Opinion
C.A. No. 05L-05-006-RFS.
Submitted: June 23, 2006.
Decided: July 3, 2006.
Stephen P. Do ughty, Esquire, Lyons Doughty Velhuis, P.C., Wilmington, DE.
James D. Griff in, Esquire, Griffin Hackett, P.A., Georgetown, DE.
Dear Counsel:
Beneficial Delaware, Inc. ("Beneficial" or "Plaintiff") has brought a mortgage foreclosure action against Lena and Clifford Waples ("Waples" or collectively "Defendant"). The parties have submitted cross-motions for summary judgment. In this posture, "the Court shall deem the motions to be the equivalent of a stipulation for decision on the merits based on the record submitted with the motions." Super. Ct. Civ. R. 56(h). Of course, summary judgment only may be entered where a party is legally entitled to relief on undisputed facts. Super. Ct. Civ. R. 56(c). The Court reviewed the motions, pleadings, requests for admissions, the exhibits, and the positions expressed by the parties. After consideration, summary judgment is entered against Beneficial.
Undisputed Matters
The Waples executed and delivered a loan repayment and security agreement ("the agreement") to Beneficial. The a mount financed was $33,172.70 with interest at the rate of 13.494%. The monthly payments were $379.83 with the first installment due on November 21, 2000. The final payment date was October 21, 2003. The security given was a mortgage (the "mortgage") on property owned only by Lena Waples located at Route 2, Box 104, Lincoln, Sussex County, Delaware. The mortgage and agreement were signed on October 21, 2000.
Thereafter, between 2003 and February of 2005, Defendant filed for relief under Chapter 13 of the Bankruptcy Code which is designed to adjust debts of persons with regular income. See 9 Am Jur 2d Bankruptcy, § 51. Beneficial acknowledged that any prior acceleration of the mortgage would have been de-accelerated in the Chapter 13 proceedings. Further, the parties agreed that the bankruptcy filing stayed foreclosure of the mortgage. See Am Jur 2d Bankruptcy, § 1573. The Chapter 13 proceedings against Beneficial ended on or about February 25, 2005.
Thereafter, Beneficial sought to foreclose the mortgage. However, it did not provide Waples with written notice about the right to reinstate the mortgage required in paragraph 17 of the mortgage. On May 4, 2005, the mortgage foreclosure complaint was filed in the Superior Court. The property was posted with a copy of the summons and complaint on July 8, 2005.
Nevertheless, the filing of the foreclosure satisfied any requirement to provide notice of the acceleration of the mortgage balance. Wilmington Sav. Fund Soc. F.S.B. v. Meconi, WL 24888 (Del.Super. 1989). Paragraph 17 is set out at page 4, infra..
In July of 2005, the Waples retained Mr. Griffin. He contacted Beneficial's counsel, Mr. Doughty about the right of reinstatement. In this regard, paragraph 18 of the mortgage provided that:
18. Borrower's Right to Reinstate. Notwithstanding Lender's acceleration of the sums secured by this Mortgage due to Borrower's breach, Borrower shall have the right to have any proceedings begun by Lender to enforce this Mortgage discontinued at any time prior to entry of a judgment enforcing this Mortgage if: (a) Borrower pays Lender all sums which would be then due under this Mortgage and the Note had no acceleration occurred; (b) Borrower cures all breaches of any other covenants or agreements of Borrower contained in this Mortgage; (c) Borrower pays all reason able expenses incurred by Lender in enforcing the covenants and agreements of Borrower contained in this Mortgage, and in enforcing Lender's remedies as provided in paragraph 17 hereof, including, but not limited to, reasonable attorneys' fees; and (d) Borrower takes such action as Lender may reasonably require to assure that the lien of this Mortgage, Lender's interest in the Property and Borrower's obligation to pay the sums secured by this Mortgage shall continue unimpaired. Upon such payment and cure by Borrower, this Mortgage and the obligations secured hereby shall remain in full force and effect as if no acceleration had occurred.
Under paragraph 18(a), Beneficial had to be paid all sums which then would be due had no acceleration occurred. In an exchange of correspondence between counsel on July 7 and 15, 2005, the reinstatement amount for past due installments was $6,774.65 with a per diem of $12.22.
However, although entitled to reasonable fees, Beneficial demanded the amount of $3,158.76 for attorneys' fees which Waples believed was unreasonable. In all circumstances, Waples argued that only five percent (5%) of the past due amount of $6,774.65 could be collected or the sum of $338.73. On this point, paragraph 17 of the mortgage stated that:
17. Acceleration; Remedies. Except as provided in paragraph 16, hereof, or otherwise required by law, upon Borrower's breach of any covenant or agreement of Borrower in this Mortgage, including the covenants to pay when due any sums secured by this Mortgage, Lender prior to acceleration shall give notice to Borrower as provided in paragraph 12 hereof specifying: (1) the breach; (2) the action required to cure such breach; (3) a date, not less than 10 days from the date of notice is mailed to Borrower, by which such breach must be cured; and (4) that failure to cure such breach on or before the date specified in the notice may result in acceleration of the sums secured by this Mortgage, foreclosure by judicial proceeding, and sale of the Property. The notice shall further inform Borrower of the right to reinstate after acceleration and the right to assert in the foreclosure proceeding the nonexistence of a default or any other defense of Borrower to acceleration and foreclosure. If the breach is not cured on or before the date specified in the notice, Lender, at Lender's option, may declare all of the sums secured by this Mortgage to be immediately due and payable without further demand and may foreclose this Mortgage by judicial proceeding. Lender shall be entitled to collect in such proceeding all expenses of foreclosure, including, but not limited to, reasonable attorneys' fees of five percent (5%) of the amount decreed for principal and interest, which fee shall be allowed and paid as part of the decree of judgment in such proceeding, and costs of abstracts, title reports and documentary evidence.
A cashier's check was tendered to Beneficial in the amount of $7,898.61 on July 15, 2005. It covered all sums due for reinstatement except for $3,158.76 in attorneys' fees. Waples offered $683.53 to satisfy this obligation which was included in the check. This figure was approximately double the amount Waples thought could be collected legally. On July 27, 2005, Beneficial rejected the offer, stating "the $3,158.76 are actual attorneys fees and costs incurred in the bankruptcy and foreclosure. Kindly file a response to our complaint immediately."
Question Presented
Did Beneficial properly refuse Waples' tender of payment to reinstate the mortgage? I find that it did not do so.
The agreement did not provide for the payment of attorneys' fees and expenses upon default. It could have been drafted differently. Rather the subject is found in the mortgage. During oral argument, the parties agreed that the maximum amount which could be collected through judgment in the foreclosure would be five percent (5%) "of the amount decreed for principal and interest." This result would satisfy Delaware legislative and judicial authority. See Rock v. Short, 336 A.2d 219, 221 (Del. 1975) (the five percent (5%) authorized by § 3912 is a maximum amount and not a minimum or routine amount). The statute authorizing fees, 10 Del.C. § 3912, was amended, effective June 26, 1991, to raise the limit from five to twenty percent (20%) of the amount adjudged for principal and interest. The mortgage failed to include the higher amount.
The purpose for permitting counsel fees is "to impose upon a debtor some part, at least, of the expense of collecting the debt evidenced by his obligation . . ." and ". . . in case of dispute, to leave the amount of the fee to be determined by a standard outside of the minds of the contracting parties, according to the judgment of the Court upon the facts and in the circumstances proved." Petitions of Warrington, 179 A. 505, 507 (Del.Super. 1935). Upon disagreement, a judge determines what a reasonable fee is based upon circumstances of the case and ethical considerations under Rule of Professional Conduct 1.5.
An example of this situation can be found in PNC Bank, N.A. v. Jones, 2002 WL 1748594 (Del.Super.).
Waples argues that only five percent (5%) of past due installments could be collected. When the reinstatement question was raised in July of 2005, that figure was $338.73. Since $683.53 or about twice that figure was provided, Defendant argues that the limit was exceeded and, therefore, more than a reasonable fee was tendered. From Defendant's perspective, return of the cashier's check was not justified.
Clearly, paragraph 17 established a ceiling of five percent (5%) of the judgment amount which ultimately would be entered after trial. The complaint and the supporting affidavit sought to recover judgment of $33,019.28 plus interest at the rate of 13.493% plus court costs and attorneys' fees. When reinstatement was requested, the accelerated principal and interest amounted to $42,952.69. If judgment were entered at that time, no more than $2,147.64 (5% x $49,952.69) could be collected. A plain reading of paragraph 17 leads me to conclude that the maximum limit of five percent (5%) refers to the accelerated balance of principal and interest, and the Waples' contrary argument is not persuasive.
On the other hand, Beneficial demanded $3,158.76 in attorneys' fees in its letter of July 7, 2005. When ref using Waples' tender on July 27, 2005, it claimed $3,158.76 were the "actual" Chapter 13 fees and costs incurred in the bankruptcy and foreclosure proceedings. After discovery and in the summary judgment process, Beneficial claimed fees of $2,400 for the bankruptcy together with $750 in costs. Yet, the billings submitted for the bankruptcy actually totaled $1,733 .26. At oral argument, Beneficial suggested its attorneys' fees for the foreclosure were $650 without evidence to support the reasonableness of the amount.
Paragraph 6 of Beneficial's motion for summary judgment.
I disagree with Beneficial's argument that it can recover attorneys' fees outside of this foreclosure. It claims fees for the Chapter 13 proceedings are collectible under paragraph 18(c) as "reasonable expenses incurred by the Lender in enforcing the covenants and agreements of Borrower contained in the mortgage." The last part of paragraph 18(c) references the recovery of reasonable attorneys' fees in enforcing the lender's remedies in paragraph 17, i.e., in mortgage foreclosure proceedings in the Superior Court. The "reasonable expenses" mentioned in the first part refer to costs such as payment by the Lender such as repair maintenance, security, assessments, and the like. Legal fees are focused in paragraph 17 with the foreclosure remedies.
Furthermore, Beneficial did not and could not seek the recovery in the foreclosure complaint for its Chapter 13 expenses which is sought now. Paragraph 18(c) did not provide for an extra percentage of attorneys' fees beyond five percent (5%) of the total amount adjudged for principal and interest. The mortgage cannot be read to require more legal fees to reinstate after a partial default than what could be awarded after trial for the whole balance. That would be an absurd result.
On this record, Beneficial should have informed Waples of the right to reinstate. Further, the demand by Beneficial for payment of attorneys' fees in the amount of $3,158.76 on July 7, 2005 is not reasonable as it exceeded the five percent (5%) limitation of $2,147.64. Nor is Beneficial's position improved by later claiming $2,400.00 in fees and $750 in costs for the same reason.
In taking an inflexible approach, Beneficial deprived Waples of the right to reinstate, and it breached its obligations under paragraphs 17 and 18. Through the foreclosure process, it sought to collect more legal fees than were authorized. See also More Equity v. Dunn, 28 Conn. L. Rept., 2000 WL 1475543 (Conn.Super.) (Lender's requested costs and fees were patently unreasonable where they were incurred after refusal of the request for reinstatement.) Indeed, the proffered amount by Waples of $683.53 exceeded the $650 Beneficial's counsel estimated for the foreclosure fees (even considering counsel's time after July of 2005 when reinstatement was refused).
Considering the fore going, summary judgment is entered against Beneficial and in favor of Waples. A condition of the judgment is that Beneficial receive a cashier's check in the amount of $7,215.08 and an additional amount for reasonable attorneys' fees incurred in the foreclosure until July 15, 2005. If the parties continue to disagree, the Court will determine this figure on the scheduled trial date of July 19, 2006. Upon receipt of the money, the mortgage shall be reinstated with an effective date of July 15, 2005, and the mortgage foreclosure action shall be dismissed.
The difference between $7,215.08 and the $7,898.61 amount tendered by the Waples last July is $683.53 regarding the attorneys' fees. An evidentiary hearing is required to determine what a reasonable fee would be at that time absent an agreement.
Defendant also seeks the recovery of attorneys' fees. Without a basis in the agreement, mortgage, or statute, counsel fees only can be recovered if bad faith is established. According to the Supreme Court in Baker v. Rapuano v. Pantano, 882 A.2d 232 (Del. 2005):
Delaware follows the "American Rule," whereby a prevailing party is generally expected to pay its own attorney's fees and costs. This Court has recognized limited equitable exceptions to that rule, including the exception for "bad faith" conduct during the litigation. Although there is no single, comprehensive definition of "bad faith" that will justify a fee-shifting award, Delaware courts have previously awarded attorney's fees where (for example) "parties have unnecessarily prolonged or delayed litigation, falsified records or knowingly asserted frivolous claims." The bad faith exception is applied in "extraordinary circumstances" as a tool to deter abusive litigation and to protect the integrity of the judicial process.
As indicated, the Superior Court has the inherent power to assess fees on this basis. However, it is exercised with great restraint, and it is reserved for egregious situations as explained in the Baker case. See Shannon v. Meconi, 2006 WL 258313 (Del.Super.).
Here, the lender unreasonably interpreted paragraphs 17 and 18 of the mortgage. However, its misjudgment does not rise to bad faith to justify a fee splitting award. The filing of the foreclosure was inevitable. The Waples' request for attorneys' fees is denied.
Clifford Waples was only a party to the agreement but not the mortgage. Arguably his joinder in the foreclosure was appropriate to provide him notice of his obligations under the agreement.
Beneficial is to pay costs.
IT IS SO ORDERED.