Ocwen Stuck with Debtor’s Proof of Claim for $1

Posted by NCBRC - March 6, 2015

Relying on equitable principles, the court declined to allow Ocwen’s late-filed proof of claim after the debtor filed a proof of claim on its behalf in the amount of $1. In re Egan, No. 14-36831, __ B.R. __  (Bankr. S.D. N.Y. March 2, 2015).

After the debtor filed for chapter 13 relief, Ocwen filed a timely objection to confirmation but did not file a proof of claim. After the deadline for filing proofs of claim had passed, the debtor filed a claim on behalf of Ocwen for 1$. One week later, Ocwen filed its own proof of claim for pre-petition mortgage arrears in the amount of $134,416.38. Ocwen then moved for leave to file the late claim on the alternative bases that its objection to confirmation was equivalent to a proof of claim, or that its claim was late due to excusable neglect.

Turning first to whether excusable neglect may be relied upon in the chapter 13 context, the court found that the issue was governed by Rule 3002(c) which lists six available excuses for late proofs of claim. Because excusable neglect was not one of them, the court found that Ocwen’s motion could not be granted on that basis.

Having found that there was no precedent for accepting a late proof of claim in chapter 13, the court addressed whether Ocwen’s objection to confirmation could be deemed an informal proof of claim. The second circuit has a long-standing rule permitting a document not labeled “proof of claim” to serve that function so long as it fulfills the purpose of a proof of claim. In re Lipman, 65 F.2d 366, 368 (2d Cir. 1933). “To be an informal proof of claim, a document ‘must have been 1) timely filed with the bankruptcy court and become part of the judicial record; 2) state the existence and the nature of the debt; 3) state the amount of the claim against the estate; and 4) evidence the creditor’s intent to hold the debtor liable with the debt.” Ocwen’s objection to confirmation fulfilled these requirements in that it was timely filed, stated the nature of the claim as mortgage arrears, and specified the amount owed as $63,806.90. But the court did not stop with the objective four-prong test. It noted that many courts have added a fifth requirement: “[W]hether, given the particular surrounding facts of the case, it would be equitable to treat the document as a proof of claim.” Am. Classic Voyages Co. v. Official Comm. (In re Am. Classic Voyages Co.), 405 F.3d 127, 130-131 (3d Cir. 2005). In considering the equities, courts consider such things as the sophistication of the creditor, whether he is represented by counsel, how involved in the bankruptcy he is, whether he had actual notice of the bar date, and whether allowing the claim will significantly affect payout to creditors who filed timely claims. The court found that these considerations put substance over form rather than “legitimize what would otherwise be considered sloppy legal practice.”

When considered in light of the foregoing equitable factors, Ocwen’s claim failed on all counts. It was a sophisticated lender, represented by counsel, well aware of its obligations in bankruptcy, and knowledgeable about the debtor’s case including the relevant filing deadlines. Moreover, allowance of its claim would have reduced the payout to other unsecured creditors to zero, and made it impossible for the debtor to create a feasible plan.

Finally, although Ocwen did not raise the argument, the court addressed whether Ocwen could have moved to amend the proof of claim that the debtor filed on its behalf under rule 3004 as contemplated by the Advisory Notes to that rule. The court declined to allow an amendment on the basis that it would greatly prejudice the debtors and preclude reorganization.

Egan Bankr SD NY opinion

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One Comment

  • Linda Tirelli
    Posted January 20, 2016 at 9:28 pm | Permalink

    I am the Debtor’s attorney in the Egan case cited above. Consumer lawyers should Feel free to contact me if you are looking for the pleadings. 914-946-2200.

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