In re Norbeck
| Decision Date | 15 June 2021 |
| Docket Number | Case No. GG 18-03365-jtg |
| Parties | In re: SHARON KAY NORBECK, Debtor. |
| Court | United States Bankruptcy Courts. Sixth Circuit. U.S. Bankruptcy Court — Western District of Michigan |
Hon. John T. Gregg
OPINION REGARDING MOTION FOR DETERMINATION OF FEES, EXPENSES, OR CHARGES UNDER FED. R. BANKR. P. 3002.1APPEARANCES: Jeremy B. Shephard, Esq., USA DEBT BANKRUPTCY ATTORNEYS, Grand Rapids, Michigan for Sharon K. Norbeck; Karen L. Rowse-Oberle, Esq., BUTLER ROWSE-OBERLE PLLC, St. Clair Shores, Michigan for Mortgage Center, LLC
Mortgage Center, LLC (the "Mortgagee") filed a notice pursuant to Rule 3002.1(b) of the Federal Rules of Bankruptcy Procedure reflecting a change in the post-confirmation monthly mortgage payment due and owing by Sharon K. Norbeck (the "Debtor").1 Two months later, the Mortgagee filed a second notice asserting flat fees for the preparation of the payment change notice and the second notice itself pursuant to Bankruptcy Rule 3002.1(c).
Concerned that the Mortgagee's fees are excessive in light of the tasks performed, the Debtor filed a motion [Dkt. No. 43] (the "Motion") for a determination of the appropriate amount of fees under Bankruptcy Rule 3002.1(e). In its response [Dkt. No. 49] (the "Response"), the Mortgagee contends that its fees are reasonable under the circumstances.
For the following reasons, the court shall grant the Motion.
The court has jurisdiction pursuant to 28 U.S.C. §§ 1334(a) and 157. This is a core proceeding under 28 U.S.C. § 157(b)(2)(A) and (B).
The facts are straightforward. In late 2014, the Mortgagee loaned the Debtor and her now deceased spouse funds for the purchase of certain real property in Stanwood, Michigan (the "Residence"). As security for repayment of the debt, the Debtor and her spouse granted to the Mortgagee a mortgage lien on the Residence.
The mortgage, a copy of which is attached to the Mortgagee's proof of claim no. 10-2, states in relevant part that the Debtor may be required to reimburse the Mortgagee for "reasonable attorneys' fees to protect its interest in the Property and/or rights under this Security Instrument, including its secured position in a bankruptcy proceeding." (Mortgage at § 9 (emphasis added).) In a separate section, the mortgage states that:
Lender may charge Borrower fees for services performed in connection with Borrower's default, for the purpose of protecting Lender's interest in the Property and rights under this Security Instrument, including, but not limited to, attorneys' fees, property inspection, and valuation fees. In regard to any other fees, the absence of express authority in this Security Instrument to charge a specific fee to Borrower shall not be construed as a prohibition on the charging of such fee. Lender may not charge fees that are expressly prohibited by this Security Instrument or by Applicable Law.
(Mortgage at § 14.) The mortgage provides that the law of the jurisdiction in which the Residence is located (i.e., the State of Michigan) shall control. (Mortgage at § 16.)
On August 3, 2018, the Debtor filed a petition for relief under chapter 13.2 On the same day, the Debtor filed her proposed chapter 13 plan [Dkt. No. 4], which was thereafter amended [Dkt. Nos. 17, 22]. In her plan, the Debtor proposed to maintain her continuing monthly mortgagepayments for the Residence. With no objections filed, the court entered an order [Dkt. No. 28] on October 19, 2018 confirming the Debtor's plan.
On March 15, 2021, the Mortgagee used Official Form 410S1 to file a notice of payment change stating that the Debtor's monthly mortgage payment would increase by just over $100 due to an escrow account adjustment (the "Payment Change Notice"). The Mortgagee subsequently filed a notice of post-petition mortgage fees, expenses, and charges on Official Form 410S2 (the "Fee Notice"). The Fee Notice informed the Debtor and the chapter 13 trustee that the Mortgagee was asserting attorneys' fees in the aggregate amount of $275.00 for the period of March 15, 2021 through May 4, 2021. The Mortgagee attached to the Fee Notice a document entitled an "Activities Export" that summarily identified (i) a flat fee of $125.00 for preparation of the Payment Change Notice by a paralegal, and (ii) a separate flat fee of $150.00 for preparation of the Fee Notice by an attorney.
The Debtor filed her Motion on the same day that the Fee Notice was filed. In the Motion, the Debtor concedes that the mortgage generally provides the Mortgagee with a right to charge her for attorneys' fees incurred. However, the Debtor argues that the two fees asserted in the Fee Notice are excessive given the largely clerical or administrative nature of the tasks performed. The Debtor further contends that to the extent the Mortgagee is relying on the Fannie Mae Allowable Bankruptcy Attorney Fee guidelines (the "Fannie Guidelines"), they are not determinative, as they only set forth the maximum amount of fees for particular tasks. As such, the Debtor argues that reasonable fees in this case should be significantly less than those in the Fannie Guidelines.
In its short Response, the Mortgagee generally admits or denies the allegations in the Motion while including some additional alleged factual statements and arguments as to the reasonableness of the fees. The Mortgagee agrees with the Debtor that the Fannie Guidelines are not dispositive, noting that in some instances its attorneys' fees might exceed those in the Fannie Guidelines.
The court held a hearing on the Motion on May 26, 2021.3 At the conclusion of the hearing, the court took the matter under advisement.
The starting point is section 1322(b)(2), which provides, in pertinent part, that a chapter 13 plan "may modify the rights of holders of secured claims, other than a claim secured only by a security interest in real property that is the debtor's principal residence. . ." 11 U.S.C. § 1322(b)(2). Notwithstanding subsection (b)(2), section 1322 allows a debtor to cure any default and maintain payments under the security agreement granting the secured creditor an interest in the debtor's principal residence. 11 U.S.C. § 1322(b)(5). In this case, section 1322(b)(5) is applicable because the Debtor's confirmed plan requires the Debtor to maintain her continuing monthly mortgage payments by making them directly to the Mortgagee.
Effective as of December 1, 2011, Bankruptcy Rule 3002.1 implements section 1322(b)(5) by establishing certain procedures related to, among other things, fees, expenses, and charges incurred post-petition.4 The Advisory Committee Notes describe the purpose of the rule as follows:
In order to be able to fulfill the obligations of § 1322(b)(5), a debtor and the trustee have to be informed of the exact amount needed to cure any prepetition arrearage . . . and the amount of the postpetition payment obligations. If the latter amount changes over time, due to the adjustmentof the interest rate, escrow account adjustments, or the assessment of fees, expenses, or other charges, notice of any change in payment amount needs to be conveyed to the debtor and trustee. Timely notice of these changes will permit the debtor or trustee to challenge the validity of any such charges, if appropriate, and to adjust postpetition mortgage payments to cover any undisputed claimed adjustment. Compliance with the notice provision of the rule should also eliminate any concern on the part of the holder of the claim that informing a debtor of a change in postpetition payment obligations might violate the automatic stay.
Fed. R. Bankr. P. 3002.1 advisory committee's note in 2011; see In re Formosa, 582 B.R. 423, 427 (Bankr. E.D. Mich. 2018).
Consistent with section 1322(b)(5), Bankruptcy Rule 3002.1 only applies to claims "secured by a security interest in a debtor's principal residence . . . for which the plan provides that either the trustee or the debtor will make contractual installment payments." Fed. R. Bankr. P. 3002.1(a). The rule requires the holder of a claim to file and serve a notice of any change in the payment amount under a mortgage by no later than twenty-one days before the new amount is due. Fed. R. Bankr. P. 3002.1(b)(1). Unless a party in interest files an objection to the notice "by the day before the new amount is due, the change goes into effect, unless the court orders otherwise." Fed. R. Bankr. P. 3002.1(b)(2). In this case, the Mortgagee properly filed its Payment Change Notice within the prescribed time, by using the requisite official form, and by relating the notice to its previously filed proof of claim. See Fed. R. Bankr. P. 3002.1(d).
Rule 3002.1 also establishes the procedure for the holder of the claim to assert fees, expenses, or charges related to any payment change by providing that:
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.
Fed. R. Bankr. P. 3002.1(c). Unlike a proof of claim, a notice under Bankruptcy Rule 3002.1(c) does not constitute prima facie evidence of the validity and amount of the fees, expenses or charges. Fed. R. Bankr. P. 3002.1(d) (). Here, there is no dispute that the Mortgagee complied with the procedural aspects of Bankruptcy Rule 3002.1(c) and (d) when it filed the Fee Notice.
In the event that a debtor and/or the chapter 13 trustee take issue with the fees, expenses, or charges asserted in a notice filed under Bankruptcy Rule 3002.1(c), they may seek a determination from the court. Bankruptcy Rule 3002.1(e) sets forth the means by which to object...
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