A bankruptcy court in Illinois found that JP Morgan Chase violated Rule 3002.1 by raising the debtors’ mortgage payments without providing proper notification even though there was no mortgage arrearage being cured through the chapter 13 plan. In re Tollios, No. 09-19329 (Bankr. N.D. Ill. May 13, 2013). In the Eastern District of Kentucky, the bankruptcy court found that the rule continued to apply even after the mortgagee was granted relief from stay. In re Holman, No. 12-50023 (March 15, 2013).
In Tollios, the debtors were not in default on their mortgage at the time of the petition and a provision in the plan specified that the debtors would maintain their monthly mortgage payments directly rather than through the trustee. When the debtors fell behind on property tax payments, Chase sent notice to the debtors of increased escrow charges to cover the tax payments. The debtors sought sanctions due to Chase’s failure to send notice as required by Rule 3002.1 to the trustee and to the court for the increased payments. Chase argued that Rule 3002.1, which expressly applies to claims “provided for” under section 1322(b)(5), did not come into play where there was no arrearage to be cured.
The court found that the reference in the rule to section 1322(b)(5) was intended to distinguish the types of claims covered by the rule from those cases under section 1325(a)(5) in which a debtor either surrenders property or pays the debt in full over the course of the plan. Although section 1322(b)(5) contemplates curing an arrearage, that is not a necessary component of what is “provided for” under that section. Where section 1322(b) uses the permissive word “may” when permitting a plan to provide for curing arrearages and maintaining a long-term debt, the implication is that the plan may provide for either or both of those options. Thus, “any plan that pays current monthly payments on a mortgage loan that extends beyond the plan term provides for the mortgage claim under § 1322(b)(5) for purposes of Rule 3002.1(a), regardless of whether there are pre-petition arrears.” See also, Cloud v. CitiFinancial, No. 09-60299 (Bankr. S. D. Ga. Jan. 31, 2013).
From a practical standpoint, the court reasoned that because the rule has no impact on pre-petition arrears it makes no sense to apply it only in cases in which such arrears exist. The rationale behind the notice requirements is exactly the same whether the chapter 13 debtor has pre-petition arrears or not.
In so holding, the court rejected the contrary decision in In re Weigel, 485 B.R. 327 (Bankr. E.D. Va. 2012); and In re Wallett, No. 11-10801, 2012 WL 4062657 (Bankr. D. Vt. Sept. 14, 2012), finding that neither of those decision were based on substantive analysis.
In Holman, the Bankruptcy Court for the Eastern District of Kentucky found that even where the mortgagee has obtained relief from stay to proceed with foreclosure it is still bound by the provisions of Rule 3002.1 to give notice of changes to payment. The court began by noting that Rule 3002.1 was added to the bankruptcy rules to combat the situation in which the debtor successfully completes his chapter 13 plan only to find that the mortgagee has added fees or costs during the life of the plan that render the mortgage in default and subject to foreclosure. The court found that Rule 3002.1 applied even after stay relief was granted because, notwithstanding subsequent relief from stay, the plan was confirmed as a cure and maintain plan and was, therefore “provided for” under section 1322(b)(5). Additionally, as found in Tollios, the information provided under the notice requirements remained relevant despite the fact that the plan was no longer a cure and maintain as the debtor could choose to continue to try to save his residence either through loan modification, state court action, or otherwise.
Tags: Rule 3002.1
