In re Wright

• Decision Date: 28 December 2011
• Docket Number: No. 08–02079.,08–02079.
• Citation: 461 B.R. 757
• Parties: In re Alan J. WRIGHT, Kristine L. Wright, Debtors.
• Court: U.S. Bankruptcy Court — Northern District of Iowa

461 B.R. 757

In re Alan J. WRIGHT, Kristine L. Wright, Debtors.

No. 08–02079.

United States Bankruptcy Court, N.D. Iowa.

Dec. 28, 2011.

Janet Hong, Cedar Rapids, IA, for Debtors.

ORDER RE: MOTION FOR ORDER TO SHOW CAUSE

PAUL J. KILBURG, Bankruptcy Judge.

This matter came before the undersigned on November 17, 2011 on Debtors' Motion to Show Cause for Violation of Terms of Chapter 13 Plan and for Sanctions. Debtors Alan and Kristine Wright were represented by Attorney Janet Hong. Creditor American Home Mortgage Servicing, Inc. (AHMSI) was represented by Attorney C. Anthony Crnic. After the presentation of evidence and argument, the Court took the matter under advisement. This is a core proceeding pursuant to 28 U.S.C. § 157(b)(2)(A), (B) and (L).

STATEMENT OF THE CASE

Debtors seek sanctions against AHMSI for violations of the Chapter 13 plan. They argue AHMSI failed to give them notice of monthly payment increases. They argue notice is mandated by the confirmed plan. This failure to notify led to defaults in Debtors' mortgage payments and two Motions for Relief from Stay in the past two years. Debtors request actual and punitive damages and attorney fees as sanctions.

FINDINGS OF FACT

Debtors filed their Chapter 13 petition on September 26, 2008. On November 24, 2008, the Court confirmed Debtors' Modified Chapter 13 Plan which was filed on October 20, 2008 (Doc. 16). There were no objections to confirmation of this Modified Plan. Paragraph 13(B) of the Plan imposes specific duties on the holders and/or servicers of Debtors' mortgages. These provisions require notice to the Trustee, Debtors and Debtors' attorney of any changes in the monthly mortgage payments (subsection (5)). They also require an annual statement of loan activity (subsection (8)). Subsection 7 allows the creditor to send its customary billing statements, coupons and statements directly to Debtors without violating the automatic stay.

AHMSI is the servicer of Debtors' mortgage which was assigned by Argent Mortgage Company LLC to Deutsche Bank post-confirmation, on December 30, 2008. See Ex. B of Doc. 69–2, at p. 17. On May 13, 2010, AHMSI filed a Motion for Relief from Stay (Doc. 41), asserting Debtors were in default on postpetition payments. This motion was withdrawn on July 28, 2010. On August 8, 2011, AHMSI filed a second Motion for Relief from Stay (Doc. 69), again asserting Debtors were in default on postpetition payments. This motion was withdrawn on September 28, 2011.

Debtors' Exhibit D is a pay history Debtors received from AHMSI dated June 4, 2010. Exhibit C is a pay history from AHMSI dated August 30, 2011. The third column titled “Post Payment Amount” is the amount AHMSI considers to be the monthly payment due. Exhibit C reflects the amounts in this column changed nine times between the 10/10/08 payment and the 02/01/11 payment. Debtors testified that they never received notice of a change in the amount of payment due. They stated that they believed the amount they paid, as set out in the second column titled “Amount Received,” was the correct amount to pay to keep their mortgage current. Specifically, Debtor Alan Wright testified that he would not have intentionally made a payment that was $8.30 short, as Ex. C reflects for payment dates 05/01/09, 06/01/09 and 09/01/09.

Debtors testified that their monthly payment of principal and interest is $521.04 according to their Fixed Rate Note dated September 8, 2005. See Ex. C of Doc. 69–2, at p. 19. They assert the monthly amount due should only change if an increase in insurance premium or property tax requires an increase in their monthly escrow payment. The record fails to establish such an increase during the relevant time period. Debtors, however, point out that the increase in the 02/01/11 payment from $680.28 to $755.05 on Ex. C gives the appearance of an increase in escrow.

Also, significantly, there are inconsistent amounts between Exhibits C and D regarding amounts due for five different payment dates—03/01/09, 08/01/09, 09/01/09, 03/01/10 and 04/01/10. There is no explanation why such a discrepancy should exist. Mr. Wright testified it appears that the amounts were deliberately changed.

Debtors testified that the two Motions for Relief from Stay filed by AHMSI in 2010 and 2011 arose when payments which they believed were adequate were deemed inadequate by AHMSI. As a result, without notice, AHMSI placed one of the Debtors' payments in “suspense.” AHMSI would then draw from the suspense amount until it was fully expended and return Debtors' next payment. At that time, it declared the loan in default and filed a Motion for Relief from Stay in May 2010. Debtors testified that they did not know the loan was in arrears until their check was returned. Had they known, they stated they would have taken care of it. Debtors contacted AHMSI more than once requesting a payment coupon book but were refused. AHMSI told Debtors it was not allowed to have contact with them and could not give them a coupon book with which to make payments. In responding to the Motion for Relief from Stay, counsel for Debtors pointed out to counsel for AHMSI the language of the Chapter 13 plan requiring AHMSI to give notice of payment changes and allowing it to send Debtors statements and coupon books.

In August 2010, Debtors began paying $696.69 per month based on AHMSI's communications with Debtors' attorney. Nowhere on Exhibit C is that amount identified as the proper payment. Starting on 02/01/11, the payment amount AHMSI shows being due is $755.05. Debtors were not informed that the payment amount increased at that time. Again, AHMSI put a payment in suspense and used it to cover the alleged inadequate payments until it returned a check to Debtors, declared the loan in default, and filed the August 2011 Motion for Relief from Stay. Debtors testified they were never informed of the correct payment amount until after the Motion was filed.

Mr. Wright testified that he spent five to ten hours addressing each of the Motions for Relief from Stay filed by AHMSI. This includes time spent contacting attorneys, time away from work and the use of work time to receive faxes in order to learn what was going on with his mortgage. He also lost vacation time he scheduled in order to attend a hearing which was cancelled at the last minute. Mr. Wright stated the process was very stressful and it was a threatening feeling to think AHMSI would take the home where he and his wife live with their three small children.

Debtor Kristine Wright testified that she spent at least 20 hours tracking down payments, making calls, sending emails, preparing records of payments and payment histories. She stated it was stressful for her and hard to deal with the phone calls and paperwork while trying to take care of three small children. The product of Mrs. Wright's efforts is displayed in Debtors' exhibits.

AHMSI focuses on language in paragraph 3 of the original mortgage which states, in part: “Borrower shall promptly furnish to Lender all notices of amounts to be paid under this Section.” This Section covers funds for escrow items, including property taxes and insurance premiums. AHMSI argues that because Debtors had the duty to furnish it with notice of changes in amounts covered by escrow, they are obligated to know when their payments changed. Debtors testified they never knew of any changes in escrow amounts. They did not know why AHMSI changed their monthly payment amount, but thought it would only increase if escrow needed to be increased.

After the hearing, the U.S. Trustee filed a Comment regarding Debtors' Motion for sanctions. He notes that no objections to confirmation were filed. The U.S. Trustee states that if the Court finds AHMSI violated the terms of the Plan it should be required to show it has taken steps to ensure such violations do not occur in the future in this case or others.

CONCLUSIONS OF LAW

In In re Aldrich, No. 08–00520, 2008 WL 4185989 (Bankr.N.D.Iowa Sep. 4, 2008), this Court considered provisions similar to those included in Debtors' confirmed plan. It recommended language for Chapter 13 plans which allows mortgage creditors to send statements to Debtors post-confirmation and requires an annual summary of loan activity. Id. at *4–5. Debtors' plan contains these recommended terms as well as others from Aldrich to which there had been no objection, including the requirements to notify the trustee, debtors and debtors' attorney of any changes to monthly payment amounts. See id. at *5.

Pursuant to § 1327(a), the provisions of a confirmed Chapter 13 plan bind the debtor and each creditor which has notice of the plan. In re Burnett, 646 F.3d 575, 581 (8th Cir.2011). The Supreme Court has recently stated, in denying a Rule 60(b) motion: “Where, as here, a party is notified of a plan's contents and fails to object to confirmation of the plan before the time for appeal expires, that party has been afforded a full and fair opportunity to litigate.” United Student Aid Funds, Inc. v. Espinosa, –––U.S. ––––, 130 S.Ct. 1367, 1380, 176 L.Ed.2d 158 (2010). Thus, even if the provisions of a Chapter 13 plan are improper, creditors with notice of the plan who fail to object are bound by them. Burnett, 646 F.3d at 581 (stating “a confirmed plan is given res judicata effect even when it violates the Code”). AHMSI has not argued that it or its predecessor in interest did not receive adequate notice of Debtors' modified plan prior to confirmation.

Many courts have considered complaints similar to Debtors' against mortgage lenders and servicers. See In re Thrash, 433 B.R. 585, 609–10 (Bankr.N.D.Tex.2010) (collecting cases); In re Wilson, 2011 WL 1337240, at *12 (Bankr. E.D. La.) (Apr. 7, 2011) (noting the case was yet another piece to the puzzle of loan administration, being the fourth published opinion in the district). For example, the court in In re Cothern, 442 B.R. 494, 501 (Bankr.N.D.Miss.2010),...