In re Mandeville

• Decision Date: 28 January 2019
• Docket Number: Case No. 17-40777-JJR
• Citation: 596 B.R. 750
• Parties: IN RE: Brandi M. MANDEVILLE, Debtor.
• Court: U.S. Bankruptcy Court — Northern District of Alabama

596 B.R. 750

IN RE: Brandi M. MANDEVILLE, Debtor.

Case No. 17-40777-JJR

United States Bankruptcy Court, N.D. Alabama, Eastern Division.

Signed January 28, 2019

Michael D. Brock, Spencer Wade Jones, Christopher L. Stanfield, Brock & Stout, LLC, Enterprise, AL, for Debtor.

MEMORANDUM OPINION AND ORDER

JAMES J. ROBINSON, CHIEF UNITED STATES BANKRUPTCY JUDGE

Carrington Mortgage Services, LLC ("Carrington") holds a mortgage (the "Mortgage") on the Debtor's residence (the "Mortgaged Property").¹ The Mortgage secures the Debtor's Note in the original principal amount of $141,112 (the "Note"). Carrington filed a proof of claim in the Debtor's chapter 13 bankruptcy case for the prepetition Mortgage debt, and now seeks to recover the additional fees paid to its attorneys for their postpetition legal work. The Debtor objects and argues that the claim for postpetition attorney's fees should not be allowed.

I – Background

The Debtor filed two back-to-back cases for relief under chapter 13 of the Bankruptcy Code² in the spring of 2017. Her first case (case no. 17-01226; the "First Case") was dismissed after a show-cause hearing because of deficient schedules. (First Case Docs. 8, 29.) The Debtor filed the instant case four days later, and in her proposed chapter 13 plan (Doc. 2), which was eventually confirmed, she acknowledged she was thirteen months behind on her Mortgage installments. She proposed to pay the thirteen delinquent installments and her on-going monthly Mortgage payments under the plan, through the trustee. It was obvious that her bankruptcy filings were attempts to save her home from foreclosure.³

Pursuant to Rules 3001 and 3002 of the Federal Rules of Bankruptcy Procedure,⁴ Carrington, through its attorney, filed a timely proof of claim (amended claim # 8 and herein, the "POC") in which it listed the amounts due on the petition date under the Note and Mortgage, including principal, interest, prepetition fees and charges, escrow deficiency, and a calculation of the prepetition arrearage. Copies of the Note and the Mortgage were filed with the POC. The Debtor did not object to the POC. Soon after filing its POC, Carrington, also through its attorney, filed a Notice of Postpetition Mortgage Fees, Expenses, and Charges pursuant to Rule 3002.1(c) (the "Postpetition Fee Notice"), claiming an additional $600 for attorney's fees; $300 for the First Case and a like amount for the instant case.⁵ The Debtor filed a Motion for Determination of Fees, Expenses, or Charges Pursuant to Rule 3002.1(e) (Doc. 55 and herein, the "Motion") in which she objected to the allowance of the additional fees. Carrington responded to the Motion, and relied almost exclusively on the language of Rule 3002.1 as authorizing the additional fees. (Doc. 62.) The Debtor filed a brief in support of her Motion (Doc. 75), arguing that the Mortgage did not authorize the assessment of attorney's fees for a simple chapter 13 case. Additionally, she argued that employing an attorney for plan review and filing a proof of claim was unnecessary and the amount of the fees was unreasonable. The court conducted an evidentiary hearing, and then took the matter under advisement.

II – Legal Services Performed by Carrington's Attorney

At the evidentiary hearing Carrington's attorneys, through testimony and proffer, described the legal services they and their law firm performed with respect to the Debtor's bankruptcy case. Immediately after being retained by Carrington, they accessed the Debtor's case through PACER⁶ and created a file. They reviewed the petition, schedules, and other related bankruptcy documents, including the Debtor's proposed chapter 13 plan. The plan was scrutinized for its intended treatment of the Mortgage. Carrington provided them with copies of the Note and Mortgage along with the Debtor's loan history and account balances. They reviewed the Note and Mortgage, the loan history and account information, and then signed and filed the POC along with supporting documents and required attachments.⁷ Thereafter, the firm monitored the case, reviewing all events, looking for those that might affect Carrington's interest as mortgagee. The firm charged a flat fee of $300, the same amount it charged for all Carrington's chapter 13 cases. The fee was negotiated based on competitive bidding with other firms. The same law firm prepared and filed the Postpetition Fee Notice for Carrington.⁸

III – Jurisdiction

This is a contested matter under Rule 9014 to determine whether attorney's fees incurred postpetition in a chapter 13 case by a creditor holding a claim secured by a mortgage encumbering a debtor's principal residence are allowable under Rule 3002.1(e). Thus, this is a core proceeding under 28 U.S.C. § 157(b)(2)(B) —allowance or disallowance of claims against the estate—and the court may enter a final order herein. Both parties have participated fully in the litigation of this matter without challenging the jurisdiction of this court to enter final orders and have thus consented to the same.

IV – Rule 3002.1

Rule 3002.1 was added to the Rules by the 2011 Amendments and provides a procedure for notice of payment changes in residential mortgage claims during the pendency of a chapter 13 case, and important to the court's decision in this matter, it also prescribes the procedure for a mortgage creditor to augment its claim to include the fees, expenses, and other charges incurred postpetition. As it pertains to the matter now before the court, Rule 3002.1 reads as follows:

(a) In General. This rule applies in a chapter 13 case 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....

* * * *

(c) Notice of Fees, Expenses, and Charges. The holder of the claim shall 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. The notice shall be served within 180 days after the date on which the fees, expenses, or charges are incurred.

* * * *

(e) Determination of Fees, Expenses, or Charges. On motion of the debtor or trustee filed within one year after service of a notice under subdivision (c) of this rule, the court shall, after notice and hearing, determine whether payment of any claimed fee, expense, or charge is required by the underlying agreement and applicable nonbankruptcy law to cure a default or maintain payments in accordance with § 1322(b)(5) of the Code.

Rule 3002.1 (emphasis added).

"Upon a debtor filing a motion to determine mortgage fees, expenses, and charges pursuant to § 1322(e), the Court must look to the underlying agreement and applicable nonbankruptcy law to determine if the amounts are permissible. The ‘reasonableness standard’ applied under § 506(b) challenges does not apply to postpetition fees, expenses, and charges necessary to cure a default as § 1322(e) explicitly excepts § 506(b) from consideration. Instead, the underlying agreement and applicable nonbankruptcy law are determinative. Fed. R. Bankr. P. 3002.1(e)." In re England , 586 B.R. 795, 799 (Bankr. M.D. Ala. 2018). The Debtor's Mortgage in this case provides in paragraph 14 that it "shall be governed by federal law and the law of the jurisdiction in which the Property is located." The Mortgaged Property is located in St. Clair County, Alabama.

V – Alabama Law

The decisions by the Supreme Court of Alabama are long-standing and unequivocal: Provisions in mortgages that allow a mortgagee to recover attorney's fees incurred in connection with, inter alia , collecting the mortgage debt, foreclosure proceedings, and actions taken to protect the mortgagee's interest in the mortgaged property are valid and binding, and if the mortgage so provides, such fees are additional obligations secured by the mortgage. Johnson v. U.S. Mortg. Co. , 991 F.Supp. 1302, 1307 (M.D. Ala. 1997) (quoting Taylor v. Jones, 290 Ala. 268, 276 So.2d 130 (1973) (citing Hylton v. Cathey, 225 Ala. 605, 144 So. 579 (1932) ) ). If a mortgage allows attorney's fees to be charged, the fees must nonetheless be reasonable; reasonableness should be determined on a case-by-case basis. In re England , 586 B.R. at 800-01 (discussing the attorney-fee-reasonableness standard under Alabama law, citing Rule 1.5 of the Alabama Rules of Professional Conduct and noting that the factors to be considered are almost identical to those adopted by the Fifth Circuit in Johnson v. Georgia Highway Express, Inc. , 488 F.2d 714 (5th Cir. 1974),⁹ a decision that remained binding precedent in the Eleventh Circuit after it split from the Fifth).¹⁰

VI – Mortgage Provisions Allowing Recovery of Mortgagee's Expenses

The Note and Mortgage are on preprinted, fill-in-the-blank forms containing terms that apparently are prescribed by the Secretary of Housing and Urban Development ("HUD") for mortgages intended to be insured by the Federal Housing Administration ("FHA").¹¹ The provisions in the Mortgage that address expenses and disbursements paid by the mortgagee are found in paragraphs 7 and 8, and to the extent they are pertinent to this matter, read as follows:

7. Charges to Borrower and Protection of Lender's Rights in the Property. Borrower shall pay all governmental or municipal charges, fines and impositions that are not included in paragraph 2. Borrower shall pay these obligations on time directly to the entity which is owed the payment. If failure to pay would adversely affect Lender's interest in the Property, upon Lender's request Borrower shall promptly furnish to Lender receipts evidencing those payments.^[12]

If Borrower fails to make ... the payments required by paragraph 2, or fails to perform any other covenants and agreements

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