proof of Claim No. 1998 (the "Claim") against Reverse Mortgage Solutions, Inc. ("RMS") in these Chapter 11 Cases on behalf of her now deceased father, Alton W. Obert ("Mr. Obert") (the "Claimant"). The Claim in the sum of $148, 868.64 and consists of a secured claim ($133, 450.17), and an unsecured priority claim ($15, 418.47). In their objection, the Plan Administrator and the Consumer Claims Representative (collectively, the "Estate Representatives") seek to disallow and expunge the Claim on the grounds that it fails to state a claim for relief against RMS. See Fifteenth Omnibus Objection to Proofs of Claim (No Basis Consumer Creditor Claims) [ECF No. 1747] (the "Objection"). Ms. Roberts filed a response to the Objection. See handwritten document construed as a Response to the Objection [ECF No. 1877] (the "Response"). The Estate Representatives submitted a reply to the Response. See Joint Reply of the Consumer Representative and Plan Administrator in Support of the Fifteenth Omnibus Objection with Respect to Claim of Alton W. Obert (1998) [ECF No. 3618] (the "Reply").[3] Pursuant to the Claims Procedures Order, [4] the Court conducted a Sufficiency Hearing on the Claim, at which time counsel for the Estate Representatives and Ms. Roberts were heard by the Court. The legal standard of review at a Sufficiency Hearing is equivalent to the standard applied to a motion to dismiss a complaint for failure to state a claim upon which relief may be granted under Rule 12(b)(6) of the Federal Rules of Civil Procedure ("Rule 12(b)(6)").[5] See Claims Procedures Order ¶ 3(iv)(a).
As explained below, accepting all factual allegations asserted by the Claimant in support of the Claim as true, drawing all reasonable inferences in the Claimant's favor, and interpreting the Claim and the Response to raise the strongest arguments that they suggest, the Claim fails to state a plausible claim for relief against RMS. Accordingly, the Court sustains the Objection and disallows and expunges the Claim.
The Court has jurisdiction to consider this matter pursuant to 28 U.S.C. §§ 157 and 1334 and the Amended Standing Order of Reference dated January 31, 2012 (Preska, C.J.). This is a core proceeding pursuant to 28 U.S.C. § 157(b).
On December 5, 2007, Mr. Obert entered into an Adjustable Rate Home Equity Conversion Loan Agreement (the "Reverse Mortgage")[6] with Urban Financial Group, Inc. ("Urban"). Contemporaneously with the Reverse Mortgage, Mr. Obert executed a note (the "Note") and entered into a deed of trust (the "Deed of Trust") securing real property located at 816 NE 3rd Avenue, Milton-Freewater, Oregon 97862 (the "Property").[7] Without limitation, the Note provides that "immediate payment in full of all outstanding principal and accrued interest" can be required if "[f]or a period of longer than twelve (12) consecutive months, a Borrower fails to physically occupy the Property because of physical or mental illness and the Property is not the principal residence of at least one other Borrower (the 'Primary Residency Provision')." See Note at 2. Under the Deed of Trust, Mr. Obert is the "Grantor," Urban is the "Beneficiary" and Alan E. South, Esq. is the "Trustee." The Deed of Trust mandates that Mr. Obert occupy the Property as his principal residence, pay property taxes and maintain fire, flood and hazard insurance. See Deed of Trust at 2. It also provides that if Mr. Obert fails to make the required property tax or hazard insurance payments, the payments can be advanced and added to the Reverse Mortgage. Id. at 2-3. Under the Note, Mr. Obert was not personally liable for any principal payments or interest under the Reverse Mortgage, with the debt enforceable "only through sale of the Property." Note at 1.
In late March 2018, Mr. Obert was hospitalized and in early April, he was moved to Walla Walla State Veterans Home in Walla Walla, Washington (the "Veterans Home"). See Claim at 16.[8] On April 27, 2018, Mr. Obert notified RMS that he would be residing at the Veterans Home for an indefinite period of time. Id. at 9. On May 1, 2008, Urban transferred servicing of the Reverse Mortgage to RMS. See April 15, 2008 RMS Welcome Letter.[9] Between August 6, 2018 and January 4, 2019, RMS sent a series of notices to Mr. Obert, requesting that he verify his occupancy of the Property. See Claim at 13-15.
As of April 2, 2019, Mr. Obert's loan balance was $119, 427.68. Id. at 10. On May 14, 2019, having been residing at the Veterans Home for more than a year, Mr. Obert was in default under the Primary Residence Provision in the Note. The Property was foreclosed upon and on or about May 16, 2019, it sold for $70, 001 to a third-party bidder through a trustee's sale. See May 16, 2019 Letter from Quality Loan Service Corp. (the "Sale Confirmation").[10] On May 23, 2019, the trustee's deed was recorded. See May 23, 2019 Trustee's Deed for Notice of Default.[11] As Mr. Obert's loan balance was almost $120, 000, the trustee's sale resulted in a deficiency of almost $50, 000, for which Mr. Obert was not personally liable, pursuant to the terms of the Note. At the time of the foreclosure, Mr. Obert still resided at the Veterans Home. See Claim at 8.
On February 11, 2019 (the "Petition Date"), Ditech Holding Corporation (f/k/a Walter Investment Management Corp.) and certain of its affiliates ("Debtors") filed petitions for relief under chapter 11 of the Bankruptcy Code in this Court. The Debtors remained in possession and control of their business and assets as debtors in possession pursuant to sections 1107(a) and 1108 of the Bankruptcy Code. On February 22, 2019, the Court entered an order fixing April 1, 2019 at 5:00 p.m. (prevailing Eastern Time) as the deadline for each person or entity, not including governmental units (as defined in section 101(27) of the Bankruptcy Code) to file a proof of claim in the Debtors' Chapter 11 Cases (the "General Bar Date"). See Order Establishing Deadline for Filing Proofs of Claim and Approving the Form and Manner of Notice Thereof [ECF No. 90]. Thereafter, the Court extended the General Bar Date for consumer borrowers, twice, and ultimately to June 3, 2019 at 5:00 p.m. (prevailing Eastern Time) (the "Consumer Borrower Bar Date"). See Order Further Extending General Bar Date for Filing Proofs of Claim for Consumer Borrowers Nunc Pro Tunc [ECF No. 496].
On September 26, 2019, the Debtors confirmed their Third Amended Plan, and on September 30, 2019, that plan became effective. See Third Amended Joint Chapter 11 Plan of Ditech Holding Corporation and its Affiliated Debtors [ECF No. 1326] (the "Third Amended Plan"); Order Confirming Third Amended Joint Chapter 11 Plan of Ditech Holding Corporation and its Affiliated Debtors [ECF No. 1404]. Notice of (I) Entry of Order Confirming Third Amended Joint Chapter 11 Plan of Ditech Holding Corporation and its Affiliated Debtors, (II) Occurrence of Effective Date, and (III) Final Deadline for Filing Administrative Expense Claims [ECF No. 1449]. The Plan Administrator is a fiduciary appointed under the Third Amended Plan who is charged with the duty of winding down, dissolving and liquidating the Wind Down Estates. See Third Amended Plan, Art. I, ¶¶ 1.130, 1.184, 1.186. The Consumer Claims Representative is a fiduciary appointed under the Third Amended Plan who is responsible for the reconciliation and resolution of Consumer Creditor Claims and distribution of funds to holders of Allowed Consumer Creditor Claims in accordance with the Third Amended Plan. Id., Art. I, ¶ 1.41. Under the plan, the Plan Administrator, on behalf of each of the Wind Down Estates, is authorized to object to all Administrative Expense Claims, Priority Tax Claims, Priority Non-Tax Claims, and Intercompany Claims; and the Consumer Claims Representative has the exclusive authority to object to all Consumer Creditor Claims. See id., Art. VII, ¶ 7.1.
On May 31, 2019, Ms. Roberts filed the Claim on behalf of the Claimant. See Claim at 16. The Claim attaches a Washington state durable power of attorney on behalf of Mr Obert in favor of Ms. Roberts which terminates upon Mr. Obert's death. See id. at 4-7.[12] The Claim asserts a secured claim in the amount of $133, 450.17 (id. at 2, ¶ 9) and a priority claim for $15, 418.47. Id. at 3, ¶ 12. The Claimant does not specify why the Claim is entitled priority status and does not identify any Wind Down Estate-owned property securing the Claim.
The Claim includes largely unspecified complaints about the Reverse Mortgage on the Property, including that the Note required Mr. Obert to obtain hazard insurance. See id. at 17, 23. The Claim also appears to seek $11 315.68 in deferred taxes owed on the Property, to stop any foreclosures on the Property, to require the Debtors to purchase long-term healthcare for seniors, including Mr. Obert, and to require the Debtors to pay $15, 418.47 in overdue payments owed by Mr. Obert to the Veterans Home. Id. at 23. Still, the focus of the Claim is on the alleged unfairness of...
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