In re England

• Decision Date: 30 March 2018
• Docket Number: Case No. 17–10197–WRS
• Citation: 586 B.R. 795
• Parties: IN RE Talmadge Reace ENGLAND, Elaine B. England, Debtors
• Court: U.S. Bankruptcy Court — Middle District of Alabama

586 B.R. 795

IN RE Talmadge Reace ENGLAND, Elaine B. England, Debtors

Case No. 17–10197–WRS

United States Bankruptcy Court, M.D. Alabama.

Signed March 30, 2018

Michael Brock, Brock & Stout, LLC, Enterprise, AL, for Debtors.

MEMORANDUM OPINION

William R. Sawyer, United States Bankruptcy Judge

These Chapter 13 cases concern the question of whether a debtor is required by an underlying agreement and applicable nonbankruptcy law to pay postpetition mortgage fees and expenses, filed pursuant to Fed. R. Bankr. P. 3002.1, to a creditor holding a note and mortgage on debtor's primary residence as provided in 11 U.S.C. § 1322(b)(5). The debtors in the following cases each filed a motion to determine the extent to which postpetition fees and expenses claimed by creditors pursuant to Rule 3002.1 must be paid. As required under § 1322(b)(5), the debtors' chapter 13 plans provides for maintenance of the current mortgage payments as well as payment of all arrears to cure default over the life of the plan. Subsequent to filing proof of claims on debtors' primary residences, each creditor filed a Notice of Postpetition Fees, Expenses, and Charges as permitted under Rule 3002.1(c) for fees and expenses incurred within 180 days before service of the notice on the debtors. In response, the debtors filed motions to determine fees, pursuant to Rule 3002.1(e), arguing that this Court should disallow the postpetition fees and expenses.

For clarity, the first section of this Memorandum Opinion will address the facts of each chapter 13 case individually—In re England , Case Number 17–10197 and In re Ochab , Case Number 16–12205. Next, the Court will discuss the general principles of law applicable to the issue before the Court, which will then be applied to each case. Lastly, the Court will conclude with a ruling on the Motions for Determination of Fees, Expenses, or Charges. (17–10197, Doc. 28; 16–12205, Doc. 76).

I. FACTS

A. In re England (17–10197)

Debtors, Talmadge Reace England and Elain B. England, filed a petition under Chapter 13 of the Bankruptcy Code on January 26, 2017. Lakeview Loan Servicing LLC holds a mortgage on Debtors' primary residence. Prior to the date of the petition, Debtors appeared current on their mortgage. (Claim 4–1, p. 4). Subsequent to filing a proof of claim, Lakeview filed a Notice of Postpetition Mortgage Fees, Expenses, and Charges using Official Form 410S2, which is submitted as a supplement to the proof of claim. The Notice states that Debtors incurred two postpetition fees: (1) on February 28, 2017, $300 in fees described as "Bankruptcy/Proof of claim fees" and (2) on February 15, 2017, a $350 fee for "Plan Review." (Supplement to Claim 4–1). The Notice does not provide any further detail describing the fees requested.

On December 4, 2017, Debtors filed a Motion for Determination of Fees, Expenses, or Charges Pursuant to Rule 3002.1(e). (Doc. 28). The motion argues that the mere filing of a Rule 3002.1 Notice does not constitute prima facie evidence supporting the validity of the charges and, without evidentiary support, Lakeview is not entitled to payment. Debtors further argue that the underlying agreement—the mortgage—does not provide for the assessment of such charges in bankruptcy. Lastly, Debtors argue that, even if the fees, expenses, and charges are for services actually provided, the amounts are unreasonable. Lakeview's response, filed on December 27, 2017, argues that, under Rule 3002.1(c) : (1) the creditor is not required to provide evidentiary support; (2) the fees charged for its services in filing a proof of claim and reviewing the Debtors' Chapter 13 plan are reasonable; and (3) Lakeview is entitled to the amounts requested pursuant to the underlying agreement. (Doc. 29). Notably, the mortgage held by Lakeview provides that, if Lakeview invokes the power of sale in a foreclosure proceeding, "[l]ender shall be entitled to collect all expenses incurred ..., including, but not limited to, reasonable attorneys' fees and costs of title evidence. (Claim 4–1, Mortgage section 18).

B. In re Ochab (16–12205)

Debtor Jeffrey L. Ochab filed a petition in bankruptcy under Chapter 13 on November 21, 2016. Freedom Mortgage Corporation, mortgagee to Debtor's primary residence, filed a Notice of Postpetition Mortgage Fees, Expenses, and Charges on March 14, 2017, detailing the following charges incurred on Debtor's mortgage account: (1) on December 7, 2015, a fee of $400 for "Attorney Fees" and (2) on February 28, 2017, $500 in fees described as "Bankruptcy/Proof of claim fees." (Supplement to Claim 10–1). No further detail is provided regarding the fees.

On December 8, 2017, Debtor filed a Motion for Determination of Fees, Expenses, or Charges pursuant to Rule 3002.1(e). (Doc. 76). In Ochab , the debtor's argument for disallowing the fees is nearly identical to those grounds argued by the debtors in England. Likewise, Freedom's arguments for allowing the fees echoes those of Lakeview. The most noteworthy difference between these two cases is that the provision in the mortgage permitting attorneys' fees in England appears to be limited to fees incurred during a foreclosure proceeding initiated pursuant to a power of sale clause. In contrast, the mortgage in Ochab provides as follows:

9. Protection of Lender's Interest in the Property and Rights Under this Security Instrument. If (a) Borrower fails to perform the covenants and agreements contained in this Security Instrument, (b) there is a legal proceeding that might significantly affect Lender's interest in the Property and/or rights under this Security Instrument (such as a proceeding in bankruptcy, probate, for condemnation or forfeiture, for enforcement of a lien which may attain priority over this Security Instrument or to enforce laws or regulations), or (c) Borrower has abandoned the Property, the Lender may do and pay for whatever is reasonable or appropriate to protect Lender's interest in the Property and rights under this Security Instrument, including protecting and/or assessing the value of the Property, and securing and/or repairing the Property. Lender's actions can include, but are not limited to: (a) paying any sums secured by a lien which has priority over this Security Instrument; (b) appearing in court; and (c) paying reasonable attorney's fees to protect its interest in the Property and/or rights under this Security Instrument, including its secured position in a bankruptcy proceeding.... Any amounts disbursed by Lender under Section 9 shall become additional debt of Borrower secured by this Security Instrument.

(Claim 10–1; Mortgage section 9) (emphasis in original). Where the mortgage in England provides for the collection of only attorney's fees incurred during a foreclosure proceeding, the mortgage in Ochab permits the recovery of any fees incurred in collecting or attempting to collect on the debt or protecting the lender's interest in the property.

II. GENERAL PRINCIPLES OF LAW

A. Jurisdiction

This Court has jurisdiction to hear these matters pursuant to 28 U.S.C. § 1334(b). This is a core proceeding within the meaning of 28 U.S.C. §§ 157(b)(2)(B) and (K). This is a final order.

B. Determination of Fees, Expenses, and Charges

In accordance with Fed. R. Bankr. P. 3002.1, a creditor of a debtor's primary residence may file a notice to recover postpetition fees, expenses, or charges incurred in connection with a claim provided for under 11 U.S.C. § 1322(b)(5) in the plan. Section 1322(b)(5) permits a debtor to "cure" a default on his home mortgage and "maintain" payments while a case is pending, thereby allowing him to keep his residence. What is required to cure a default "shall be determined in accordance with the underlying agreement and applicable nonbankruptcy law." 11 U.S.C. § 1322(e) (which is applicable notwithstanding §§ 1322(b)(2) (permitting the modification of rights of secured creditors), 1322(b)(5) (permitting a debtor to cure defaults), and 506(b) (governing the rights of oversecured creditors to interest, fees, and expenses).

In order to collect postpetition fees, expenses, or charges incurred in connection with a claim on a debtor's primary residence, a creditor is required to follow certain noticing requirements, which are provided for in Rule 3002.1(c), Fed. R. Bankr. P.:

The holder of the claim shall file and serve on the debtor, debtor's counsel, and the trustee a notice itemizing all fees, expenses or charges (1) that were incurred in connection with the claim after the bankruptcy case was filed, and (2) that the holder asserts are recoverable against the debtor or against the debtor's principle residence. The notice shall be served within 180 days after the date on which the fees, expenses, or charges are incurred.

In both of the present cases, the fees claimed were incurred in connection with the claim after the filing of the bankruptcy petition. Furthermore, the debtors were served with the Notice of Postpetition Fees, Expenses, and Charges within the 180 day window.

Upon a debtor filing a motion to determine mortgage fees, expenses, and charges pursuant to § 1322(e), the Court must look to the underlying agreement and applicable nonbankruptcy law to determine if the amounts are permissible. The "reasonableness standard" applied under § 506(b) challenges does not apply to postpetition fees, expenses, and charges necessary to cure a default as § 1322(e) explicitly excepts § 506(b) from consideration. Instead, the underlying agreement and applicable nonbankruptcy law are determinative. Fed. R. Bankr. P. 3002.1(e).

Both mortgages pertaining to the underlying cases relate to property with a situs in Alabama. Additionally, both mortgages contain choice of law provisions naming Alabama state law as the applicable law. It is well-established law in Alabama that the parties to a mortgage may agree to the payment of reasonable fees if certain circumstances arise or actions are taken.¹ Therefore, a mortgagee may recover...