To my mind, Rule 3002.1 is the most powerful, most under-utilized tool in our tool box.
And its power is coming to the fore as Chapter 13’s filed during the Great Recession wind to a close.
Don’t let your home-owning client leave Chapter 13 without a determination that they are current.
Or, if they are not current, without a plan for addressing the default.
Rule spotlights mortgage balance
During the case, the rule requires timely notice to Chapter 13 debtors and their counsel of payment changes and the addition of fees to a loan balance.
The debtor has an opportunity to challenge the change or the fee before the court. So, disputes can be ironed out before the bankruptcy court, before there’s a post petition crisis.
But the real punch is at the end of the case when the trustee “shall” file and serve a notice of final cure payment and inform the creditor of its obligation to respond to the notice. If the trustee fails to serve the notice, the debtor may do so.
And here’s where it gets interesting. The creditor’s failure to respond properly to the notice is grounds for deeming the mortgage current.
And, the creditor’s failure to have given timely notice of “fees, expenses, and charges” added to the loan balance can bar introduction of evidence by the creditor.
Pretty powerful stuff.
In one of my cases last year, the creditor ate $62,000 in post petition advances on the loan because it botched the response to the trustee’s notice. And the lender paid the debtor’s attorneys fees to boot.
Had the creditor gotten the response to final cure payment right, they probably would have lost anyway, because the lender hadn’t given notice of the taxes it was advancing throughout the case.
Mine your files
A case now on my desk is simpler: over the five years of the plan, the lender filed only one notice of fees, expenses, and charges for about $50. But its response to the trustee’s notice has two defects:
- The $7000 in fees, expenses and charges isn’t supported by timely notices.
- The response fails to detail the nature and the timing of the claimed expenses.
Unless the creditor can show that $6950 in fees was incurred in the last six months, such that a notices under subsection (c) is still timely, I’d suggest that claim is dead in the water.
I’d bet that more often than not, servicers have not complied with the rule and, further, can’t tell a cogent story about what the debtor owes at case end.
Prompt clients to contact you with later, inconsistent mortgage statements.
And if the lender concurs that the loan is current, you want a record of it. Nothing like a little claim preclusion, eh?
Because the follow on, which I am beginning to see, is the creditor response to a Notice of Final Cure, followed shortly by a contrary claim that the debtor is in default.
More to follow
I expect to explore Rule 3002.1 further in weeks ahead here. So often, our clients filed Chapter 13 to save their home. Yet sloppy mortgage servicing and client inattention can sabotage that effort.
Join me in vowing: not on my watch.
Leon Bayer says
Excellent! Cathy, thank you for posting this article.
Gary Fraley says
When you say, mine your files, you are dead on with that. I have a staff person who used to work on the dark side for a mortgage bank. Now he works for me. We are slamming these entites for that and many other issues, such as not reconveying a lien stripped mortgage. We are having many cases where they are correcting the issue and paying our attorneys fees as well as some money for our clients. We are getting into litigagtion with WFB for not properly crediting loan payments through the Chapter 13 Plan. We are filing adversary cases requesting Quite Title determinations as well as getting an accounting to back up their claims. This is fun…
Cathy Moran says
And nice to find a setting where the creditor pays for the good work you do for clients.