In re Kolnberger, Case No.: 18-75904-AST

• Decision Date: 10 May 2019
• Docket Number: Case No.: 18-75904-AST
• Citation: 603 B.R. 253
• Parties: IN RE: Joann KOLNBERGER, Debtor(s).
• Court: U.S. Bankruptcy Court — Eastern District of New York

603 B.R. 253

IN RE: Joann KOLNBERGER, Debtor(s).

Case No.: 18-75904-AST

United States Bankruptcy Court, E.D. New York.

Signed May 10, 2019

Phillip Mahony, Phillip Mahony, Esq., Astoria, NY, Charles Wallshein, Melville, NY, for Debtors.

MEMORANDUM OPINION AND ORDER GRANTING RELIEF FROM THE AUTOMATIC STAY

Alan S. Trust, United States Bankruptcy Judge

Statement of issues and summary of ruling

Currently pending before the Court is a motion for relief from the automatic stay filed by a mortgage servicer, seeking to return to state court to continue a foreclosure action relating to Debtor Joann Kolnberger's ("Debtor") principal residence (the "Motion"). Debtor filed an objection (the "Objection") and has also filed an adversary proceeding against the mortgage servicer and others for alleged violations of state and federal law arising from denials of her requests to modify her mortgage.

The Motion and Objection present two novel issues: (1) Debtor's claim that, under the federal Real Estate Settlement Procedures Act ("RESPA"), a mortgage servicer cannot seek stay relief to continue a state court foreclosure action if the debtor has submitted a non-bankruptcy loss mitigation request to it, and may not pursue stay relief until the loss mitigation process has concluded, including any applicable appeals¹ ; and (2) Debtor's claim that an alleged post-petition RESPA violation is a defense to a motion for stay relief. Debtor also asserts a more conventional defense that she can adequately protect the lender's interest, but to an undefined point in time.

For the reasons herein, the Motion is granted and Debtor's Objection is overruled; the adversary proceeding will be separately addressed in due course.

JURISDICTION

This Court has jurisdiction over this core proceeding pursuant to 28 U.S.C. §§ 157(b)(2)(A), (G) and 1334(b), and the Standing Orders of Reference in effect in the Eastern District of New York dated August 28, 1986, and as amended on December 5, 2012, but made effective nunc pro tunc as of June 23, 2011.

FINDINGS OF FACT AND CONCLUSIONS OF LAW

This decision constitutes the Court's findings of fact and conclusions of law in accordance with Rules 7052 and 9014 of the Federal Rules of Bankruptcy Procedure.²

The Foreclosure Action and Bankruptcy Case

In 2006, Debtor and co-obligor Michael Kolnberger ("Co-Debtor") executed a note in favor of First Financial Equities, Inc. in the amount of $456,000, secured by a mortgage against real property located at 106 Park Hill Avenue, Massapequa, NY 11758 (the "Loan" and the "Property"). The Loan was modified in 2009, creating a new principal balance of $462,140.85.

In 2015, Deutsche Bank National Trust Company, as trustee, on behalf of the holders of the Impac Secured Assets Corp., Mortgage Pass-Through Certificates Series 2006-4 ("DBT") commenced a foreclosure action against Debtor and Co-Debtor in Nassau County, New York, under Index Number 15-007128 (the "Foreclosure Action").

On June 11, 2018, DBT obtained a judgment of foreclosure and sale (the "Judgment of Foreclosure"). A foreclosure auction of the Property was scheduled for September 4, 2018; that sale was stayed by Debtor filing this bankruptcy case under chapter 13 of the Bankruptcy Code on August 31, 2018.

Marianne DeRosa was appointed the Chapter 13 Trustee (the "Trustee").

In her bankruptcy petition and schedules, Debtor claims the Property as her residence, with an ascribed value of $475,000, secured by a mortgage in favor of Select Portfolio Servicing in the amount of $583,066.93. [dkt items 1, 4] Debtor identified the Foreclosure Action in her schedules.

On August 31, 2018, Debtor filed her chapter 13 plan (the "Plan"), in which, inter alia , she proposes to request a loan modification of the Loan secured by the Property. Her Plan provides that her pre-petition mortgage arrears of $166,686 will be capitalized into the outstanding principal balance, resulting in a new principal balance of $583,066, to be paid at 4% interest over 40 years, resulting in a monthly mortgage payment of $3,456 per month, including interest and escrow payments of $1,020. [dkt item 6] The Plan has not been confirmed. DBT objected to confirmation of the Plan. [dkt items 15, 40]

On December 24, 2018, Select Portfolio Servicing Inc., as servicer for DBT ("SPS"; however, for purposes of this decision SPS will also be referred to as "DBT" unless the context requires otherwise) filed its Motion seeking stay relief under 11 U.S.C. § 362(d)(1) and/or (2) and relief from the co-debtor stay of § 1301(a) to continue the Foreclosure Action. [dkt item 23] The Motion alleges, inter alia , that the Loan balance has increased to $577,181.26, interest is accruing at 5.25% per year, that the Property had a value of $485,000 as of September 2018, and that Debtor has failed to make post-petition monthly mortgage payments of approximately $3,783.49 per month. DBT gave Debtor notice of a hearing set for January 31, 2019.

On January 22, 2019, Debtor filed her Objection. [dkt item 26] Debtor does not challenge the factual allegations concerning her defaults, the Loan balance, nor the Property value, nor does she claim that DBT lacks standing to seek stay relief. Rather, she states she submitted a loss mitigation package post-petition to SPS on November 9, 2018 (the "Modification Request"), which was denied by letter dated November 13, 2018; she lodged an appeal on November 29, 2018, which had not been resolved until December 27, 2018, which was three days after DBT's Motion was filed. Debtor asserts these alleged facts provide three bases to deny stay relief. First, she asserts that post-petition DBT violated RESPA, specifically 12 C.F.R. § 1024.41(d), by failing to provide a specific basis for denying Debtor's Modification Request. Similarly, Debtor alleges DBT violated § 419.11(d) of title 3 of the New York Compilation of Codes, Rules, and Regulations for its failure to provide a detailed basis for denial of the Modification Request. N.Y. Comp. Codes R. & Regs. tit. 3, § 419.11(d).³ Second, Debtor asserts that post-petition DBT violated RESPA's "dual tracking" prohibition, specifically 12 C.F.R. § 1024.41(g), because the Motion was filed prior to the loss mitigation process, including any appeals, finally concluding. Finally, Debtor alleges she has or can provide adequate protection of DBT's interests, presumably under Bankruptcy Code §§ 361, 362(d)(1) and has paid the Trustee monthly payments of $3,456.00 as called for under her Plan to adequately protect DBT's interest.

On January 25, 2019, DBT filed a response, arguing essentially that Debtor's defenses pursuant to RESPA should be precluded under the doctrines of Rooker-Feldman , res judicata , and collateral estoppel because the state court in the Foreclosure Action denied Debtor's similar arguments in connection with DBT's denial of loan modification requests submitted by Debtor prior to entry of the Judgment of Foreclosure. Additionally, DBT asserts that RESPA does not have any bearing on the determination of whether cause exists to lift the automatic stay under § 362(d)(1),(2), that Debtor's pre-petition arrears to DBT total $166,645.82 and that DBT is not adequately protected. [dkt item 28]

On January 28, 2019, Debtor filed an adversary proceeding against DBT, SPS, and Bank of America NA, seeking damages for alleged pre and post-petition RESPA and New York state law violations in connection with Debtor's various requests for loan modifications (the "Adversary"). [adv. pro. no. 19-8021; dkt item 1]

The Court held the hearing on the Motion on January 31, 2019. Part of the arguments concerned the allegations made in the Adversary and the relief Debtor seeks there. Debtor acknowledged at the hearing that she has been denied a loan modification on various occasions, she has been in default on the Loan since 2014, and that she cannot confirm a chapter 13 plan unless DBT provides her with the loan modification substantially as she has proposed in her Plan. Pending this decision, the Court authorized the Trustee to disperse three months of payments to DBT, of $11,400 that Debtor had previously paid the Trustee as interim adequate protection. The Court set a post hearing briefing schedule allowing supplemental briefs on the stay relief issues to be filed by February 14, 2019 and scheduled an adjourned hearing for February 28, 2019.

On February 14, 2019, and corrected on February 15, 2019, Debtor filed a memorandum of law, in which she asserts that she has a right of setoff against DBT based on the alleged RESPA and state law violations being pursued in the Adversary, which she estimates to be worth $750,000. Debtor also asserts that DBT is violating a servicer participation agreement ("SPA") that SPS entered into with Federal National Mortgage Association, a federally chartered corporation, as financial agent of the United States ("Fannie Mae"), in which SPS agreed to participate in, among other things, the Home Affordable Modification Program ("HAMP"), which as part of the Emergency Economic Stabilization Act of 2008 was intended to, among other things, make foreclosure prevention services available to the marketplace.⁴ [dkt item 37] Debtor asserts that the SPA requires participating servicers to screen all loans that are in default or imminent danger of default for modification under the HAMP guidelines. Additionally, Debtor asserts that DBT is in violation of a certain pooling and servicing agreement, which requires DBT as trustee to service certain mortgage loans in compliance with Fannie Mae guidelines. Debtor asserts DBT is in violation of the Fannie Mae guidelines.

On February 14, 2019, DBT filed its supplemental memorandum of law, asserting that Debtor has failed to establish that an alleged violation of RESPA is a defense to a motion for relief from the automatic stay for cause. Additionally, DBT asserts that RESPA's prohibition of "dual tracking" does not prohibit a servicer from seeking stay relief because a ...