Propel Fin. Servs. v. Woodruff
| Docket Number | 3:21-CV-152 |
| Decision Date | 17 May 2022 |
| Parties | PROPEL FINANCIAL SERVICES, APPELLANT, v. JEFFREY PAUL WOODRUFF & SHARON KAY WOODRUFF, Appellees. |
| Court | U.S. District Court — Southern District of Texas |
Propel Financial Services, as agent for Casey Lending, LLC, appeals a final order of the United States Bankruptcy Court for the Southern District of Texas, Galveston Division, denying post-petition fees, costs, and charges under 11 U.S.C. § 506(b). Dkt. 11. Upon reviewing the appeal, the law, and the record, the court vacates in part and remands for further proceedings consistent with this opinion.
The Texas Tax Code permits a property owner to authorize another person to pay the taxes owed on his or her real property. Tex. Tax Code § 32.06(a-1). Upon payment of the property taxes, any pending tax lien may be transferred by the taxing authority to the third party who paid the taxes. Id. § 32.06(a-2). The taxing authority issues a tax receipt to the third-party transferee and the lien is thereafter recorded in the property records of the county in which the encumbered property is located. Id. § 32.06(b).
When Jeffrey and Sharon Woodruff determined they were unable to pay their 2006 ad valorem property taxes, they engaged a private third-party lender, RETax Funding, L.P., to pay the taxes on their behalf. Supp. ROA at 23. RETax paid $7, 282.11 in unpaid 2006 taxes and the Woodruffs authorized the taxing authorities to transfer the tax lien attached to their homestead to RETax. Id. The Woodruffs also entered into a written ten-year repayment agreement with RETax . Id. at 5. And the parties executed a Tax Lien Deed of Trust which augmented RETax's rights concerning the homestead and allowed it to foreclose in the event of default. Id. at 20-21.
The next year, the Woodruffs entered into a similar transaction with RETax concerning their 2007 ad valorem property taxes. The Woodruffs again entered into a written agreement to repay RETax over ten years. Id. at 39. The parties executed a second Tax Lien Deed of Trust. Id. at 44.
After a series of assignments, Propel Funding National 1, LLC, d/b/a Propel Financial Services, stepped into RETax's shoes with respect to both the 2007 and 2008 transactions with the Woodruffs. See Supp. ROA at 25, 29, 31, 60, 64 66.[1] In 2018, the Woodruffs filed a voluntary petition for relief under chapter 13 of the Bankruptcy Code. Id. at 1. The Woodruffs' schedule of secured claims listed Propel's 2007 and 2008 claims as $10, 667.29 and $9, 029.51, respectively. Id. at 41-42. Both claims were oversecured because the value of the Woodruffs' homestead, which was used as collateral for the claims, was greater than the amount owed. Id. The Woodruffs' chapter 13 plan was confirmed on March 8, 2019. Id. at 110-11.
The next day, Propel filed an application seeking post-petition fees and expenses under 11 U.S.C. § 506(b). ROA at 137. The bankruptcy court denied Propel's application, reasoning that Federal Rule of Bankruptcy Procedure 3002.1(c)(2) requires that any notices for reimbursement “be served within 180 days after the date on which the fees, expenses, or charges are incurred.” Id. at 153. When Propel served its application, more than 700 days had passed since the last listed charges were incurred. Id.
Propel moved for reconsideration of the denial, arguing that Rule 3002.1 did not apply to its claims because that rule applies only to “security interests” and not “statutory liens.” ROA at 154. And then Propel amended its motion for reconsideration, arguing that Rule 3002.1 was inapplicable because it was not receiving contractual installment payments. Id. at 163.
The bankruptcy court denied Propel's motion for reconsideration. It reasoned that because Propel “chose” to have the Woodruffs secure the notes with deeds of trust, they were “security interests” and, therefore, Rule 3002.1 applies. Id. at 174-75. The court further struck Propel's amended motion for reconsideration because it raised “new claims” and so was untimely. Id. at 172.
Propel appeals the bankruptcy court's order denying reimbursement and its orders denying reconsideration. Dkt. 11. The Woodruffs have not filed a brief in response.
Issue 1: Whether the bankruptcy court erred in applying Rule 3002.1 to Propel's application for reimbursement of fees and holding that the application was untimely.
Issue 2: Whether the bankruptcy court erred in denying Propel's application without notice of the grounds and a hearing.
Issue 3: Whether the bankruptcy court erred in striking Propel's amended motion for reconsideration on the grounds of untimeliness.
District courts have appellate authority over timely filed appeals from “final judgments, orders, and decrees” of the bankruptcy court. 28 U.S.C. § 158(a). Federal courts have held that an “order resolving a motion for postpetition interest, attorneys' fees, and costs is final for purposes of appellate jurisdiction.” See In re Twiford Enterprises, Inc., Bankr. No. 1820120, 2020 WL 6075691, at *2 n.13 (10th Cir. BAP Oct. 15, 2020); cf. In re T-H New Orleans Ltd. Partnership, 116 F.3d 790 (5th Cir. 1997).
District courts review bankruptcy-court rulings and decisions under the same standards employed by federal courts of appeal: findings of fact are reviewed for clear error, while conclusions of law and mixed questions of law and fact are reviewed de novo. See In re Dennis, 330 F.3d 696, 701 (5th Cir. 2003); In re Nat'l Gypsum Co., 208 F.3d 498, 504 (5th Cir. 2000); In re D'Amico, 509 B.R. 550, 555 (S.D. Tex. 2014). But matters within the discretion of a bankruptcy court, such as rulings on motions to reconsider, are reviewed only for abuse of discretion. In re Gandy, 299 F.3d 489, 494 (5th Cir. 2002); In re Colley, 814 F.2d 1008, 1010 (5th Cir. 1987) (citation omitted).
When reviewing a bankruptcy court's conclusions of law de novo, a district court may affirm the decision on any ground supported in the record and need not agree with every conclusion reached by the bankruptcy court. Lanier v. Futch, No. 3:11-CV-415-HTW-LRA, 2012 WL 12883771, at *4 (S.D.Miss. Mar. 31, 2012) (citing In re Caldo, Inc., 199 B.R. 1, 2 (S.D.N.Y. 1996)).
Propel's first appellate issue challenging the bankruptcy court's application of 3002.1 is a question of law to be reviewed de novo. Propel's second and third appellate issues challenging the denials of its motion to reconsider and amended motion to reconsider are reviewed for abuse of discretion.
Section 506(b) of the Bankruptcy Code provides that the holder of an oversecured claim shall be allowed “interest on such claim, and any reasonable fees, costs, or charges provided for under the agreement or State statute under which such claim arose.” 11 U.S.C. § 506(b). There is no dispute that Propel is the holder of two oversecured claims for ad valorem taxes on the Woodruffs' homestead by virtue of Texas Tax Code § 32.06. But Propel challenges the bankruptcy court's application of Rule 3002.1 to those claims.
Rule 3002.1 “applies in a chapter 13 case to claims (1) that are secured by a security interest in the debtor's principal residence, and (2) for which the plan provides that either the trustee or the debtor will make contractual installment payments.” Fed.R.Bankr.P. 3002.1(a). When Rule 3002.1 applies, the holder of the claim must file and serve on the parties a notice itemizing all fees, expenses, and charges. Id. 3002.1(c). “The notice shall be served within 180 days after the date on which the fees, expenses, or charges are incurred.” Id.
The thrust of Propel's appeal focuses on the requirement that a claim must be secured by a “security interest” in the debtor's principal residence for Rule 3002.1 to apply. Dkt. 11 at 8-16. Propel argues that because it holds a statutory lien-not a security interest-in the Woodruffs' homestead, neither Rule 3002.1 nor its 180-day notice requirement applies. Id.
The Bankruptcy Code categorizes liens into three types: judicial liens, security interests, and statutory liens. See 11. U.S.C. § 101(36), (51), (53); In re Green 793 F.3d 463, 467 (5th Cir. 2015). The Code defines “security interest” as a “lien created by agreement.” Id. § 101(51). By contrast, a “statutory lien” is defined as a “lien arising solely by force of a statute on specified circumstances or conditions, . . . but does not include security interest or judicial lien.” Id. § 101(53).
It is undisputed that Propel, as a transferee and subrogee of the taxing authorities' rights, holds statutory liens that arose automatically under the Texas Tax Code. Both Propel and the bankruptcy court agree that under Texas law, a transferee of a tax lien is “subrogated to and is entitled to exercise any right or remedy possessed by the transferring taxing unit.” Tex. Tax Code § 32.065(c); ROA at 175 (). Texas law further grants transferees permission to charge interest, collect attorneys' fees for collection, and attorneys' fees if the homeowner files for bankruptcy. Id. §§ 32.06, 32.065; Tex. Fin. Code § 351.0021.
The bankruptcy court, however, reasoned that because the underlying taxes were paid by Propel, the tax liens could not have secured Propel's claims. ROA at 175. Instead, the court reasoned, Propel “chose to also require the debtors to sign a Note and Deed of Trust using their principal residence as security for the repayment of the Note, ” and therefore Propel now holds a “garden[-]variety promissory note executed by the debtor and payable to the movant.” Id. n.6 (citing In re Soto, 410 B.R. 761 (Bankr...
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