In re Hight

• Decision Date: 13 August 2008
• Docket Number: No. 07-36683.,07-36683.
• Citation: 393 B.R. 484
• Parties: In re Debra J. HIGHT, Debtor.
• Court: U.S. Bankruptcy Court — Southern District of Texas

393 B.R. 484

In re Debra J. HIGHT, Debtor.

No. 07-36683.

United States Bankruptcy Court, S.D. Texas, Houston Division.

August 13, 2008.

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Pamela Lloyd Stewart, Houston, TX, for Debtor.

MEMORANDUM OPINION ON (1) DEBTOR'S OBJECTION TO CLAIM OF WELLS FARGO BANK, N.A.; AND (2) DEBTOR'S OBJECTION TO APPLICATION FOR APPROVAL OF FEES UNDER FIXED FEE AGREEMENT [Docket Nos. 29 & 48]

JEFF BOHM, Bankruptcy Judge.

I. Introduction

On November 13, 1998, Debra J. Hight (Hight) executed a fixed rate note (the Fixed Rate Note) and a deed of trust (the Deed of Trust) with Norwest Mortgage, Inc. (Norwest). As the result of a name change and a merger, Norwest became part of Wells Fargo Bank, N.A. (Wells Fargo). As such, Wells Fargo became the owner and holder of the Fixed Rate Note and the Deed of Trust.

By 2007, Hight was delinquent on her payments to Wells Fargo, and, pursuant to the Fixed Rate Note and the Deed of Trust, a foreclosure sale was scheduled to occur on February 6, 2007. Hight avoided foreclosure by filing a Chapter 13 bankruptcy petition just before the scheduled sale. That bankruptcy case was dismissed on September 10, 2007. Hight subsequently filed this Chapter 13 case on October 1, 2007.

Wells Fargo has filed a proof of claim (the Amended Proof of Claim)¹ in the current bankruptcy case. In the Amended Proof of Claim, Wells Fargo asserts a total claim of $164,473.30, including amounts for delinquent monthly payments, an escrow shortage, property preservation/inspection fees, uncollected late charges, pre-petition attorney's fees, and post-petition attorney's fees. Wells Fargo also filed a fee application (the Fee Application) seeking approval to recover $600.00 in post-petition attorney's fees. Hight filed objections to both the Amended Proof of Claim and the Fee Application, asserting, among other things, that Wells Fargo is attempting to collect illegal fees, fees without any basis, and fees that may not be collected as a matter of law.

For the reasons stated herein, the Court overrules Hight's objection to the Amended Proof of Claim in regards to Wells Fargo's claim for principal and delinquent monthly payments, uncollected late charges, property preservation/inspection fees, and a portion of the pre-petition attorney's fees. The Court sustains Flight's objection to the Amended Proof of Claim in regards to Wells Fargo's claims for the escrow shortage and a portion of the pre-petition attorney's fees. The Court further finds that, when filing the Fee Application, Wells Fargo failed to comply with Federal Rule of Bankruptcy Procedure 2016 and, as such, may not collect its requested post-petition attorney's fees.

The Court makes the following Findings of Fact and Conclusions of Law pursuant to Federal Rule of Civil Procedure 52, as incorporated into Federal Rule of Bankruptcy Procedure 7052, and Bankruptcy Rule 9014. To the extent that any Finding of Fact is construed to be a Conclusion of Law, it is adopted as such. To the extent that any Conclusion of Law is construed to be a Finding of Fact, it is adopted as such. The Court reserves the right to make any additional Findings and Conclusions as may be necessary or as requested by any party.

II. Findings of Fact

The facts, as stipulated to or admitted by the parties, or as adduced from testimony of various witnesses, or as established by the introduction of exhibits, are as follows:

1. On November 13, 1998, Hight signed the Fixed Rate Note that secured a $168,300.00 loan from Norwest for the purchase of real property located at 12710 Widley Circle, Houston, TX 77077 (the Hight Property). [Wells Fargo Ex. 2].² The Fixed Rate Note provides that:

If the Note Holder has not received the full amount of any monthly payment by the end of 15 calendar days after the date it is due, [Hight] will pay a late charge to the Note Holder. The amount of the charge will be 5.000% of [the] overdue payment of principal and interest. [Hight] will pay this late charge promptly but only once on each late payment.

Id. at § 6(A). Furthermore, pursuant to the Fixed Rate Note, Wells Fargo maintained the right to request immediate payment of the entire principal and all accrued interest if Hight became delinquent on her monthly payments. Id. at § 6(C). The Fixed Rate Note further provided: "If the Note Holder [requests immediate payment], the Note Holder will have the right to be paid back by [the debtor] for all of its costs and expenses in enforcing [the] Note to the extent not prohibited by applicable law. These expenses include, for example, reasonable attorney's fees." Id. at § 6(E).

2. On November 13, 1998, Hight also signed the Deed of Trust creating a security interest in the Hight Property for the benefit of Norwest. [Wells Fargo Ex. 3]. The Deed of Trust secures repayment of the $168,300.00 loan to Hight pursuant to the Fixed Rate Note. Id. The Deed of Trust provides, in pertinent part:

1. Payment of Principal and Interest; Prepayment and Late Charges. Borrower shall promptly pay when due the principal of and interest on the debt evidenced by the Note and any prepayment, and the late charges due under the Note.

2. Funds for Taxes and Insurance. Subject to applicable law or to a written waiver by Lender, Borrower shall pay to Lender on the day monthly payments are due under the Note, until the Note is paid in full, a sum³ ("Funds") for: (a) yearly taxes and assessments which may attain priority over this Security Instrument as a lien on the Property. . . . These items are called "Escrow Items."⁴ Lender may, at any time, collect and hold Funds in an amount not to exceed the maximum amount a lender for a federally related mortgage loan may require for Borrower's escrow account under [federal law]. . . . Lender may estimate the amount of Funds due on the basis of current data and reasonable estimates of expenditures of future Escrow Items or otherwise in accordance with applicable law. . . . Lender shall apply the Funds to pay the Escrow Items. . . .

4. Charges, Liens. Borrower shall pay all taxes, assessments, charges, fines and impositions attributable to the Property which may attain priority over this Security Instrument. . . . Borrower shall pay these obligations in the manner provided in paragraph 2. . . .

7. Protection of Lender's Rights in Property. If Borrower fails to perform the covenants and agreements contained in this Security Instrument, or there is a legal proceeding that may significantly affect Lender's rights in the Property (such as a proceeding in bankruptcy . . .), then Lender may do and pay for whatever is necessary to protect the value of the Property and Lender's right in the Property. Lender's actions may include paying any sums secured by a lien which has priority over this Security Instrument, appearing in court, paying reasonable attorneys' fees and entering on the Property to make repairs. Although Lender may take action under this paragraph 7, Lender does not have to do so.

Any amounts disbursed by Lender under this paragraph 7 shall become additional debt of Borrower secured by this Security Interest. . . .

21. Acceleration, Remedies. Lender shall give notice to Borrower prior to acceleration following Borrower's breach of any covenant or agreement in this Security Instrument. . . . If the default is not cured on or before the date specified in the notice, Lender at its option may require immediate payment in full of all sums secured by this Security Instrument without further demand and may invoke the power of sale and any other remedies permitted by applicable law. Lender shall be entitled to collect all expenses incurred in pursuing the remedies provided in this paragraph 21, including, but not limited to, reasonable attorneys' fees and costs of title evidence.

Id. (footnotes added).

3. On April 3, 2000, Norwest changed its name to Wells Fargo Home Mortgage, Inc. [Wells Fargo Ex. 1 (Certificate of Amendment, #A0542642)]; [Tr. Mar. 5, 2008, 68:2-25].

4. On May 5, 2004, Wells Fargo Home Mortgage, Inc. merged into Wells Fargo. [Wells Fargo Ex. 1 (Agreement of Merger, # D0737510)]; [Tr. Mar. 5, 2008, 68:2-25].

5. On November 27, 2006, at the request of Wells Fargo, First American Field Services (American Field) inspected the Hight Property at a cost of $16.25 ($15.00 for the inspection and $1.25 for a photograph taken of the property). [Tr. Feb. 27, 149:11-22, 151:21-152:7]; [Wells Fargo Ex. 1]. Other inspections were made by American Field on October 24, 2006, December 29, 2006, and January 30, 2007—each at a cost of $15.00. [Tr. Feb. 27, 150:15-18]; [Wells Fargo Ex. 1]. Wells Fargo was invoiced for these services and paid the balance of $61.25. [Tr. Feb. 27, 2008, 150:15-23]; [Wells Fargo Ex. 1].

6. On February 3, 2007, Hight filed a voluntary Chapter 13 petition (Case Number 07-30755) in the Southern District of Texas, Houston Division (the First Bankruptcy). [Tr. Mar. 5, 2008, 56:10-14]; [Docket No. 5 at § 2].

7. A foreclosure sale of the Hight Property was scheduled to occur on February 6, 2007 (the Foreclosure Sale). [Wells Fargo Ex. 1 (Invoice # 20416)]. The Foreclosure Sale never occurred. [Tr. Mar. 5, 2008, 95:4-6]. The Foreclosure Sale was stayed by the filing of the First Bankruptcy on February 3, 2007—a few days before the scheduled sale.

8. As of September 10, 2007, Hight had an Escrow Balance (the sum of Flight's Escrow Payments less any sums paid towards Escrow Items) of negative $2,352.33 with Wells Fargo. [Tr. Feb. 27, 2008, 178: 6-9].

9. On September 18, 2006, pursuant to the Fixed Rate Note, Wells Fargo imposed a $52.50 late charge on Hight for allowing her mortgage to become delinquent. [Tr. Feb. 27, 187:21-24, 190:10-17]; see also [Wells Fargo Ex. 2 at § 6(A)]. Subsequent late charges for $52.50 were imposed on October 16, 2006, November 16, 2006, December 18, 2006, and January 16, 2007. [Tr. Feb. 27, 2008, 187:21-24]...