In re Pitts, 05-14399ELF.

354 B.R. 58

In re Ryburn E. PITTS, Debtor.

No. 05-14399ELF.

United States Bankruptcy Court, E.D. Pennsylvania.

November 8, 2006.

Michael D. Sayles, Sayles and Associates, Elkins Park, PA, for Debtor.

MEMORANDUM OPINION

ERIC L. FRANK, Bankruptcy Judge.

I. INTRODUCTION

In this chapter 13 bankruptcy case, the holder of the mortgage on the Debtor's residential real estate filed a proof of claim asserting the existence of a prepetition delinquency of $18,102.58 on the mortgage. The Debtor objects to certain components of the lender's claim for prepetition arrears. Specifically, the Debtor challenges the lender's entitlement to the amounts claimed for certain prepetition legal expenses incurred and for alleged prepetition tax disbursements.

For the reasons explained below, 1 will sustain the Debtor's objection. The creditor's claim for prepetition mortgage arrears will be allowed in the amount of $9,383.58.

II. PROCEDURAL HISTORY

The Debtor is the owner of the real property located at 243 S. 57th Street, Philadelphia, PA ("the Subject Property"). The Debtor commenced this chapter 13 bankruptcy case on April 1, 2005. The Debtor's bankruptcy schedules state that the Subject Property is encumbered by a mortgage held by The Money Store. The Money Store did not file a proof of claim in this case, however. Rather, Wachovia Bank, NA ("Wachovia") filed a proof of claim asserting that it holds the mortgage against the Subject Property. The parties have stipulated, for purposes of the contested matter arising from the Debtor's objection, that Wachovia is the holder of a mortgage against the Subject Property. The parties also have stipulated that "Wachovia Dank, NA, Bank of New York and Homeq Servicing are one and the same." Joint Stipulation of Facts ¶ 1.¹

On May 3, 2005, the Debtor filed a chapter 13 plan in the present bankruptcy case. The plan provides that the payments made by the Debtor to the chapter 13 trustee are to be used to cure the prepetition delinquency on the mortgage held by Wachovia against the Subject Property. Joint Stipulation of Facts ¶ 2.

On August 17, 2005, Wachovia filed the secured proof of claim at issue. The proof of claim states that the total amount of the claim is $34,566.13. The proof of claim also states that the prepetition arrears on the claim ("the Arrears") are $18,102.58, itemized as follows in Exhibit "A" to the proof of claim:

TABLE # 1 — ITEMIZATION OF ARREARS IN WACHOVIA PROOF OF CLAIM

Basis for Arrearage Claim Amount
regular monthly instalments through 4/05         $ 2,515.68
late charge(s)                                       133.56
pre-petition attorney fees and costs               6,512.16
prior bankruptcy fees and costs                    1,745.00
pre-petition escrow advances                       3,776.02
other amounts for inspection fees, appraisal
fees and other charges                             3,420.16
                   TOTAL $18,102.58

On August 31, 2005, the Debtor filed an objection to the Wachovia proof of claim ("the Debtor's Objection"). The Debtor's Objection was simultaneously broad and general. It stated:

The prepetition arrears attached to aforesaid Proof of Claim are inaccurate and do not give credit to all pre-petition payments made by the Debtor. In addition, the legal fees and costs on arrears are unreasonable and not actually incurred.

Debtor's Objection ¶ 4.

The hearing on the Debtor's Objection originally was scheduled for October 11, 2005. The hearing was continued five times,² but finally was held on June 13, 2006. After some documentary evidence was submitted by the parties, in the middle of the hearing, the parties altered course and agreed to complete the record by filing a Stipulation of Facts. The Stipulation of Facts was filed on August 10, 2006. The next day, Wachovia filed a Memorandum in Opposition to the Objection to the Proof of Claim. On August 29, 2006, the Debtor filed a Memorandum in Support of the Objection to the Proof of Claim.

III. STATEMENT OF FACTS

The Joint Stipulation of Facts filed by the parties does not contain many "historical facts"³ relevant to this contested matter, but it does bring into focus the general subject matter of the parties' dispute — the allowability of various legal expenses incurred and tax disbursements made by Wachovia prior to the commencement of this case. Table # 2 below sets forth the amounts of the components of the proof of claim in dispute.

TABLE # 2 — AMOUNT IN DISPUTE PIER JOINT STIPULATION

Claim Amount Disputed
Component of Claim Amount by the Debtor
regular monthly         $ 2,515.68                   0
instalments through
4/05
late charge(s)              133.56                   0
pre-petition attorney     6,512.16            4,652.344
fees and costs
prior bankruptcy fees     1,745.00              780.005
and costs
pre-petition escrow       3,776.02                   0
advances
other amounts for         3,420.16            3,420.166
inspection fees
appraisal fees and
other charges
                        $18,102.58 $8,852.50

In order to evaluate the issues raised by the Debtor's objection to Wachovia's claim, it is necessary to consider the legal consequences, if any, of the Debtor's prior chapter 13 bankruptcy case, Bky. No. 00-14716KJC (Bankr.E.D.Pa.) ("the Prior Bankruptcy"). To do this, I must compare the dates of the key events in the Prior Bankruptcy to the dates of the activities that gave rise to the legal expenses claimed by Wachovia as allowable in this bankruptcy case. Table # 3 below sets forth a time-line of the events in the prior bankruptcy case which are relevant for purposes of this contested matter.⁷

TABLE # 3 — PRIOR BANKRUPTCY TIME-LINE

Date Event/Action Comment
4/10/00       bankruptcy petition
              filed
8/21/00       secured proof of claim        Original claim asserts
              filed by Wachovia             arrearage of $6,456.26
                                            Claim was amended
                                            on 9/5/00 and 12/28/00
                                            The second amended
                                            claim asserted claim
                                            for $3,233.76 in
                                            arrears
1/7/01        objection to Wachovia
              proof of claim filed by
              the Debtor
2/9/01        final amended proof           $2,833.76 in arrears
              of claim filed by             claimed
              Wachovia
2/27/01       the Debtor's objection
              Wachovia proof of
              claim is reported
              settled
2/27/01       amended chapter 13
              plan filed by the
              Debtor
3/28/01       confirmation order
              entered by the court
11/20/03        Chapter 13 Trustee's        The report shows
              Final Report filed by         distributions to the
              the Trustee8                 Wachovia of $2,833.76
1/6/05        chapter 13 discharge
              order entered by the
              court

During the abbreviated evidentiary hearing, several documents were admitted into evidence. The most significant was Exhibit R-2, which includes copies of attorney invoices. These invoices serve as the basis for many of the components of Wachovia's proof of claim that are in dispute. Therefore, a summarize them in Table # 4 below.

TABLE # 4 — SUMMARY OF WACHOVIA LEGAL EXPENSE INVOICES

Period Amount of
Invoice Covered Fees and
Date by Invoice Nature of Services Coats
1/18/00      12/16/99 to     foreclosure services        596.50
              1/14/00
2/15/00       2/15/00        foreclosure services        650.00
5/12/00       1/24/00        foreclosure services      2,517.50
              and 5/3/00
7/10/00       6/10/00 to     foreclosure services        550.00
              8/1/00
7/28/00       7/28/00 to     bankruptcy services         540.00
              12/28/009     (relief from stay and
                             preparation of proof
                             of claim)
1/18/01       1/18/01        bankruptcy services         350.00
                             (defense against the
                             Debtor's objection to
                             proof of claim)
2/12/01       2/12/01        bankruptcy services          75.00
                             (proof of claim)
8/6/04        not explicit   bankruptcy services       1,394.50
4/11/05       not explicit   bankruptcy services         568.82
                             TOTAL $7,242.32

IV. DISCUSSION

A. Applicable Legal Principles

The starting point in analyzing a claims objection is 11 U.S.C. § 502. Section 502(b)(1) provides:

Except as provided in subsections (e)(2), (f), (g), (h) and (I) of this section, if such objection to a claim is made, the court, after notice and a hearing, shall determine the amount of such claim in lawful currency of the United States as of the date of the filing of the petition, and shall allow such claim in such amount, except to the extent that —

(1) such claim is unenforceable against the debtor and property of the debtor, under any agreement or applicable law for a reason other than because such claim is contingent or unmatured....

In this case, the Debtor is not concerned especially with the amount of Wachovia's entire claim. The Debtor's real goal is to minimize the allowed amount of the Arrears so as to reduce the amount he must pay to effect a cure of the prepetition delinquency pursuant to his chapter 13 plan. Once this amount has been determined, the Debtor will amend his chapter 13 plan, if necessary, to insure that his chapter 13 plan is funded sufficiently to pay the Arrears in full. Conceptually, the Arrears are themselves treated as a "bankruptcy claim." See Rake v. Wade, 508 U.S. 464, 471, 113 S.Ct. 2187, 2191, 124 L.Ed.2d 424 (1993).

11 U.S.C. § 1322(e) of the Bankruptcy Code provides guidance in the claims allowance...