Opinion
Case No. 15-10836
01-24-2020
In re: JACK B. HARRISON Debtor
Chapter 13
DECISION AND ORDER OVERRULING DEBTOR'S OBJECTION TO PROOF OF CLAIM FILED BY FIFTH THIRD MORTGAGE COMPANY [Docket Number 70]
This decision is not intended for publication.
This Court has jurisdiction over this matter pursuant to 28 U.S.C. §§ 157(a) and 1334, and the standing General Order of Reference in this District. This is a core proceeding pursuant to 28 U.S.C. § 157(b)(2)(B).
This matter is before this Court on Debtor Jack B. Harrison ("Debtor")'s Objection to Proof of Claim Filed by Fifth Third Mortgage Company ("Objection") [Docket Number 70]; the Response of Fifth Third Mortgage Company to Debtor's Objection to Proof of Claim ("Response") [Docket Number 71]; and the Joint Stipulations of Fact of Debtor Jack Harrison and Fifth Third Mortgage Company, Regarding Debtor's Objection to Supplemental Proof of Claim ("Stipulations of Fact") [Docket Number 81].
At a hearing held on May 2, 2019, the parties dispensed with an evidentiary hearing to have the matter decided on the parties' Stipulations of Fact and memoranda of law that the parties intended to file in accordance with a briefing schedule to be prepared by this Court. Accordingly, this Court entered an order providing a briefing schedule [Docket Number 84] and the parties filed memoranda of law in support of their positions [Docket Numbers 86, 87 and 88].
Upon review of the facts and legal arguments presented in the parties' filings and memoranda of law, this Court concludes that the Debtor's Objection lacks merit and, accordingly, is overruled.
I. FACTS
Because the parties waived an evidentiary hearing, this Court's findings of fact are limited to those found in the Stipulations of Fact and matters of record on this Court's docket of which this Court takes judicial notice.
The Debtor filed a chapter 13 bankruptcy petition on March 9, 2015. On his petition, he indicated his street address as 3921 Miami Run, Cincinnati, Ohio (the "Miami Run Property") [Docket Number 1]. In his schedules, he indicated ownership of two parcels of real estate: the Miami Run Property and a condominium unit known as 1213 Vine Street, Unit E, Cincinnati, OH 45202 (the "Vine Street Property"), which is the property at issue in this matter [Id., Schedules A]. Both the petition and schedules indicate that the Debtor's residence was the Miami Run Property [Id., Petition and Schedule C (indicating the Debtor's intent to take a "homestead exemption" in the Miami Run Property)].
At the time of the bankruptcy filing, Creditor Fifth Third Mortgage Company ("Fifth Third") held a mortgage lien against the Vine Street Property and subsequently filed a proof of claim for the secured mortgage loan totaling $119,707.61 on April 7, 2015 [Proof of Claim Number 7-1]. In addition to Fifth Third's mortgage lien against the Vine Street Property, the Debtor scheduled another secured creditor, Duncanson Lofts Condo Association ("Duncanson"), as having a claim and statutory lien against the Vine Street Property based on the Debtor's outstanding HOA dues [Docket Number 1, Schedule D].
On the same date the petition was filed, the Debtor also filed a chapter 13 plan ("Original Plan") calling for the surrender of the Vine Street Property [Docket Number 2].
On May 4, 2015, Fifth Third filed a motion for relief from the automatic stay and co-debtor stay regarding the Vine Street Property [Docket Number 19] ("Motion for Relief from Stay") alleging grounds for relief that included that the Debtor intended to surrender the property.
On June 3, 2015, Fifth Third paid the outstanding HOA dues that the Debtor owed on the Vine Street Property to Duncanson. Fifth Third's payment to Duncanson occurred prior to the claims bar date and Duncanson did not file a proof of claim.
On the same date, June 3, 2015, Debtor filed a motion to continue the hearing on Fifth Third's Motion for Relief from Stay to allow the Debtor additional time to file an amended plan to provide for cure of the arrearage on Fifth Third's mortgage loan [Docket Number 26].
On June 8, 2015, Debtor filed his first Amended Plan [Docket Number 31] ("Amended Plan"). The Amended Plan provided for the cure of the mortgage loan default to Fifth Third on the Vine Street Property, while continuing to make post-petition mortgage payments to Fifth Third through the chapter 13 trustee on a conduit basis. The Debtor's Amended Plan further proposed to pay Duncanson for the arrearage in the HOA dues in the estimated amount of $12,000.00 through the Debtor's plan payments. The Debtor was not aware of Fifth Third's advancement of HOA dues at the time he filed the Amended Plan. The Amended Plan further provided for the surrender of the Miami Run Property. The Amended Plan was confirmed by this Court on July 15, 2015 [Docket Number 36].
On July 8, 2015, an agreed order was entered in this case resolving Fifth Third's Motion for Relief from Stay [Docket Number 34] ("Agreed Order"). The Agreed Order is signed by both Debtor counsel (through email authorization) and Fifth Third's counsel. There is no reference in the Agreed Order to Fifth Third's advancement of HOA dues although the dues had been paid prior to the date of the Agreed Order.
On August 26, 2015, Fifth Third filed a supplemental proof of claim in this case as contemplated by the Agreed Order [Proof of Claim Number 23-1] ("First Supplemental Proof of Claim"). The First Supplemental Proof of Claim states that the "[t]otal amount to cure default after the petition date added to the Proof of Claim: $2,596.24" (Id.).
On January 21, 2016, Debtor filed a Notice of Change of Address [Docket Number 50]. In the notice, the Debtor indicated that his prior address was the Miami Run Property but that his new address, "effective immediately" would be the Vine Street Property.
On January 25, 2016, the chapter 13 trustee and Debtor entered an agreed order increasing the dividend to be paid to unsecured creditors to 100% [Docket Number 51].
On October 16, 2018, Fifth Third filed another supplemental proof of claim [Proof of Claim Number 24-1] ("Claim for HOA Dues") in the amount of $12,451.59 for the HOA fees owed by the Debtor to Duncanson and paid by Fifth Third on June 3, 2015. Fifth Third asserts that its payment of the Debtor's outstanding HOA dues became an additional liability of the Debtor owed to Fifth Third and secured by its mortgage under the parties' Condominium Rider [Docket Number 86, Ex. A and Proof of Claim Number 7-1, attached Condominium Rider, Section F].
Debtor objected to Fifth Third's Claim for HOA Dues on Nov. 26, 2018 [Docket Number 70].
II. LEGAL ANALYSIS
In objecting to Fifth Third's Claim for HOA Dues, the Debtor does not challenge his liability to Fifth Third for advancing payment of the HOA dues under the terms of the parties' mortgage and Condominium Rider nor that the debt is secured by Fifth Third's mortgage on the Vine Street Property. Accordingly, these issues are not addressed by this Court. Instead, this Court's findings and conclusions are limited to addressing two narrow issues raised in the Debtor's Objection, Fifth Third's Response and the parties' memoranda of law which include:
(1) Does Federal Rule of Bankruptcy Procedure 3002.1 apply to Fifth Third's payment of the Debtor's HOA dues under the facts of this case?
-and-
(2) If Federal Rule of Bankruptcy Procedure 3002.1 does not apply, should Fifth Third be equitably estopped from including its payment of those HOA dues in the debt owed to it by the Debtor and secured by its mortgage?
In answer to these questions, and as provided in more detail below, this Court concludes that neither Federal Rule of Bankruptcy Procedure 3002.1 nor equitable estoppel apply to the facts presented.
A. Federal Rule of Bankruptcy Procedure 3002.1
This Court begins with Debtor's objection to Fifth Third's Claim for HOA Dues because Fifth Third failed to provide notice of its claim in compliance with Federal Rule of Bankruptcy Procedure ("Rule") 3002.1. Fifth Third disputes the applicability of Rule 3002.1 because, at the time that Fifth Third advanced payment of the HOA dues on the Vine Street Property, the property was not the Debtor's principal residence and was to be surrendered per the terms of the Debtor's proposed Original Plan.
One benefit afforded debtors who file for bankruptcy protection under chapter 13 is the ability to use the plan to cure home mortgage defaults while keeping regular mortgage payments current under 11 U.S.C. § 1322(b)(5). Beiter v. Chase Home Fin., LLC (In re Beiter), 590 B.R. 446, 455 (Bankr. S.D. Ohio 2018). In 2011, Federal Rule of Bankruptcy Procedure 3002.1 was adopted to help implement this goal by imposing certain notice requirements on home mortgage creditors to keep the debtor and trustee informed of changes in the amount necessary to cure deficiencies so as to prevent unexpected deficiencies arising prior to the closing of the bankruptcy case. Id. (citing Fed. R. Bankr. P. 3002.1 Advisory Committee Notes); In re Vega, 2019 Bankr. LEXIS 545, at *6, 2019 WL 927006, at *2 (Bankr. D. P.R. Feb. 21, 2019). As adopted, and in its form when the Debtor filed his bankruptcy case, Rule 3002.1 provided:
(a) In General. This rule applies in a chapter 13 case to claims that are (1) secured by a security interest in the debtor's principal residence, and (2) provided for under § 1322(b)(5) of the Code in the debtor's plan.Fed. R. Bankr. P. 3002.1 (effective Dec. 1, 2011). Rule 3002.1(c) requires a home mortgage holder to file and serve a notice for all fees, expenses and charges that are incurred post-petition and that are asserted to be recoverable against the debtor or the debtor's principal residence. Meyer v. Wilmington Savings Fund Society, FSB v. Meyer (In re Meyer), 596 B.R. 172, 179 (Bankr. M.D. Pa. 2019). Debtor argues that Rule 3002.1 applies requiring Fifth Third to have provided a Rule 3002.1(c) notice of its advancement of the HOA dues. This Court disagrees.
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(c) Notice of Fees, Expenses, and Charges. The holder of the claim shall file and serve on the debtor, debtor's counsel, and the trustee a notice itemizing all fees, expenses, or charges (1) that were incurred in connection with the claim after the bankruptcy case was filed, and (2) that the holder asserts are recoverable against the debtor or against the debtor's principal residence. The notice shall be served within 180 days after the date on which the fees, expenses, or charges are incurred.
Rule 3002.1 was amended in 2016 and 2018 in ways that would not impact the determination of this matter.
By its terms, Rule 3002.1 and its notice requirements only apply to mortgage creditors that have filed claims secured by a security interest in the debtor's residence. Fed. R. Bankr. P. 3002.1(a); In re Thongta, 480 B.R. 317, 320 (Bankr. E.D. Wis. 2012). At the time the Debtor filed his bankruptcy petition on March 9, 2015, the Vine Street Property was not his residence and he indicated his intent to surrender the property in the Original Plan. This remained the status of the Vine Street Property when Fifth Third advanced payment of the HOA dues on June 3, 2015. Accordingly, Rule 3002.1's notice requirements were not applicable to Fifth Third or its payment of the HOA dues at that time.
Subsequently, on June 8, 2015, the Debtor filed an Amended Plan changing the treatment of the Vine Street Property and indicating his desire to cure the arrearage and maintain regular mortgage payments. The Debtor argues that this change in treatment of the Vine Street Property in the Amended Plan, coupled with the surrender of the Miami Run Property, put Fifth Third on notice of the Debtor's intent to change his residency. This Court disagrees.
Multiple possible scenarios exist that could explain why the Debtor chose to retain the Vine Street Property and surrender the Miami Run Property through his Amended Plan, which would not necessarily involve a change in his residence. Perhaps the Debtor intended to retain the Vine Street Property as a rental property and look for a new residence. Perhaps the Debtor intended to remain at the Miami Run Property until the secured creditor foreclosed on the property. Fifth Third should not be required to speculate about the Debtor's intention based solely on a change of treatment of claims in the Amended Plan. Rather, the Debtor's intention should be clearly delineated on the record.
The first such clear indication on record that the Debtor changed his residence to the Vine Street Property was the Notice of Change of Address he filed on January 21, 2016. This occurred well after the Amended Plan was confirmed and 232 days after Fifth Third advanced payment of the HOA dues. As such, the confirmed Amended Plan did not put Fifth Third on notice of the Debtor's change of residence nor prompt the noticing requirements of Rule 3002.1.
The Debtor next argues that the Notice of Change of Address filed on January 21, 2016 gave Fifth Third notice that the Vine Street Property was his residence triggering application of Rule 3002.1 and requiring Fifth Third to provide a Rule 3002.1(c) notice of its advancement of and claim for the HOA dues. Rule 3002.1 does not provide what kind of notice triggers its application when a debtor changes his residential address after the bankruptcy filing date. However, even if the filing of a notice of change of address is sufficient to trigger application of Rule 3002.1, this Court could not construe the Rule as imposing Rule 3002.1(c) noticing requirements on a mortgage creditor for fees, expenses, and charges incurred prior to being put on notice of the debtor's change in residential address. Indeed, at the time that the Debtor gave notice that the Vine Street Property was his residence, Fifth Third's payment of the HOA dues had occurred 232 days earlier making it impossible for the mortgage creditor to comply with Rule 3002.1(c)'s 180-day deadline. See Fed. R. Bankr. P. 3002.1 (requiring a mortgage creditor to serve the debtor with the Rule 3002.1(c) notice within 180 days after the date on which the fees, expenses or charges are incurred).
Recognizing the impossibility of compliance with Rule 3002.1(c) as written, the Debtor argues that Fifth Third should have filed and served a Rule 3002.1(c) notice of its Claim for HOA Dues within 180 days of learning that the Vine Street Property was the Debtor's residence. While perhaps a best practice, that requirement is not imposed on Fifth Third by the language of Rule 3002.1. For these reasons, this Court concludes that Rule 3002.1 does not apply to Fifth Third's Claim for HOA Dues under the facts presented.
Even if Rule 3002.1 did apply, any lack of compliance by Fifth Third was substantially justified based on the Debtor's failure to clearly and timely reflect his change of residence of record and/or was harmless for the reasons that follow in part II.B. of this decision. See Fed. R. Bankr. P. 3002.1(i); In re Tollios, 491 B.R. 886, 892-93 (Bankr. N.D. Ill. 2013) (noting that the remedy sought under Rule 3002.1 must bear a rational relationship to the violation of the rule and that a debtor should not receive a windfall for a technical violation of the rule that caused no harm).
B. Equitable Estoppel
Alternatively, the Debtor argues that Fifth Third should be equitably estopped from recovering its Claim for HOA Dues. "'Estoppel is an equitable doctrine which a court may invoke to avoid injustice in particular cases.'" Mich. Express, Inc. v. United States, 374 F.3d 424, 427 (6th Cir. 2004) (further citation omitted). A party claiming the application of the doctrine of estoppel "'must have relied on its adversary's conduct in such a manner as to change [its] position for the worse, and that reliance must have been reasonable in that the party claiming the estoppel did not know nor should it have known that its adversary's conduct was misleading." Rossi v. Westenhoefer (In re Rossi), 2012 Bankr. LEXIS 1168, at *27, 2012 WL 913732, at *10 (B.A.P. 6th Cir. March 20, 2012) (cleaned up) (quoting Heckler v. Cmty. Health Servs. of Crawford Cnty., Inc., 467 U.S. 51, 59 (1984)). While the hallmark of the doctrine is its flexible application, the traditional elements of equitable estoppel that a party must prove include: "(1) misrepresentation by the party against whom estoppel is asserted; (2) reasonable reliance on the misrepresentation by the party asserting estoppel; and (3) detriment to the party asserting estoppel." Mich. Express, 374 F.3d at 427; In re Zenga, 562 B.R. 341, 350 (B.A.P. 6th Cir. 2017).
The Debtor's argument regarding the application of equitable estoppel focuses on statements Fifth Third made regarding the deficiency owed on the Vine Street Property which omitted reference to its advancement of $12,451.59 in HOA dues. Specifically, the Debtor asserts reliance on the parties' Agreed Order resolving Fifth Third's Motion for Relief form Stay which did not reference Fifth Third's payment of or claim for the HOA dues. The Debtor further relied on Fifth Third's First Supplemental Proof of Claim which also omitted the HOA dues and noted that the "[t]otal amount to cure default after the petition date added to the Proof of Claim: $2,596.24" [Proof of Claim Number 23-1]. Because these statements led the Debtor to believe that the post-petition deficiency owed was only $2,596.24, he entered into an agreed order with the chapter 13 trustee modifying the confirmed plan to increase the unsecured creditor dividend from 15% to 100%. If he must now pay Fifth Third for its advancement of the HOA dues, he argues that he will suffer a detriment by being forced to incur attorney fees to modify the plan to reduce the plan dividend. By the Debtor's estimation, this will result in the reduction of the dividend to unsecured creditors from 100% to 75% in order for the case to complete on time.
For this Court to apply equitable estoppel, the Debtor must not only demonstrate reliance on the Agreed Order and Fifth Third's First Supplemental Proof of Claim but also show that the reliance is reasonable. Mich. Express, 374 F.3d at 427; Zenga, 562 B.R. at 350. The minimal facts presented by the Debtor fail to do so. The Debtor knew he had a secured obligation for approximately $12,000 in HOA dues owed to Duncanson Lofts Condo Association because he included the debt in his schedules and Amended Plan. He also recognized the need to pay this secured claim to retain the Vine Street Property and included a provision for payment of those dues in the Amended Plan. Yet, the record is bereft of any efforts the Debtor took, upon Duncanson failing to file a proof of claim for the HOA dues, to account for or ensure payment of the claim such as through the filing of a proof of claim on Duncanson's behalf. See Fed. R. Bankr. P. 3004. Furthermore, the record is silent on any attempt by the Debtor to revisit this issue prior to entering an agreed order with the chapter 13 trustee increasing the dividend to unsecured creditors. Without accounting for what happened to Duncanson's approximately $12,000 secured claim for the HOA dues owed on the Vine Street Property, it was unreasonable for the Debtor to rely on Fifth Third's statements regarding what it would take to cure the deficiency on that property.
In addition, the Debtor has failed to demonstrate a substantial detriment caused by his reliance. See Zenga, 562 B.R. at 350 (noting that the "detriment suffered by a party seeking to employ the doctrine of equitable estoppel must be 'actual and substantial'"). No party disputes that the Debtor was obligated to pay the HOA dues in order to retain the Vine Street Property. Fifth Third's advancement of the HOA dues inured to the Debtor's benefit by permitting him to retain the Vine Street Property and make it his residence while increasing the dividend to unsecured creditors to 100%. Even if, as the Debtor argues, he will now need to incur attorney fees and modify the Amended Plan to repay Fifth Third for its advancement of the HOA dues, he expects the repayment and attorney fees to reduce the unsecured creditor dividend by only 25% resulting in a 75% dividend. This 75% dividend is still significantly more than the 15% promised to unsecured creditors when the Debtor proposed to use his plan payments to pay the HOA dues under the terms of the confirmed Amended Plan. Accordingly, this Court concludes that the Debtor did not demonstrate a substantial detriment to himself or unsecured creditors resulting from his reliance on Fifth Third's statements regarding the post-petition deficiency owed.
Although neither party appears entirely blameless in failing to account for Fifth Third's payment of the HOA dues until late in the life of this chapter 13 case, the facts presented do not support the application of equitable estoppel.
III. CONCLUSION
For the reasons provided above, the Debtor's Objection to Proof of Claim Filed by Fifth Third Mortgage Company [Docket Number 70] is OVERRULED.
SO ORDERED.
This document has been electronically entered in the records of the United States Bankruptcy Court for the Southern District of Ohio.
IT IS SO ORDERED.
/s/_________
Beth A. Buchanan
United States Bankruptcy Judge
Dated: January 24, 2020
Distribution List:
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Joel K. Jensen, Esq.