In re Jones

• Decision Date: 13 April 2007
• Docket Number: Bankruptcy No. 03-16518.,Adversary No. 06-01093.
• Parties: In re Michael L. JONES, Debtor. Michael L. Jones, Plaintiff, v. Wells Fargo Home Mortgage, Defendant.
• Court: United States Bankruptcy Courts. Fifth Circuit. U.S. Bankruptcy Court — Eastern District of Louisiana

366 B.R. 584

In re Michael L. JONES, Debtor Michael L. Jones, Plaintiff, v. Wells Fargo Home Mortgage, Defendant.

Bankruptcy No. 03-16518.

Adversary No. 06-01093.

United States Bankruptcy Court, E.D. Louisiana.

April 13, 2007.

Allan L. Ronquillo, DeLeo & Ronquillo, L.L.P., Mandeville, LA, for Plaintiff.

Herschel C. Adcock, Jr., Baton Rouge, LA, Joseph Paul Rumage, Jr., New Orleans, LA, for Defendant.

MEMORANDUM OPINION

ELIZABETH W. MAGNER, Bankruptcy Judge.

This matter came before the Court on Michael L. Jones' ("Debtor") Complaint to Recover Property of the Estate, filed against. Wells Fargo Home Mortgage, Inc. ("Wells Fargo"). Defendant Wells Fargo filed a timely Answer, and on January 5, 2007, the Court conducted a trial on the merits. Entering appearances at the trial were:

                  Robin R. DeLeo
                  Allan Ronquillo
                    Counsel for debtor, Michael L. Jones
                  Joseph Paul Rumage, Jr
                    Counsel for Wells Fargo
                

At the conclusion of the trial, the parties were given leave to submit post-trial briefs on or before February 1, 2007, after which the Court took the matter under advisement. The Court having considered the pleadings, evidence presented, and arguments of counsel, issues the following Memorandum Opinion.

Jurisdiction

This Court has jurisdiction over the issues presented pursuant to 28 U.S.C. §§ 157 and 1334; 11 U.S.C. §§ 362, 506, 1306, 1322, and 1328; Bankruptcy Rule 2016.

I. Factual Findings

Debtor filed a voluntary petition for relief under Chapter 13 of the Bankruptcy Code on August 26, 2003. At the time of his filing, Debtor was obligated to Wells Fargo on a debt secured by his residence. Prior to the institution of this case, Wells Fargo had filed a foreclosure action against Debtor in State Court. After this case was filed, Wells Fargo stayed the prosecution of the foreclosure action but did not dismiss its suit. It also filed a proof of claim setting forth the amounts owed by Debtor as of the petition date. The proof of claim contained a schedule reflecting the following prepetition amounts as due:

                1. Eight (8) mortgage payments
                totaling1                    $18,796.19
                2. Accrued late charges               823.04
                3. Foreclosure fees                   750.00
                4. Court costs                       1283.87
                5. Inspection fees                     60.00
                6. Escrow shortage                    111.59
                7. Broker's price opinion
                charges                               435.00
                                                  ----------
                Total                             $22,259.69
                

Attached to the proof of claim was a copy of an adjustable rate note dated April 4, 2001, evidencing the Wells Fargo debt ("Wells Fargo Note").²

Debtor's plan of reorganization provided for payments to the Chapter 13 Trustee ("Trustee") of $2,105.35 per month for thirty-six months followed by a final payment of $625.97. From these payments, Wells Fargo was to be repaid on the prepetition arrearage represented by Wells Fargo's proof of claim.³ Debtor also agreed to make the monthly installment payments arising post-petition under the Wells Fargo Note directly to Wells Fargo. Debtor's plan was confirmed by this court on October 28, 2003.⁴

On November 1, 2003, Debtor suffered a heart attack. As a result of his illness, Debtor failed to make three payments to the Trustee under the plan and missed four mortgage payments to Wells Fargo. By Order of this Court, the term of Debtor's plan was extended three months, and his obligation to immediately make the three missed payments was excused.⁵ By Consent Order with Wells Fargo, Debtor agreed to pay $9,348.22, including $650.00 in attorney's fees and costs incurred by Wells Fargo,⁶ to cure the post-petition default (the "Consent' Order Sum") on his mortgage. These amounts were to be paid directly by Debtor to Wells Fargo.⁷

Thereafter, Debtor made payments to both the Trustee and Wells Fargo. The Trustee forwarded payments to Wells Fargo to pay its prepetition arrearage.⁸

In August of 2005, Debtor filed a motion requesting authority from the Court to refinance the Wells Fargo debt. Debtor represented that he had a commitment from Option One in the amount of $275,000.00: a sum sufficient to satisfy the costs of refinancing, outstanding claims of Wells Fargo, and pay off the remaining obligations due under his plan. As a result of Hurricane Katrina, a hearing on the motion was delayed until November 15, 2005. Wells Fargo did not oppose the motion. On December 7, 2005, this Court approved the request for authority to refinance the Wells Fargo debt.⁹ On December 15, 2005, Debtor requested a payoff of the amounts due under the Wells Fargo Note as a closing on the refinancing was scheduled for January 4, 2006.¹⁰ On January 3, 2006, Wells Fargo faxed a payoff statement to Winters Title, the closing notary, indicating a payoff balance of $231,463.97. The payoff was itemized:

                1. Principal due                $210,920.72
                2. Interest due from July 1
                2005 — January 10, 2006          13,801.58
                3: Sheriff's Commissions           6,741.67
                                               ------------
                Total                           $231,463.9711
                

No explanation or substantiation for the amounts owed accompanied the payoff statement.

Debtor testified that when he received the payoff statement he contacted his counsel. Although Debtor questioned the amounts Wells Fargo alleged were due, he was unable to obtain an accounting from Wells Fargo explaining its calculations or any other substantiation for the payoff. Because the new loan could not be closed without a release of the Wells Fargo mortgage, and the mortgage would not be released by Wells Fargo unless it received its payoff demand, Debtor was forced to remit the sums demanded or lose his loan commitment.¹² The refinancing left insufficient funds, after the satisfaction of refinancing costs and Wells Fargo's payoff, to satisfy any of Debtor's remaining obligations under the plan.

Following the closing, Debtor requested an accounting of the amounts Wells Fargo alleged were due to payoff his debt. On January 12, 2006, Wells Fargo wrote Debtor acknowledging that it had collected sums in excess of the amounts necessary to satisfy the loan. Wells Fargo gave no explanation as to how much was due or why the amounts collected were in excess of the amounts owed. Debtor was advised that in "approximately 15 days" a check would be issued to him in reimbursement for the excess amount paid.¹³

On March 30, 2006, Debtor instituted this adversary proceeding when no reimbursement was received. Thereafter, on April 20, 2006, Wells Fargo forwarded $7,598.64 in reimbursement for excess funds collected.¹⁴ The funds received were placed in the registry of the Court pending the outcome of this adversary proceeding. At trial, Wells Fargo offered into evidence an accounting from the date of the loan's inception to payoff, reflecting charges made against the loan, as well as, the amounts received in payment.¹⁵

Debtor disputes the accounting. In particular, Debtor disputes .the accrual and payment of post petition inspection fees, attorney's fees, and statutory expenses as well as prepetition Sheriffs commissions. Debtor also objects to the calculation of interest under the Wells Fargo Note. Debtor alleges, and it has not been challenged by Wells Fargo, that none of the disputed charges were previously disclosed to Debtor, the Court, or the Trustee. Further, in the case of the $6,741.67 in Sheriffs commissions collected from the proceeds of the January 4, 2006, refinancing, Debtor avers that Wells Fargo represented in its proof of claim that the costs and commissions of the foreclosure were only $1,283.87. This sum was included in his plan and paid by the Trustee. As a result, Debtor avers that the inclusion of an additional $6,741.67 in commissions in the Wells Fargo payoff was unwarranted and unauthorized.

Wells Fargo responds that the amounts claimed were correctly calculated and that any charges assessed post-petition were authorized under the terms of the Wells Fargo Note and other security documents evidencing the loan. It further maintains that because Debtor voluntarily paid the sums owed under the Wells Fargo Note, he may not recover any amounts improperly charged.

II. Law and Analysis

A. Calculation of Amounts Due Under the Wells Fargo Note

The indebtedness due to Wells Fargo is represented by an adjustable rate note dated April 4, 2001. The interest rate on the Wells Fargo Note is based on a published financial index plus 8.25%.¹⁶ The initial interest rate was 12.375%, but the Wells Fargo Note was subject to adjustment beginning on April 1, 2003, and every six months thereafter. However, under the Wells Fargo Note the' interest rate was in no event to be greater than 15.375% nor less than 12.375%. If the rate were to change, Wells Fargo was required to notify Debtor in writing.

Despite the terms of the Wells Fargo Note, the interest rate charged from April 1, 2003, through April 1, 2005, was lower than the contractual floor rate. During a review of Debtor's loan records, Wells Fargo discovered this error and in a letter dated November 30, 2005, agreed to waive any claim for additional interest.¹⁷ Since the rate in effect at the time the error was discovered was equal to the floor rate of interest under the Wells Fargo Note, no adjustment to Debtor's existing installment payment amount was necessary.

In the accounting prepared by Wells Fargo and presented at trial, Wells Fargo applied Debtor's direct post-petition installment payments to those payments owed prepetition. This was in derogation of the plan, which required that the payment satisfy post-petition installments.

Wells Fargo's accounting did not reflect its agreement that four installments and attorney's fees would be paid through an agreed figure of $9,348.22 under the Consent Order. Wells Fargo's accounting also failed to recognize that prepetition charges, fees, and missed payments were to be separately paid by the...