In re Kevin NEWCOMER

• Decision Date: 30 September 2010
• Docket Number: Bankruptcy No. 02-13178.,Adversary No. 07-479.
• Citation: Newcomer v. Litton Loan Servicing, LP (In re Newcomer), 438 B.R. 527 (Bankr. Md. 2010)
• Parties: In re Kevin NEWCOMER, Debtor. Kevin Newcomer, Plaintiff, v. Litton Loan Servicing, L.P., Defendant.
• Court: U.S. Bankruptcy Court — District of Maryland

438 B.R. 527

In re Kevin NEWCOMER, Debtor.Kevin Newcomer, Plaintiff,

v.Litton Loan Servicing, L.P., Defendant.

Bankruptcy No. 02-13178.

Adversary No. 07-479.

United States Bankruptcy Court,D. Maryland, at Greenbelt.

Sept. 30, 2010.

COPYRIGHT MATERIAL OMITTED.

COPYRIGHT MATERIAL OMITTED.

Laura J. Margulies, Laura Margulies & Associates, LLC, for Debtor.

MEMORANDUM OPINION

THOMAS J. CATLIOTA, Bankruptcy Judge.

In this adversary proceeding, plaintiff Kevin K. Newcomer (“Plaintiff”), a former chapter 13 debtor, seeks damages against Litton Loan Servicing, LP (“Defendant”), alleging violations of the confirmed plan and various Bankruptcy Code provisions. Specifically, Plaintiff asserts that Defendant, which services a loan secured by a deed of trust on Plaintiff's residence, violated the automatic stay of the Bankruptcy Code as well as the confirmed chapter 13 plan and other bankruptcy provisions by, among other things, misapplying loan and plan payments during the term of the chapter 13 plan.

Following this Court's ruling on summary judgment, ¹ the remaining counts in the amended complaint assert claims for violation of the automatic stay of § 362 of the Bankruptcy Code ² (Count 1); violation of § 1327 and the confirmed plan (Count 2); and violation of § 1328 (Count 3). Following a three-day trial, and for the reasons stated herein, the Court concludes that Homecomings Financial, LLC, which serviced the loan before Defendant, violated the automatic stay and the terms of the plan and § 1327 of the Bankruptcy Code by requiring Plaintiff (and his wife) to pay a prepetition obligation- viz., the escrow deficiency that existed as of the petition date-as a condition of keeping the loan current post-petition. Homecomings also included most, if not all, of the prepetition escrow deficiency in its proof of claim and recovered those amounts through Plaintiff's plan payments. The violation, therefore, is particularly egregious because Homecomings not only improperly collected the prepetition obligation from post-petition payments, it collected it twice.

However, Plaintiff has settled his dispute with Homecomings and it is no longer a party to this action. The Court does conclude, though, that Plaintiff is entitled to a recalculation of the correct amount due on the Loan. The Court will require Defendant to recalculate the amount due on the loan by removing any post-petition obligation to pay the prepetition escrow deficiency, as provided more fully herein and in the order that accompanies this opinion. The Court will also allow Plaintiff to file a petition for attorney's fees and costs, focusing specifically on Defendant's, rather than Homecomings', conduct.

The Court has jurisdiction over this matter pursuant to 28 U.S.C. §§ 1334, 157(a), and Local Rule 402 of the United States District Court for the District of Maryland. This is a core proceeding pursuant to 28 U.S.C. § 157(b)(2)(A) & (O). The following constitutes the Court's findings of fact and conclusions of law.

FINDINGS OF FACT

A. The Loan and the Bankruptcy Case.

On March 13, 2002, Plaintiff filed for Chapter 13 relief in this Court, initiating Case No. 02-13178. Plaintiff's wife, Louise Newcomer (“Mrs. Newcomer”), did not join in the petition and was not a debtor in bankruptcy at any time after Plaintiff commenced his case. Mrs. Newcomer was a debtor in two previous bankruptcy cases which were closed before Plaintiff commenced his bankruptcy case.

On or about May 20, 1996, Mrs. Newcomer entered into a residential real estate loan (the “Loan”) pursuant to which she executed a promissory note (the “Note”) in favor of First Savings Mortgage Corporation in the principal amount of $89,350, secured by a deed of trust (the “Deed of Trust”) against 2617 Newton Street, Wheaton, MD (the “Property”).

At the time Mrs. Newcomer entered into the Loan, Plaintiff did not own an interest in the Property. He is not and has never been a party to the Note or the Deed of Trust.

Plaintiff acquired an interest in the Property in 2000. Mrs. Newcomer executed and had recorded a quitclaim deed dated June 2, 2000, transferring her interest in the Property to herself and Plaintiff, as tenants by the entirety. Plaintiff made a handwritten notation on the quitclaim deed stating that “Kevin and Louise have made all mortgage payments and will continue to make all mortgage payments in the future. No Grantor or grantee is assuming liability for a debt or is being relieved of liability for debt in this transaction.”

The precipitating cause of Plaintiff's bankruptcy filing was that the Note was in default. At that time, the Note and Deed of Trust were serviced by Homecomings Financial, LLC (“Homecomings”). Homecomings filed a proof of claim in the case for arrears under the Loan in the amount of $12,683.07, consisting of missed monthly mortgage payments of $9,735.32, late charges of $389.92, foreclosure fees of $1,275.00, foreclosure costs of $1,172.83 and trustee sale advertising of $110.00.

Plaintiff filed a Chapter 13 Plan (the “Plan”) on March 28, 2002. The Plan required Plaintiff to make sixty payments to the trustee in the amount of $592.00 (the “Plan Payments”). The Plan provided, in relevant part, that “the trustee will cure all pre-petition arrears, costs, and fees in full (100%), required by 11 USC § 1325(a)(5) on the following claim[ ] ... Homecomings Financial Network.” The Plan also provided that “the debtor shall maintain post-petition payments directly while the case is pending.” The Plan was confirmed by Order Confirming Plan entered on October 22, 2002.

On October 19, 2006, the chapter 13 trustee filed the Notice of Plan Completion. Plaintiff received his discharge that same day. The chapter 13 trustee filed the Final Report and Account on January 10, 2007. The Final Report and Account reflects that the chapter 13 trustee paid Homecomings and Defendant $12,683.07, the full amount of the arrearage claim as set forth in the proof of claim, from Plan Payments. The bankruptcy case was closed on January 16, 2007.

On February 28, 2007, Plaintiff filed a motion to reopen the bankruptcy case in order to file a motion to hold Defendant in contempt for violating the discharge injunction of § 524. The Court reopened the bankruptcy case on March 12, 2007, and Plaintiff filed the contempt motion the next day. The contempt motion asserted that Plaintiff made all of his payments under the Plan and kept the Note payments current post-petition, but nevertheless Defendant, in violation of the Bankruptcy Code, charged late fees and asserted that the Note was in default.

On June 19, 2007, Plaintiff withdrew the contempt motion and filed this adversary proceeding. ³ Plaintiff originally sued both Defendant and Homecomings, but later settled with Homecomings, and proceeded against Defendant.

1. Plan Payments

Plaintiff managed the household finances. He opened the mail and paid the bills. During his bankruptcy case, Plaintiff had the family responsibility for mailing the Plan Payments to the trustee. He also had the family responsibility for mailing the post-petition Loan payments (the “Loan Payments”) directly to Homecomings or Defendant, as the case may be.

There is no dispute between the parties, and the Court finds, that Plaintiff completed his Plan Payments, and the trustee paid to Homecomings and Defendant the total amount of the prepetition arrears set forth in Homecomings' proof of claim: $12,683.07. The Court further finds that the prepetition default on the Loan was cured during the course of the Plan.

2. Loan Payments

As stated above, at the time the case was filed, the Loan was being serviced by Homecomings. The servicing rights on the Loan were transferred from Homecomings to Defendant in February 2004. Defendant services the Loan; it does not own, nor has it ever owned, the Loan.

At trial, the parties stated that there was no dispute between them over the date or amount of the Newcomers' Loan Payments. The statement proved not to be accurate, as a comparison of the primary exhibits the parties relied on to establish the amount and date of the Loan Payments did not agree. Compare Ex. C to the Report of Kevin P. Byers, CPA. (Pl. Ex. 29) with Def. Ex. 21.

The parties differed on two payments. Plaintiff's records reflect that he made a Loan Payment of $849.70 on May 13, 2003. Defendant's summary chart of Loan Payments does not show that this payment was made. See Def. Ex. 21, p. 1 (not showing a payment on May 13, 2003). However, Homecomings' internal detailed financial transaction report shows that this payment was in fact received by Homecomings. See Def. Ex. 18 at p. HFN043, transaction # 213 (dated May 13, 2003). The Court finds that Plaintiff made a Loan Payment of $849.70 on May 13, 2003.

Defendant's records reflect that Plaintiff made a Loan Payment on November 10, 2004 in the amount of $764.07. Neither the Plaintiff nor his expert contended that this payment was made. The timing and amount of Loan Payments from December 1, 2004 onward point to the conclusion that Plaintiff made Loan Payments each month as if he had not made a Loan Payment of $764.07 on or about November 10, 2004. The Court finds and concludes that Plaintiff did not make a Loan Payment of $764.07 on November 10, 2004.

Appendix A to this opinion sets forth the Court's findings on the Loan transaction details while Homecomings serviced the Loan ( i.e., from the petition date in March 2002 until February 2004). It lists the monthly amounts due on the Loan according to Homecomings' records, broken down by principal, interest and escrow. Appendix A also shows the date and amount of the Loan Payments made by Plaintiff during that period. It shows, and the Court finds, that during the Plan period in which Homecomings serviced the Loan, Homecomings' records reflect that a total of $24,129.53 was due on the Loan, including principal, interest and escrow. Appendix A further shows that, during that...