Mortgage Creditor Sanctioned for Miscalculating Claim

Posted by NCBRC - September 16, 2022

The debtor was entitled to attorney’s fees and a reduction in the mortgagee’s arrearage claim where the mortgagee failed to reduce the arrearage by the entire amount the debtor had paid in his prior chapter 13 bankruptcy. In re Simmons, No. 22-680 (Bankr. D. S.C. Aug. 31, 2022).

This dispute centered around Nationstar’s calculation of the chapter 13 debtor’s mortgage arrearage for which Nationstar filed a proof of claim for $20,173.27. The debtor objected, alleging that Nationstar had failed to deduct payments he made between 2016 and 2018 when he was in a previous chapter 13 bankruptcy. Nationstar reduced its proof of claim to $19,584.19, and the debtor amended his objection to add payments he’d made from 2019-2021 during the earlier bankruptcy, for a total arrearage of $10,910.97.

Because the debtor challenged Nationstar’s claim, the claim lost its presumption of validity under section 502, and the court was tasked with determining its validity and amount in accordance with the requirements in Rule 3001. While Nationstar submitted all the documents required by that rule, it was undisputed that the information contained in Bankruptcy Form 410A was inaccurate in that it failed to account for all of the debtor’s previous payments.

After taking testimony as to the specifics of the error, the court found that, while its accounting was murky, Nationstar had met its burden to prove by a preponderance of the evidence that it had calculated the debtor’s 2019-2021 payments accurately. The same was not true of the payments made between 2016 and 2018 which Nationstar admitted had not been taken into consideration. In fact, the court found the correct arrearage amount was $15,802.68.

The court turned to the proper remedy for the mistake. Rule 3001(c)(2)(D) provides that, in the event of a creditor’s failure to comply with the document requirements, the court has the option to preclude the creditor from presenting the omitted evidence, and to award other appropriate relief such as attorney’s fees and expenses caused by the oversight, as well as sanctions.

The court rejected the debtor’s request to preclude Nationstar from offering evidence. The court found the documents Nationstar sought to offer were already included in documents submitted by the debtor, and the testimony from a Nationstar witness would be useful to the court’s determination of whether the errors were “substantially justified or harmless.”

The court was persuaded that the debtor was entitled to sanctions and attorney’s fees based on the fact that Nationstar did not give the debtor an explanation of the accounting until the case came on for hearing on the objection to the proof of claim. It also found that Nationstar’s failure to properly calculate the arrearage on Form 410A was not “substantially justified.” The debtor suffered harm in having to file an objection to the claim, delay confirmation of his plan, and incur attorney’s fees in the amount of $2,940.00.

The court applied the lodestar method to determine the debtor’s attorney’s fee award finding the requested amount was reasonable and that the attorney was entitled to additional payment for the time spent at the hearing for a total of $3,465.00. The court also reduced the allowed amount of the claim to $15,802.68.

Simmons Bankr SCar Aug 2022





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