In re Stendardo
| Decision Date | 29 August 1990 |
| Docket Number | Bankruptcy No. 89-10581S,Adv. No. 90-0375S. |
| Parties | In re Anthony STENDARDO and Loretta Stendardo, Debtors. Anthony STENDARDO and Loretta Stendardo, Plaintiffs, v. FEDERAL NATIONAL MORTGAGE ASSOCIATION, Defendants. |
| Court | United States Bankruptcy Courts. Third Circuit. U.S. Bankruptcy Court — Eastern District of Pennsylvania |
Irwin Trauss, Community Legal Services, Inc., Philadelphia, Pa., for debtors — Anthony and Loretta Stendardo.
Edward Sparkman, Philadelphia, Pa., Standing Chapter 13 Trustee.
Joan Pinsky Brodsky, Federman and Phelan, Philadelphia, Pa., for defendant — Federal Nat. Mortg. Ass'n.
Before us is a Complaint filed by ANTHONY STENDARDO and LORETTA STENDARDO, the Debtors in the underlying joint Chapter 13 case, commenced on February 10, 1989 ("the Debtors"), objecting to the secured proof of claim filed in this case by the Defendant, FEDERAL NATIONAL MORTGAGE ASSOCIATION ("FNMA"). The parties have filed a Stipulation of Facts limiting the questions before the court to one issue: whether FNMA is entitled to have expenditures made by it subsequent to a foreclosure judgment on behalf of the Debtors for real estate taxes, Federal Housing Administration mortgage insurance ("FHA ins."), and hazard insurance (collectively these items are referred to as "the Costs") included in its secured proof of claim.
We conclude that FNMA is entitled to include these expenditures in its allowed secured claim on two alternative grounds. Firstly, we reject the Debtors' novel claim that the merger of the mortgage into the foreclosure judgment eliminates those provisions of the mortgage entitling FNMA to reimbursement for its payment of the Costs. Secondly, assuming arguendo that such merger was effected, we find that the Costs would be reimbursable to FNMA in any event, because the legal obligation to pay for these items rests upon the Debtors and it would constitute impermissible "unjust enrichment" to permit the Debtors to escape liability to recompense FNMA for these expenditures on their behalf. Therefore, we value FNMA's allowed secured claim at $9,955.70 and, since this case has been outstanding for an inordinate period, give the Debtors only a limited time-period to propose a confirmable plan or face dismissal of this case.
The underlying bankruptcy case is now almost 18 months old. It was initially delayed by the failure of the Debtors to file all of the necessary papers, including a Plan of Reorganization ("the Plan"), until September 26, 1989. See Bankruptcy Rules ("B.Rule") 1007(c) and 3015; and Local Bankruptcy Rule 1007.2 (). Because of the delay in these filings, the meeting of creditors pursuant to 11 U.S.C. § 341 was not conducted until January 5, 1990, and the initial hearing to consider confirmation of the Plan was not scheduled until April 17, 1990.
Despite these previous delays, the Debtors' counsel advised us, at the hearing on April 17, 1990, that he had not yet filed a planned adversary proceeding attacking FNMA's claim. We entered an Order of April 18, 1990, requiring that any such proceeding be filed by May 1, 1990, and that the trial of this proceeding and what it was hoped would be a final confirmation hearing were scheduled on June 14, 1990. The Debtors nevertheless did not file this proceeding until May 10, 1990, beyond the time-limit established in our Order of April 18, 1990. At the request of FNMA, we continued these matters one last time until June 28, 1990.
On June 28, 1990, the parties presented us with a Stipulation of Facts which resolved all but the one issue of FNMA's entitlement to reimbursement for the Costs and recited all of the facts deemed pertinent to the resolution of that issue. We entered a briefing Order which contemplated submission of this proceeding to us by August 15, 1990. The confirmation hearing was continued until September 4, 1990.
Prior to preparing this Opinion, we directed the parties to attend a settlement conference on August 16, 1990, before the Honorable Judith H. Wizmur of the District of New Jersey, sitting by special designation. No progress was reported in this matter by Judge Wizmur despite her numerous past successes, necessitating the drafting of this Opinion.
The facts of this proceeding are set forth in some detail in the Stipulation of Facts, revealing that the Debtors' instant bankruptcy filings, delayed at every turn by the Debtors, is not their first association with this court.
The Debtors are owners of residential realty located at 2716 East Birch Street, Philadelphia, Pennsylvania ("the Property"). Approximately twenty (20) years ago, on October 26, 1970, Pasquale and Kathryn Stendardo, individually and as trustees for Debtor Anthony Stendardo, then a minor, obtained a consumer loan from Bogley, Harting, Mahoney and Lebling, Inc. ("BHML"). In connection with that loan, they signed a note in BHML's favor in the amount of $7,250.00 payable over twenty (20) years at an interest rate of eight and one-half (8½%) percent per annum. The note was secured by a mortgage against the Property. On November 17, 1970, shortly after the transaction was consummated, the note and mortgage were assigned by BHML to FNMA. By deed dated June 7, 1972, ownership of the Property was transferred to the Debtors.
The Debtors filed their first voluntary Chapter 13 petition, Bankruptcy No. 85-02181S, on May 30, 1985 ("the 1985 Case"). FNMA filed a proof of secured claim for mortgage arrearages on the 1970 loan in that case in the amount of $1,782.65.1 No objections were made to the proof of claim filed by FNMA in the 1985 Case.
On July 24, 1985, FNMA obtained relief from the automatic stay in the 1985 Case to foreclose on the Property. It ultimately filed a Complaint in Mortgage Foreclosure on January 9, 1987, only after the 1985 Case was converted to a Chapter 7 case on October 16, 1986. FNMA obtained a default judgment on its Complaint on February 11, 1987, in the amount of $6,391.09.
The Debtors received a Chapter 7 Discharge in the 1985 Case on January 10, 1989. The Debtors filed their instant Chapter 13 case one month later on February 10, 1989.2 On January 2, 1990, FNMA filed a proof of claim in this Case the amount of $14,026.64. FNMA's proof of claim includes arrears, late charges, fees and costs and escrow deficits.
The parties have now agreed that FNMA's allowable secured claim is $5,803.083 plus any expenditures made by FNMA on behalf of the Debtors for the Costs which we determine may be included as part of FNMA's allowed secured claim.
The disputed issue of the Costs arose when, between February 18, 1987, and June 14, 1990, FNMA paid real estate taxes due against the Property in the amount of $1,804.25; FHA ins. premiums in the amount of $25.37, and hazard insurance premiums on the Property in the amount of $2,323.00.4 FNMA's total expenditures for the costs thus equal the sum of $4,152.62. The parties stipulated that the Debtors did not request FNMA to make any of these payments on their behalf, but that FNMA was required to make the above-described payments to maintain the FHA mortgage insurance on the loan.
FNMA's mortgage on the Property sets forth the payments required to be made by the Debtors in addition to payments of principal and interest. These payments include escrows for insurance and taxes on the Property. The terms of the mortgage also provide that FNMA may make any payments for these purposes not made by the Debtors and necessary to protect FNMA's security under the mortgage, which payments then may be added to the loan balance. The following are the relevant mortgage provisions so providing:
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