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Victor Kearney v. Unsecured Creditors Committee

Summarizing by Amir Shachmurove

Garden v. Central Nebraska Housing Corp.

Citation:
Garden v. Central Nebraska Housing Corp., et al., No. 12-2344, --- F.3rd ----, 2013 WL 3214982 (8th Cir. Jun. 27, 2013)
Tag(s):
Ruling:
AFFIRMING the District Court's decision granting Debtors' motion for partial summary judgment, reducing mortgagee's secured claim as to attorney's fees and related costs and awarding sanctions against the mortgagee for violations of the automatic stay.
Procedural context:
Appeal from the District Court (i) denial of mortgagee's motion for summary judgment seeking modification of sale, and attorneys' fees as part of secured claim; and (ii) award of sanctions against mortgagee and its principal for violations of the automatic stay.
Facts:
Rick and Loretta Roberts (the "Debtors") filed for bankruptcy protection under Chapter 7 on January 22, 2010. Pre-petition, the Debtors had granted a mortgage on their farm, which was assigned, post-petition, to Central Nebraska Housing Corp. ("CNH"). CNH was a company owned by John Zapata ("Zapata"). The Debtors defaulted on their mortgage on June 1, 2010 and CNH obtained relief from the automatic stay in order to initiate foreclosure proceedings pursuant to the power of sale contained within the mortgage contract. Prior and subsequent to obtaining relief from the automatic stay, CNH had conducted monthly inspections of the property. CNH also filed a proof of claim in the bankruptcy case asserting a secured claim that included certain attorneys' fees incurred. At the foreclosure auction of the Debtors' property, Gittaway Ranch LLC ("Gittaway") was the prevailing bidder and assigned its bid to Coljo Investments ("Coljo") owned by Zapata and his wife. CNH and other bidders at the sale, i.e. Pinnacle Bank of Newcastle Wyoming and Security First, made competing claims to the foreclosure sale proceeds. CNH also argued it was the prevailing bidder at the foreclosure sale and that the sale to Gittaway should be set aside and the property sold to CNH. The sale proceeds were deposited with the bankruptcy court, which found it lacked jurisdiction over the issue and transferred the case to the U.S. District Court for the District of Nebraska (Omaha Division) (the "District Court"). The 8th Circuit held that the mortgagee, CNH, failed to carry its burden on partial summary judgment of demonstrating that the attorneys' fees claimed were "necessary or incidental to improvement or protection" of the foreclosed property, as required by the mortgage contract. The 8th Circuit further found that CNH failed to offer any evidence demonstrating the reasonableness of the fees. As CNH could not establish that the attorneys' fees were "reasonable fees...provided for under the agreement...under which such claim arose," i.e. the mortgage, CNH could not recover its attorneys' fees under Section 506(b) as part of its secured claim. The attorneys' fees claimed totaled $7,553.57. The 8th Circuit agreed that monthly inspections of the Debtor's property conducted prior to obtaining relief from the automatic stay were attempts to further encumber the Debtors' property and violated the stay arising under Section 362. It ruled that attorneys' fees, by themselves, can constitute independent "actual damages" under Section 362(k) and, therefore, an award of fees to the Debtors was an appropriate sanction for CNH's and Zapata's violations of the automatic stay. The 8th Circuit was satisfied that the District Court, "which was most familiar with this litigation and in the best position to determine the amount of actual damages, did not abuse its discretion." The attorneys' fees award was in the amount of $25,792.25.
Judge(s):
Wollman, Gruender, Shepherd

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