In re Shank

• Decision Date: 29 June 2017
• Docket Number: CASE NO: 11–10480
• Citation: 569 B.R. 238
• Parties: IN RE: Mark A. SHANK; aka Shank, et al., Debtors
• Court: U.S. Bankruptcy Court — Southern District of Texas

569 B.R. 238

IN RE: Mark A. SHANK; aka Shank, et al., Debtors

CASE NO: 11–10480

United States Bankruptcy Court, S.D. Texas, Brownsville Division.

SIGNED June 29, 2017

Filed June 30, 2017

Abelardo Limon, Jr., Limon Law Office PC, Brownsville, TX, for Debtor.

MEMORANDUM OPINION GRANTING DEBTORS' MOTION TO DEEM MORTGAGE FULLY PAID & DEBTORS CERTIFICATION AND MOTION FOR ENTRY OF CHAPTER 13 DISCHARGE

Resolving ECF Nos. 77, 82

Eduardo V. Rodriguez, United States Bankruptcy Judge

I. INTRODUCTION

This is a case which, at its conclusion, roused "a sleeping giant and fill[ed] him with a terrible resolve."¹ A chapter 13 plan confirmation order is entitled to finality, absent a timely appeal or proceeding to revoke confirmation, and the parties are protected from having to relitigate issues that were or could have been decided before plan confirmation. As the mortgage holder now disputes the confirmed plan, however, the Court must determine whether Debtors have fully paid their home mortgage, including interest, through their chapter 13 plan when the mortgage holder never filed a proof of claim, but instead accepted payments from the chapter 13 trustee by and through a debtor filed proof of claim, and ultimately, determine whether Debtors are entitled to receive a discharge.

II. FINDINGS OF FACT

This Court makes the following Findings of Fact and Conclusions of Law pursuant to Fed. R. Bankr. P. 7052, which incorporates Fed. R. Civ. P. 52, and 9014. To the extent that any Finding of Fact constitutes a Conclusion of Law, it is adopted as such. To the extent that any Conclusion of Law constitutes a Finding of Fact, it is adopted as such. Additionally, to the extent that the Court made oral findings and conclusions on the record, this Memorandum Opinion supplements and supersedes those findings and conclusions.

On August 12, 2011, Mark A. Shank and Sandra Shank (collectively, the "Debtors ") filed for relief under chapter 13, title 11 of the United States Code.² Simultaneously, Debtors filed their Schedules in which they listed their homestead property as 1305 N. Indiana Ave., Brownsville, Texas 78521 (the "Homestead "), which was valued at $80,110.00 and secured by a lien in the amount of $29,860.28 on Schedule A. ECF No. 1 at 10. Schedule D lists Montanaro Investments ("Montanaro "), a secured creditor, as holding the first mortgage in the amount of $23,320.00 on Debtors' Homestead. Id. at 18. Additionally, various Cameron County taxing entities have secured claims in a total amount of $6,540.28 for ad valorem taxes. Id. Montanaro is listed in the Creditor Matrix with an address of 3107 Boca Chica, Brownsville, Texas 78521. Id. at 44.

Although Debtors were below-medium income wage earners, they proposed a 60–month plan that provisioned a pro-rata payment of Montanaro's claim, e.g. $23,320.00, at 5.25% interest over a period of 54 months. ECF No. 2 at 9 (including as amended, the "Plan "); see also ECF No. 25 at 6 (amending ECF No. 2). Additionally, the Plan states that "[s]ubject to disposition of a timely filed motion to avoid a lien under § 522, or a complaint to determine the validity of a lien filed under Fed. R. Bankr. P. 7001, each secured creditor shall retain the lien securing its claim." ECF No. 25 at 5. Finally, the Plan provides that "[t]he lien shall be enforceable to secure payment of the claim the lien secures, as that claim may be modified by the plan." Id.

On August 15, 2011, Debtors' Counsel penned a letter to Montanaro advising it that Debtors had filed for chapter 13 bankruptcy. Ex. 8. On August 17, 2011, the Court issued its Initial Order for Case Management of Chapter 13 Case, which the Bankruptcy Noticing Center ("BNC ") certified that Montanaro was mailed a copy. ECF Nos. 10, 14. On August 22, 2011, the chapter 13 trustee ("Trustee ") issued her notice of the First Meeting of Creditors to be held on September 22, 2011, along with a notice of the claims bar date and the certificate of notice filed by the BNC on August 25, 2011, reflecting that Montanaro was mailed a copy. ECF Nos. 16, 19. On September 22, 2011, Debtors appeared at the First Meeting of Creditors and Trustee concluded the meeting on the same date.

On November 3, 2011, Trustee filed a Motion to Dismiss the case for failure to file a feasible plan and necessary amendments, and the certificate of notice filed by the BNC on November 5, 2011, reflects that Montanaro was mailed a copy. ECF Nos. 23, 24. On November 5, 2011, Debtors filed an Amended Chapter 13 Plan, but notably, Montanaro was not listed on the certificate of service filed by the Debtors. ECF Nos. 25, 27. The deadline for the filing of proofs of claim ran on December 21, 2011, by which time Montanaro had not filed a claim. ECF No. 16.

On January 6, 2012, Trustee filed her Notice of Confirmation Hearing, Summary of Chapter 13 Plan and Notice and Motion for Valuation of Security, Setting of Interest and Lien Avoidance Notice which provisioned, inter alia , for the amount of $23,320.00 at 5.25% to be paid on a pro-rata basis to Montanaro under the Plan. ECF No. 35 ("Notice of Confirmation Hearing "). Importantly, the certificate of service for the Notice of Confirmation Hearing and the BNC certificate of notice lists Montanaro as a party to receive notice at the address previously listed on Schedule D. Compare ECF No. 1 at 18 with ECF Nos. 35, 36.

On February 2, 2012, Debtors' Plan was confirmed without objection. ECF No. 38 (the "Confirmation Order "). The Confirmation Order provides, inter alia , that "each secured creditor shall retain the lien existing prior to the commencement of the case to secure payment of the allowed amount of its claim until the Debtor is discharged."Id. at ¶ 5. A copy of the Confirmation Order was mailed to Montanaro by the BNC on February 4, 2012. ECF No. 39.

On October 30, 2012, Debtors filed a Motion to Modify the Plan, which was amended on November 13, 2012, due to the fact that Mr. Shank was diagnosed with cancer

and needed to adjust the plan payments in order to accommodate their reduced income during Mr. Shank's treatment period. ECF No. 43, 48. Debtors' certificate of service, however, reflects that neither of these filings was served on Montanaro. Id. On December 6, 2012, Debtors' Amended Motion to Modify Plan was confirmed by the Court again without objection. ECF No. 52 (the "Modification Order "). The certificate of notice filed by the BNC, however, reflects that Montanaro was served with a copy of the Modification Order, as amended. ECF No. 57.

On October 31, 2012, Debtors, on behalf of Montanaro, filed a Secured Proof of Claim in the amount of $23,320.00 to be paid at 5.25% interest, valuing the Homestead at $80,110.00, and listing as the Homestead security for the claim and listing the same address as used on Schedule D and in the Creditor Matrix. Claim No. 12–1 ("Claim No. 12 "); see also ECF No. 1 at 18, 44. No objections were lodged against Claim No. 12; therefore, it was allowed as filed. See, e.g. , id.

On September 8, 2016, Trustee filed her Notice of Plan Completion, certifying that "Debtors ... have made all payments to the Chapter 13 Trustee as required by the Order Confirming the Chapter 13 Plan and all approved modifications." ECF No. 73. On September 13, 2016, Debtors filed their Certification and Motion for Entry of Chapter 13 Discharge. ECF No. 77 (the "Debtors' Certification "). Debtors' Certification states that Debtors "have made all payments required by [their] confirmed chapter 13 plan." Id. at ¶ 2. Nevertheless, on September 29, 2016, Debtors filed an Expedited Motion To Abate Entry of Discharge stating that Montanaro contacted Debtors and advised that there was still a balance of more than $30,000.00 owed on the Homestead, which the Debtors dispute. See generally ECF No. 80.

Additionally, and on the same date, Debtors filed a Motion to Deem Mortgage Fully Paid. ECF No. 82 (the "Motion to Deem "). The Debtors assert that although Montanaro alleges that there is a remaining balance on its claim, Debtors filed Claim No. 12 on Montanaro's behalf, and which was fully paid by Trustee through the confirmed Plan. Id. Importantly, Montanaro accepted all payments from the Trustee made by the Debtors under the Plan. Ex. 16. In their Motion to Deem, Debtors raise several issues:

i. that Montanaro has alleged that it is owed approximately $30,000.00 because all Trustee payments were being applied to accrued interest, late charges, penalties and other fees instead of to principal;

ii. that Montanaro has asserted that its claim is based on a note and Deed of Trust that is different from the Note and Deed of Trust that the Debtors believed was the basis of the claim that was filed in their case;

iii. that during the course of this case, Montanaro would frequently not cash Trustee's checks, but rather allowed the checks to go stale;

iv. that it was only upon Debtors' counsel insistence, by and through correspondence to Montanaro, that Montanaro began cashing Trustee's checks;

v. that Montanaro will not release its lien on the Homestead until it is paid the remaining $30,000.00 balance.

See generally ECF No. 82.

On October 3, 2016, the Court granted Debtors' Motion to Abate and on October 24, 2016, this Court issued an order setting a hearing on Debtors' Motion to Deem for November 7, 2016 ("Hearing "). ECF Nos. 86, 92. Debtors filed a Certificate of Service indicating that the Order Setting Hearing was transmitted to Montanaro via First Class U.S. Mail. ECF No. 93.

At the November 7, 2016 Hearing, Debtors' Counsel appeared, informed the Court that Montanaro was sent notice of the Motion to Deem and of the Hearing, but neither filed a response nor appeared at the hearing. ECF No. 96; see also ECF Nos. 82, 93. Debtors' Counsel did not believe that Montanaro was represented by bankruptcy counsel, despite being represented by an attorney in real estate matters. Nevertheless, Debtors offered the following exhibits, which were admitted into evidence without any...