In re Ditech Holding Corp.

• Docket Number: 19-10412 (JLG)
• Decision Date: 01 August 2023
• Parties: In re: Ditech Holding Corporation, et al., Debtors.[1]
• Court: United States Bankruptcy Courts. Second Circuit. U.S. Bankruptcy Court — Southern District of New York

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In re: Ditech Holding Corporation, et al., Debtors.^[1]

No. 19-10412 (JLG)

United States Bankruptcy Court, S.D. New York

August 1, 2023

NOT FOR PUBLICATION

Chapter 11

JENNER & BLOCK, LLP Attorneys for the Consumer Claims Trustee By: Richard Levin.

Kevin L. Etter ^[2] LAW OFFICES OF ERIN E. WIETECHA Attorneys for Claimant, By: Erin E. Wietecha.

MEMORANDUM DECISION AND ORDER SUSTAINING THE ELEVENTH OMNIBUS OBJECTION TO PROOF OF CLAIM FILED BY KEVIN L. ETTER AND THE TWENTY-FIRST OMNIBUS OBECTION TO PROOF OF CLAIM FILED BY KEVIN L. ETTER

HON JAMES L. GARRITY, JR. U.S. BANKRUPTCY JUDGE.

Introduction^[3]

On October 5, 2019, Kevin L. Etter (the "Claimant") pro se, filed proof of claim number 24280 ("Claim 24280") as an administrative expense claim in the amount of $273,505.50 against Ditech Financial, LLC f/k/a Green Tree Servicing, LLC ("Ditech"). Claim 24280 at 1-2. That day, the Claimant also filed proof of claim number 24281 ("Claim 24281" and together with Claim 24280, the "Claims") as an unsecured claim in the amount of $273,505.50 against Ditech. Claim 24281 at 1-2. The Claims are identical, except for the different classifications. Each claim consists of the "Official Form 410, Proof of Claim,"^[4] an explanatory narrative,^[5] and approximately 146 pages of supporting documentation.

In their Eleventh Omnibus Objection^[6] the Plan Administrator and Consumer Claims Trustee seek an order disallowing and expunging Claim 24280. In their Twenty-First Omnibus Objection^[7] (together with the Eleventh Omnibus Objection, the "Objections"), they seek an order disallowing and expunging Claim 24281. The Plan Administrator and Consumer Claims Trustee object to each claim on the grounds that it has "no merit based on Company review." Eleventh Omnibus Objection, Ex. A (List of Claims) at 24; Twenty-First Omnibus Objection, Ex. A (List of Claims) at 13. On February 13, 2020, the Claimant, through counsel, responded to the Objections (the "Response").^[8] On May 19, 2023, the Plan Administrator and Consumer Claims Trustee jointly replied to the Response (the "Reply").^[9]

Pursuant to the Claims Procedures Order,^[10] the filing of the Response caused an adjournment of the Objections so that the Court could conduct a Sufficiency Hearing on the Claims. Under that order, the legal standard of review at a Sufficiency Hearing is equivalent to the standard applied to a motion to dismiss 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)").^[11] Claims Procedures Order ¶ 3(iv)(a). On July 27, 2023, in accordance with the Claims Procedures Order, the Court conducted a Sufficiency Hearing on the Claims. The Consumer Claims Trustee and Plan Administrator appeared through counsel. The Claimant acted pro se.^[12] The Court heard arguments on the Objections.

The Court has reviewed the Claims, Objections, Response, and Reply, including all documents submitted in support thereof and has considered the arguments made by the parties in support of their respective positions. As explained below, accepting all the well-pleaded factual allegations asserted by the Claimant in support of the Claims as true, drawing all reasonable inferences in the Claimant's favor, and liberally construing the Claims and Response to raise the strongest arguments that they suggest, the Claims fail to state plausible claims for relief against Ditech. Accordingly, the Court sustains the Objections and disallows and expunges the Claims.

Jurisdiction

The Court has jurisdiction to consider this matter pursuant to 28 U.S.C. §§ 157 and 1334 and the Amended Standing Order of Referral of Cases to Bankruptcy Judges of the United States District Court for the Southern District of New York (M-431), dated January 31, 2012 (Preska, C.J.). This is a core proceeding pursuant to 28 U.S.C. § 157(b).

Background

The Mortgage Loan

On August 26, 2009, the Claimant executed a note in favor of Bank of America, N.A. ("Bank of America") in the amount of $236,970.00 (the "Note").^[13] The Note was secured by a mortgage (the "Mortgage" and, together with the Note, the "Mortgage Loan"), executed by the Claimant and his wife, Christine Etter, as co-borrowers, on the property located at 9090 County Road 128D, Wildwood, Florida 34785 (the "Property"). The Mortgage names Mortgage Electronic Registration Systems, Inc. as the nominee for Bank of America. Mortgage at 1. On April 1, 2013, Ditech began servicing the Mortgage Loan. Claim 24280 at 80. On February 11, 2019, Ditech assigned the Mortgage Loan to New Residential Mortgage, LLC ("New Residential") (the "New Residential Assignment"). Id. at 41. Effective April 1, 2019, LoanCare, LLC ("LoanCare") began subservicing the Mortgage Loan for New Residential. Id. at 42. On August 6, 2019, New Residential assigned the Mortgage to LoanCare. On August 12, 2019, the Claimant sold the Property and paid the Mortgage Loan in full. Id. at 7; Response ¶ 29.

The Bank of America Foreclosure Action

On September 9, 2011, Bank of America filed a foreclosure complaint against the Claimant, initiating a foreclosure action (the "Bank of America Foreclosure Action")^[14] in the Circuit Court of Sumter County, Florida (the "Florida Court"). On October 17, 2011, the Claimant filed a motion to dismiss (the "Motion to Dismiss")^[15] the Bank of America Foreclosure Action.

On May 1, 2012, the Claimant executed a loan modification with Bank of America (the "Bank of America Loan Modification").^[16] It provided for an interest-bearing principal balance of $209,875.00, a deferred non interest bearing principal balance of $35,199.83, and an interest rate of 4.625%. Bank of America Loan Modification at 2. The Claimant defaulted on the Bank of America Loan Modification within six months. Claim 24280 at 92.

On October 26, 2012, the Florida Court denied the Motion to Dismiss (the "Order Denying Motion to Dismiss").^[17] In that order, the Florida Court stated, in part:

The Court notes Defendants' first assertion that the Complaint should be dismissed since the Mortgage and Note have been split is without merit. Plaintiff has attached a copy of the Note issued to the Plaintiff and a copy of the Mortgage transferred to the Plaintiff.

The Court notes Defendants' second assertion that the Assignment is defective is based upon their allegation that the Assistant Secretary is not a corporate officer. Such an allegation goes beyond the four corners of the Complaint. In addition, the Court notes the Plaintiff is named on the Mortgage as the lender. Consequently, this assertion is without merit.

Regarding Defendants [sic] last claim, the Court notes the proper party with standing to foreclose a note and mortgage is the holder of the note and mortgage or the holder's representative. Thus, the party seeking foreclosure must present evidence that it owns and holds the note and mortgage in question in order to proceed with a foreclosure action. In this case, the Plaintiff has attached a copy of the Note in its name and a copy of the Mortgage and Assignment.

Order Denying Motion to Dismiss ¶¶ 5-7.

On November 27, 2012, Bank of America voluntarily dismissed the Bank of America Foreclosure Action without prejudice to its rights to enforce the Mortgage Loan.^[18]

The Etter Bankruptcy

On November 8, 2012, the Claimant filed a voluntary petition for relief (the "Etter Bankruptcy")^[19] under chapter 7 of title 11 of the United States Code ("Bankruptcy Code"). On February 13, 2013, the Claimant received a discharge from bankruptcy. Etter Bankruptcy Docket, No. 24. On February 18, 2014, the chapter 7 trustee issued a final report. Id., No. 32. On July 9, 2014, the clerk closed the Etter Bankruptcy. Id., No. 37.

The Green Tree Foreclosure Action

On October 4, 2013, Green Tree filed a verified foreclosure complaint (the "Green Tree Complaint")^[20] against the Claimant initiating a foreclosure action in the Florida Court (the "Green Tree Foreclosure Action").^[21] In the complaint, Green Tree asserts that the Claimant defaulted under the terms of the Mortgage Loan by failing to make the payment amount due on October 1, 2012, and all subsequent payments. Green Tree Foreclosure Complaint ¶ 7. On February 27, 2014, Green Tree filed an affidavit (the "Affidavit of Indebtedness")^[22] declaring the total amount due under the Mortgage Loan as $269,490.69. The Claimant did not respond to the Green Tree Complaint or to the Affidavit of Indebtedness. On March 3, 2014, the Florida Court entered a default judgment against the Claimant. Green Tree Foreclosure Docket, Mar. 3, 2014. The parties dispute the final resolution of the Green Tree Foreclosure Action.

The Claimant asserts that he sought, but was denied, loss mitigation from Green Tree in the summer of 2013. Claim 24280 at 4. As support for this contention, he attaches a letter from Green Tree dated August 21, 2013 (the "Green Tree Loss Mitigation Letter"), which states, in substance that he was denied loss mitigation because his income was insufficient for the program guidelines. Id. at 106. The Claimant contends that after Green Tree denied his request for loss mitigation, he brought the Mortgage Loan current, and the Florida Court dismissed the Green Tree Foreclosure Action. Id. at 4.

The Plan Administrator and Consumer Claims Trustee assert that (i) on May 27, 2014, the Claimant executed a loan modification agreement with Green Tree (the "Green Tree Loan Modification");^[23] (ii) on June 16, 2014, Green Tree filed an ex parte motion to dismiss the Green Tree Foreclosure Action,^[24] in which Green Tree notes that the parties have agreed to the resolution of the foreclosure claim; and (iii) on June 23, 2014, the Florida Court dismissed the...