In re Eads

• Decision Date: 18 September 2009
• Docket Number: Bankruptcy No. 05-42356.,Adversary No. 07-4165.
• Citation: 417 B.R. 728
• Court: U.S. Bankruptcy Court — Eastern District of Texas
• Parties: In re Debbie EADS aka Deborah Eads, Debtor. Litton Loan Servicing, L.L.P., Plaintiff, v. Debbie Eads aka Deborah Eads, Defendant.

417 B.R. 728

In re Debbie EADS aka Deborah Eads, Debtor.

Litton Loan Servicing, L.L.P., Plaintiff, v. Debbie Eads aka Deborah Eads, Defendant.

Bankruptcy No. 05-42356.

Adversary No. 07-4165.

United States Bankruptcy Court, E.D. Texas, Sherman Division.

September 18, 2009.

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Molly W. Bartholow, Dallas, TX, for Debtor.

Joe Lozano, Tyler B. Jones, Brice, Vander Linden & Wernick, PC, Dallas, TX, for Plaintiff.

Theodore Bartholow, Dallas, TX, for Debtor/Defendant.

MEMORANDUM OPINION

BRENDA T. RHOADES, Bankruptcy Judge.

In this action, the disputed issue is whether a default order entered by this Court in the underlying bankruptcy case entitles Debbie Eads (the "Debtor") to a free house. Litton Loan Servicing, L.L.P. ("Litton") seeks to set aside the order pursuant to Federal Rule of Civil Procedure ("Rule") 60(b). The Debtor opposes Litton's Rule 60(b) request, arguing that defects in the mortgage loan documents prevent the enforcement of the lien and that the lien was not created in accordance with the Texas Constitution. The Debtor also asserts the affirmative defense of laches and counterclaims that Litton has violated the automatic stay, is in contempt of the Court's order sustaining the Debtor's claim objection, has intentionally inflicted emotional distress upon her, and has vexatiously multiplied litigation. The Debtor seeks an injunction prohibiting Litton from pursuing any action against the Debtor's homestead and requiring Litton to file a release of lien as to the Debtor's homestead.

I. JURISDICTION

This Court has jurisdiction to consider this matter pursuant to 28 U.S.C. § 1334(b) and 28 U.S.C. § 157(a). The Court has the authority to enter a final order in this action since it constitutes a core proceeding as contemplated by 28 U.S.C. § 157(b)(2)(A), (B), and (O). This Memorandum Opinion constitutes the Court's findings of fact and conclusions of law.¹ See FED. R. BANKR.P. 7052.

II. RELEVANT BACKGROUND

In December 2002, the Debtor and her husband obtained a home equity loan from Option One Mortgage Corporation. The Debtor's husband, Timothy Eads, executed a Home Equity Adjustable Rate Note (the "Note") dated December 23, 2002, in the original principal amount of $118,600.00.² The obligation to repay the indebtedness was secured by a Deed of Trust dated December 23, 2002 (the "Deed of Trust"), which provided Option One Mortgage Corporation with a lien on the real estate and all improvements located at 2004 Travis Dr. in Plano, Texas (the "Property"). Both the Debtor and her husband signed the Deed of Trust.

Option One Mortgage Corporation properly perfected its lien and security interest in and to the Property by recording the Deed of Trust in the real property records of Collin County, Texas, on January 3, 2003. Option One Mortgage Corporation assigned the Note and Deed of Trust to Homecomings Financial Network, Inc. ("Homecomings") pursuant to an Assignment of Deed of Trust dated January 8, 2003. Homecomings was the holder of the Note and Security Instrument at all relevant times.

Homecomings and Litton had previously entered into a Servicing Agreement dated as of March 1, 2001. Article IV of the Servicing Agreement addresses the servicing of mortgage loans. Section 4.01 generally provides that Litton "shall have the full power and authority, acting alone, to do or cause to be done any and all things in connection with such servicing and administration" of a mortgage loan. With respect to a defaulted mortgage loan, section 4.03 provides that Litton shall take such action as it deems in the best interest of Homecomings and that Litton has the right and power to foreclose on a mortgaged property in the name of Homecomings.

On January 16, 2002, the Debtor filed a voluntary petition for relief under Chapter 13 of the Bankruptcy Code.³ The Debtor filed her schedules of assets and liabilities and her statement of financial affairs on the same day as her bankruptcy petition.⁴ According to her Schedule I (Current Income of Individual Debtor(s)), the Debtor was employed as a teacher, and her total net monthly take home pay was $916.40 as of the petition date. Additionally, her non-debtor husband was working as a project manager, and his total net monthly take home pay was $4,160 as of the petition date.

In her Schedule C (Property Claimed as Exempt), the Debtor claimed her interest in the Property as exempt from her creditors under Texas law. The Debtor described the Property as her homestead, and she estimated that the current market value of the Property was $150,000. No party in interest filed a timely objection to the Debtor's claimed exemption. See FED. R. BANKR.P. 4003(b). Accordingly, the Debtor's interest in the Property was withdrawn from the bankruptcy estate and the reach of her unsecured creditors. See Owen v. Owen, 500 U.S. 305, 308, 111 S.Ct. 1833, 114 L.Ed.2d 350 (1991) (discussing exemptions from the bankruptcy estate).

In her Schedule D (Creditors Holding Secured Claims), the Debtor listed Litton as holding an undisputed, liquidated, non-contingent secured claim against the Property in the principle amount of $116,919 as well as an arrearage claim of $18,000. The Debtor described the Property as community property in her Schedule A (Real Property). The Debtor stated in her Schedule F (Creditors Holding Unsecured Nonpriority Claims) that she owed $16,750 to her unsecured creditors. In her Declaration Concerning Bankruptcy Schedules, which was attached to and filed with her bankruptcy schedules, the Debtor declared under penalty of perjury that her bankruptcy schedules were true and correct to the best of her knowledge.

On June 21, 2005, Baxter & Schwartz, P.C., acting as counsel for Litton, filed proof of Homecomings' secured claim against the Property, which the Court assigned claim number one.⁵ Counsel elected not to use Official Form 10 in setting forth the claim.⁶ According to the claim, the principal balance due under the Note was $116,919.87, and the total pre-petition arrearage was $19,805.73 as of the petition date. Although the proof of claim did not include an address for service of notice upon Homecomings, the claim states that "the correct post office address of the claimant to which all monies and distribution checks" should be sent is "Litton Loan Servicing, Attn: Bankruptcy Department, Loan No. 11503876, 4828 Loop Central Drive, Houston, Texas 77081-2226."⁷ A summary of the amount due under the Note, a copy of the Deed of Trust, and a copy of the Assignment of Deed of Trust, among other things, were attached to the proof of claim. The copy of the Deed of Trust and the Assignment of Deed of Trust did not bear any indication that they had been filed in the real property records of Collin County, Texas.

A second proof of claim was filed by Litton on June 29, 2005, which the Court assigned claim number two. The second proof of claim was filed by different bankruptcy counsel and did not accurately state the amounts due and owing to Homecomings. The parties agree that this claim was filed in error and does not have any impact on the claims and counterclaims raised in this adversary proceeding.

On August 24, 2005, Baxter & Schwartz, P.C., acting as counsel for Homecomings, filed a motion seeking relief from the automatic stay imposed by § 362(a) of the Bankruptcy Code as to the Property. The Debtor objected to the motion on the grounds that the Property was necessary to an effective reorganization and Homecomings was adequately protected. The Court scheduled a final hearing on Homecomings' motion to be held on October 19, 2005. Prior to that date, the Debtor and Homecomings submitted an agreed order whereby the Debtor agreed to make regular payments to Homecomings and to cure her post-petition arrearages. The Court entered the Agreed Order Conditioning Automatic Stay (the "Agreed Order") on November 16, 2005.

The Agreed Order was signed by counsel for the Debtor and Homecomings and provides that its terms embody the stipulations of the parties. The Agreed Order provided for regular payments to be made to Homecomings beginning on November 1, 2005, "pursuant to the terms of the Note, held by [Homecomings], secured by a Deed of Trust, encumbering" the Property. The Agreed Order further provided in pertinent part that Homecomings would notify the Debtor and her counsel of any payment default and, if the Debtor failed to cure the default within ten days of the date of the notice, "the Automatic Stay of 11 U.S.C. § 362 shall be and is hereby ORDERED to be terminated with respect to Movant."

The Debtor failed to perform under the Agreed Order. Counsel for Litton sent a letter to the Debtor dated January 25, 2006, notifying the Debtor that she had defaulted under the terms of the Agreed Order by failing to make the regular monthly payments for November 1, 2005, December 1, 2005, and January 1, 2006. Counsel for Litton sent a second letter to the Debtor dated June 2, 2006, notifying the Debtor that she had again defaulted under the terms of the Agreed Order by failing to make the regular monthly payments for February 1, 2006 through May 1, 2006. The Debtor failed to cure the defaults described in the June 2nd letter.

The Debtor filed a First Amended Chapter 13 Plan on May 5, 2006. In the amended plan, the Debtor provided for mortgage payments to be made to Homecomings. The Debtor, however, included the following statement in her proposed plan: "This plan is confirmed without resolution of Debtor's pending objections to the claims of eCast and[/]or Homecomings, confirmation of the plan is not res judicata as to those claims. At such time as the claims and objections to claims are resolved, the plan base and plan payment shall be modified as appropriate to reflect the outcome of the objection to the claims." There was, at that time, no pending objection to Homecomings' claim number one or the...