In re Vanwart
| Citation | 497 B.R. 207 |
| Decision Date | 27 August 2013 |
| Docket Number | CASE NO. 13–00515–8–SWH |
| Court | U.S. Bankruptcy Court — Eastern District of North Carolina |
| Parties | In re: Erik C. Vanwart, Cristin N. Vanwart, Debtors. |
OPINION TEXT STARTS HERE
Elizabeth C. King, Butler & Butler, LLC, Wilmington, NC, for Trustee.
Kyle J. Nutt, Shipman & Wright, LLP, Wilmington, NC, for Debtors.
The matter before the court is the trustee's objection to exemption claimed by the chapter 7 debtors. A hearing was held in Wilmington, North Carolina on July 16, 2013.
The debtors filed a voluntary petition under chapter 7 of the Bankruptcy Code on January 25, 2013. The case was determined to be a no asset case and the trustee entered his report of no distribution on March 27, 2013. The debtors received their discharge on May 6, 2013, and the case was closed. The debtors subsequently disclosed to the trustee a $25,000 payment received as part of a settlement agreement between the Federal Reserve and SunTrust Mortgage Inc. (“SunTrust Mortgage”). After discussion with the trustee and upon his advice, the debtors amended their schedules and exemptions to reflect the payment. The debtors' amended claim of exemptions exempts the payment as related to a “potential wrongful foreclosure claim against SunTrust Mortgage,” pursuant to the homestead exemption of N.C.G.S. § 1C–1601(a)(1) and the personal injury exemption of N.C.G.S. § 1C–1601(a)(8). On May 22, 2013, the trustee moved to reopen the case in order to administer the $25,000 payment, which he considers to be an asset of the estate. Filed with the motion was the trustee's objection to the exemptions claimed by the debtor related to this payment.
On their amended schedule C, the debtors dispute that the payment is property of the estate, and assert that they made the disclosure/amendment pursuant to direction from the trustee. Their contention that the payment is not property of the estate is based on the debtors' assertion that the interest in the payment vested postpetition, and that for that reason, the payment does not resolve any claim that the debtors held prepetition.
At the July 16 hearing, the parties agreed that the court should resolve the threshold question of whether the payment is property of the estate before addressing the question of whether the exemption was proper. As the issue involves the question of whether the payment implicated a prepetition interest of the debtor in property, a detailed recitation and examination of relevant dates and events, in both the debtors' case and the settlement between the Board of Governors of the Federal Reserve System (the “Federal Reserve”) and SunTrust Mortgage which prompted the payment, is warranted and set forth below.
On September 17, 2009, SunTrust Mortgage initiated an action (the “first foreclosure action”) in New Hanover County to foreclose on the debtors' property at 3825 Sweetbriar Road, Wilmington, North Carolina. That foreclosure action was voluntarily dismissed without prejudice on December 14, 2009.
Meanwhile, the Federal Reserve had initiated an enforcement action (the “enforcement action”) against SunTrust Banks, Inc., SunTrust Bank (the “Bank”), SunTrust Mortgage, (collectively the “SunTrust entities”) for alleged deficient practices in mortgage loan servicing and foreclosure processing. On April 13, 2011, the SunTrust entities and the Federal Reserve entered into a consent order (the “2011 consent order”). In reSunTrustBanks, Inc., SunTrust Bank, and Suntrust Mortgage, Inc., Docket No. 11–021–B–HC/SM/DEO, “Consent Order” (April 13, 2011).1 The 2011 consent order required, among other things, that the Bank and SunTrust Mortgage retain an independent consultant to conduct a review of certain residential mortgage loan foreclosure actions or proceedings for borrowers who had a pending or completed foreclosure on their primary residence any time from January 1, 2009 to December 31, 2010 for loans serviced by SunTrust Mortgage (the “Independent Foreclosure Review”).
The 2011 consent order further required that the independent consultant prepare a written report (the “Foreclosure Report”) detailing the findings of the Independent Foreclosure Review. Within forty-five days of receipt of the Foreclosure Report, the Bank and SunTrust Mortgage would be required to submit to the Federal Reserve a plan to remediate errors or deficiencies in foreclosures as found in the Independent Foreclosure Review. Based on the findings of the Foreclosure Report, the plan also would provide for appropriate reimbursement to borrowers for any impermissible or otherwise unreasonable penalties, fees or expenses, or for other financial injury.
The final paragraph of the 2011 consent order stated that “[n]othing in this order, express or implied, shall give to any person or entity, other than the parties hereunder, and their successors hereunder, any benefit or any legal or equitable right, remedy, or claim under this Order.” 2011 consent order.
On June 23, 2011, a second foreclosure proceeding (the “second foreclosure action”) was initiated by SunTrust Mortgage against the debtors' property at 3 825 Sweetbriar Road, Wilmington, North Carolina. The foreclosure sale in this action occurred on November 8, 2011. SunTrust Mortgage was the highest bidder, in the amount of $172,400.00, and was subsequently transferred the property by trustee's deed. The debtors do not dispute the validity of this foreclosure.
On January 7, 2013, the Federal Reserve and the U.S. Office of the Comptroller of the Currency (the “OCC”) issued a joint press release announcing that they had reached an agreement with ten mortgage servicing companies which had been subject to enforcement actions initiated in April 2011. The agreement provided for payment by the mortgage loan companies of more than $8.5 billion in cash payments and other assistance to help borrowers. SunTrust was one of the servicers participating in the settlement agreement. The press release described the settlement agreement as resolving the Independent Foreclosure Review requirement of the enforcement actions. According to the press release, the settlement agreement was to replace the Independent Foreclosure Review with a broader framework allowing eligible borrowers to receive compensation significantly more quickly. Borrowers would not be required to execute a waiver of any legal claims they may have against their servicer as a condition for receiving payment, and the servicers' internal complaint process would remain available to borrowers.
On January 25, 2013, the debtors filed their bankruptcy petition.
The settlement between the SunTrust entities and the Federal Reserve, which was alluded to in the January 7, 2013 joint press release, was officially entered into via consent order on February 28, 2013 (the “2013 consent order”). 2
Specifically, the 2013 consent order amended the obligations of the Bank and SunTrust Mortgage with regards to the Independent Foreclosure Review. Instead of conducting the Independent Foreclosure Review, the Bank and SunTrust Mortgage would make a cash payment of $62,555,947 to a qualified settlement fund for distribution to the “In–Scope Borrower Population” in accordance with a distribution plan developed by the Federal Reserve and the OCC in their discretion. The “In–Scope Borrower Population” consisted of the population the Independent Foreclosure Review was meant to target: i.e., borrowers who had a pending or complete foreclosure on their primary residence any time from January 1, 2009 to December 31, 2010, for loans serviced by SunTrust Mortgage. The first foreclosure action by SunTrust Mortgage was commenced, and therefore pending in September 2009, before being dismissed in December 2009.
The 2013 consent order further states that the amount of any payments to borrowers made pursuant to this Amendment to the 2011 Consent Order does not in any manner reflect specific financial injury or harm that may have been suffered by borrowers receiving payments. Further, the payments do not constitute an admission or denial by the SunTrust entities of wrongdoing or a civil money penalty under 12 U.S.C. § 1818(i). Finally, the 2013 consent order reiterated the final paragraph of the 2011 consent order (which in turn stated that nothing in the order gave any legal or equitable rights to any third parties) in its entirety. The 2013 consent order also inserted the following language at the beginning of that paragraph:
In no event shall SunTrust, the Bank, or SunTrust Mortgage request or require any borrower to execute a waiver of any claims against SunTrust, the Bank, or SunTrust Mortgage (including any agent of SunTrust, the Bank, or SunTrust Mortgage) in connection with any payment of Foreclosure Prevention assistance provided pursuant to paragraphs 3 or 4 of this Order. However, nothing herein shall operate to bar SunTrust, the Bank, or SunTrust Mortgage from asserting in the future in any separate litigation, or as part of a settlement related to SunTrust's, the Bank's, or SunTrust Mortgage's foreclosure and servicing practices, any right that may exist under applicable law to offset the amounts received by a borrower through the distribution process set forth above. Nothing herein shall operate to amend or modify in any respect any preexisting settlement between SunTrust, the Bank, SunTrust Mortgage, or any of their affiliates and a borrower in the In–Scope Borrower Population.In re SunTrust Banks, Inc., SunTrust Bank, and Suntrust Mortgage, Inc., Docket No. 11–021–BHC/SM/DEO, “Amendment of Consent Order” (February 28, 2013).3
On March 18, 2013, the debtors received a postcard from Rust Consulting Inc., the paying agent retained pursuant to the 2013 consent order. The postcard informed the debtors that they may be entitled to compensation related to a foreclosure action. The debtors checked a box on the postcard and returned it to Rust...
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