In re Rhodes

563 B.R. 380

IN RE: Mary Katherine RHODES, Debtor.

Case No. 6:11–bk–18257–ABB

United States Bankruptcy Court, M.D. Florida, Orlando Division.

Signed February 3, 2017

A. Clifton Black, Orlando, FL, for Debtor.

AMENDED ORDER IMPOSING SANCTIONS AGAINST NATIONSTAR MORTGAGE, LLC

Arthur B. Briskman, United States Bankruptcy Judge

The principal purpose of the Bankruptcy Code is to grant a "fresh start" to "the honest but unfortunate debtor." Grogan v. Garner , 498 U.S. 279, 286–87, 111 S.Ct. 654, 112 L.Ed.2d 755 (1991). Debtor Mary Katherine Rhodes ("Debtor") is unquestionably such a debtor. Nationstar Mortgage, LLC ("Nationstar") and its inexcusable and blatant failures to abide by orders of this Court have impinged on the Debtor's fresh start. Debtor asks this Court to impose sanctions against Nationstar for its inexplicable inability to account properly for payments made pursuant to Debtor's confirmed plan and its belated release of its liens despite an explicit direction of this Court. The relief requested by Debtor is due to be granted.

Procedure

This matter came before the Court on the Motion for Contempt (Doc. No. 164, the "Motion") filed by Debtor against Nationstar; the Order to Show Cause directed to Nationstar (Doc. No. 168, the "Order to Show Cause"); Application to Employ Richard L. Pilhorn as Accountant (Doc. No. 191); and Motions by Debtor for Attorney Fees (Doc. Nos. 176 and 186, "Motions for Attorney Fees"). The Debtor seeks sanctions against Nationstar under 11 U.S.C. § 105 for failing to comply with this Court's orders.

A trial on these matters was held on August 15, 2016, at which the parties' respective counsel were present, and Debtor, Debtor's non-filing spouse Richard Rhodes ("Mr. Rhodes"), Debtor's accountant Richard Pilhorn ("Mr. Pilhorn") and Nationstar's representative Gene Mays ("Mr. Mays") provided testimony. Nationstar was provided an opportunity to file a written objection to the Motions for Attorney Fees, Debtor was provided an opportunity to file a reply, and the parties were instructed to submit proposed findings of fact and conclusions of law. The parties have filed the requested documents.

The Court makes the following findings of fact and conclusions of law after reviewing the pleadings and evidence, hearing argument, and being otherwise fully advised in the premises.

FINDINGS OF FACT

The Debtor filed the above-captioned Chapter 13 case on December 6, 2011. (Doc. No. 1). Debtor listed real property located at 3601 Corrine Drive, Orlando, FL 32803 (the "Corrine Property") and 4417 Park Lake Street, Orlando, FL 32803 (the "Park Lake Property") (collectively the "Properties") on Bankruptcy Schedule A. (Doc. No. 1, p. 8). The Properties were titled solely in the Debtor's name and neither was her principal residence.

Nationstar held mortgages encumbering the Properties; was properly listed on Bankruptcy Schedule D. (Doc. No. 1, pp. 4–5); appeared in the case through counsel;¹ and filed two proofs of claim: (i) a claim in the amount of $300,704.15 secured by a mortgage on the Park Lake Property (Claim 3), and (ii) a claim in the amount of $184,452.59 secured by a mortgage on the Corrine Property (Claim 7). Debtor's Chapter 13 plan proposed to value the Properties and cramdown Nationstar's mortgages. (Doc. No. 5).²

The Debtor filed motions to value the Properties and cramdown the mortgages under Section 506 of the Bankruptcy Code as proposed by the plan. (Doc. Nos. 25 and 26).³ Nationstar opposed the motions to value. (Doc. Nos. 28 and 41). The Court held a combined confirmation hearing and trial on the motions to value on January 30, 2013, after which it entered orders that valued the Corrine Property at $115,000 and the Park Lake Property at $95,000, bifurcated Claim 3 and Claim 7, determined the balances of the claims to be unsecured, and provided for the avoidance of the liens pursuant to 11 U.S.C. § 506(d) upon the Debtor's successful completion of the Plan and entry of a discharge. (Doc. Nos. 96 and 97).⁴

An order confirming the Debtor's Chapter 13 plan, as modified,⁵ was entered on February 13, 2013 (Doc. No. 98, the "Confirmation Order"). Nationstar was provided in the Confirmation Order with payment of (i) the secured amount of Claim 3 with interest in twenty-three monthly instalments and a balloon payment of $87,001.74 in month twenty-four, (ii) the secured amount of Claim 7 with interest in twenty-three monthly instalments and a balloon payment of $109,771.69 in month twenty-four, and (iii) the unsecured balances of Claims 3 and 7 based on a pro-rata distribution with other unsecured creditors over sixty months. (Doc. No. 98).

Nationstar actively participated in the Debtor's case up to and including the combined hearing on confirmation and the trial on the motions to value. It was at all times properly served with Debtor's motions, proposed Chapter 13 plans, notices, and the Court's orders. It was at all times represented by competent counsel. It is clear Nationstar had ample notice and opportunity to object to or seek reconsideration of its treatment under the Confirmation Order. Nationstar elected not to appeal the Confirmation Order and it became final on February 27, 2013.

The Confirmation Order provided Debtor would make the balloon payments due Nationstar on November 28, 2013. The Debtor, despite her efforts, could not obtain financing for the balloon payments. Mr. Rhodes agreed to purchase the Properties in the amount necessary to make the balloon payments in order to remedy the situation. Mr. Rhodes obtained the funds to purchase the Properties by liquidating a portion of his retirement savings.

The Debtor filed a motion to sell the Properties to Mr. Rhodes and compel Nationstar to release its liens encumbering the Properties on November 1, 2013, (Doc. No. 116, the "Motion to Sell"). Nationstar had ignored requests of the closing agent for a payoff letter, which necessitated, in part, the Motion to Sell. Nationstar was served, but did not respond to the Motion to Sell, and did not appear at the hearing. An order granting the Motion to Sell and authorizing the Debtor to sell the Properties free and clear of Nationstar's liens was entered on December 3, 2013, (Doc. No. 120, the "Sale Order"). Nationstar did not appeal the Sale Order.

The following paragraphs were contained in the Sale Order:

5. The properties are described below by street address with the appropriate claim numbers for the claims filed by Nationstar, together with the required balloon redemption amounts per the terms of the confirmed Plan:

Claim No. Address                Balloon Redemption
                                     Amount
a. 3          4417 Park Lake Dr
              Orlando, FL 32803      $87,001.74
b. 7          3601 Corrine St
              Orlando, FL 32803      $109,771.69

6. Upon payment of the sums above for the respective claims, the liens of the mortgages securing said claims shall be released and the secured portions of the claims satisfied.

The Sale Order provided Debtor an extension not to exceed 60 days to provide the balloon payments to the Chapter 13 Trustee and to conclude the sale of the Properties.

The Chapter 13 Trustee received $220,553.57, which included the balloon payments to Nationstar, in January 2014. (Debtor's Ex. 3). A Notice of Filing of Receipt of Funds and Intent to Disburse Pursuant to Order Granting Motion to Sell was filed by the Chapter 13 Trustee and served upon Nationstar and its counsel on February 4, 2014. (Doc No. 126). The Chapter 13 Trustee issued a check to Nationstar in the amount of $196,773.43 for the balloon payments (the "Check"). (Debtor's Ex. 4).

The Check was negotiated by Nationstar in February 2014. (Debtor's Ex. 4). Nationstar failed at that time to release the mortgage liens on the Properties or apply the Check funds to the amounts owed for Claims 3 and 7 as directed in the Sale Order. Nationstar did not comply with the Sale Order until May 2016. (Creditor's Exs. 1, 2, and 5).

Debtor made numerous calls⁶ to Nationstar during the intervening two years requesting that it comply with the Sale Order and provide a 2014 IRS Tax Form 1098 consistent with the amounts paid to Nationstar pursuant to the Sale Order. Nationstar informed the Debtor it "couldn't do anything." Mr. Mays testified Nationstar's files did not indicate that any written responses to Debtor's numerous inquiries nor that Debtor was advised to have her bankruptcy counsel contact Nationstar in order for this matter to be resolved.

Nationstar sent the Debtor six notices regarding forced placed hazard insurance for the Properties (Debtor's Exs. 15–20), seven corrected IRS Tax Form 1098 for tax years 2012 through 2015 for the Properties (Debtor's Exs. 7–10, 12, and 13), and paid real property taxes for the Properties (Creditor's Exs. 6–8). These actions fail to recognize the Debtor was divested of title to the Properties and had paid all the sums due Nationstar in February 2014, as directed in the Confirmation and Sale Orders.

Debtor was overcome with frustration that she contacted the Office of U.S. Senator Bill Nelson in December 2015 and implored him to intercede. (Debtor's Ex. 6). Senator Nelson's office contacted Nationstar regarding the Sale Order, the hazard insurance notices and the IRS Tax Forms. Nationstar responded by letter dated December 24, 2015, stating it was still reviewing the cramdown approved by the bankruptcy court and could not apply the funds it had received until it had "investor approval."⁷ The letter indicated that once Nationstar received investor approval and applied the amounts, the Debtor would receive updated IRS Tax Forms. (Debtor's Ex. 6). The letter stated Nationstar had "actively attempted to work with" the Debtor regarding her requests and that Nationstar had "identified the error" regarding the Debtor's account, but "additional research [was] required in order to complete the cramdown and appropriately update the account." (Debtor's Ex. 6).

Debtor relied on...