In re Padilla, Bankruptcy No. 04-42708.

Citation379 B.R. 643
Decision Date03 August 2007
Docket NumberAdversary No. 06-03609.,Bankruptcy No. 05-30917.,Adversary No. 06-03654.,Bankruptcy No. 04-42708.
PartiesIn re Benjamin Allen PADILLA, et al., Debtors. Benjamin Allen Padilla, et al., Plaintiffs, v. Wells Fargo Home Mortgage, Inc., et al., Defendants. In re Dominique F. Sanders; aka Miles; aka Davis, Debtors. Dominique F. Sanders, Plaintiff, v. Novastar Mortgage, Inc., Defendant.
CourtUnited States Bankruptcy Courts. Fifth Circuit. U.S. Bankruptcy Court — Southern District of Texas

Johnie J Patterson, II, Walker & Patterson, P.C., Houston, TX, for Plaintiffs.

Marilee A. Madan, Attorney at Law, Walter B. Thurmond, Barrett Burke et al, Gregory A. Balcorn, Balcom Law Firm, Houston, TX, for Defendants.

MEMORANDUM OPINION

MARVIN ISGUR, Bankruptcy Judge.

A mortgage lender routinely incurs legal fees, inspection costs, and other expenses ("Reimbursable Expenses") to protect its security interest in a debtor's home. Mortgage contracts generally authorize these Reimbursable Expenses. This case requires the Court to consider how the Bankruptcy Code and the Federal Rules of Bankruptcy Procedure affect a lender's right to collect Reimbursable Expenses in a chapter 13 bankruptcy case.

The parties in these cases filed cross-motions for partial summary judgment. They agree that the mortgage contracts allow the lenders to recover their Reimbursable Expenses. The parties also agree that the Debtors can challenge the imposition of those costs in this Court.

However, the parties dispute the procedures that the Lenders must use to impose and collect Reimbursable Expenses and the procedures that the Debtors may use to object to Reimbursable Expenses. The two positions can be summarized as follows:

• The Lenders contend that Bankruptcy Code § 1322(b)(2) preserves the Lenders' contract rights throughout a chapter 13 case. Consequently, Lenders are free to charge the Reimbursable Expenses without court authorization. Although the Lenders acknowledge that the Bankruptcy Court is an appropriate forum for any challenge by these Debtors, the Lenders also contend that the Debtors must challenge any charges only under applicable non-bankruptcy law.

• Although the Debtors acknowledge that § 1322(b)(2) preserves the lenders' contract rights, the Debtors contend that these rights are circumscribed by specific Code provisions and Bankruptcy Rules. One such provision is § 506(b), which allows creditors to obtain attorney's fees and other costs only if the creditor is oversecured. Another is Bankruptcy Rule 2016(a), which requires persons seeking to collect Reimbursable Expenses from the estate to apply to the Court for their reimbursement.

For the reasons set forth below, the Court holds:

Rule 2016(a) governs the collection of Reimbursable Expenses by the mortgage Lenders in these chapter 13 bankruptcy cases.

• The imposition of Reimbursable Expenses charged beyond those allowed by the contracts and non-bankruptcy law violates the order confirming the chapter 13 plans in these cases.

• Neither a lender's failure to comply with Rule 2016(a) nor its imposition of Reimbursable Expenses beyond those allowed by non-bankruptcy law violates the automatic stay.

• Either a lender's failure to comply with Rule 2016(a) or its imposition of Reimbursable Expenses beyond those allowed by non-bankruptcy law entitles a debtor to relief against the lender, including the recovery of costs and fees.

Facts
Benjamin and Denise Padilla

On November 19, 1998, Benjamin and Denise Padilla ("the Padillas") executed a note and Deed of Trust1 to Norwest Mortgage, Inc. ("Norwest"). The Deed of Trust granted Norwest a security interest in the Padillas' homestead. The Deed of Trust also provided that any costs or legal fees incurred by the lender to protect the lender's rights in the home would be added to the borrowers' secured debt.2 Wells Fargo Bank, N.A. ("Wells Fargo") subsequently merged with Norwest and is the current note servicer.

Benjamin Padilla filed a voluntary chapter 7 petition on September 3, 2002. Denise Padilla filed a voluntary chapter 7 petition on January 6, 2003. The cases were consolidated on February 18, 2003. The consolidated case was converted to a chapter 13 case on February 23, 2003.

On March 26, 2003, Wells Fargo filed a proof of claim in the consolidated case for $177,604.43. Of that amount, $13,811.89 represented arrearages. On May 14, 2003, Wells Fargo and the Padillas agreed to an order modifying the stay. The order was issued by the Court and granted Wells Fargo $1,077.27 in pre-petition attorney's fees and costs and $600 for the costs of bringing its motion for relief from the stay. On September 22, 2003, Wells Fargo mailed the Padillas a notice of default and demanded $50.00 in attorney's fees incurred to send the notice. The Padillas alleged there was no default and brought an adversary proceeding against Wells Fargo based on the default notice and an alleged failure to properly account for and apply funds. The adversary proceeding was dismissed for want of prosecution. On July 14, 2004, the Padillas' chapter 13 case was dismissed for missed payments.

The Padillas filed a second chapter 13 case on September 3, 2004. Wells Fargo filed a proof of claim, listing $193,328.07 in secured debt. Of that amount, $43,468.75 represented arrearages. The Padillas neither objected to this claim nor listed any causes of action against Wells Fargo in their schedules.

On May 21, 2005, the Court approved the Padillas' plan. The Padillas' chapter 13 plan stated that arrearage payments would be paid separately from principal and interest payments. Pre-petition arrearages would be cured by monthly payments fixed in amount by the plan. Principal and interest payments coming due post-confirmation would be paid directly to Wells Fargo and according to the Padillas' pre-petition mortgage contract.

While the Padillas' chapter 13 case remained pending, Wells Fargo filed two separate motions for relief from the stay. The Court denied the first motion. The Padillas and Wells Fargo resolved the second motion by an agreed order. The order, approved by the Court, allowed $600 for attorneys' fees and costs.

On February 20, 2007, the chapter 13 trustee filed a notice stating that the Padillas had completed all plan payments and were eligible for discharge. The Court issued an order discharging the Padillas on March 8, 2007.

Sometime after the discharge, the Padillas obtained a payment history on the Wells Fargo mortgage. The history suggested that the Padillas' account had been charged numerous Reimbursable Expenses during the Padillas' bankruptcy cases. Since the Padillas filed their first case in 2002, Wells Fargo incurred $15.00 "inspection fees" almost monthly. The fees apparently arose from "drive-bys" of the Padillas' home to ensure that the home was not being neglected or misused. During the same period, Wells Fargo also incurred attorney's fees and costs. Wells Fargo posted the Reimbursable Expenses to the Padillas' account. Many of these Reimbursable Expenses exceeded those allowed by agreed orders or were not otherwise approved by the Court. The parties dispute whether Wells Fargo merely posted the Reimbursable Expenses for internal records, or whether the Reimbursable Expenses were actual charges added to the Padillas' debt obligations. The parties also dispute whether Wells Fargo collected the Reimbursable Expenses by diverting portions of the payments made pursuant to the Padillas' plan to offset posted Reimbursable Expenses.

Dominique Sanders

On January 25, 2002, Dominique Sanders ("Sanders") executed a note and Deed of Trust. Sanders' Deed of Trust granted the mortgage lender a perfected security interest in Sanders' homestead. The Deed of Trust also provided that any costs or legal fees incurred by the lender to protect the lender's rights in the home would be added to the borrower's secured debt. The paragraph authorizing the mortgage lender to protect its interest in the property and rights under the security agreement contained essentially the same language as Wells Fargo's Deed of Trust set forth above. Novastar Mortgage, Inc. ("Novastar") was the servicer on Sanders' mortgage during the period relevant to Sanders' adversary proceeding3.

On January 19th, 2005 Sanders filed a chapter 13 petition. The Court confirmed Sanders' chapter 13 plan on May 24, 2005. Sanders' plan stated that arrearage payments would be paid separately from principal and interest payments. Pre-petition arrearages would be cured by monthly payments fixed in amount by the plan. Principal and interest payments coming due post-confirmation would be paid according to Sanders' mortgage contract. To date, Sanders' chapter 13 case remains pending.

Not long after Sanders' plan was confirmed, on June 29, 2006, Novastar filed a motion for relief from the automatic stay. Novastar alleged that Sanders had missed payments and was not carrying insurance on the home. The Court denied the motion and ordered Novastar to remove from Sanders' account any charges added for attorneys' fees and costs related to the motion.

Throughout Sanders' bankruptcy case, Novastar incurred expenses in addition to those arising from their motion for relief from the stay. Novastar, like Wells Fargo, incurred post-petition Reimbursable Expenses and posted the charges to Sanders' account. As in the Padillas' case, the parties dispute both the purpose of the postings and action taken on the postings. Sanders alleges the postings were actual charges added to her debt obligation. Novastar contends the postings were made only for internal record keeping purposes and Novastar had not yet determined whether to seek reimbursement from Sanders. Sanders also alleges some portion of the costs were actually collected by diverting portions of the payments provided for by the plan....

To continue reading

Request your trial
76 cases
  • Blanco v. Bayview Loan Servicing LLC (In re Blanco)
    • United States
    • United States Bankruptcy Courts. Fifth Circuit. U.S. Bankruptcy Court — Southern District of Texas
    • September 14, 2021
    ...be sanctioned for civil contempt"); Tate v. NationsBanc Mortgage Corp. (In re Tate) , 253 B.R. 653, 669 (Bankr.W.D.N.C.2000) ; In re Padilla , 379 B.R. at 643 (the court considered the extent to which the Bankruptcy Code provides relief for violations of an order confirming a plan.322 In re......
  • Trevino v. HSBC Mortg. Servs., Inc. (In re Trevino), CASE NO: 10-70594
    • United States
    • United States Bankruptcy Courts. Fifth Circuit. U.S. Bankruptcy Court — Southern District of Texas
    • July 31, 2015
    ...HSBC is correct in characterizing § 362(a)(3) as an anti-grab statute. See Padilla v. Wells Fargo Home Mortg., Inc. (In re Padilla), 379 B.R. 643, 665 (Bankr. S.D. Tex. 2007) ("Section 362(a)(3) is essentially an 'anti-grab' law statute."); 3 Collier on Bankruptcy ¶ 362.03(5)(a) (Alan N. Re......
  • In re Padilla
    • United States
    • United States Bankruptcy Courts. Third Circuit. U.S. Bankruptcy Court — Eastern District of Pennsylvania
    • June 30, 2008
    ...with the terms of the confirmed plan. A confirmed plan constitutes a new contract between the debtor and creditors. In re Padilla, 379 B.R. 643, 663 (Bankr.S.D.Tex.2007) (citing authorities); see also In re Sims, 278 B.R. 457, 473 (Bankr.E.D.Tenn.2002) (citing Matter of Kelvin Pub., Inc., 1......
  • In re Cano
    • United States
    • United States Bankruptcy Courts. Fifth Circuit. U.S. Bankruptcy Court — Southern District of Texas
    • August 10, 2009
    ...Rodriguez v. Countrywide Home Loans, Inc. (In re Rodriguez), 396 B.R. 436 (Bankr.S.D.Tex.2008); Padilla v. Wells Fargo Home Mortgage, Inc. (In re Padilla), 379 B.R. 643 (Bankr.S.D.Tex. 2007). GMAC has not persuaded this Court that its Padilla and Rodriguez holdings were wrong. No Circuit Co......
  • Request a trial to view additional results
1 books & journal articles
  • Anthony Mccready, Strip-off: What Is the Correct Procedure to Avoid a Wholly Unsecured Junior Mortgage?
    • United States
    • Emory University School of Law Emory Bankruptcy Developments Journal No. 28-2, June 2012
    • Invalid date
    ...In re Lane, 280 F.3d at 669.71 11 U.S.C. § 1322(b)(2) (2006) (emphasis added).Padilla v. Wells Fargo Home Mortg., Inc. (In re Padilla), 379 B.R. 643, 661 (Bankr. S.D. Tex. 2007).other than a claim secured only by a security interest in real property that is the debtor’s principal residence.......

VLEX uses login cookies to provide you with a better browsing experience. If you click on 'Accept' or continue browsing this site we consider that you accept our cookie policy. ACCEPT