Mejia v. Partners for Payment Relief LLC (In re Mejia)

In re: Maria L. Mejia Debtor

Maria L. Mejia Plaintiff v. Partners for Payment Relief LLC, et al. Defendants

Case No. 12-12090-TJC

Adversary No. 13-00501

UNITED STATES BANKRUPTCY COURT FOR THE DISTRICT OF MARYLAND at GREENBELT

Signed: June 13, 2018

June 14, 2018

Chapter 7

MEMORANDUM OF DECISION

The plaintiff and debtor, Maria L. Mejia, brings this adversary proceeding against defendants Partners for Payment Relief LLC ("PPR") and Partners for Payment Relief DE III LLC ("DE III") (collectively, the "Defendants"), alleging they sought to coerce the Plaintiff into paying her discharged loan in violation of the discharge injunction of 11 U.S.C. §524(a). The parties filed cross-motions for summary judgment on liability. ECF 82, 84. The court granted the Plaintiff's motion in part, finding that DE III violated the discharge injunction by requiring the Plaintiff to reaffirm and reinstate her discharged second deed of trust loan as a condition to remain in her home after DE III foreclosed. See ECF 100, 101. At the time, the amount of the first deed of trust loan exceeded the value of the home, thus rendering valueless the discharged second deed of trust loan held by DE III. The court denied the remaining relief requested by the Plaintiff and denied the Defendants' cross-motion for summary judgment.

The court held a trial on whether the Defendants committed other alleged violations of the discharge injunction and what damages would be assessed for any violations. For the reasons below, the court concludes that the Plaintiff has not established any further violations of the discharge injunction. For damages for the violation determined on summary judgment, the court awards the Plaintiff $2,080 in compensatory damages and $25,000 in punitive damages, plus attorney's fees to be determined.

Jurisdiction

The court has jurisdiction over this matter under 28 U.S.C. §§1334 and 157(b) and Local Rule 402 of the United States District Court for the District of Maryland. The court has authority to enter final judgment in this matter under 28 U.S.C. §157(b)(2) and consistent with the standards of Stern v. Marshall, 564 U.S. 462 (2011).

Findings of Fact

The facts of this case were discussed at length in this court's memorandum of decision granting the Plaintiff's motion for summary judgment. See ECF 100.

In September 2005, the Plaintiff purchased her home at 262 W. Deer Park Road, Gaithersburg, Maryland (the "Property") for $284,000. The Plaintiff financed the purchase by entering into a first deed of trust loan with Countrywide Home Loans. She also entered into a second deed of trust loan—the loan at issue here—with Intervale Mortgage Corporation for $49,650 (the "Loan").

On October 12, 2011, DE III acquired the Loan for $2,880.92. At that time, the Loan had an outstanding balance of $48,912.12. The Defendants are in the business of purchasing non-performing deed of trust notes at a discount and attempting to turn them into performing notes. In general, the Defendants do not wish to foreclose on the real property that secures the loan. Instead, they seek to have the defaulting homeowners pay the mortgage loan. The Defendants engage in a number of activities in an attempt to collect the loans. If the defaulting homeowners refuse to respond or negotiate a payment plan with the Defendants, they leverage the foreclosure and eviction process in an effort to get the homeowners to start paying on the note. Between October 2011 and December 2012, DE III attempted to contact the Plaintiff several times for the purpose of reviewing debt repayment options. DE III issued a Notice of Intent to Foreclose on January 20, 2012.

In response to the foreclosure action, the Plaintiff filed a petition for Chapter 7 relief on February 8, 2012. She received a discharge on May 16, 2012. DE III received notice of the bankruptcy case and notice of the Plaintiff's discharge.

DE III renewed foreclosure proceedings against the Property in December 2012. The foreclosure sale occurred on February 27, 2013, where DE III purchased the Property for $19,000, subject to the first deed of trust lien. The deadline for filing exceptions to the sale was April 17, 2013. The Plaintiff did not file any exceptions, and the Circuit Court ratified the sale on April 22, 2013.

On May 6, 2013, DE III filed a motion seeking possession of the Property. The Circuit Court entered a judgment of possession in favor of DE III on June 24, 2013. On July 2, 2013, DE III issued a notice of eviction, and a Montgomery County sheriff served the Plaintiff with an order of eviction on July 20, 2013.

The Plaintiff's Schedule B listed the value of the Property as $183,600. Case No. 12-12090 at ECF 1 at p. 8. On Schedule D, the first deed of trust loan was listed as $261,254, and the Loan was $48,912. Id. at p. 13.

The Defendants do not dispute that the value of the Property and the amount of the first deed of trust loan at the time of the foreclosure sale were more or less the amounts stated by the Plaintiff in her schedules. Accordingly, at the time of the foreclosure sale, the amount outstanding on the first deed of trust loan was substantially greater than the value of the Property, thereby rendering the Loan wholly unsecured.

On July 22, 2013, the Plaintiff filed an emergency motion to stay the eviction and set aside the foreclosure. The Circuit Court denied the motion. On July 24, 2013, the Plaintiff called DE III's attorney, Cindy Diamond, seeking options to stop the eviction. Ms. Diamond stated that the Plaintiff called asking how she could stop the eviction and explaining that she wished to remain in the Property. Ms. Diamond directed the Plaintiff to reach out to DE III to work out an agreement.

On July 25, 2013, Barbara Faust, a workout specialist for DE III, sent the Plaintiff a hand-written note offering to work out an agreement to keep the Plaintiff in her home. The note requested the Plaintiff call DE III, which she did. On July 29, 2013, the Plaintiff spoke with Patricia Cruz Gonzalez, a Spanish-speaking workout specialist, who explained that the eviction process would cease if the Plaintiff would agree to a workout agreement. The next day, DE III sent the Plaintiff a proposed agreement (the "Agreement").

The Agreement, written in English, included a hand-written note in Spanish asking the Plaintiff to sign the Agreement, have it notarized, and return it with a copy of her driver'slicense.¹ Under the terms of the Agreement, DE III was to modify the Loan provided that the Plaintiff made monthly installment payments of $471.25 per month over thirty years. In addition, the Agreement required the Plaintiff to make a one-time "arrears payment" on the Loan of $3,000. In total, the Agreement would have obligated the Plaintiff to pay $81,600, which was $5,454.04 more than the original payoff balance under the Loan.² If the Plaintiff failed to meet her obligation under the Agreement, DE III would "take such actions as it deems appropriate . . . [including] to enforce any and all other rights then existing under the terms of the [Loan] . . . ." ECF 82-20 at ¶7. The Plaintiff did not sign the Agreement.

On August 20, 2013, the Plaintiff filed a motion to reopen her Chapter 7 case and for contempt sanctions, and filed an emergency motion for a temporary restraining order enjoining the Plaintiff's eviction. Case No. 12-12090 at ECF 21, 22. On August 22, 2013, the court granted the motion to reopen (id. at ECF 28), and on August 23, 2013, the court issued a temporary restraining order enjoining the Defendants from evicting the Plaintiff, taking any additional action to foreclose upon her home, or making any additional efforts to collect upon the Loan. Id. at ECF 33. DE III subsequently re-conveyed the Property back to the Plaintiff.

After the close of discovery, the Defendants and the Plaintiff filed cross-motions for summary judgment. ECF 82 and 84. On September 30, 2016, the court granted summary judgment to the Plaintiff on the liability of DE III for its attempt to coerce the Plaintiff into reaffirming her discharged debt. ECF 101.

The Plaintiff also filed a motion to amend the complaint to add as defendants PPR Note Co., Dave Van Horn, John Sweeney, Bob Paulus, and Cindy Diamond. ECF 80. The courtgranted the motion as to PPR Note Co. only. ECF 120. However, the Plaintiff did not amend the complaint to add PPR Note Co.

Analysis

At trial, the Plaintiff argued that the Defendants' actions in initiating and completing foreclosure on the Property and seeking to evict her were an attempt to coerce her into paying the discharged loan as a personal liability. She asserted that this improper use of the Defendants' foreclosure and eviction rights violated 11 U.S.C. §524(a), in addition to the violation determined by the court on summary judgment.³

The Discharge Injunction

Section 524(a)(2) provides that "[a] discharge in a case under this title . . . operates as an injunction against the commencement or continuation of an action, the employment of process, or an act, to collect, recover or offset any such debt as a personal liability of the debtor." §524(a)(2). While §524(a) does not expressly provide a remedy for a violation of the statutory injunction, the federal courts have uniformly held that bankruptcy courts have authority under §105(a) to enforce §524(a) through contempt proceedings. Paul v. Iglehart (In re Paul), 534 F.3d 1303, 1306-07 (10th Cir. 2008) (citing Walls v. Wells Fargo Bank, N.A., 276 F.3d 502, 506-07 (9th Cir. 2002)); Insurance Co. of N. Am. v. NGC Settlement Trust of Asbestos Claims Mgmt. Corp. (In re Nat'l Gypsum Co.), 118 F.3d 1056, 1063 (5th Cir. 1997); Hardy v. United States (In re Hardy), 97 F.3d 1384, 1389 (11th Cir. 1996). A plaintiff must prove a violation of the discharge injunction by clear and convincing evidence. See Flint v. W. Va. State Tax Dep't (In re Flint), 557 B.R. 461, 465 (Bankr. N.D.W. Va. 2016) (citing Ashcraft v. Conoco, Inc., 218 F.3d 288, 301 (4th Cir. 2000))...