Opinion
Bankruptcy No. 98-34923DWS, Adversary No. 03-1109
March 3, 2004
MEMORANDUM OPINION
On October 13, 2003 Robert and Denise Hurst ("Plaintiffs") commenced an adversary proceeding (the "Adversary") against Household Finance Corporation ("HFC") by filing a Complaint to Determine the Extent and Validity of Creditor's Lien against Debtor's Real Property Pursuant to 11 U.S.C. § 506(b) and 11 U.S.C. § 1322(e) (the "Complaint"). Upon review of the Complaint and the Answer thereto, I held a preliminary pretrial hearing which culminated in an Order dated December 18, 2003 which found as follows:
. . . it appearing that the Debtors' Chapter 13 plan has been fully performed and the Debtors are eligible for a discharge;
And the dispute framed by the Adversary relating to the amount that remains due post-bankruptcy under the Debtors' mortgage;
And for the reason stated during colloquy with counsel, the Court questioning whether the Adversary is advisory in nature and therefore not presenting a justiciable issue;
I ordered the Plaintiffs to show cause why the Adversary should not be dismissed for the reason set forth above by filing a legal memorandum supporting the propriety of bankruptcy court adjudication of the Complaint which they have done. Defendant was given the opportunity to file a response which it has now also done.
See Memorandum of Debtors, Robert J. Hurst Jr. and Denise Hurst, in Support of the Continuation of their Adversary Complaint Against Defendant Household Finance Corporation Notwithstanding Debtors Successful Completion of their Chapter 13 Plan and Discharge ("Debtor's Memorandum") and Response of Household Finance Corporation to Debtor's Memorandum.
I also ordered HFC to file an affidavit in the Adversary which provides an accounting of the approximately $12,000 deferred interest charges claimed in dispute, identifying the time period for which these charges relate. It was my hope that this undertaking would clarify the nature of the charge being asserted since Plaintiff's counsel had expressed his frustration with the paucity of information being provided by HFC. HRC has now filed the affidavit which avers that the "unpaid interest which, sometimes during Bane One's servicing of the debtors' mortgage account, became past due as a result of Debtor's failure to make timely payments." Affidavit Regarding Deferred Interest as Required by the Court's December 18, 2003 Order ¶ 4. HFC either does not know or does not wish to state the time period for which those time charges relate. Rather it states that "[t]he `deferred interest charge' is due and payable by the Debtors only at such time as the Debtors fully satisfy their mortgage loan account as a result of the restructure of the Debtors' mortgage loan account."Id. ¶ 5. The question presented by the Complaint then appears to be whether HFC is permitted to impose a "restructuring charge" post-bankruptcy. For the reasons set forth below, I conclude that the Adversary seeks an advisory opinion which this Court has no jurisdiction to address. While I am sympathetic to the Plaintiffs who have completely and faithfully performed their confirmed Chapter 13 plan over a five year period, I have no power to give them a ruling that opines on HFC's rights against them post-bankruptcy.
Give the Plaintiffs' difficulty getting an answer from HFC, I attempted to put some bite into the requirement by stating that failure to file the Affidavit would result in an admission that the charges related to a prepetition period. HFC has filed the Affidavit as noted above but the period to which the charges relate is still not clear although it appears that HFC contends that they do not become due until the loan is satisfied as a "restructuring charge."
I had noted in a footnote to the Order that to the extent the charges related to a prepetition period, they would be discharged and collection would violate the discharge injunction of § 524. This gratuitous statement demonstrates the folly of an advisory opinion. As Debtors' plan is a cure plan, the mortgage loan is not being discharged in this proceeding. Thus, the Debtors' discharge is not applicable in this context.
DISCUSSION
In Coffin v. Malvern Federal Savings Bank. 90 F.3d 851 (3d Cir. 1996), following confirmation of the debtor's Chapter 13 plan, the creditor bank filed a motion for relief from the automatic stay to enforce its state law remedies against the debtor's real property. The bankruptcy court denied the motion finding the bank to be bound by the debtor's plan which was not in default. However, the opinion then noted that the bank's lien on the property was not discharged by the Chapter 13 case and the bank would be free to exercise its remedies upon conclusion of the case. The debtor, although the prevailing party on the motion, appealed what it viewed as an erroneous decision regarding whether the bank's lien survives the bankruptcy case. The Third Circuit Court of Appeals found that it did not have to reach the legal issue since it had no jurisdiction over the appeal. It reasoned that the bankruptcy court's finding that the bank's lien would not be discharged by the Chapter 13 case and that the bank, at the end of the case, would be free to pursue its state law remedies was an advisory opinion. Id. The Court's reasoning is instructive in this case:
The debtor had filed a motion to reconsider that aspect of the decision which was denied by the bankruptcy court. The district court affirmed, and the debtor appealed to the Third Circuit.
Its order denying Coffin's "cryptic" motion for reconsideration decided no actual controversy between the parties: Coffin had not moved for an order of lien avoidance (it is doubtful that he could have done so in any event, see 11 U.S.C. § 522(f)); the issue of whether the lien survived was not before the court for adjudication; and the "finding" it made did not determine whether the Bank would succeed in a subsequent foreclosure action in state court. If the lien survived, it survived by reason of the prior proceedings, including the confirmed Plan, not because of the court's "finding." Were the Bank to go to state court to foreclose on its mortgage, its right to do so would have to be determined by that court in light of its interpretation of the terms of the Confirmed Plan, as well as the terms of the mortgage, applicable state law and, of course, that court's findings of fact. To put it differently, had the bankruptcy court made a "finding" that the Bank's lien did not survive, the state court in the foreclosure proceeding would clearly not be precluded from ordering a foreclosure, if under applicable law the lien remained enforceable; such a finding, not being necessary to the decision, would be mere dictum and not give rise to res judicata or collateral estoppel.
Id.
The instant case likewise present no actual controversy between the parties. While the Debtor, unlike Coffin, has asked this Court to render the opinion, the Adversary is still advisory in nature because it seeks an adjudication as to the nature of HFC's rights after the Chapter 13 plan is fully performed. The dispute has no bearing on this Chapter 13 case. HFC does not seek to amend its allowed claim, and the confirmation order is res judicata as to all issues decided by the Chapter 13 plan.
The Coffin Court made clear that the parties' request that the court take jurisdiction so that the parties might move on, while eliciting sympathy, does not control the outcome since jurisdiction cannot be conferred by consent. Id. at 854. Debtor's argument that this Court was the best forum to decide the issues presented by the Complaint is non-availing for the same reason.
To the extent Debtors frame their complaint as one to determine the extent and validity of HFC's lien pursuant to § 506(b) and 1322(e), the label is a misnomer. This complaint has nothing to do with HFC's lien but rather the extent of Debtors' payment obligations to HFC post-bankruptcy. Indeed Debtors describe the action against HFC as "challenging the right of HFC to "impose a deferred interest charge against them for $12,512.51." Debtor's Memorandum at 1.
Should HFC seek to collect improper deferred interest charges after this bankruptcy is concluded or as a condition to satisfy the mortgage upon sale of the real estate as Debtor fears, state law provides the appropriate remedies and state court the appropriate forum if and when that should occur. As the Coffin court noted, if HFC would seek to foreclose on its mortgage because the Debtor has failed to pay the deferred interest charges, its right to do so would have to be determined by the state court interpreting the terms of the financing agreements, the confirmed Chapter 13 plan and applicable state and bankruptcy law. This court's view on the enforceability of those charges would not bind the state court. Id.
Nothing in Debtor's Memorandum distinguished this binding authority. Indeed the brief does not discuss advisory opinions, focusing instead on this court's post confirmation jurisdiction. Addressing that argument, I reiterate my view that the Adversary has nothing to do with the Chapter 13 case: it is not necessary to protect the confirmation order, to prevent interference with the plan or to aid the administration of the case, the valid post-confirmation purposes for court intervention identified by Debtor. Debtor's Memorandum at 6. Moreover, the outcome of the litigation will not alter the rights or liabilities of parties in interest in the pending bankruptcy case because the case has concluded.
Contrary to Debtor's view, and perhaps not surprisingly, HFC argues that adjudication of the Adversary would render an advisory opinion since its transmittal of a payoff statement violated no bankruptcy law and any action it might subsequently take to proceed against its collateral would survive the bankruptcy discharge. Since it has not acted to collect deferred interest nor filed an action in mortgage foreclosure, any complaint is premature. I offer no opinion on what HFC's rights are post-bankruptcy but agree that this Adversary fails to present an actual controversy. Any future foreclosure proceeding will be litigated in the state court. Moreover if HFC wrongfully refuses to satisfy its mortgage lien, state law, not bankruptcy law, provides the remedy to the Debtor.See 21 P.S. § 721-7.
The debtor's request for a payoff statement apparently elicited the deferred interest charge and resulted in the filing of the Complaint.
Because I conclude that the Adversary seeks an advisory opinion, it shall be dismissed. An Order consistent with this Memorandum Opinion shall be entered.