In re Rodriguez

Summarized by Richard Corbi , Otterbourg P.C.
15 years 2 months ago

Citation:

No. 09-2724 (Dec. 23, 2010 3d Cir.) (precedential)

Tag(s):

3rd Circuit

Ruling:

The issue before the Third Circuit Court of Appeals was whether the automatic stay prevented Countrywide from accounting for the pre-petition escrow shortgage in its post-petition calculation of the Debtors' future monthly payments. Crucial to this issue was whether Countrywide held a "claim", as defined in section 101(5) of the Bankruptcy Code, against the Debtors for the unpaid $1,787,69 escrow amount prior to the Petition Date. In relying on its decision of, In re Grossman's, Inc., 607 F.3d 114 (3d Cir. 2010), the Third Circuit stated that a claim can exist under the Bankruptcy Code by virtue of the terms "contingent, unmatured, and disputed" before a right to payment exists under state law. In applying this definition, the Third Circuit examined the mortgage terms and prior case law from the Fifth Circuit. The Third Circuit then explained that the mortgage documents determined whether there was an obligation to make an escrow payment and whether the obligation was enforceable. The court found that the loan documents establishing an obligation to pay into the escrow account was enforceable and as a result, Countrywide had a claim for the unpaid escrow. Based on In re Grossman's, Inc., the contingent nature of the right to payment in the escrow account did not change the fact that a right to payment existed and thus, constituted a "claim" pursuant to section 101(5) of the Bankruptcy Code. After holding that Countrywide's $1,787.69 escrow cushion was a claim, the next issue was whether Countrywide violated the automatic stay pursuant to section 362(k) of the Bankruptcy Code when it sought the cushion outside of the Debtors' bankruptcy case. Becuase the lower courts determined that Countrywide was permitted to calculate the missed escrow payments outside of bankruptcy, the lower courts never reached the issue of whether Countrywide violated the automatic stay when it sent the Debtors a demand for higher monthly escrow payments. As a result, the Third Circuit remanded the automatic stay issue to the district court.

Procedural context:

Francisco and Ann Rodriguez ("Debtors") filed a motion in the Bankruptcy Court for the District of New Jersey to enforce the automatic stay pursuant to Section 362(a) of the Bankruptcy Code and compel Countrywide Home Loans, Inc. ("Countrywide") to cease post-petition collection of pre-petition escrow claims and award the Debtors attorneys fees and costs. The Bankruptcy Court denied the motion and the District Court affirmed that decision. The Debtors' appealed to the Third Circuit Court of Appeals.

Facts:

The Debtors financed the purchase of their home with a purchase-money mortgage from First Mutual Corp., with Countrywide later acquiring the mortgage. Pursuant to the terms of the mortgage, the Debtors' monthly payments consisted of: (1) an amount to cover principal, interest, late fees; and (2) an amount to cover taxes, insurance and "other charges". The second part of the monthly payment was to be paid into an escrow account and used, as needed, by Countrywide to pay for those expenses as they became due. Pursuant to the Real Estate Settlement Procedures Act of 1974 ("RESPA"), Countrywide required the Debtors to pay an amount into an escrow account that was higher than required to cover the actual cost of the taxes, insurance, and other charges. The Debtors fell behind on the mortgage payments and eventually filed for chapter 13 bankruptcy protection on October 10, 2007 ("Petition Date"). As of the Petition Date, the Debtors were $20,844.40 in arears on the mortgage payments. Of that amount, $5,657.60 was an escrow arrearage for taxes, insurance, and other charges. Of the $5,657.60, $3,869.91 was attributable to payments which Countrywide had already made for taxes, insurance and other charges. The remaining $1,787.69 was the amount for which Countrywide had not made corresponding payments for taxes, insurance, and other charges. The $1,787.69 was Countrywide's cushion. After the Petition Date, Countrywide revised the escrow payments by presuming that the escrow balance at the time of the Petition Date was zero. Countrywide did not treat the $1,787.69 cushion as funds that existed at the Petition Date. Countrywide calculated the post-petition escrow shortage as including the $1,787.69 cushion that the Debtors had never paid. On January 15, 2007, Countrywide filed its proof of claim in the Debtors' bankruptcy case in which it sought a total of $21,283.71 in pre-petition arrears, including $3,869.91 for the pre-petition escrow deficiency, which was the amount that Countrywide had actually paid for taxes, insurance, and other charges. In essence, Countrywide did not seek to recoup the $1,787.69 equity cushion through the bankruptcy process, but rather by assessing the Debtors higher post-petition monthly escrow payments to make up for the shortfall.

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