Mortg. Corp. v. Bozeman (In re Bozeman)

623 B.R. 811

IN RE Judith Lacy BOZEMAN, Debtor.

Mortgage Corp. of the South, Appellant,

v.Judith Lacy Bozeman, Sabrina L. McKinney, Standing Chapter 13 Trustee For The Middle District of Alabama, Appellees.

CASE NO. 2:20-cv-00403-RAH

United States District Court, M.D. Alabama, Northern Division.

Signed December 28, 2020

Charles Edward Grainger, Jr., Grainger Legal Services, LLC, Montgomery, AL, for Appellee.

Burton W. Newsome, Newsome Law, LLC, Birmingham, AL, for Appellant.

Sabrina Lee McKinney, Office of Chapter 13 Trustee, Montgomery, AL, for Trustee.

MEMORANDUM OPINION AND ORDER

R. AUSTIN HUFFAKER, JR. UNITED STATES DISTRICT JUDGE

In this appeal, Mortgage Corporation of the South ("MCS" or "Appellant") challenges the Order (Doc. 1-2; Doc. 106, BK Case No. 16-bk-32469¹ ), issued by the United States Bankruptcy Court for the Middle District of Alabama ("Bankruptcy Court") on June 9, 2020 that among others concluded that MCS's mortgage was satisfied and released. For the reasons set forth below, the Court affirms the Order, (Doc. 1-2).

I. STANDARD OF REVIEW

In an appeal from a bankruptcy court decision, the district court sits as an appellate court. Williams v. EMC Mortg. Corp. (In re Williams) , 216 F.3d 1295, 1296 (11th Cir. 2000). The district court reviews the bankruptcy court's findings of fact under the clearly erroneous standard and conclusions of law under the de novo standard of review. In re Piazza , 719 F.3d 1253, 1260 (11th Cir. 2013). "The court may affirm the bankruptcy court's judgment ‘on any ground that appears in the record, whether or not that ground was relied upon or even considered by the court below.’ " Perry v. United States , 500 B.R. 796, 798 (M.D. Ala. 2013) (Watkins, J.) (quoting Thomas v. Cooper Lighting, Inc. , 506 F.3d 1361, 1364 (11th Cir. 2007) ).

II. FACTUAL BACKGROUND AND PROCEDURAL HISTORY

Judith Lacy Bozeman ("Debtor" or "Bozeman") entered into a note and mortgage with MCS on March 19, 2015. (Doc. 3-76, pp. 5-13.)

Bozeman later filed for Chapter 13 bankruptcy relief on September 7, 2016. (Doc. 3-2.) As acknowledged by MCS (Doc. 9, p. 26; Doc. 12, p. 11), Bozeman's first proposed plan was a full balance plan, meaning it provided that Bozeman would pay off the MCS debt through the plan. (Doc. 3-5.) The plan estimated that $17,393.04 was the balance owed to MCS and proposed to pay that sum with interest at a specified monthly payment of $418.00 per month. (Doc. 3-5, p. 2.) Bozeman estimated, with paying the mortgage indebtedness to MCS and nothing to her unsecured creditors, the plan would require payments of $457.00 per month for fifty-eight (58) months. (Doc. 3-5.) As to liens, the plan also provided that the secured claim holders shall retain liens until either the liens were released or all payments under the plan were completed. (Doc. 3-5, p. 1.)

Of importance in this appeal, MCS did not object to the plan. MCS, however, did file a proof of claim ("POC") on official Form 410 on September 16, 2016. (Doc. 3-136.) That form provided three lines for MCS to complete concerning its debt, including the "Amount of the claim that is secured," "Amount of the claim that is unsecured," and "Amount necessary to cure any default as of the date of the petition." (Doc. 3-136, p. 2.) MCS's POC represented that $6,817.42 was the amount of the claim that was secured and the amount that was necessary to cure any default. Nothing in the POC disclosed that any additional amounts² were owed by Bozeman on the debt, nor did MCS attach a copy of the note and mortgage. Although the POC was largely typed, MCS hand-wrote a notation that the figure of $6,817.42 was "arrearage only." (Doc. 3-136, p. 2.) No objection was filed by Bozeman or anyone else to MCS's POC.

Upon her review of the plan, the bankruptcy trustee determined that the plan would pay out in less than the minimum applicable commitment period of thirty-six (36) months. Therefore, the trustee filed an objection to confirmation of the plan. (Doc. 3-6.)

To make her plan confirmable and to address the trustee's objection, Bozeman filed an amended plan on November 20, 2016 and proposed to increase the payments to the unsecured creditors from 0% to 100%. (Doc. 3-7.) The amended plan did not change Bozeman's treatment of the MCS debt. Once again, MCS did not object. The amended plan was confirmed on January 14, 2017. (Doc. 3-9.)

Over two and a half years later, on May 10, 2019, Bozeman made her final payment to the Chapter 13 trustee and thus completed her plan obligations. And on May 13, 2019, the trustee filed her Notice of Completion of Plan Payments and Notice of Final Cure Mortgage Payment ("Notice of Final Cure"). (Doc. 3-10.) The Notice of Final Cure informed the bankruptcy court and all interested parties that MCS's claim in the amount of $6,817.42 had been paid and that the "entire mortgage debt [had been] paid in full through the plan." (Doc. 3-10.)

On May 14, 2019, MCS filed an amended proof of claim and sought to increase the amount of its claim to $15,032.73. (Doc. 3-137.) MCS also filed a response to the Notice of Final Cure. (Doc. 3-13.) In its response, MCS argued that MCS's original POC only sought the arrearage on the debt and that while Bozeman paid the full amount required to cure the default owed at the time of filing, Bozeman did not complete the plan payments because MCS was still owed a balance of $15,032.73. (Doc. 3-13.)

On June 12, 2019, MCS filed a Motion for Relief From Automatic Stay ("Stay Motion"), claiming that because Bozeman was not making direct payments, the mortgage debt could not be discharged and therefore the automatic stay was lifted. (Doc. 3-109.)

Bozeman countered MCS's Stay Motion by filing a Motion to Deem Lien Satisfied and Release Lien ("Lien Motion"). (Doc. 3-16.) In her motion, Bozeman argued that since this was a full balance plan and since she had made all of her plan payments on the MCS debt, the MCS debt and accompanying mortgage were satisfied and the mortgage due to be released. (Doc. 3-16.)

The following day, September 13, 2019, MCS amended its proof of claim a second time – this time to increase the amount of the MCS debt to $22,382. (Doc. 3-138.)

In response to both amended proofs of claim, Bozeman objected. (Doc. 3-62.) After additional briefing by the parties, the Bankruptcy Court conducted an evidentiary hearing and heard argument on Bozeman's objections, Bozeman's Lien Motion, and MCS's Stay Motion. (Doc. 3-86.) The Bankruptcy Court then issued a lengthy Memorandum Opinion and Order that granted Bozeman's objections to MCS's amended proofs of claim, sustained Bozeman's Lien Motion, and denied MCS's Stay Motion. (Doc. 3-129; Doc. 3-130.) Since that time, Bozeman has received her discharge in bankruptcy. (Doc. 1-1, p. 3; Doc. 3-139, p. 1.)

In compliance with the relevant deadline, MCS filed this appeal challenging the Bankruptcy Court's Order to the extent the Bankruptcy Court concluded that MCS's mortgage had been satisfied and therefore was released. (Doc. 1-1, p. 3.)

DISCUSSION

In its Memorandum Opinion, the Bankruptcy Court concluded, as applicable to this appeal, that "because the indebtedness due Mortgagee has been paid in full, its Motion for Relief from the Automatic Stay is denied" and for the same reason, "Debtor's Motion to Deem mortgage satisfied is granted."³ (Doc. 3-129, p. 21.) In its appeal, MCS claims the Bankruptcy Court erred, not in sustaining the objections to MCS's two amended proofs of claim, but in concluding that the MCS debt was satisfied and therefore that its mortgage lien was due to be released as satisfied. (Doc. 9, pp. 15-38.) This is so, according to MCS, because "MCS's mortgage lien survives the Chapter 13 case even if this Court upholds Judge Sawyer's grant of Debtor's discharge of the Primary Residence Loan" and because "the lien rights of MCS survive the bankruptcy process regardless of whether or not MCS filed a proof of claim. (Doc. 9, pp. 17-18.)

For their part, the trustee and Bozeman equally argue that, while the mortgage debt may very well have been more than that reflected in MCS's initial proof of claim, MCS nevertheless was bound by the confirmed plan — to which MCS had notice of, did not object, and in which it actively participated⁴ — and that since Bozeman fully complied with that plan, the MCS debt was satisfied and therefore the lien due to be released. Explaining in further detail, Bozeman and the trustee argue that the plan was not a cure and maintain plan pursuant to 11 U.S.C. § 1322(b)(5) in which the mortgage lien would have survived the bankruptcy, but instead was a full balance plan that required payment of the MCS debt through the plan. Since it was a full balance plan and since Bozeman made all of her plan payments under the confirmed plan, MCS could not after-the-fact treat the debt differently. Simply put, if MCS had a problem with how the MCS debt was treated or provided for in the plan, MCS should have objected and should not have misstated the debt on its POC.

The pertinent inquiry begins with 11 U.S.C. § 1327(a). Under § 1327(a), "[t]he provisions of a confirmed plan bind the debtor and each creditor, whether or not the claim of such creditor is provided for by the plan, and whether or not such creditor has objected to, has accepted, or has rejected the plan." 11 U.S.C. § 1327(a). Further, "[a]s a general rule, the failure to raise an ‘objection at the confirmation hearing or to appeal from the order of confirmation should preclude ... attack on the plan or any provision therein as illegal in a subsequent proceeding.’ " In re Chappell , 984 F.2d 775, 782 (7th Cir. 1993) (citations omitted); see also In re Smith , 575 B.R. 869, 876 (Bankr. W.D. Ark. 2017).

Discussing the effect of a confirmed Chapter 13 plan, the United States Supreme Court in United Student Aid Funds, Inc. v. Espinosa held that a confirmed Chapter 13 plan is binding on the debtor and creditors with notice, regardless of whether a creditor's claim is impaired under the...