Waggett v. Select Portfolio Servicing, Inc. (In re Waggett)

IN RE: JOHN DAVIE WAGGETT,

NANCY CHARLENE FLOYD WAGGETT, DEBTORS.

JOHN DAVIE WAGGETT,NANCY CHARLENE FLOYD WAGGETT, PLAINTIFFS, v. SELECT PORTFOLIO SERVICING, INC. AND BANK OF NEW YORK MELLONF/K/A BANK OF NEW YORK, AS TRUSTEE FOR THE CERTIFICATE

HOLDERS OF CWALT, INC., ALTERNATIVE LOAN TRUST 2005- 27,

MORTGAGE PASS-THROUGH CERTIFICATES SERIES 2005-27, DEFENDANTS.

CASE NO: 09-04152-8-SWH

ADVERSARY PROCEEDING NO:14-00096-8-SWH

UNITED STATES BANKRUPTCY COURT EASTERN DISTRICT OF NORTH CAROLINA WILMINGTON DIVISION

March 23, 2015

CHAPTER 11

AMENDED ORDER

The matters before the court are the motion to dismiss filed by the Bank of New York Mellon Trust and Select Portfolio Servicing and the response in opposition to the motion to dismiss filedby John Davie Waggett and Nancy Charlene Floyd Waggett. A hearing was held on December 10, 2014 in Raleigh, North Carolina to consider these matters. This order is amended to reflect within the conclusion section that the defendants' motion to dismiss is granted, without prejudice, with respect to the plaintiffs' third, fourth and eighth claims for relief and denied with respect to the plaintiffs' second, fifth and sixth claims for relief.

BACKGROUND

John Davie Waggett and Nancy Charlene Floyd Waggett, the plaintiffs, filed a voluntary petition seeking relief under Chapter 11 of the United States Bankruptcy Code on May 19, 2009. Four years prior to the petition date, on May 27, 2005, the plaintiffs executed an Adjustable Rate Note in favor of America's Wholesale Lender ("America's Wholesale") in the original principal amount of $1,200,000.00, with interest accruing at a variable rate between 2.875% to 9.950% per annum (the "Note"). The Note called for monthly payments of $3,859.67 and was set to mature on June 1, 2035. The Note was secured by a Deed of Trust on real property located at 1604 Carolina Beach Avenue North, Unit 2, Carolina Beach, North Carolina (the "Property"). Following execution of the Note and the Deed of Trust, the Property was transferred by plaintiffs to a related entity, D&CW Properties, LLC ("D&CW Properties"). On January 1, 2008, Bank of America, N.A. ("Bank of America") purchased Countrywide as well as its subsidiary America's Wholesale. Thereafter, Bank of America engaged BAC Home Loans Servicing to service the Note and Deed of Trust.

On June 15, 2009, following the petition date, America's Wholesale filed proof of claim number 2 in the amount of $1,373,341.54, which listed the creditor as America's Wholesale anddirected that all notices be sent to BAC Home Loans Servicing. As of the petition date, the plaintiffs were delinquent in ten monthly payments under the Note and Deed of Trust.

On June 24, 2009, America's Wholesale filed a motion for relief from the automatic stay, requesting relief under 11 U.S.C. § 362(d) of the Bankruptcy Code to commence foreclosure proceedings against the Property. The plaintiffs did not oppose the motion for relief from stay and on July 17, 2009, the court entered an order granting relief from the automatic stay, permitting America's Wholesale as well as its assignees and/or successors-in-interest, to exercise any and all rights against the Property and permitting America's Wholesale, its assignees and/or successors in interest to proceed with foreclosure of the Property. The order also provided that America's Wholesale may "at its option, offer, provide and enter into a potential forbearance agreement, loan modification, refinance agreement or other loan workout/lost mitigation agreement." Pursuant to the order, America's Wholesale, "through its servicing agent, may contact the Debtor via telephone or written correspondence to offer such an agreement." (emphasis in original).

On September 16, 2009, the plaintiffs filed their proposed chapter 11 plan of reorganization, which was subsequently amended on February 2, 2010. (collectively, the "Plan"). America's Wholesale timely submitted a ballot in favor of and accepting the treatment of its claim in the Plan. On April 28, 2011, the court entered the order confirming plan, which was later supplemented by order entered on March 9, 2012. (collectively, the "Confirmation Order"). As to America's Wholesale, the Plan as confirmed by the Confirmation Order, provides:

1604 CBAN Unit 2 Loan: In the event D&CW Properties, LLC remains the owner of the collateral securing this claim on the Effective Date, the Debtors shall cause D&CW Properties, LLC to convey the real property securing this obligation to America's Wholesale Lender via a deed in lieu, within thirty (30) days of the Effective Date in exchange for a determined credit against the indebtedness. This credit can be determined by mutual agreement between America's Wholesale Lenderand the Debtors or a determination pursuant to Section 506(a) by the Court. The deficiency, if any, will be treated in the General Unsecured Creditor Class.

Article X of the Plan, entitled "Effect of Confirmation" provides:

A. Except as otherwise provided in the Plan, the confirmation of the Plan vests all of the property of the estate in the Debtor.

B. Injunction. As of the Confirmation Date, except as otherwise provided in the Plan or the Confirmation Order, all persons that have held, currently hold, or may hold a claim, equity interest, or other debt or liability that is treated pursuant to the terms of the Plan or that is otherwise enjoined pursuant to Section 1141 of the Code, are enjoined from taking any of the following actions on account of any such claims, equity interests, debtors or liabilities, other than actions brought to enforce obligations under the Plan: (i) commencing or continuing in any manner any action or other proceeding; (ii) enforcing, attaching, collecting, or recovering in any manner any judgment, award, decree or order; (iii) creating, perfecting, or enforcing any lien or encumbrance; (iv) asserting a setoff or right of recoupment of any kind against any debt, liability, or obligation; and/or (v) commencing or continuing, in any manner or in any place, any action that does not comply with or is inconsistent with the provisions of the Plan or the Confirmation order. Notwithstanding the foregoing, the Plan does not release or waive any claims it may have against any party in interest.

The Property was never conveyed from D&CW Properties to America's Wholesale. On September 9, 2011, this court entered a final decree, upon finding that the Plan had been substantially consummated pursuant to 11 U.S.C. § 1101(2), and closed the plaintiffs' chapter 11 bankruptcy case.

On November 25, 2011, MERS, Inc., as nominee for America's Wholesale, assigned the Note, the Deed of Trust, as well as any and all rights possessed thereunder to defendant Bank of New York Mellon ("Bank of New York"), pursuant to an Assignment Deed of Trust. An assignment of claim was not filed with the court pursuant to Fed. R. Bankr. P. 3001(e)(4)¹.

After the entry of the Confirmation Order and the final decree, plaintiffs began receiving phone calls and communications from Bank of America, its agents, and successors-in-interest. In response to such communications, on January 17, 2012, plaintiffs' counsel sent a letter to Bank of America, America's Wholesale and counsel for America's Wholesale requesting that they cease from further contacting the plaintiffs and reminding that "pursuant to the confirmed Plan, Bank of America is to foreclose on the property, and is not entitled to any further relief."²

Eventually, Bank of New York engaged Select Portfolio Servicing, Inc. ("Select Portfolio") to service the mortgage loan account. Select Portfolio sent a letter to the plaintiffs dated November 20, 2012 informing the plaintiffs that a relationship manager had been assigned to their account to assist the plaintiffs with "any aspect of [the] account, including resolution options." The November 20, 2012 letter provides that "[t]his information is intended for informational purposes only and is not considered an attempt to collect a debt."

On November 30, 2012, counsel for the plaintiffs, contacted Select Portfolio by letter. The letter noted that the plaintiffs had been receiving phone calls from Select Portfolio regarding the Property. The letter provided that the claim and indebtedness secured by the "property are addressed in the confirmed plan and that [plaintiffs] are in compliance with the confirmed plan."³ Counsel forthe plaintiffs requested that Select Portfolio cease all further contact with the plaintiffs to avoid legal action being pursued. Select Portfolio acknowledged receipt of the November 30, 2012 letter.

During this time, plaintiffs also received monthly mortgage statements from Select Portfolio, which provided that the statements were attempts to collect the indebtedness owed under the Note. Select Portfolio also sent a letter dated December 18, 2012 entitled "Notice of Default—Right to Cure." This letter was addressed to the plaintiffs and stated that the Note was in default as a result of plaintiffs' failure to make payments. The stated purpose of the Notice of Default was to provide notice of plaintiffs' default, the actions required to cure the default and provided that "the total amount due and required to cure the default on your loan is $369,145.29 . . ." The Notice of Default provided it was a "formal demand for payment[,]" and was a "communication from a debt collector" and "an attempt to collect a debt and information obtained" would be used for that purpose.

Select Portfolio issued a notice to plaintiffs' counsel dated January 18, 2013, notifying plaintiffs that the interest rate applicable to the Note would be 3% per annum and that the required monthly payment would remain at $6,021.93. The notice advised that the account had the potential for negative amortization and in order to fully amortize the loan over the remainder of the term, the new payment would be $7,436.41.

On January 30, 2013, plaintiffs' counsel received correspondence indicating...