In re Thompson

• Decision Date: 21 November 2014
• Docket Number: No. 05–28262–svk.,05–28262–svk.
• Citation: 520 B.R. 731
• Parties: In re Dennis E. THOMPSON and Pamela A. Thompson, Debtors.
• Court: U.S. Bankruptcy Court — Eastern District of Wisconsin

520 B.R. 731

In re Dennis E. THOMPSON and Pamela A. Thompson, Debtors.

No. 05–28262–svk.

United States Bankruptcy Court, E.D. Wisconsin.

Signed Nov. 21, 2014.

William H. Green, Milwaukee, WI, pro se.

MEMORANDUM DECISION DENYING MOTIONS TO RECONSIDER

SUSAN V. KELLEY, Bankruptcy Judge.

After the Court disallowed the proof of claim filed by Wells Fargo, ¹ Dennis and Pamela Thompson (the “Debtors”) filed motions seeking further relief. On October 21, 2014, the Court issued a comprehensive Memorandum Decision granting one of the Debtors' motions, but denying the others. (Docket No. 271.) On November 4, 2014, Wells Fargo filed a motion for reconsideration under Bankruptcy Rule 9023 and Federal Rule of Civil Procedure 59(e). (Docket No. 280.) On November 17, 2014, the Debtors responded to Wells Fargo's motion and filed their own motions for reconsideration. (Docket Nos. 281, 282, 283.)

Wells Fargo's motion requests only that the Court reconsider its decision granting the Debtors' motion for reimbursement of payments the Debtors made to Wells Fargo. (Docket No. 280 at 2.) Wells Fargo does not seek reconsideration of the Court's order directing Wells Fargo to return funds distributed by the Chapter 13 Trustee.

Bankruptcy Rule 9023, which incorporates Rule 59(e) of the Federal Rules of Civil Procedure, governs Wells Fargo's request. “Courts may grant Rule 59(e) motions ‘to alter or amend the judgment if the movant presents newly discovered evidence that was not available at the time of trial or if the movant points to evidence in the record that clearly establishes a manifest error of law or fact.’ ” Miller v. Safeco Ins. Co. of Am., 683 F.3d 805, 813 (7th Cir.2012) (quoting In re Prince, 85 F.3d 314, 324 (7th Cir.1996)). However, “a ‘manifest error’ is not demonstrated by the disappointment of the losing party. It is the ‘wholesale disregard, misapplication, or failure to recognize controlling precedent.’ ” Oto v. Metro. Life Ins. Co., 224 F.3d 601, 606 (7th Cir.2000). And “it is well-settled that a Rule 59(e) motion is not properly utilized ‘to advance arguments or theories that could and should have been made before the [bankruptcy court] rendered a judgment.’ ” Sigsworth v. City of Aurora, 487 F.3d 506, 512 (7th Cir.2007) (quoting LB Credit Corp. v. Resolution Trust Corp., 49 F.3d 1263, 1267 (7th Cir.1995)).

Wells Fargo has failed to identify a manifest error of law or fact committed by the Court in ordering Wells Fargo to reimburse the Debtors for mortgage payments made on a note that Wells Fargo had no standing to enforce. Wells Fargo's motion lacks any statutory authority or analogous case law that the Court failed to consider when it issued its decision. And Wells Fargo did not cite any authority in direct contravention of the Court's decision. Instead, Wells Fargo rehashes old arguments that the Court has already considered or advances theories that should have been raised prior to the Court's decision. Wells Fargo's three arguments are: (1) the Debtors' claim for reimbursement of mortgage payments is not related to and does not flow from the proof of claim proceeding; (2) the Debtors' claim for reimbursement is barred by the Rooker–Feldman doctrine; and (3) regardless of jurisdiction, the remedy afforded by the Court was manifestly erroneous.

THE REIMBURSEMENT ORDER WAS FOR PAYMENTS MADE UNDER THE DEBTORS' PLAN AND APPROPRIATELY WITHIN THIS COURT'S JURISDICTION

As noted in the Court's decision, neither party took issue with the Court's authority to enter a final order on the Debtors' motions. Nevertheless, the Court raised the issue sua sponte and concluded that it had the appropriate authority. (Docket No. 271 at 4–5.) Wells Fargo now disagrees, but cites only Stern v. Marshall, ––– U.S. ––––, 131 S.Ct. 2594, 180 L.Ed.2d 475 (2011), and Wells Fargo does not even seriously argue that the relief granted here conflicts with that curtailed in Stern.

Instead, Wells Fargo attempts to portray the Debtors' mortgage payments as totally unrelated to the Chapter 13 case, as attempts to “maintain their redemption rights under the foreclosure judgment.” (Docket No. 280 at 4.) This argument ignores the rights the Debtors had under the Bankruptcy Code to propose a plan to de-accelerate the mortgage balance, cure their default and maintain regular mortgage payments on their residential mortgage. 11 U.S.C. §§ 1322(b)(5); 1322(c)(1).

The Debtors' modified plan was confirmed on December 8, 2010, and provides for the Debtors to maintain current mortgage payments to Litton Loan Servicing (Wells Fargo's former servicer) while they attempted to refinance their mortgage.² (Docket No. 135.) On March 19, 2013, the Court disallowed Wells Fargo's proof of claim, concluding that “[T]he promissory note attached to the proof of claim is payable to First National Funding Group, and that payee has not endorsed or transferred the note. Even assuming that the endorsement by Central States Mortgage to Provident is not disputed, there is no evidence of Provident's endorsement of the note to Wells Fargo.” (Docket No. 217 at 5.) Wells Fargo appealed, and the District Court affirmed this Court's decision to disallow Wells Fargo's claim. Since Wells Fargo had no standing to enforce the mortgage note, the Debtors filed a motion to recover all of the mortgage payments the Debtors and the Trustee had made to Wells Fargo under the plan. The Court granted the motion, requiring Wells Fargo to refund $11,716.90 to the Trustee and $73,041.49 to the Debtors. (Docket No. 271 at 24.)

While apparently not disputing that the Court had authority to order Wells Fargo to return the Trustee payments, Wells Fargo contends that the mortgage payments made directly by the Debtors are “a different matter altogether. The question now before the Court is not whether Wells Fargo may seek disbursements from the Chapter 13 trustee based on its contractual relationship with Debtors under the mortgage note; the state-court foreclosure judgment extinguished that contractual relationship.” (Docket No. 280 at 4.) Wells Fargo concludes that this Court lacks authority to reverse payments made on the foreclosure judgment.

Wells Fargo misstates the applicable bankruptcy law. Even after a foreclosure judgment has been entered on a residential mortgage, a debtor in Chapter 13 can cure defaults and maintain regular mortgage payments on that mortgage. In In re Wescott, 309 B.R. 308 (Bankr.E.D.Wis.2004), this Court held that a Chapter 13 debtor could de-accelerate and cure defaults on his home mortgage after the entry of a foreclosure judgment and the sale of the property at a foreclosure sale. In Wescott, the Court concluded that the debtor retained the right to de-accelerate and cure his defaults until confirmation of the foreclosure sale. Id. at 314. Confirmation of the sale did not occur in this case before the Debtors filed their Chapter 13 petition.

Wescott relied on In re Clark, 738 F.2d 869 (7th Cir.1984), in which the Seventh Circuit Court of Appeals held that a mortgage debt that had been declared fully due and payable, and indeed evidenced by a judgment of foreclosure, could be de-accelerated in a confirmed Chapter 13 plan. The courts in Clark and Wescott also recognized—although Wells Fargo apparently does not—that whether a debtor is allowed to cure defaults by de-acceleration of the debt is not governed by the contract or applicable state law. As stated in Capital Realty Services, LLC v. Benson (In re Benson), 293 B.R. 234, 239 (Bankr.D.Ariz.2003): “It is not at all unusual for the Bankruptcy Code to disregard state law cure rights, because the Bankruptcy Code frequently provides federal cure rights that do not exist under state law, and may exist notwithstanding state law.”

Section 1322(b)(5) is the Bankruptcy Code section that allows a debtor to cure defaults on a mortgage debt and maintain regular payments on the mortgage. Chapter 13 plans utilizing this provision are called “cure and maintain plans.” The court in In re Fortin, 482 B.R. 35, 42 (Bankr.D.Mass.2012), explained: “[C]ure and maintain plans under § 1322(b)(5) are quite common. The ability to take up to 5 years to pay an often substantial pre-petition mortgage arrearage while otherwise not impairing the lender's contractual rights is a valuable benefit.” The plan in the Debtors' case is a cure and maintain plan. The Debtors proposed to cure the pre-petition mortgage arrearage by making payments through the Trustee and maintain the mortgage by making current mortgage payments directly to the mortgage-holder outside the plan.

Making payments “outside the plan” also is common.³ In In re Aberegg, 961 F.2d 1307, 1308 (7th Cir.1992), the court of appeals recognized that the Bankruptcy Code gives bankruptcy courts discretion to permit debtors to make payments directly to certain secured creditors. Simply because the Debtors made the payments directly to Wells Fargo does not signify that the payments are not made under the Chapter 13 plan or are somehow not connected to the bankruptcy and Wells Fargo's disallowed claim. As the Fifth Circuit Court of Appeals explained in In re Foster, 670 F.2d 478, 489 (5th Cir.1982): “[F]or the arrearage on a mortgage claim to be cured under § 1322(b)(5), the current mortgage payments while the case is pending must be provided for in the plan. 11 U.S.C. § 1322(b)(5) allows the debtor to ‘provide for the curing of any default within a reasonable time and maintenance of payments while the case is pending.’ Section 1322(b)(5) provides for the curing of any default, then, only when the plan also provides for the maintenance of the current mortgage payments while the case is pending.” (emphasis in original).

In this case, the Debtors proposed a cure and maintain plan to de-accelerate the fully due and payable mortgage debt. They were permitted to propose such a plan, notwithstanding the foreclosure judgment, because the foreclosure sale had not been confirmed when the ...