Matteson v. Bank of Am., N.A. (In re Matteson)

• Decision Date: 10 August 2015
• Docket Number: No. 14–8026,14–8026
• Citation: 535 B.R. 156
• Parties: In re: Donald Brett Matteson; Mary Faith Matteson, Debtors. Donald Brett Matteson; Mary Faith Matteson, Plaintiffs–Appellees, v. Bank of America, N.A., Defendant–Appellant.
• Court: U.S. Bankruptcy Appellate Panel, Sixth Circuit

535 B.R. 156

In re: Donald Brett Matteson; Mary Faith Matteson, Debtors.Donald Brett Matteson; Mary Faith Matteson, Plaintiffs–Appellees

v.Bank of America, N.A., Defendant–Appellant.

No. 14–8026

United States Bankruptcy Appellate Panel of the Sixth Circuit.

Argued: February 3, 2015

Decided and Filed: August 10, 2015

ARGUED: Craig Goldblatt, WILMER CUTLER PICKERING HALE AND

DORR LLP, Washington, D.C., for Appellant. ON BRIEF: Craig Goldblatt, Danielle Spinelli, Nancy L. Manzer, WILMER CUTLER PICKERING HALE AND DORR LLP, Washington, D.C., for Appellant.

Before: DELK, OPPERMAN, and PRESTON, Bankruptcy Appellate Panel Judges.

OPINION

C. KATHRYN PRESTON, Chief Bankruptcy Appellate Panel Judge.

Bank of America, N.A. (the “Bank”) appeals the bankruptcy court's order on cross motions for summary judgment which reduced the amount of the debt owed to the Bank on two mortgages. The Debtors' chapter 13 plan provided for the cure of any defaults and maintenance of regular monthly mortgage payments on several pieces of real property, pursuant to 11 U.S.C. § 1322(b)(5). The Bank failed to file a proof of claim for either of the mortgage debts. The Debtors made all required plan payments to the chapter 13 Trustee. Because the Bank failed to file proofs of claim, the Bank did not receive any disbursements from the Trustee for the mortgage debts. After entry of their chapter 13 discharge, the Debtors filed an adversary proceeding seeking a determination that the Bank's liens had been discharged upon completion of the plan. The bankruptcy court determined that the liens had passed through the bankruptcy, but that the amount of debt secured by each lien should be reduced by the amount that the Bank would have been paid if it had filed proofs of claim. On appeal, the Bank asserts that there is no basis in law for the bankruptcy court's decision to reduce the amount of its debt. The Debtors have not filed a brief or participated in this appeal in any way. For the reasons stated below, the Panel AFFIRMS in part, REVERSES in part, and REMANDS this case to the bankruptcy court for entry of a judgment consistent with this opinion.

ISSUE ON APPEAL

The sole issue on appeal is whether the bankruptcy court erred by reducing the amount of the secured debt owed to the Bank under mortgage loans provided for in the Debtors' chapter 13 plan on the basis that the Bank did not file proofs of claim with respect to the debts.

JURISDICTION AND STANDARD OF REVIEW

The Bankruptcy Appellate Panel of the Sixth Circuit has jurisdiction to decide this appeal. The United States District Court for the Middle District of Tennessee has authorized appeals to the Panel, and neither party has timely elected to have this appeal heard by the district court. 28 U.S.C. § 158(b)(6) and (c)(1). Pursuant to 28 U.S.C. § 158(a)(1), this Panel has jurisdiction to hear appeals “from final judgments, orders, and decrees” issued by the bankruptcy court. For purposes of appeal, an order is final if it “ends the litigation on the merits and leaves nothing for the court to do but execute the judgment.” Midland Asphalt Corp. v. United States, 489 U.S. 794, 798, 109 S.Ct. 1494, 1497, 103 L.Ed.2d 879 (1989) (citation and internal quotation marks omitted). The Sixth Circuit allows appeals from “an order in a bankruptcy case [that] finally disposes of discrete disputes within the larger case.” Lindsey v. O'Brien, Tanski, Tanzer & Young Health Care Providers (In re Dow Corning Corp .), 86 F.3d 482, 488 (6th Cir.1996) (internal quotation marks, alteration, and citation omitted). The order before the Panel grants partial summary judgment to each of the parties and fully disposes of the adversary proceeding. Therefore, it is a final order. See Geberegeorgis v. Gammarino (In re Geberegeorgis ), 310 B.R. 61 (6th Cir. BAP 2004) (“[A]n order that concludes a particular adversarial matter within the larger case should be deemed final and reviewable in a bankruptcy setting.”)

Conclusions of law are reviewed de novo . Mitan v. Duval (In re Mitan ), 573 F.3d 237 (6th Cir.2009). “Under a de novo standard of review, the reviewing court decides an issue independently of, and without deference to, the trial court's determination.” Palmer v. Washington Mut. Bank (In re Ritchie ), 416 B.R. 638, 641 (6th Cir. BAP 2009) (emphasis in original) (citing Gen. Elec. Credit Equities, Inc. v. Brice Rd. Devs., LLC (In re Brice Rd. Devs., LLC ), 392 B.R. 274, 278 (6th Cir. BAP 2008) ).

Old Republic Title Co. of Tenn. v. Looney (In re Looney), 453 B.R. 252, 254 (6th Cir. BAP 2011).

FACTS

Donald and Mary Matteson (the “Debtors”) filed a petition for relief under chapter 13 of the Bankruptcy Code in August 2010. The Debtors listed Bank of America on Schedule D of their schedules as a creditor with five mortgage loans secured by liens on three parcels of real property. Of the five loans, the two relevant to this appeal are a loan secured by a first mortgage against 3000 Lylewood Road, Woodlawn, Tennessee for $25,488.14 (the “Lylewood Road Mortgage”) and a loan secured by a first mortgage against 681 Arctic Avenue, Oak Grove, Kentucky for $38,569.35 (the “Arctic Avenue Mortgage”).

The Debtors proposed a chapter 13 plan that provided for the curing of any default and the maintenance of ongoing payments on all five of the Bank's mortgage loans pursuant to 11 U.S.C. § 1322(b)(5). Pursuant to the terms of the chapter 13 plan, the “Trustee shall pay the allowed claims for arrearages, and Trustee shall pay the postpetition monthly payments to creditor.” The plan further provided that “[m]onthly ongoing mortgage payments shall be paid by the trustee commencing with the later of the month of confirmation or the month in which a proof of claim itemizing the arrears is filed by such claimholder.” The plan mandated that a creditor must file a proof of claim in order to receive distributions from the Trustee under the plan. At the time the Debtors filed their bankruptcy petition, they were current on the Lylewood Road Mortgage loan and Arctic Avenue Mortgage loan. For this reason, the Debtors did not identify any arrearage for either mortgage in their proposed plan. By the time the court confirmed the plan, however, both of these mortgage loans with the Bank were approximately one month in arrears.

The bankruptcy court confirmed the Debtors' plan on October 8, 2010. The order confirming the plan lists each of the Bank's mortgages as “long term” debts provided for under 11 U.S.C. § 1322(b)(5). The Bank did not file a proof of claim for the Lylewood Road Mortgage loan or the Arctic Avenue Mortgage loan. At the time the Debtors' case was filed, the Bank's typical practice was to file proofs of claim only if and when a debtor was in arrears at the time of commencement of a bankruptcy case.¹

The Trustee made no payments to the Bank on either the Lylewood Road Mortgage loan or the Arctic Avenue Mortgage loan during the plan period. In June 2013, approximately 32 months after the plan was confirmed, the Trustee determined that the plan was complete and that no further payments from the Debtors were necessary. On August 9, 2013, the bankruptcy court entered an order discharging the Debtors. The Trustee filed his final report and account on October 4, 2013. The Trustee refunded $9,092.61 to the Debtors.² The bankruptcy court closed the Debtors' chapter 13 case on November 4, 2013.

In June 2013, the Debtors filed an adversary proceeding against the Bank in which they sought to avoid the Lylewood Road Mortgage and Arctic Avenue Mortgage liens based on the Bank's failure to file proofs of claim for the loans secured by those mortgages. The parties filed cross motions for summary judgment based on a stipulation of facts. Following a hearing on the motions, the bankruptcy court issued an oral ruling.

The bankruptcy court held that by failing to file proofs of claim the Bank “waived payment of their debt under the plan.” (Tr. Regarding Hr'g Held Jan. 7, 2014 at 74:18–22, Matteson v. Bank of America, N.A., No. 13–90245 (Bankr.M.D.Tenn. May 16, 2014), ECF No. 59.)³ The bankruptcy court held:

They were bound by confirmation of the plan for the life of this plan to accept the payments the Debtors were making to the Trustee. And if they make a choice not to accept their payments, they can't turn around and say that they had a right to the payments anyway when the plan is over and that they can collect those payments either from the Debtors or through their lien, by foreclosure. If they could do that, if that's all a secured creditor had to do is don't file a proof of claim and don't get paid on the lien, wait till the plan is over and then declare default and foreclose, everything that Congress did in 1978 with respect to secured claim holders is out the window.

(Jan. 7, 2014 Tr. 75:2–13.)

Now, it doesn't void their lien. They still have a lien; there's no question about it. But whatever amount is secured by that lien is reduced by the amounts that they precluded themselves from receiving through this confirmed plan. That's what they lose. That's what happens when a secured claim holder decides to disable itself to receive payments under a confirmed plan when they have a debt that's provided for under 1322(b)(5) by curing default and maintaining payments through the plan. They don't lose their lien, they just simply can't collect the amounts the plan calls for that will be paid. That's what happens. They don't, in other words, get to disable the plan and then come back later and get their cake and eat it, too.

(Jan. 7, 2014 Tr. 76:19–77:6.)

The outcome for Bank of America is it still has a lien. It's properly perfected and it secures a debt that's reduced by the amounts that it refused to take through this Chapter 13 plan that the Debtors tendered from confirmation through the entry of discharge in this case. I'll throw in that under 1328(a) there's another reason why the lien is not discharged and that is that its excepted from discharge. A debt that is provided for

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