Opinion
Case No. 07-10895.
May 22, 2008
ORDER PARTIALLY SUSTAINING OBJECTION TO PROOF OF CLAIM
The Debtor, Tracey A. Larkin ("Larkin"), filed this Objection To Proof Of Claim ("Objection") (Doc. 31) asserted by CitiMortgage, Inc. ("CitiMortgage"), Larkin's mortgagee.
According to the proof of claim, CitiMortgage is the holder of a $76,174.79 claim. A portion of the claim, $10,694.07, represents an alleged prepetition arrearage. The arrearage is itemized as follows:
Regular Monthly Installments of $575.97 $9,215.52 December 2005 through March 2007 Late Charges $ 307.80 Prepetition Foreclosure Costs $1,140.75 Inspection Fees $ 30.00 The proof of claim proposes to pay the entire arrearage as a secured debt. The confirmed plan provides a 1% dividend for general unsecured claims. Larkin's residence is valued at $71,000.I. Applicability of 11 U.S.C. § 506(b)
Larkin contends that the late charges, foreclosure costs and inspection fees should be paid as a general unsecured claim because CitiMortgage is undersecured. Larkin predicates her objection upon In re Evans, 336 B.R. 749 (Bankr. S.D. Ohio 2006) (§ 506(b) precludes an undersecured mortgagee from receiving full payment of its fees and costs as a secured claim). Two courts in this district have disagreed with Evans. See In re Thompson, 372 B.R. 860 (Bankr. S.D. Ohio 2007) (§ 1322(e) supersedes § 506(b) and requires full payment of undersecured claim); In re McClendon, Ch. 13 Case No. 07-11198 (Bankr. S.D. Ohio Feb. 22, 2008) (adopting Thompson).
The split of authority arises from the interpretation of the word "notwithstanding" in § 1322(e), which provides:
Notwithstanding subsection (b)(2) of this section and sections 506(b) and 1325(a)(5) of this title, if it is proposed in a plan to cure a default, the amount necessary to cure the default, shall be determined in accordance with the underlying agreement and applicable nonbankruptcy law.
Evans concluded that "notwithstanding" means "in spite of the fact that the creditor meets the requirements of § 506(b)." Evans, 336 B.R. at 754. According to Thompson, "notwithstanding" means "§ 506(b) has no application in a Chapter 13 cure situation." Thompson, 372 B.R. at 863.
This Court agrees with Thompson. When interpreting the term "notwithstanding" in statutes, "the use of such a `notwithstanding' clause clearly signals the drafter's intention that the provisions of the `notwithstanding' section override conflicting provisions of any other section." Cisneros v. Alpine Ridge Group, 508 U.S. 10, 18 (1993) (citing Shomberg v. United States, 348 U.S. 540, 547-48 (1955)); see also In re Eubanks, 219 B.R. 468, 470 (B.A.P. 6th Cir. 1998) (applying Cisneros and Shomberg to interpret the term "notwithstanding" in 11 U.S.C. § 1322(c)(2)). Therefore, the provisions of § 1322(e) override the provisions of § 506(b).
II. The Underlying Agreement
Although § 506(b) is inapplicable, fees and costs are not authorized under § 1322(e) unless contemplated in the underlying agreement. Thompson, 372 B.R. at 863; In re Tudor, 342 B.R. 540, 551 (Bankr. S.D. Ohio 2005); In re Landrum, 267 B.R. 577, 580 (Bankr. S.D. Ohio 2001). The $1,140.75 foreclosure costs include the following charges:
Title Commitment $200.00 Skip Trace $ 17.00 Document Acquisition Cost $ 37.00 The chapter 13 trustee ("Trustee") joined the Objection, arguing that the foregoing items are not included in the underlying mortgage or note.A. Paragraph 18
Paragraph 18 of the mortgage provides that "[l]ender shall be entitled to collect all expenses incurred in pursuing [foreclosure]." The invoices submitted by CitiMortgage reflect that the skip trace and the document acquisition expenses were incurred in pursuing foreclosure.
On the other hand, the title commitment was not an expense that CitiMortgage incurred in pursuing foreclosure. It was a title exam, obtained more than seven months prior to the foreclosure action, to determine if Larkin was eligible for a loan modification. Conceding the inapplicability of paragraph 18, counsel for CitiMortgage argued that the title commitment is covered by paragraph 10.
B. Paragraph 10
Paragraph 10 of the mortgage provides: "To reinstate the Security Instrument, Borrower shall tender in a lump sum all amounts required to bring Borrower's account current including, to the extent they are obligations of Borrower under this Security Instrument, foreclosure costs and reasonable and customary attorneys' fees and expenses properly associated with the foreclosure proceeding."
The operative words from paragraph 10 are "all amounts required to bring Borrower's account current." This language refers to items such as principal, interest and late charges. See Open-End Mortgage at ¶ 2. A title exam to explore the possibility of a loan modification is not such an expense. Paragraph 10 also references foreclosure costs, attorneys' fees and expenses "associated with the foreclosure proceeding." As noted previously, the title exam was not associated with the foreclosure proceeding because it was completed more than seven months earlier. Morever, fees and expenses "associated with the foreclosure proceeding" are only permitted under paragraph 10 "to the extent they are obligations of the Borrower under this Security Instrument." Therefore, CitiMortgage would have to show that reimbursement of such expenses is required by another paragraph of the mortgage.
III. Applicable State Law
The Trustee also argues that the skip trace and document acquisition expenses "are no where [sic] in Ohio law permitted to be taxed as costs under Ohio law." The Trustee cited no authority in support of her position.
Even if the Trustee is correct that these expenses are not taxed as court costs, the fact remains that they are expenses that Larkin agreed to pay, regardless of whether taxed as court costs. It is still a legitimate debt created by contract. Absent Ohio authority that precludes a mortgagee from contracting with a borrower for reimbursement of such an expense, see e.g., Landrum, 267 B.R. 577 (noting that Ohio law does not recognize contractual provisions for the recovery of attorneys' fees), the expense falls within the scope of § 1322(e).
IV. Itemization and Creditor's Burden of Production
This case illustrates the challenges faced by a debtor when reviewing a proof of claim. The expenses disputed in this case are not even identified in the proof of claim. They simply fall within a general category labeled "Prepetition Foreclosure Costs." The Court finds this development to be very troubling.
First, CitiMortgage, after much back and forth, eventually conceded that the "title commitment" was not a foreclosure cost. Second, the record in this case did not identify the components of the generalized category until CitiMortgage filed a response to the Objection. Unchecked, such a practice could lead to an abuse of the burden of proof identified by Fed.R.Bankr.P. 3001(f). Accordingly, this Court agrees with In re Coates, 292 B.R. 894 (Bankr. C.D. Ill. 2003) that a creditor must do more to satisfy the burden of production. Specifically, the creditor must attach to the proof of claim copies of invoices or receipts for all expenses incurred. Id. at 906.
V. Conclusion
For the foregoing reasons, the Objection is hereby SUSTAINED to the extent that the $200 claim for "Title Commitment" is disallowed. The balance of the Objection is OVERRULED. CitiMortgage shall be paid $10,494.07 on its arrearage claim, in full, with no general unsecured claim.
This document has been electronically entered in the records of the United States Bankruptcy Court for the Southern District of Ohio.
IT IS SO ORDERED.