In re McLemore

• Decision Date: 30 March 2010
• Docket Number: No. 07-33720.,07-33720.
• Citation: 426 B.R. 728
• Parties: In re William H. McLEMORE, Jr., Debtor.
• Court: U.S. Bankruptcy Court — Southern District of Ohio

426 B.R. 728

In re William H. McLEMORE, Jr., Debtor.

No. 07-33720.

United States Bankruptcy Court, S.D. Ohio, Western Division at Dayton.

March 30, 2010.

COPYRIGHT MATERIAL OMITTED

John N. Zomoida, Jr., Youngstown, OH, for American Tax Funding LLC.

Harold Jarnicki, Lebanon, OH, for Debtor.

Amended

Decision Granting Debtor's Objection to Allowance of Claim Nos. 1, 2, 3 and Denying Debtor's Objection to Allowance of Claim No. 4 of American Tax Funding

GUY R. HUMPHREY, Bankruptcy Judge.

I. Introduction

This contested matter presents two issues for determination by the court:

1. Should the interest rate paid on a secured claim be that set forth in a creditor's proof of claim filed pre-confirmation when that rate is consistent with 11 U.S.C. § 511 as interpreted by this court, but in conflict with the rate provided by the debtor's confirmed Chapter 13 plan when no objection to confirmation of the plan was filed? This first issue highlights the tension between the plan confirmation process and the claim allowance process.

2. Should the attorney fees and costs incurred by a nongovernmental entity in a prepetition foreclosure action to collect amounts owed on tax certificates purchased by the creditor under Ohio's delinquent real estate tax sales process for taxes owed on the debtor's residence be recoverable as part of the creditor's allowed secured claim?

As explained below, the court is granting the debtor's objection to the creditor's claims to the extent that the creditor is seeking to be paid interest at a rate in excess of the rate provided by the debtor's Chapter 13 plan because pursuant to § 1327(a) the debtor's confirmed plan is binding upon the creditor. However, the court is denying the debtor's objection to the creditor's claim as to the attorney fees and costs incurred relating to the prepetition foreclosure action based upon 11 U.S.C. § 502.

II. Facts and Procedural Background

On November 21, 2005 and October 26, 2006 American Tax Funding ("ATF") purchased at public auctions, pursuant to the provisions of Ohio Revised Code ("ORC") § 5721.32, two tax certificates for real estate taxes owed on William H. McLemore, Jr.'s (the "Debtor") principal residence at 21 Gramont Avenue, Dayton, Ohio (the "Property") in the amounts of $5,942.16 and $1,154.68 with interest payable at the rate of 18% per annum. See Claims Nos. 1 & 2.¹

On June 19, 2007 ATF, pursuant to ORC § 5721.37, filed a notice of intent to foreclose with the Montgomery County, Ohio Treasurer (the "Treasurer") on the tax certificates and paid the Treasurer the sum of $526.86 for delinquent taxes and other amounts that were charged against the Property but not covered by the tax certificates. See Claim No. 3. On July 6, 2007 ATF commenced a foreclosure action against the Property in the Montgomery County Court of Common Pleas and incurred fees and costs in the amount of $1,800. See Claim No. 4.

On August 27, 2007 the Debtor filed a voluntary petition for relief under Chapter 13 of Title 11 of the United States Code² (Doc. 1). On Schedule D (Creditors Holding Secured Claims), the Debtor listed the Treasurer as holding a claim for real estate taxes secured by a lien on the Debtor's principal residence at 21 Gramont Avenue, Dayton, Ohio 45417 in the amount of $11,767. In addition to listing the Treasurer at a Dayton, Ohio address, the service list attached to the Debtor's petition includes the "Montgomery County Treasurer, c/o Anthony & Zomoida LLC, 55 Public Square, Suite 1800, Cleveland, Ohio 4411" and the "Montgomery County Treasurer, c/o American Tax Funding LLC, 345 Jupiter Lake Blvd., Suite 300, Jupiter, Fl. 33458."

Also on August 27, 2007 the Debtor filed his initial Chapter 13 plan (Doc. 6). The plan is based upon the Dayton Chapter 13 Trustee's model Chapter 13 plan. Section 8 of the Dayton Chapter 13 Trustee's model Chapter 13 plan and the Debtor's plan provide for the payment of allowed Class 2 secured claims at the Till interest rate (prime rate of interest plus 1.5%) (see Till v. SCS Credit Corp., 541 U.S. 465, 124 S.Ct. 1951, 158 L.Ed.2d 787 (2004)).³See Doc. 6, p. 6. The Debtor's three subsequent plan amendments provide for an increase in monthly payments and the surrender of several of the Debtor's non-residential properties but do not alter the treatment of Class 2 secured claims or fees and costs associated with ATF's foreclosure action (Docs. 15, 19 & 25). The Debtor's plan and the amendments will be collectively referred to as "the Plan."

On September 1, 2007 the Notice of Chapter 13 Bankruptcy Case, Meeting of Creditors and Deadlines (Form B9I) was mailed to the Treasurer at its Dayton address, to the Treasurer at ATF's Florida address, and to the Treasurer at the offices of Anthony & Zomoida, LLC in Cleveland, both referenced above. This notice, among other things, sets November 13, 2007 as the initial date for the hearing on confirmation of the Plan and contains a statement that "a plan is not effective unless confirmed by the bankruptcy court" and that "you may object to confirmation of the plan and appear at the confirmation hearing."

On September 6, 2007 Anthony & Zomoida, LLC filed a notice of appearance (Doc. 14) and four proofs of claim (Claim Nos. 1, 2, 3, and 4) on behalf of ATF. The first two proofs of claim were for the delinquent real estate taxes secured by a lien on the Property and sought payment of those delinquent taxes at the 18% interest rate established by the tax certificates. The third one was for the $526.86 in real estate taxes that ATF paid the Treasurer when it filed the notice to foreclose on the Property and also sought payment of those taxes at the 18% interest rate. The fourth proof of claim related to the $1,800 in attorney fees and costs associated with ATF's prepetition prosecution of the foreclosure action against the Property. The total amount of the four proofs of claim is $11,488.43.

Pursuant to Local Bankruptcy Rule ("LBR") 3015-3, the last date to file objections to confirmation of the initial plan was October 19, 2007.⁴ On December 28, 2007 the court sent notice of the scheduled confirmation hearing for the Plan to all parties in interest, including to ATF at the addresses previously described. The Plan was confirmed on February 11, 2008 without objection from any creditor (Doc. 26).

On February 14, 2008 the Chapter 13 Trustee filed notices to allow ATF's secured claims in connection with each of ATF's proofs of claim, advising ATF that the interest to be paid by the Trustee on its claims would be 7.5% (Docs. 28, 29, 30 & 31). On March 11, 2008 ATF filed a response to the Chapter 13 Trustee's notices objecting to the 7.5% interest rate and arguing that as a purchaser of tax certificates and pursuant to ORC §§ 5721.32 et seq., it is entitled to the 18% statutory interest rate (Doc. 35). On March 15, 2008 the Debtor filed objections to ATF's four proofs of claim (Docs. 36-39). In addition, ATF and the Debtor have filed briefs in support of their respective positions (Docs. 79, 80 & 81). Collectively, these matters (Docs. 28-39 and 79-81) are referred to in this decision as the "contested matter."

The Debtor asserts that the claims should be disallowed to the extent that they request an 18% interest rate rather than the Till interest rate provided by the Plan. The Debtor argues that confirmation of the Plan operates as res judicata and, therefore, the interest rate provided by the Plan is binding on ATF. The Debtor contends that the fourth claim for the $1,800 in foreclosure attorney fees and costs should be disallowed because those fees and costs are not recoverable under § 1322(e) since the Debtor does not have a contractual relationship with ATF defining the parties' obligations.

ATF, on the other hand, essentially argues that pursuant to § 511, as a purchaser of tax certificates from the Treasurer, it is entitled to receive the interest rate provided in the tax certificates and that it may recover the attorney fees and costs associated with its foreclosure action. ATF also contends that because the Plan was ambiguous as to the treatment of its claims, it was not provided adequate notice of the interest rate provided by the Plan and its silence cannot be construed as acceptance of the Plan.

III. Legal Analysis

A. Jurisdiction

This court has jurisdiction over this contested matter pursuant to 28 U.S.C. § 1334 and the general Order of Reference entered in this District. This is a core proceeding pursuant to 28 U.S.C. § 157(b)(2)(B).

B. The Plan Controls the Interest Rate for ATF's Claims

ATF received proper notice of the Plan and the treatment of its claims under the Plan and did not object to that treatment. Therefore, it is bound by the terms of the Plan confirmed by the court, including the interest rate provided by the Plan for allowed secured claims. Accordingly, the Debtor's objection to claim numbers 1, 2, and 3 is granted.

1. The Plan Terms Relating to Secured Claims

Analyzing the terms of the Plan is critical to the determination of this contested matter. This is because the Debtor claims that the terms of the Plan are binding on ATF pursuant to § 1327(a) and preclusion principles, while ATF claims that it did not receive adequate notice of the terms of the Plan as sought to be enforced by the Debtor.

The first full paragraph on the first page of the Plan is significant because, in conspicuous print, it warns recipients of the Plan that the Plan may affect any claim which they hold. It states:

You should read this Plan carefully. Confirmation of this Plan by the Bankruptcy Court may modify your rights by providing for payment of less than the full amount of your claim, by setting the value of the collateral securing your claim, by providing for a treatment of your claim contrary to your current status, and/or by setting the interest rate on your claim. The Court may confirm this case if no objection to confirmation is filed within ten (10) days

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