In re Fivecoate

634 B.R. 720

IN RE: Toni Ann FIVECOATE, Debtor.

C/A No. 16-01342-JW

United States Bankruptcy Court, D. South Carolina.

Signed May 7, 2021

Elizabeth M. Atkins, N. Charleston, SC, for Debtor.

ORDER ON MOTION TO DETERMINE FINAL CURE AND PAYMENT

John E. Waites, US Bankruptcy Judge This matter comes before the court on the motion of the debtor, Toni Ann Fivecoate ("Debtor"), seeking a Determination of Final Cure of all required post-petition amounts, pursuant to Bankruptcy Rule 3002.1(h) ("Motion").¹ Present at the hearing on the Motion were the Debtor, her counsel, and the attorney for the mortgage creditor, PHH Mortgage ("PHH")² . No other party appeared. A Response to the Motion was filed by Creditor on March 25, 2021 ("Response"), requesting time to research the matter and requesting that a hearing be scheduled.

After considering the testimony presented at the hearing, together with the record and other matters properly before the Court, and pursuant to applicable legal authorities, the Court makes the following findings of fact and conclusions of law:³

FINDINGS OF FACT

1. The Debtor filed a petition under Chapter 13 of the Bankruptcy Code on March 18, 2016.

2. On July 25, 2016, Debtor's mortgage creditor, Deutsche Bank National Trust c/o Ocwen Loan Servicing LLC ("Ocwen"), filed its timely proof of claim asserting a prepetition arrearage in the amount of $15,838.60.

3. On May 10, 2016, the Court entered a Confirmation Order confirming Debtor's chapter 13 plan which provided for treatment of Ocwen's secured claim under 11 U.S.C. § 1322(b)(5) including the curing of prepetition arrearage through Trustee disbursements and the direct payment of ongoing monthly obligations under the loan by Debtor.⁴

4. On February 3, 2021, the Trustee filed the Notice of Final Cure indicating that the prepetition arrearage claim had been paid in full.

5. PHH, as the successor to Ocwen, acknowledged in its response to the Trustee's Notice of Final Cure Payment that the prepetition amount had been cured, pursuant to the terms of the Debtor's confirmed Chapter 13 Plan.

6. PHH asserted in its Response to the Trustee's Notice of Final Cure Payment that the account was contractually due for November 1, 2020, in the total amount of $2,147.11. According to the payment history attached to the Creditor Response, Debtor did not make a post-petition payment from June 2019 through October 2019. Otherwise, monthly post-petition payments were made throughout the case.

7. On May 8, 2019, Debtor received correspondence from Ocwen providing notice that Ocwen would be joining forces with PHH. The notice stated that the records indicated that the mortgage account was paid ahead. The May 8, 2019 correspondence also stated, "The monthly payment that is automatically drafting from a designated financial institution will continue; however, please note that PHH will only begin drafting the monthly payment once the account is no longer paid ahead. " (emphasis in original).

8. On June 7, 2019, Debtor received correspondence from PHH again stating that the account was paid ahead. Specifically, the June 7, 2019 correspondence stated that the next monthly payment was due on October 1, 2019. Again, this correspondence stated, "The monthly payment that is automatically drafting from a designated financial institution will continue; however, please note that PHH will only begin drafting the monthly payment once the account is no longer paid ahead. " (emphasis in original).

9. During this time, PHH's website for Debtor's account stated that Debtor was due for the November 1, 2019 payment.

10. It appears from the payment history provided by PHH as part of the Response that as of the dates of the May 8, 2019 and June 7 Correspondence, Debtor had paid ahead only two additional post-petition payments, making the account due for the August 1, 2019 payment.⁵

11. At all times during the pendency of the Chapter 13 case, the Debtor made the post-petition payments pursuant to an automatic draft from her checking account. When Ocwen and PHH joined forces, Debtor was required to change the automatic draft to reflect the change in payee.

12. Debtor contacted PHH regarding the correspondence. Over the course of several telephone conversations with PHH's representatives, Debtor was told that the correspondence was accurate and that the account was in fact paid ahead to the November 1, 2019 payment. Debtor's testimony on these conversations was credible as she recalled particular details regarding the call including the names of PHH's representatives to which she spoke.

13. Based on Debtor conversations with multiple PHH representatives, Debtor set up an automatic draft for PHH in September 2019, to commence with the November 1, 2019, payment.

14. In February 2020, Debtor received a refund of an escrow overpayment in the amount of $687.85 from PHH.

15. On or about March 8, 2021, Debtor received a refund of an escrow overpayment in the amount of $963.99 from PHH.

16. On March 26, 2021, PHH unilaterally cancelled the automatic draft, after the March 2021 payment was drafted. Debtor paid the April 2021 payments via telephone but was advised by PHH's representatives that the account could no longer be accessed.

17. PHH did not present any evidence or testimony at the hearing, although its attorney stated that the Trustee's disbursements were incorrectly applied to post-petition obligations and that the accounting issue has now been corrected, resulting in the past due amounts asserted in the Response.

18. During the pendency of the Chapter 13 case, PHH did not file any Notice of Fees, Expenses, and Charges under Bankruptcy Rule 3002.1(c)

19. On February 23, 2021, a discharge order was entered but was subsequently administratively vacated after PHH filed its Response.

CONCLUSIONS OF LAW

Rule 3002.1 establishes procedures that were adopted in 2011 to assist chapter 13 debtors in the implementation of their bankruptcy plans and to ensure the tracking of all payments made on a mortgage secured by the debtor's principal residence during the course of the bankruptcy case. Under Fed. R. Bankr. P. 3002.1(g), within 21 days after the Trustee's service of a Notice of Final Cure Payment, the holder of certain mortgage claims must file a statement indicating "(1) whether it agrees that the debtor was paid in full the amount required to cure the default on the claim, and (2) whether the debtor is otherwise current on all payments consistent with § 1322(b)(5) of the Code." If the debtor or chapter 13 trustee contest the amounts stated in the mortgage creditor's response to the notice of final cure payment, they may file a motion to "determine whether the debtor has cured the [prepetition] default and paid all required post-petition amounts." Fed. R. Bankr. P. 3002.1(h) (2021).

While there is no dispute that Debtor cured the prepetition default as part of her confirmed plan, the parties dispute whether Debtor has paid all required post-petition amounts during the course of her confirmed plan. Debtor contests that she is responsible for three post-petition monthly payments currently asserted by PHH in the Response and takes the position that the Court should find that she has made all required post-petition payments due to misrepresentations made by PHH that were relied upon by Debtor.⁶ Specifically, Debtor received multiple correspondence from PHH in 2019 indicating that she was not only current on the loan but that she had paid ahead until the October 1, 2019 payment. She verified this information in telephone calls with multiple representatives of PHH who consistently and repeatedly stated she was actually paid ahead on the loan with the next payment being due on November 1, 2019 and that it was not necessary for her to make a further payment on the loan during that period. In addition, without Debtor's consent, PHH affirmatively discontinued Debtor's auto-draft of payments, her primary mode of payment, during this five-month period until the Debtor was no longer considered ahead on her payments in PHH's records. Upon reliance on this representation, Debtor did not attempt to make additional effort to make these monthly payments. Thereafter, PHH continued to treat Debtor's loan as current until nearly two years later when it filed the Response, alleging that Debtor had not made the three post-petition payments (August 2019 through October 2019 payments). Around the same time as the filing of the Response, PHH again discontinued Debtor's auto-draft of monthly payments it appears on the basis that the loan was delinquent. Debtor testified that PHH made it very difficult to make a payment on the loan after it discontinued her auto-draft payment but that she continued to make her monthly payments.

PHH did not dispute Debtor's allegations in any respect. Instead, it asserts that its misstatements to Debtor about the payment status of her loan were its error due to a misapplication of payments required under the confirmed plan,⁷ but that Debtor is nevertheless bound by the terms and obligations of the mortgage note, such that PHH should not be precluded from collecting the three post-petition payments in dispute from Debtor after the conclusion of her bankruptcy case. In short, PHH asserts that "[g]iven that debtor had not made any extra payments on the account, Debtor should not have credibly thought their account was current in the bankruptcy."

I. Equitable Estoppel

Debtor argues that PHH should be equitable estopped from collecting the amounts asserted as due in the Response. Specifically, Debtor asserts that she did not make certain monthly mortgage payments in 2019 in reliance upon PHH's incorrect statements about the amount due on the loan which is now affecting Debtor's ability to receive a discharge.⁸

"It is generally held that a representation of past or existing fact made to a party who relies upon it reasonably may not thereafter be denied by the party making the representation if permitting the denial would...