Calling Nationstar’s behavior reprehensible for its two-year failure to follow a court order and properly apply balloon payments, the court found it in contempt and awarded the chapter 13 debtor compensatory and punitive damages totaling $48,927.50. In re Rhodes, No. 11-18257 (Bankr. M.D. Fla. Feb. 3, 2017).
Chapter 13 debtor, Mary Katherine Rhodes, owned two non-primary-residence properties with mortgages held by Nationstar. After a hearing to value under section 506(a), in which Nationstar participated, the court bifurcated the claims into secured and unsecured portions. With respect to the secured portion, the plan provided for regular payments for twenty three months and balloon payments in month twenty four. When it came time to make the balloon payments, however, Ms. Rhodes was unable to finance them and her non-filing husband arranged to use his retirement account to make the payments.
The court granted the debtor’s motion to sell and issued Confirmation and Sale Orders compelling Nationstar to complete the deal and release its liens. Nationstar failed to acknowledge the motion or order. The debtor made the balloon payments to the trustee and Nationstar cashed the check in February, 2014, but did not apply the funds to the balloon payment or release the liens until twenty seven months later, in May, 2016.
In the intervening two years, Nationstar continued to send Ms. Rhodes notices of forced-placed hazard insurance and tax documents and continued to pay property taxes on the properties. After persistent but unsuccessful attempts to get Nationstar to comply with the order, Ms. Rhodes asked her U.S. Senator to intervene. In response to a letter from the Senator’s office, Nationstar indicated that it was seeking “investor approval” and that it was conducting “research” as to the cramdown and application of funds. In February, 2016, two years after the sale of the property, Nationstar sent Ms. Rhodes a notice of change in mortgage payments which it later withdrew as having been sent in error.
On March 1, 2016, Ms. Rhodes filed a motion for contempt. Nationstar failed to attend the hearing. After receiving an order to show cause why it should not be held in contempt Nationstar finally released the liens. At the contempt trial, it offered the defense that a “problem” had occurred to account for the two-year delay in properly applying the payment. The court turned a jaundiced eye, noting that Nationstar had been involved in over 300 chapter 13 cases before the court in the past five years and fully understood the concept and mechanism of cramdown.
The court applied its power under section 105(a) to find Nationstar in contempt, awarding compensatory damages and damages for mental distress, accountant fees, attorney fees, and punitive damages. Nationstar did not complain of the contempt finding but turned its attention to the sanctions themselves.
The court walked through its reasoning as to each portion of the damage award. With respect to compensatory damages, the court estimated the amount of time Ms. Rhodes had spent over the two years chasing after Nationstar and valued her time at $75/hr., for a total of $2,295. Ms. Rhodes sought $15,000 in mental distress compensation. Nationstar contended that her suffering was worth only $100/mo. The court, finding Nationstar’s offer “meager,” awarded $250/mo. for a total of $6,750.
As to fees, the court approved Ms. Rhodes’s accountant fee request of $4,220 as reasonable and necessary notwithstanding Nationstar’s vague objection to it as too high. Ms. Rhodes had had to have taxes redone due to inaccurate tax documents from Nationstar. With respect to the attorney’s fees, the court disallowed the fees that were for services predating the balloon payment, but found the remaining fees, at $350/hr., were reasonable and recoverable for a total of $10,662.50.
Finally, the court awarded punitive damages in the amount of $25,000. In support of this award the court noted Nationstar’s sophistication and experience in both mortgages and bankruptcy, its lack of any legitimate reason for failing to handle Ms. Rhodes’s case in a reasonable manner, its indifference to the rights of Ms. Rhodes, and its “arrogant defiance” of bankruptcy law and the authority of the court. The court found Nationstar’s “inability to comply with the Confirmation and Sale Orders for over two years despite numerous requests by the Debtor is inconceivable and reprehensible,” and that sanctions would curb future misconduct.