In re Johnson
| Decision Date | 28 September 2011 |
| Docket Number | 3:10–bk–16541.,Nos. 3:10–bk–19119,3:11–bk–10602,s. 3:10–bk–19119 |
| Citation | 460 B.R. 234 |
| Parties | In re Daniel L. JOHNSON and Susan D. Johnson, Debtors.In re Tammy R. Peeks, Debtor.In re Tracy L. Estes, Debtor. |
| Court | U.S. Bankruptcy Court — Eastern District of Arkansas |
OPINION TEXT STARTS HERE
Kathy Cruz, Hot Springs, AR, for Debtor.
Joel Hargis, Jonesboro, AR, for Debtors.
Kimberly Burnette, Little Rock, AR, for Creditor.
In a consolidated hearing on July 14, 2011, the Court heard the Objection to Confirmation of Plan filed by Chase Home Finance, L.L.C. (“Chase”) in the case of Daniel and Susan Johnson, Case No. 3:10–bk–19119 (the “Johnson Objection to Confirmation”); the Objection to Confirmation of Plan filed by J.P. Morgan Chase Bank, N.A. (“J.P. Morgan”) in the case of Tammy Renae Peeks, Case No. 3:11–bk–10602 (the “Peeks Objection to Confirmation”); and the Objection to Confirmation of Plan filed by Chase in the case of Tracy L. Estes, Case No. 3:10–bk–16541 (the “Estes Objection to Confirmation”) (collectively the “Objections to Confirmation”). J.P. Morgan appeared through its counsel, Kimberly Burnette of Wilson & Associates, P.L.L.C.1 The Debtors in all three cases were represented at the hearing by Joel Hargis of Crawley & DeLoache, P.L.L.C. Kathy A. Cruz of The Cruz Law Firm, P.L.L.C., also appeared as co-counsel for the Debtor, Tracy L. Estes. At the outset of the hearing, the parties agreed that the facts of the cases were not in dispute, and that the same underlying issue of law was present in each case. For that reason, the hearings were consolidated. The Court accepted evidence and heard the arguments of counsel.2 At the close of the hearing, the Court took the matter under advisement.
This is a core proceeding under 28 U.S.C. § 157(b)(2)(L). This Order shall constitute findings of fact and conclusions of law pursuant to Bankruptcy Rule of Procedure 7052. To the extent that any finding of fact is construed as a conclusion of law, it is adopted as such; to the extent that any conclusion of law is construed as a finding of fact, it is adopted as such. As explained herein, the Court overrules the Objections to Confirmation.
The parties stipulated that at the time of the foreclosure proceedings at issue in these cases, neither Chase nor J.P. Morgan was “authorized to do business” in the state of Arkansas as required by § 18–50–117 of the Arkansas Statutory Foreclosure Act of 1987, Ark.Code Ann. §§ 18–50–101, et seq. (the “Statutory Foreclosure Act”). Additionally, the Court finds the following to be the facts of each case:
The Johnson Case
Chase initiated non-judicial foreclosure proceedings, through Arkansas' Statutory Foreclosure Act, against a property owned by Daniel and Susan Johnson. On December 20, 2010, the Johnsons filed a Chapter 13 bankruptcy bringing that non-judicial foreclosure to a halt. In their bankruptcy case, the Johnsons filed a Chapter 13 plan listing Chase as a long-term secured creditor that was owed an arrearage of $7,485. On March 2, 2011, Chase filed the Johnson Objection to Confirmation claiming that the correct arrearage amount was $14,072.81. Chase filed a proof of claim in the case (the “Johnson Proof of Claim”) claiming a secured debt of $187,468.21, which included the $14,072.81 arrearage, and explained that $1,380 of the arrearage was for foreclosure fees and costs. On July 4, 2011, Chase transferred the Johnson Proof of Claim to J.P. Morgan.
J.P. Morgan initiated a non-judicial foreclosure proceeding, through Arkansas' Statutory Foreclosure Act, against property owned by Tammy Renae Peeks. To initiate the foreclosure process, J.P. Morgan granted Wilson & Associates, P.L.L.C. (“Wilson & Associates”) a limited power of attorney authorizing Wilson & Associates to conduct the foreclosure.3 On January 31, 2011, Ms. Peeks filed a Chapter 13 bankruptcy bringing the non-judicial foreclosure to a halt. On February 10, 2011, Ms. Peeks filed a proposed Chapter 13 plan that listed J.P. Morgan as a long-term secured creditor that was owed an arrearage of $7,500. On March 21, 2011, J.P. Morgan filed the Peeks Objection to Confirmation asserting that the correct arrearage amount was $10,089.19. J.P. Morgan filed a proof of claim in the Peeks case on July 13, 2011 (the “Peeks Proof of Claim”) claiming a secured debt of $133,172.09, which included an arrearage of $9,516.72, and explained that $2,400.02 of the arrearage was for foreclosure fees and costs.
Chase initiated non-judicial foreclosure proceedings, through Arkansas' Statutory Foreclosure Act, against a property owned by Tracy L. Estes. On September 8, 2010, Ms. Estes filed a voluntary petition for bankruptcy under Chapter 13, bringing that non-judicial foreclosure to a halt. On September 21, 2010, Ms. Estes filed a proposed Chapter 13 plan listing Chase as a long-term secured creditor that was owed an arrearage of $8,000. Chase filed the Estes Objection to Confirmation on October 20, 2010, asserting that the correct arrearage amount was $10,537.36. Chase filed a proof of claim in the Estes case on October 28, 2010 (the “Estes Proof of Claim”), claiming a secured debt of $37,041.96, which included an arrearage of $10,509.36, and explained that $2,706.56 of the arrearage was for to foreclosure fees and costs. On May 25, 2011, Chase filed an amended proof of claim adjusting the arrearage from $10,509.36 to $10,502.22. On July 14, 2011, Chase transferred the Estes Proof of Claim to J.P. Morgan.
The question before the Court is whether the Debtors owe J.P. Morgan the foreclosure fees and costs listed on its proofs of claims. The Bankruptcy Code allows a debtor in a Chapter 13 bankruptcy case to cure a default on a debt for its home mortgage through the plan. 11 U.S.C. § 1322(b)(3), (5). In order for that plan to be confirmed, a debtor must pay the default arrearage amount in full. The amount owed in order to cure a default is “determined in accordance with the underlying agreement and applicable nonbankruptcy law.” 11 U.S.C. § 1322(e). This determination poses two separate inquires: first, what fees and costs are allowed by the agreement between the parties, and second, what fees and costs are allowed by the applicable law. See In re Bumgarner, 225 B.R. 327, 328 (Bankr.D.S.C.1998).
In these cases, there is no dispute that the foreclosure fees and costs are owed under the parties' agreements because the instrument used to create each debt gives J.P. Morgan “the right to be paid back by me for all of its costs and expenses in enforcing this Note....” The only question in each of these three cases is whether the foreclosure fees and costs are allowed by the controlling law. The controlling law is Arkansas' Statutory Foreclosure Act (), and the issue is whether J.P. Morgan was qualified to use Arkansas' non-judicial foreclosure procedure when it initiated the foreclosure proceedings against these Debtors.
The Debtors argue that J.P. Morgan was not qualified to use the non-judicial foreclosure process because § 18–50–117 of the Statutory Foreclosure Act requires an entity to be authorized to do business in Arkansas, and that J.P. Morgan was not in compliance with that requirement.
J.P. Morgan stipulated that it was not authorized to do business as is required Ark.Code Ann. § 18–50–117. Nonetheless, it maintains that it was qualified to use Arkansas' non-judicial foreclosure process. J.P. Morgan makes three arguments in support of its position. First, J.P. Morgan argues that its compliance with § 18–50–102 of the Statutory Foreclosure Act enabled it to legitimately employ the non-judicial foreclosure process without being authorized to do business in the state as required by Ark.Code Ann. § 18–50–117. Second, J.P. Morgan argues that the authorized-to-do-business requirement is superseded by a conflicting provision in Arkansas' Wingo Act, Ark.Code Ann. § 4–27–1501, and finally, that it is preempted by federal law through the provisions of the National Banking Act.
For the reasons discussed below, the Court finds that J.P. Morgan was not qualified to use the Arkansas non-judicial foreclosure process when it initiated the foreclosures against these Debtors. J.P. Morgan failed to comply with the authorized-to-do-business requirement of Ark.Code Ann. § 18–50–117, and nothing in Ark.Code Ann. § 18–50–102, the Wingo Act, or the National Banking Act allowed it to conduct those proceedings without meeting that requirement. Absent compliance with Ark.Code Ann. § 18–50–117, J.P. Morgan's avenue for foreclosing on these properties was that of judicial foreclosure through the courts, not through Arkansas' non-judicial foreclosure process. As a result, the foreclosure fees and costs incurred by Chase and J.P. Morgan are not owed by the Debtors, and need not be included in the Debtors' repayment plans in order for those plans to be confirmed.
Finally, both parties request their attorney fees for pursuing or defending these matters. The Court finds that an award of attorney fees to the Debtors is warranted.
In 1987, the Arkansas legislature enacted the Statutory Foreclosure Act, which authorized the use of non-judicial foreclosure proceedings as an alternative to judicial foreclosure proceedings. Ark.Code Ann. §§ 18–50–101, et seq. See also Union Nat'l Bank v. Nichols, 305 Ark. 274, 278, 807 S.W.2d 36, 38 (1991) (). These statutory provisions must be strictly construed. See Robbins v. M.E.R.S., 2006 WL 3507464, at *1 (Ark.Ct.App.2006) ().4
The parties' arguments are based on two provisions of the Statutory Foreclosure Act; ...
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