Opinion
Case No. 09-30946-svk.
October 7, 2009
MEMORANDUM DECISION AND ORDER ON WELLS FARGO'S OBJECTION TO CONFIRMATION
Mortgage creditor Wells Fargo Bank objected to the following language in the Debtors' Chapter 13 plan:
Prepetition Arrearages. Payments disbursed by the trustee to holders and/or servicers of mortgage claims shall be applied and credited only to the prepetition arrearages necessary to cure the default, which shall consist of amounts listed on the allowed proof of claim and authorized by the note and security agreement and applicable nonbankruptcy law. Holders and/or servicers of mortgage claims shall deem the prepetition arrearages as contractually current upon confirmation of the plan.
(emphasis supplied)
At a hearing on the Objection, the Debtors' attorney explained that the Debtors are trying to ensure that Wells Fargo properly applies the payments, and that the Debtors do not incur late charges and additional costs as a result of the payment of the arrearage by the Trustee. Numerous courts have construed similar plan language, including my colleague in In re Patton, 2008 Bankr. LEXIS 3426 (Bankr. E.D. Wis. Nov. 19, 2008). Recently, a Bankruptcy Court in Colorado analyzed the issue:
In some cases, creditors have objected to language that stated that the mortgage debt would be "deemed to be contractually current" for the purpose of accounting for post-petition payments. They argue that this language is offensive because the debts are not, in fact, contractually current and such a plan provision would misrepresent the true state of the mortgage account. The Court rejects that line of argument. That type of language requires nothing more of the creditor than treating the account as current for the purpose of accounting for post-petition ongoing maintenance payments. It is perfectly consistent with the debtor's ability to cure the arrearage and maintain ongoing payments under § 1322(b)(5). Nonetheless, for the sake of greater clarity, the Court does believe that it is necessary to add qualifying language such as that suggested by Judge Brooks in In re Hudak that includes the statement that it is "subject to and contingent on successful completion of mortgage cure payments and regular monthly mortgage payments under the plan." 2008 Bankr. LEXIS 2732, 2008 WL 4850196, at *5 (Bankr. D. Colo. Oct. 24, 2008). With that alteration, it should be quite clear to mortgage creditors that the provision merely requires them to treat the account as if it is current for the purpose of accounting for ongoing mortgage payments during the pendency of the plan.
In re Nelson, 408 B.R. 394, 399 (Bankr. D. Colo. 2008). While Judge McGarity rejected Hudak's strict approach, she did suggest that the language be clarified in future plans to prevent misunderstanding. She suggested that the language be changed to provide that the "mortgage holder upon confirmation would treat the debt as if it were contractually current for the purpose of assessing penalties or remedies, or words to that effect." Patton, 2008 Bankr. LEXIS 3426 at *10.
This Court agrees that the language as drafted should be revised. As the Nelson and Hudak courts recognize, the mortgage is not "current" until the debtor completes the Plan, and, as Judge McGarity noted, if the purpose of the provision is to prevent the assessment of late charges or "junk" charges, the Plan could easily say so. After the hearing, Wells Fargo's attorney supplemented his Objection with a letter, stating that the Bank would have no objection to the provision if it were modified in accordance with the Debtors' attorney's explanation at the hearing. Modifying this Plan, and others going forward, should eliminate future disputes over this language.
IT IS THEREFORE ORDERED: Wells Fargo's Objection to Confirmation is sustained.
IT IS FURTHER ORDERED: that within 21 days of the date of this Order, the Debtors shall file a modified Plan, clarifying the provision concerning the effect of confirmation on deeming the mortgage contractually current in accordance with Judge McGarity's decision in Patton. Since this provision only affects Wells Fargo, notice of the Modified Plan may be limited to Wells Fargo and the Chapter 13 Trustee.
IT IS FURTHER ORDERED: failure of the Debtors to file a Modified Plan or request an extension of time is cause for dismissal of this case.