In re: Chandra Berry

Case Type:
Case Status:
21-8005/8007 (6th Circuit, Sep 09,2022) Not Published
The BAP for the 6th Circuit affirmed the bankruptcy court (W.D. Tenn.) which granted in part and denied in part the Debtor’s motion for contempt. The BAP ruled that the bankruptcy court did not abuse its discretion in finding that Fay Servicing, LLC violated the discharge injunction as there was no objectively reasonable basis for the communications that it sent to the Debtor. The BAP also ruled that the bankruptcy court did not clearly err in finding that Wells Fargo did not violate the injunction since the correspondence that it sent was informational in nature and did not seek payment.
Procedural context:
Debtor filed a motion for a finding of contempt and imposition of sanctions against the servicers of her extinguished mortgage, Wells Fargo Home Mortgage (“Wells Fargo”) and Fay Servicing, LLC (“Fay”). The bankruptcy court granted the motion as to Fay but denied it as to Wells Fargo. The Debtor, pro se, appealed to the BAP for the 6th Circuit the denial as to Wells Fargo, as well as the damages that were awarded based on Fay’s violations. Fay cross-appealed the bankruptcy court’s holding that Fay’s actions were contemptuous as well as the amount of damages awarded.
The Chapter 7 Debtor’s home was foreclosed after the bankruptcy court granted a lift of stay in favor of the servicer of the mortgage. The Debtor eventually received a discharge. After the foreclosure of her home, the mortgagee assigned the mortgage to another creditor. Afterwards, Wells Fargo sent the Debtor a letter which informed her that the servicing of the mortgage was transferred from Wells Fargo to Fay. The letter included a disclaimer that it was not a bill or request for payment as to any customer who has received a discharge. Wells Fargo sent an additional letter titled “Final Escrow Review Statement” which included a disclaimer that the communication was “for informational purposes only”. After the Debtor sent Wells Fargo letters asserting that Wells Fargo’s letters violated the “bankruptcy injunction” and that the property was foreclosed, Wells Fargo confirmed that the foreclosure was completed and stated that its communications had included the “correct disclaimers”. Fay eventually sent three letters as well a phone message. According to a sworn statement by the Debtor, which was not controverted by Fay, the phone message threatened to file a law suit against the Debtor. Although the three letters included a disclaimer that they did not represent an attempt to collect a debt and were for informational and compliance purposes only, some of the letters did include a demand for payment, a notice that a deficiency judgment may be pursued if allowed by applicable law, a demand for payment of insurance, a “payment due date,” “amount due,” and “total amount due”, as well as a payment coupon and payment address. In response, the Debtor reopened her bankruptcy case. She moved to hold Wells Fargo and Fay in contempt and asked the bankruptcy court to impose sanctions. The Debtor alleged that Wells Fargo and Fay violated the discharge injunction by sending her correspondence in an attempt to collect the discharged mortgage debt. The bankruptcy court denied the motion as to Wells Fargo, given that the relevant communications were informational in nature and did not include a payoff amount or an “amount due.” Moreover, the bankruptcy court rejected that the previous mortgagee’s transfer of the mortgage could be attributed to Wells Fargo or that such an action violated the discharge injunction. As to Fay, the bankruptcy court found that it did not violate the discharge injunction when the mortgage was assigned. However, the bankruptcy court found that the three letters and phone message discussed above did violate the discharge injunction, and that Section 524(j) of the Bankruptcy Code did not protect Fay because there was no mortgage or loan and the Debtor had no possessory interest in the property. As a result, the bankruptcy court imposed sanctions against Fay in the amount of $10,749.72, comprised of $449.72 in actual damages and $10,300 for punitive damages ($4,000 for the four communications that clearly violated the discharge injunction and $100 for each day after Fay acknowledged receipt of the Debtor’s letters and when it finally acknowledged its error).

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