Opinion
Bankruptcy No. 99-25616JAD, Related to Doc. # 64.
January 9, 2007
MEMORANDUM OPINION REGARDING DEBTOR'S MOTION TO ENFORCE DISCHARGE
The matter before the Court is a Motion to Enforce Discharge and Request for Sanctions (the "Motion to Enforce") filed by the debtor, Richard T. Miller ("Miller" or the "Debtor"). The Motion to Enforce is a core proceeding pursuant to 28 U.S.C. §§ 157(b)(2)(A), (B), (K), and (O) and this Court has jurisdiction over the matter pursuant to 28 U.S.C. § 1334(b). The Motion to Enforce raises the following primary issue: Is a secured creditor (who has not filed a proof of claim) bound by the terms of a confirmed Chapter 13 Plan which provides for the amount and treatment of the pre-bankruptcy arrearage component of such creditor's claim? Because the Court concludes that the creditor in this case is indeed bound by the confirmed Chapter 13 Plan, the Court answers this question in the affirmative. Therefore, for reasons which are explained more fully below, the Court will enter an Order which grants the Motion to Enforce.
I. Facts
The facts of this case are generally not in dispute. This case was commenced by the Debtor filing a voluntary petition under Chapter 13 of the United States Bankruptcy Code on July 29, 1999. Upon the filing of this case, the Court set deadlines for the filing of the Debtor's Chapter 13 Plan and the creditors' filing of proofs of claim. All non-governmental creditors were to file proofs of claim by December 29, 1999.
These facts were derived from the Stipulation of Facts filed by the parties in this case, as well as from the various admissions of the Debtor and Countrywide located in the Court's file. The Court takes judicial notice of the statements contained by the parties in the following documents located in the Court's file: Voluntary Petition (Docket No. 1); Chapter 13 Plan (Docket No. 3); Certificate of Mailing, Summary of Plan (Docket No. 6); 341 Meeting and Chapter 13 Plan Confirmation Hearing Memo (Docket No. 7); Order Confirming Plan as Modified (Docket No. 8); Order Approving Final Report and Accounting of Gary Gaertner as Chapter 13 Trustee (11/29/1999 unnumbered entry); Chapter 13 Trustee Motion for Approval of Change in Payee (1/11/2001 unnumbered entry); Order Granting Approval to Change Payee (Docket No. 15); Amended Chapter 13 Plan (Docket No. 41); Scheduling of Hearing Date for Amended Chapter 13 Plan (Docket No. 42); Order Confirming Plan as Modified (Docket No. 43); Application for Approval of Report of Completion of the Chapter 13 Plan and Trustee's Final Report and Account (Docket No. 49); Order Setting Hearing on Chapter 13 Trustee's Application for Approval (Docket No. 50); Certificate of Mailing of Order Setting Hearing (Docket No. 52); Order Granting Trustee's Application for Approval (Docket No. 53); Certificate of Mailing of Order Granting Trustee's Application (Docket No. 54); Order Discharging Debtor (Docket No. 55); Certificate of Mailing of Order Discharging Debtor (Docket No. 56); Chapter 13 Trustee's Certification of Completion of Chapter 13 Plan and Final Accounting (Docket No. 57); Order Approving Certificate of Completion (Docket No. 58); Certificate of Mailing of Order Approving Certificate (Docket No. 59); Final Decree (Docket No. 60); Motion to Reopen Chapter 13 Case (Docket No. 63); Motion to Enforce Discharge and Request for Sanctions (Docket No. 64); Order Granting Motion to Reopen (Docket No. 69); Proceeding Memo regarding hearing set for 12/14/2005 (Docket No. 71); Order Transferring Case (Docket No. 73); Response to Motion to Enforce Discharge (Docket No. 78); Proceeding Memo of hearing held 1/11/2006 (Docket No. 79); Order Setting Continued Hearing (Docket No. 80); Certificate of Service of Order Setting Hearing (Docket No. 81); Proceeding Memo of hearing held 3/15/2006 (Docket No. 85); Order Setting Continued Hearing (Docket No. 86); Motion to Continue/Reschedule Hearing (Docket No. 87); Order Continuing Hearing (Docket No. 88); Proceeding Memo of hearing held 6/22/2006 (Docket No. 90); Order Continuing Hearing (Docket No. 91); Proceeding Memo of hearing held 8/17/2006 (Docket No. 93); Order Setting Hearing (Docket No. 94); Motion to Extend Time (Docket No. 96); Order Granting Motion to Extend Time (Docket No. 97); Stipulation (Docket No. 99); Proceeding Memo of hearing held 11/8/2006 (Docket No. 103); See Fed.R.Evid. 201; see also In re Indian Palms Associates, Ltd., 61 F.3d 197 (3d Cir. 1995) (holding that the court may take judicial notice of admissions of the parties as contained in its file).
The Debtor filed in this case various schedules of assets and liabilities, and in them listed the U.S. Department of Veterans Affairs on Schedule D as the holder of the mortgage against the Debtor's residence located at 25 Janyce Drive, Greensburg, Pennsylvania. On August 13, 1999, the Debtor filed a Chapter 13 Plan listing the arrears owed on the mortgage at $6,400.00, and the Plan further provided that the Debtor would pay all of the arrears on the residential mortgage and a one-hundred percent (100%) dividend to the estate's unsecured creditors.
No creditor objected to the Debtor's Chapter 13 Plan and by Order dated September 23, 1999, the Court confirmed it. The Debtor made payments required by the Plan and Confirmation Order, and from October 27, 1999 through December 22, 2000, the Chapter 13 Trustee made distributions to the U.S. Department of Veterans Affairs on the mortgage against the Debtor's residence.
This case was originally assigned to the Honorable Judith K. Fitzgerald. By order dated December 15, 2005, this case was transferred to the undersigned Bankruptcy Judge.
On January 5, 2001, the Chapter 13 Trustee filed a Motion for Approval of Change in Payee, in which the Chapter 13 Trustee stated that she had received information from Countrywide Home Loans, Inc. ("Countrywide") to the effect that Countrywide was now the holder of the mortgage and that Plan distributions should be made to Countrywide. By Order dated January 12, 2001, the Court granted the Trustee's Motion for Approval of Change in Payee and directed that future payments be remitted by the Trustee to Countrywide.
From October 26, 2001 through September 24, 2004, the Chapter 13 Trustee remitted distributions to Countrywide aggregating $23,313.67 in regular monthly mortgage payments and $6,400.00 on account of arrears. Such sums were consistent with what was required by the confirmed Chapter 13 Plan as Countrywide accepted the payments with nary an objection and Countrywide has not averred in these proceedings that the Debtor was delinquent on account of his confirmed Chapter 13 Plan.
Neither the U.S. Department of Veterans Affairs nor Countrywide Home Loans ever filed a proof of claim during this case. The Debtor and the Trustee therefore continued to proceed in this case with the understanding that the arrearage on the Debtor's mortgage was $6,400.00 and that the arrearage was cured through the Plan.
On July 19, 2004, the Debtor filed an Amended Chapter 13 Plan. The Amended Chapter 13 Plan listed Countrywide as mortgagee and reflected that the arrears to be cured to the mortgagee throughout this case was $6,400.00. The notice of hearing and the Amended Chapter 13 Plan (like the original Chapter 13 Plan) was served on all creditors, and no creditor has objected to the manner and method of service of the same.
A confirmation hearing was held on September 9, 2004, and no objections to confirmation of the Amended Chapter 13 Plan were filed prior to, or raised at, the hearing. The Court then confirmed the Amended Chapter 13 Plan by Order dated September 9, 2004. The Court's Confirmation Order with respect to the Amended Chapter 13 Plan (as well as the Confirmation Order with respect to the Debtor's original Plan) provided, among other things, that:
. . . this order shall not become final for a period of 25 days. Any party in interest with an objection to any provision of this confirmation order must file a written objection within that 25 day period. Failure to timely object shall be deemed a waiver of all objections and an acceptance of the provisions of this confirmed plan.
See e.g. Order of Court [dated September 9, 2004] Confirming Plan As Modified and Setting Deadlines for Certain Actions and Notice of Other Actions and Orders at § II.
The Confirmation Orders at issue were served on all creditors, including the Debtor's mortgagee, and no creditor has objected to the manner and method of service of them. In addition, no timely objections to the Confirmation Orders were ever lodged by Countrywide or its predecessor mortgagee as provided for in the Confirmation Orders. It therefore appears that the Confirmation Orders are final.
On September 16, 2004, the Chapter 13 Trustee filed a Notice of Claims Filed and Intention to Pay Claims, and the notice included the total arrearage amounts of the mortgagee. No objections were filed by Countrywide with respect to this notice.
On December 15, 2004, the Chapter 13 Trustee filed an Application for Approval of Final Report of Completion of Chapter 13 Plan (the "Application for Completion" or "Application"), setting forth the fact that the pre-petition arrearage to the mortgagee was paid. Notice of hearing on the Application for Completion and the Application itself were duly served on all creditors, and no creditor has objected to the manner and service of the same. No creditor, including Countrywide, objected to the substantive relief sought by the Application for Completion and by Order dated March 4, 2005 the Court granted the Application.
The March 4, 2005 Order granting the Application finds that the Debtor's Amended Chapter 13 Plan "has been fully and finally completed and the debtor(s) are entitled and shall receive a discharge pursuant to Section 1328(a) of the Bankruptcy Code."See March 4, 2005 Order at ¶ 1. This Order also provides that property of the estate, which includes the Debtor's residence, is revested in the Debtor "free and clear of any and all claims or interests except as otherwise treated in the plan or in the Order confirming the plan." Id. at ¶ 2. The March 4, 2005 Order further states:
Each and every creditor is bound by the provisions of the completed plan, whether or not the claim of such creditor is provided for by the plan, and whether or not such creditor has objected to, has accepted or had rejected the plan. All mortgage and other secured debts provided for by the plan are hereby found to be cured of any and all monetary defaults as of the date of the Trustee's last distribution, and no additional interest, late fees or penalties may be assessed for time periods or payments due prior to that date.
Id. at ¶ 3.
On March 7, 2005, the Court entered an Order granting the Debtor a discharge, and on March 21, 2005 the Court signed an Order which entered a Final Decree, closed this case, and discharged the Chapter 13 Trustee. In October 2004, the Debtor began sending regular monthly payments in the amount of $481.00 directly to Countrywide, and such payments were made through June of 2005. In these proceedings, Countrywide has not alleged that the Debtor was delinquent with respect to any post-confirmation monthly mortgage payment due Countrywide through June of 2005.
The Debtor continued to remit monthly mortgage payments in July of 2005 to Countrywide; however Countrywide refused to accept the July 2005 payment and returned it to the Debtor contending that the Debtor's delinquency to Countrywide was allegedly not cured. According to the Debtor, Countrywide has allegedly contended that the actual pre-petition arrears due the mortgagee were in excess of $13,000 and the confirmed Plans provided that the arrearage was $6,400.00. Given this discrepancy, the Debtor contends that on October 3, 2005 Countrywide served the Debtor with notice advising the Debtor of Countrywide's intent to foreclose on his residence.
The parties have not stipulated to this $13,000 number. However, based on the Stipulation of Facts it appears that Countrywide was alleging that the arrearage exceeded $6,400. For purposes of this Memorandum Opinion, it does not matter whether the arrearage sought by Countrywide was one penny more than $6,400 or in excess of $13,000 as alleged by the Debtor.
Given these state of affairs, the Debtor reopened this Chapter 13 case and, on November 11, 2005, the Debtor filed the Motion to Enforce. Numerous hearings on this matter were held by the Court and continued at the request of the parties. Because the parties were unable to amicably resolve their dispute, the Court required the parties to brief the issues raised by this contested matter. That having been done, the Motion to Enforce is now ripe for decision.
II. Discussion
By the Motion to Enforce, the Debtor is seeking to have this Court enter an Order which confirms that Countrywide is estopped from avoiding various Orders previously entered by the Court in this case, including the various Confirmation Orders at issue. The outcome of the Motion to Enforce rests on whether the amount of mortgage arrears set forth in the Debtor's Amended Chapter 13 Plan is binding on Countrywide.
The binding effect of an order confirming a Chapter 13 plan which modifies the claim or lien of a creditor has been the subject of considerable case law and commentary over the years. Relevant case law and commentary includes much discussion regarding the seeming conflict between the areas of plan confirmation and claims allowance. See e.g., Matter of Pence, 905 F.2d 1107 (7th Cir. 1990); In re Szostek, 886 F.2d 1405 (3d Cir. 1989); In re Simmons, 765 F.2d 547 (5th Cir. 1985); Matter of Howard, 972 F.2d 639 (5th Cir. 1992); In re Basham, 167 B.R. 903 (Bankr. W.D. Mo. 1994); In re Bryant, 323 B.R. 635 (Bankr. E.D. Pa. 2005); In re Hudson, 260 B.R. 421, 433-434 (Bankr. W.D. Mich. 2001); In re Ramey, 301 B.R. 534 (Bankr.E.D. Ark. 2003); Eric S. Richards, Due Process Limitations on the Modification of Liens Through Bankruptcy Reorganization, 71 Am.Bankr.L.J. 43 (1997).
In this circuit, absent fraud (and assuming due process is met), the provisions of a confirmed Chapter 13 plan bind the debtor and the creditors whose claims are provided for in the plan. In re Szostek, 886 F.2d 1405 (3d Cir. 1989); 11 U.S.C. § 1327(a). According to the Third Circuit, "the policy favoring the finality of confirmation is stronger than the . . . obligations to verify a plan's compliance with the Code." Id. at 1406. As one court observed: "In re Szostek . . . makes it clear that the language of a Chapter 13 Plan, once confirmed, is to control the debtor/creditor relationship thereafter even if the terms of the Plan violate the Code." In re Dickey, 293 B.R. 360, 363 (Bankr. M.D. Pa. 2003).
In Szostek, the plan was deemed final even where the secured creditor, who did not object to the plan, later argued that the plan did not comply with 11 U.S.C. § 1325(a)(5)(B)(ii) for failure to pay the present value of the claim. Despite this, the Court of Appeals for the Third Circuit determined that the plan was final and binding.
In the present case, there is no allegation by Countrywide of failure to receive notice of any of the relevant proceedings. In fact, a review of the record reflects that Countrywide and its predecessor mortgagee received timely notice of all matters related to the plan confirmation process, debtor's discharge and plan completion. As to the clarity of the notice received, the Chapter 13 Plan and Amended Chapter 13 Plan clearly stated that the arrearage amount due the mortgagee was $6,400.00. In addition, the payment to Countrywide on account of such arrearage was included in a category of claims clearly identified as a long term debt to be cured and reinstated by the plan(s). Countrywide was put on further notice of the asserted arrearage amount on many other occasions throughout this case, such as when Countrywide received the Chapter 13 Trustee's Notice of Claims Filed and Intention to Pay Claims, and when it received the Application for Approval of Report of Completion of the Chapter 13 Plan and Trustee's Final Report and Account. All of these motions and related papers reflected the $6,400.00 figure. Thus, throughout the pendency of this case Countrywide was on notice that no additional amounts would be paid to, and distributed by, the Chapter 13 Trustee with respect to the arrearage due Countrywide.
What did Countrywide do when it received these various plan(s), notices and applications? Did Countrywide file a proof of claim setting forth the arrearage it now claims? Did Countrywide file an objection to the plan(s)? Did Countrywide file an objection to the entry of the Confirmation Orders? Did Countrywide move for revocation of the Confirmation Orders? Did Countrywide file an objection to the Trustee's Notice of Claims Filed and Intention to Pay Claims? Did Countrywide file an objection to the Trustee's Application for Completion of this Chapter 13 case? What exactly did Countrywide do in this case when it had the full and fair opportunity to protect its rights? The answer is simple. It did nothing.
The Confirmation Orders in this case afford creditors such as Countrywide with an opportunity to correct the claim amounts set forth in the plans confirmed by the Court. Specifically, the Confirmation Orders state "[a]fter the claims objection deadline, the plan shall be deemed amended to conform to the claims filed or otherwise allowed." See e.g. Order of Court [dated September 9, 2004] Confirming Plan as Modified and Setting Deadlines for Certain Actions and Notice of Other Actions and Orders at § IV(a).
A "creditor who disregards a procedurally proper and plain notice that its interests are in jeopardy does so at its own risk." In re Fili, 257 B.R. 370, 374 (1st Cir. B.A.P. 2001). In this case, Countrywide took that risk and must live with the consequences. The consequences are that Countrywide is barred by res judicata from asserting any arrearage claim in excess of the $6,400.00 scheduled in the Chapter 13 Plan(s). See 11 U.S.C. § 1327(a). Res judicata also bars Countrywide from its attempts to claim that the arrearage due to Countrywide was not paid in full and satisfied through the pendency of this Chapter 13 case.In re Riser, 289 B.R. 201, 204 (Bankr. M.D. Fla. 2003); In re McDonald, 336 B.R. 380, 385 (Bankr. N.D. Ill. 2006). The Court reaches this conclusion because the March 4, 2005 Order granting the Application for Completion finds unequivocally that the Debtor's Amended Chapter 13 Plan "has been fully and finally completed and the debtor(s) are entitled and shall receive a discharge pursuant to Section 1328(a) of the Bankruptcy Code." See March 4, 2005 Order at ¶ 1. This Order also clearly provides that property of the estate, which includes the Debtor's residence, is revested in the Debtor "free and clear of any and all claims or interests except as otherwise treated in the plan or in the Order confirming the plan." Id. at ¶ 2. The March 4, 2005 Order further states:
Each and every creditor is bound by the provisions of the completed plan, whether or not the claim of such creditor is provided for by the plan, and whether or not such creditor has objected to, has accepted or had rejected the plan. All mortgage and other secured debts provided for by the plan are hereby found to be cured of any and all monetary defaults as of the date of the Trustee's last distribution, and no additional interest, late fees or penalties may be assessed for time periods or payments due prior to that date.
Id. at ¶ 3.
The Court further holds that Countrywide's argument that the language of the plan did not result in the reinstatement of the mortgage is similarly unavailing. At the hearing held on November 8, 2006 it was alleged that the language of the plan did not sufficiently provide for reinstatement upon completion of payment under the plan. However, the Court also notes the plan form used in this case was the Chapter 13 plan form utilized throughout this district. This is a form in which counsel for the mortgagee is all too familiar and the Court notes that Countrywide is a sophisticated creditor that has appeared in many Chapter 13 cases in this District. The Amended Chapter 13 Plan clearly and conspicuously provided for Countrywide's claim under the heading of "Long Term Continuing Debts Cured and Reinstated, and Lien (if any) Retained." The Court holds that this language was sufficient to provide the Debtor with the reinstatement of the mortgage under applicable law when the plan payments were completed.
The Court also holds that Countrywide's failure to file a claim does not except it from the resultant finality of the plan confirmation orders (and other related orders) entered by the Court. If Countrywide's theory was to be accepted, all creditors could eschew the Chapter 13 process by failing to file a claim and skirt the binding nature of confirmation orders in bankruptcy. The Court therefore rejects Countrywide's argument in this regard.
It should be noted that the existence of a "claim" against the bankruptcy estate does not hinge upon whether a creditor files a proof of claim. See 11 U.S.C. § 101(5). The filing of a proof of claim, however, may affect the "allowability" and/or priority of payment of such claim. See e.g., 11 U.S.C. §§ 501, 502(a), and 507.
The Court does recognize the fact that a secured creditor is not required to file a proof of claim in a Chapter 13 bankruptcy, and that the creditor may elect to have its lien "pass through unaffected" under some circumstances. See e.g., Dewsnup v. Timm, 502 U.S. 410 (1992); Estate of Lellock v. Prudential Ins. Co. of America, 811 F.2d 186, 188 (3d Cir. 1987). Nonetheless, Black Letter law provides that a creditor's interest cannot extend beyond the debt due it; and in this case any claim for an arrearage due Countrywide has been satisfied and discharged by operation of the completed plan(s), the Confirmation Orders, the Court's Order granting the Application for Completion, and the discharge order. Under these circumstances, the case law relating to "liens passing through unaffected" are just not germane to the case at hand.
See e.g., Gray, Mortgages in Pennsylvania at § 1-3 (1985) ("the mortgage follows the note"); Ladner on Conveyancing in Pennsylvania (4th ed. 1979 Supp. 2003) (defining a mortgage as a "pledge of an estate in real property as collateral security for payment of money or performance of some other act" and that the mortgage is "defeasible . . . if and when all of the covenants have been performed"); Hahnemann Medical College and Hospital of Philadelphia v. Commonwealth, 416 A.2d 604, 607 (Pa. Cmwlth. 1980) ("A mortgage is in essence a defeasible deed, requiring the grantee to reconvey the property held as security to the grantor upon satisfaction of the underlying debt or fulfillment of established conditions.")
III. Conclusion
This Memorandum Opinion constitutes the Court's findings of fact and conclusions of law pursuant to Fed.R.Bankr.P. 7052. For these reasons set forth above, the Court finds that:
1. Res judicata applies to prevent Countrywide from challenging the binding effect of the plan confirmation order and the amount of prepetition arrears as stated in the confirmed plan. Countrywide is therefore bound by the $6,400.00 amount of prepetition arrears as provided for in the amended chapter 13 plan.
2. Res judicata applies to prevent Countrywide from challenging the fact that the prepetition arrears have been paid and therefore any prepetition arrears have been discharged. As set forth in the Court's March 4, 2005 Order granting the Application for Completion, the Debtor's Amended Chapter 13 Plan "has been fully and finally completed and the debtor(s) are entitled and shall receive a discharge pursuant to Section 1328(a) of the Bankruptcy Code." See March 4, 2005 Order at ¶ 1. As a result, property of the estate is revested in the Debtor "free and clear of any and all claims or interests except as otherwise treated in the plan or in the Order confirming the plan." Id. at ¶ 2. In addition:
Each and every creditor is bound by the provisions of the completed plan, whether or not the claim of such creditor is provided for by the plan, and whether or not such creditor has objected to, has accepted or had rejected the plan. All mortgage and other secured debts provided for by the plan are hereby found to be cured of any and all monetary defaults as of the date of the Trustee's last distribution, and no additional interest, late fees or penalties may be assessed for time periods or payments due prior to that date.
Id. at ¶ 3.
3. Because the arrearage set forth in the plan has been paid, and the plan sufficiently provided for the reinstatement of the mortgage upon said cure, no basis exists on the present record to prevent the reinstatement of the mortgage. The Court will therefore enter an Order which grants the Motion to Enforce.
No monetary sanctions shall be imposed at present on the basis that the Debtor has not pursued this request for sanctions, and only seeks an order enforcing the Court's prior orders.
ORDER OF COURT GRANTING DEBTOR'S MOTION TO ENFORCE DISCHARGE
AND NOW, this 9th day of January, 2007, and for these reasons set forth in the Court's Memorandum Opinion issued herewith, the Court hereby ORDERS, ADJUDGES and DECREES that:
1. The Motion to Enforce Discharge is GRANTED.
2. Respondent, Countrywide Home Loans (and any successor or assign of the same) is ORDERED to cease and desist all present and future collection action on account of any and all monetary defaults as of the date of the Chapter 13 Trustee's last distribution in this case, and no additional interest, late fees or penalties may be assessed for time periods or payments due prior to that date.
3. In addition, no attorneys fees and/or legal costs or expenses may be assessed by Countrywide Home Loans (and any successor or assign of the same) against the Debtor or his property on account of the mortgagee's unlawful attempt to collect such alleged arrears which have been declared satisfied and discharged by the prior orders of the Court.