Lack of Notice Constitutes Waiver of Wells Fargo’s Claim

Declining to “dim the light that shines at the end of the long 60-month tunnel for compliant debtors,” the Bankruptcy Court for the Southern District of Texas held that Wells Fargo waived its right to collect post-petition shortfalls in escrow payments due to its failure to comply with notice requirements. In re Garza, No. 08-60088 (Bankr. S.D. Tex. Oct. 1, 2012). In June, 2012, Wells Fargo filed a “Notice of Mortgage Payment Change” seeking increased mortgage payments to cover an escrow shortfall resulting from increased taxes and insurance that had occurred over the life of the debtors’ plan between 2008 and 2011. The debtors objected on the grounds that Wells Fargo had failed to comply with relevant notice requirements with respect to the escrow shortfalls.

The court summarily rejected Wells Fargo’s argument that the district rules relating to notice were unclear and therefore in violation of RESPA. To the contrary, the court found that Wells Fargo’s undisputed failure to notify the debtors of increased amounts owed under the mortgage agreement was in violation of RESPA, district rules, and Bankruptcy Rule 3002.1 (enacted in December, 2011).

Turning to the proper remedy for failure to comply with the notice requirements, the court agreed with those courts that hold that non-compliance constitutes a waiver of the right to recover the alleged deficiency. In re Dominique, 368 B.R. 913 (Bankr. S.D. Fla. 2007) (creditor’s waiver for lack of notice does not implicate section 1322(b)’s anti-modification prohibition); In re Johnson, 384 B.R. 763 (E.D. Mich. 2008). See also Chase Manhattan Mortgage Corp. v. Padgett, 268 B.R. 309 (S.D.Fla.2001); Craig-Likely v. Wells Fargo Home Mortgage (In re Craig-Likely), No. 06-13665, 2007 U.S. Dist. LEXIS 29042 (E.D.Mich. Mar. 2, 2007).

With respect to the debtor’s claim for an award of attorney fees under Rule 3002.1(i)(2), the court acknowledged that because the rule was enacted in December, 2011, Wells Fargo could not have violated it prior to that time. It held, however, that the attorney fees sought by the debtors were not dependent on the number of years for which the deficiency was sought and, therefore, with one minor exception, the court granted the debtors’ attorney fees claim in its entirety.

Garza Opinion