In re Legare-Doctor

• Decision Date: 01 December 2021
• Docket Number: C/A No. 18-05682-JW
• Citation: 634 B.R. 453
• Parties: IN RE, Vermell LEGARE-DOCTOR, Debtor.
• Court: U.S. Bankruptcy Court — District of South Carolina

634 B.R. 453

IN RE, Vermell LEGARE-DOCTOR, Debtor.

C/A No. 18-05682-JW

United States Bankruptcy Court, D. South Carolina.

Signed December 1, 2021

Elizabeth M. Atkins, N. Charleston, SC, for Debtor.

ORDER ESTABLISHING ALLOWABLE POST-PETITION MORTGAGE CHARGES

John E. Waites, US Bankruptcy Judge

This matter comes before the Court upon a Motion to Determine Mortgage Fees and Expenses¹ filed by Vermell Legare-Doctor ("Debtor"). Debtor and Reverse Mortgage Funding, LLC ("Creditor") dispute whether an advance for hazard insurance incurred by Creditor in April 2019 and disclosed in Debtor's bankruptcy case almost two years later should be allowed and/or cured in a Chapter 13 plan. The Court has jurisdiction over this matter pursuant to 28 U.S.C. §§ 157 and 1334. This matter is a core proceeding under 28 U.S.C. § 157(b)(2)(A). Based on materials presented by the parties, the Court makes the following findings of facts and conclusions of law.

FINDINGS OF FACT

On January 21, 2013, Vermell Legare-Doctor ("Debtor") obtained a home equity conversion mortgage loan ("Reverse Mortgage"). The Reverse Mortgage encumbers Debtor's principal residence at 3162 Sanders Road, Charleston, S.C. ("Property"). Unlike conventional mortgage loans, Debtor is not required to remit monthly payments to repay the loan secured by the Reverse Mortgage. Instead, Debtor is contractually required to pay annual property taxes and hazard insurance premiums for the Property during the term of the Reverse Mortgage, and Debtor must live at the Property as his principal residence while the Reverse Mortgage is in place. After Debtor dies, permanently moves to another residence, or fails to pay taxes or insurance premiums timely, Debtor would be in default, and the Reverse Mortgage would be subject to foreclosure.

After its origination, the Reverse Mortgage was transferred to Creditor. In 2017, Debtor failed to pay real property taxes assessed against the Property, and Creditor filed a foreclosure action on February 22, 2018, with the Charleston County Court of Common Pleas ("State Court"). Ultimately, the State Court entered a judgment of foreclosure against Debtor on August 30, 2018. Before the judicial sale of the Property, Debtor filed a Chapter 13 bankruptcy on November 5, 2018.

Because Creditor did not file a proof of claim, Debtor's counsel filed a proof of claim and various amended claims on Creditor's behalf during Debtor's bankruptcy.² Debtor secured confirmation of his Chapter 13 plan on April 5, 2019. Under the confirmed plan and 11 U.S.C. § 1322(b)(5), Debtor proposed to cure any default by paying Creditor, through the Trustee, monthly installment payments during the plan's sixty-month term to repay taxes, fees, and attorney's fees and costs identified in the Foreclosure Judgment and maintain future payments required by the Reverse Mortgage.

In the confirmed plan, Debtor specifically noted that the "[o]bligation is a reverse mortgage for which no monthly payments are required. The arrearage represents advances made by mortgagee." Creditor never objected to the confirmed plan and became bound by its treatment under 11 U.S.C. § 1327.

After confirmation of the plan, on March 24, 2020, Creditor filed a Motion for Relief from the Automatic Stay asserting two new defaults arising from two payments of $2,490.00 for hazard insurance premiums advanced on April 4, 2019 and February 24, 2020, and another $3,304.42 payment for 2018 Charleston County Taxes advanced on December 17, 2019. Debtor objected to the Motion on March 3, 2020, asserting Creditor's failure to comply with Rule 3002.1(c) of the Federal Rules of Bankruptcy Procedure. Creditor thereafter withdrew the Motion for Relief.

Two months after Creditor filed its Motion for Relief, Creditor filed its first Notice of Post-Petition Mortgage Fees, Expenses, and Charges on Official Form 410S2. In the filing, Creditor listed the December 17, 2019, tax advance for 2018 taxes of $3,304.42 and the February 24, 2020, advance of $2,490.00 for hazard insurance.³ Creditor did not list the April 4, 2019, hazard insurance advance ("April 2019 Advance").⁴

Creditor filed a second Notice on April 2, 2021, which only stated and claimed a hazard insurance advance made during February 2021. However, Creditor received a full refund from the insurer a few months after making the advance.⁵ To date, however, Creditor has never correctly filed a Notice of Post-Petition Mortgage Fees and Expenses on Official Form 410S2 to claim the April 2019 Advance.

After filing the Notices, on August 5, 2021, Creditor again filed a Motion for Relief from Stay, which asserted a loan default because of the unpaid prepetition taxes that Creditor advanced post-petition and alleged hazard and flood insurance premiums that Creditor also advanced postpetition.⁶ Debtor timely objected to the Motion for Relief from Stay, and thereafter, Debtor and Creditor agreed to continue the hearing on Creditor's Motion to exchange information and reconcile payment of alleged, unpaid post-petition taxes and insurance premiums.⁷ Through these negotiations, Creditor concluded that it overpaid and was entitled to refunds from the insurers that reduced Creditor's outstanding post-petition advances for hazard insurance to $1,789.00.⁸

The refunds for Creditor's hazard and flood insurance advances appear to have been due to Debtor's maintenance of hazard loss coverage as required by the Reverse Mortgage and Creditor's inaccurate assessment of Flood Map revisions by the Federal Emergency Management Agency ("FEMA") and resulting advance for flood insurance.⁹ On September 22, 2021, Debtor filed a Motion to Determine Post-Petition Fees, Expenses and Charges, which provided Creditor 14 days from service to respond. In the Motion to Determine, Debtor asked that the April 2019 Advance of $2,490.00 be disallowed as late and that he be awarded the attorney's fees that he incurred for prosecuting the Motion to Determine. Creditor did not timely respond to the Debtor's Motion. It filed a response on October 20, 2021, the day before the hearing on Debtor's Motion to Determine.

On September 24, 2021, Debtor also filed a Motion to Modify Confirmed Plan¹⁰ to increase his plan payments to repay the $3,304.42 for the advance for prepetition taxes; $2,001.83 for a flood insurance advance;¹¹ and the remaining $1,789.00 of Creditor's February 24, 2020, advance for hazard insurance. Creditor failed to timely object to Debtor's Motion to Modify Confirmed Plan, which does not provide for repayment of the disputed April 2019 Advance.

After the hearing, it appears that the sole remaining disagreement between Debtor and Creditor was whether the April 2019 Advance of $2,490.00 for a hazard insurance premium should be an allowed charge and subject to repayment. According to the Debtor, the April 2019 Advance should be disallowed because Creditor never disclosed that advance within the 180-day period prescribed by Rule 3002.1(c) of the Federal Rules of Bankruptcy Procedure. Creditor argues that the advance must be allowed because Rule 3002.1 does not apply to the Reverse Mortgage, which unlike conventional mortgage loans does not require repayment through monthly installments.

CONCLUSIONS OF LAW

Rule 3002.1 applies in Chapter 13 cases to claims "(1) that are secured by a security interest in the debtor's principal residence, and (2) for which the plan provides that either the trustee or the debtor will make contractual installment payments." Fed. R. Bankr. P. 3002.1(a). Holders of a claim subject to Rule 3002.1 are required to file and serve "on the debtor, debtor's counsel, and the trustee a notice itemizing all fees, expenses, or charges (1) that were incurred in connection with the claim after the bankruptcy case was filed, and (2) that the holder asserts are recoverable against the debtor or against the debtor's principal residence." Fed. R. Bankr. P. 3002.1(c). The notice required by Rule 3002.1(c) must be served "within 180 days after the date on which the fees, expenses, or charges are incurred." Id. The noticing requirements imposed by Rule 3002.1 serve a critical purpose in Chapter 13 cases and ensure "that debtors are informed of new postpetition obligations (such as fees)." In re Gravel , 6 F.4th 503, 514 (2d Cir. 2021). By requiring timely disclosure of additional post-petition payment obligations, Rule 3002.1 provides debtors with a "chance to pay or contest the new obligations, which prevents lingering deficits from surfacing after the case ends." Id. Or as one court noted, Rule 3002.1 "does not allow the secured creditor to silently accrue additional amounts and then spring a ‘gotcha’ foreclosure after the debtor has completed her plan and emerged from bankruptcy protection." In re Roper , 621 B.R. 899, 902 (Bankr. D. Colo. 2020).

To provide the notice required by Rule 3002.1(c), subsection (d) details the method for making the timely disclosure. Under Rule 3002.1(d), the notice required by 3002.1(c) must be filed and served on the official form as a "supplement to the holder's proof of claim." Fed. R. Bankr. P. 3002.1(d) ; In re Navarro , Case No. 15-10301-SMG, 2020 WL 2843033, at *3 (Bankr. S.D. Fla. May 29, 2020) ("Indeed, Rule 3002.1 sets forth mandatory procedures for compliance by a creditor with a security interest in a debtor's principal residence. This includes use of Official Form 410S2 to notify the debtor and the trustee of any post-petition fees, expenses, or other charges, which ‘must be filed in the same place and manner as the original proof of claim.’ ") (emphasis theirs). The Official Form does not provide for attachments but instead provided numerous blanks to list all additional charges and expenses.¹²

Furthermore, unlike proofs of claim initially filed with the Court, fees and charges disclosed pursuant to Rules 3002.1(b) and (c) are not subject to the presumption of validity provided by Rule 3001(f) of the Federal Rules of Bankruptcy Procedure. Fed. R. Bankr. P....